Vericel Corporation

Good morning everyone. Good morning and welcome to the Verasel Corporation second quarter 2025 earnings call. Today's conference is being recorded. At this time I'd like to turn the conference over to Eric Burns, Verasel's Vice President of Finance and Investor Relations. Please go ahead.

Thank you operator

and

good morning everyone. Joining me on today's call are Verasel's President and Chief Executive Officer Nick Colangelo and our Chief Financial Officer Joe Mara. Before we begin, let me remind you that on today's call we will be making four looking statements covered under the Private Security Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ maturely from expectations and are described more fully in our bonds with the SEC. In addition, all four looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our second quarter financial results press release and a short presentation with how to assume today's call are available in the investor relations section of our website. I will now turn the call over to Nick. Thank you

Eric and good morning everyone. Company delivered solid financial and business results in the second quarter with significant revenue growth and margin expansion and substantially higher profitability growth. Total revenue increased 20% in the quarter while gross margin expanded more than 400 basis points to 74% and adjusted EBITDA increased 112% versus the prior year to over $13 million. We also saw continued strength in the Macy Growth Drivers and key performance indicators launch and significantly better performance for the burn care franchise. Importantly, we've had a very good start to the third quarter for Macy and the burn care products and the company remains well positioned for a strong second half of the year. Macy generated record second quarter revenue of nearly $54 million representing 21% growth versus the prior year and 15% sequential growth versus the prior quarter. Macy's performance was driven by strong underlying business fundamentals as we continue to expand the Macy Surgeon Base and drive growth in biopsies with the launch of Macy Arthro. In the second quarter, we generated the second highest number of Macy's biopsies in a quarter since launch essentially matching our highest biopsy quarter to date in the seasonally high fourth quarter of last year. Macy Arthro Surgeon Training, a key priority for our commercial team in 2025, continues to outpace our initial expectations in the original Macy launch as we've now trained approximately 600 surgeons through the end of July. Both the biopsy and implant growth rates for Macy Arthro-trained surgeons continue to be significantly higher than the growth rates for surgeons that have not yet been trained. Given the substantial increase in the number of Macy Arthro-trained surgeons, overall Macy biopsy growth outpaced implant growth through the first half of the year. Based on historical performance, we expect the implant growth rate to converge with the biopsy growth rate as we move into the second half of the year and beyond, which we believe will sustain strong Macy revenue growth in the quarters ahead. To that end, Macy is off to a strong start to the third quarter with both biopsy and implant volume growth in July accelerating versus the first half of the year. While the treatment of patella defects remains the key driver for overall Macy growth, the treatment of small femoral condyle defects, which are the defects that Macy Arthro instruments are designed to treat, increased 40% in the second quarter over the prior year. This is a strong indicator that this segment, which represents approximately a third of the over $3 billion addressable market for Macy, has the potential to become Macy's highest volume growth segment over time with the Macy Arthro delivery option. In addition, as we discussed on our last call, Macy Arthro is being used to treat a meaningful number of patients with trochlea defects, and this segment has now accounted for nearly 20% of Macy Arthro implants to date. The trochlea defect segment is similar in size to the patella segment with approximately 10,000 patients per year and has the potential to become a significant source of business and a meaningful driver of upside Macy growth beyond the treatment of condyle defects. Finally, we've generated over 100 biopsies from our new arthroscopic-only surgeon segment, another positive indicator that an arthroscopic delivery option for Macy can drive additional utilization from surgeons that previously did not use the product. Based on the strong Macy Arthro launch indicators to date and our expectation for significant implant volume growth in the second half of this year and into 2026, we're implementing our full Macy Salesforce expansion this year. We'll be increasing our Macy Salesforce from 76 territories to approximately 100 territories with our new sales reps supporting current territories during our seasonally highest fourth quarter this year and then moving into their new territories at the start of next year. We believe that having the entire expanded Salesforce in place this year will help support our significant fourth quarter volume and position Macy for continued strong performance for the full year in 2026 and then beyond. Turning to burn care, as expected, epicell performance rebounded in the second quarter with a substantial increase in biopsies, graphs, and revenue, which was more in line with its run rate coming into the year. Biopsies in the second quarter were the highest in any quarter since 2023 with an increase of nearly 40% over last year and we ended the quarter with the highest monthly biopsies on record in June. Given the strength of second quarter biopsies, epicell is also off to a strong start in the third quarter with July graph volume higher than any other month to date this year, positioning epicell for another solid quarter. Nexabrid also had a strong close to the quarter with the highest number of ordering centers and hospital units ordered in any month since launch. This momentum has carried into the third quarter as July hospital orders exceeded the record number of units ordered in June. Of note, the category three temporary CPT code for Nexabrid also went into effect as of July 1st, which we believe can help drive increased utilization and further enhance Nexabrid uptake over the long term. Overall, the company delivered significantly stronger revenue and profitability results in the second quarter. We have started the third quarter with a great deal of momentum for both Macy and the burn care products. In terms of our longer term growth initiatives, we received FDA clearance of the IND for the phase three Macy ankle clinical study in the second quarter and remain on track to initiate the study in the second half of this year. A potential Macy ankle indication represents a substantial longer term growth driver for Macy and would enable the company to potentially expand into other orthopedic markets. And finally, we also remain on track to initiate commercial manufacturing for Macy in our new facility next year. I'll now turn the call over to Joe to provide a more detailed review of our financial results and guidance for 2025.

Thanks, Nick, and good morning, everyone. Starting with our Q2 results, as Nick noted, we had a very strong revenue and profitability growth in the second quarter. The company achieved record total net revenue for the quarter of $63.2 million with $53.5 million of Macy revenue, $8.6 million of EpiCell revenue, and $1.2 million of Nexabrid revenue. Macy had a strong second quarter with 21% revenue growth over the prior year and 15% sequential growth versus the first quarter as growth accelerated in the second quarter. Macy also had another quarter of strong double-digit biopsy growth, which outpaced implant growth. And as Nick mentioned, implant and biopsy growth accelerated in July, and we expect growth will converge with biopsy growth over the coming quarters. Burn Care also had a much stronger second quarter with revenue of $9.8 million, relatively in line with the lower end of our guidance range for the quarter. EpiCell in particular had a much stronger second quarter with $8.6 million of revenue, representing 11% growth versus the prior year. The underlying metrics on EpiCell were also very strong, with Q2 biopsy growth of nearly 40% versus the prior year. This also included our highest EpiCell biopsy month to date in June. Although EpiCell revenue increased significantly during the second quarter, we continued to see a somewhat higher ratio of canceled cases due to patient health-related issues, which impacted our revenue for the quarter. Nexabrid revenue of $1.2 million represented 52% growth versus the prior year, with solid growth in both hospital unit orders and ordering centers. Although the underlying Nexabrid fundamentals continued to progress in Q2, orders placed by specialty distributors were slightly lower than the prior quarter, which impacts the revenue comparison to the first quarter. As Nick mentioned, we ended Q2 in June with our highest month to date for Nexabrid hospital orders, and then surpassed these June orders in July. The company's substantial revenue growth translated into significant margin expansion, with gross profit of 46.6 million, or 74%, of revenue, an increase of more than 400 basis points compared to 2024. This also represents a record quarterly gross margin outside of our seasonally highest fourth quarter. Total operating expenses for the quarter were $48.6 million compared to $42.6 million for the same period in 2024. The increase in operating expenses was primarily due to increased headcount and related employee expenses and additional costs related to the company's new facility, including depreciation and Macy Tech transfer-related activities. Moving forward, we expect relatively similar quarterly operating expenses for the balance of the year. Net loss for the quarter narrowed to 0.6 million, or 1 cent per share, compared to 4.7 million, or 10 cents per share in the prior year, which was an improvement of more than 4 million versus 2024. Adjusted EBITDA more than doubled during the quarter, with an increase of 112% to 13.4 million, or 21% of revenue, an increase of more than 900 basis points versus the prior year, as we continue to drive very strong bottom line growth. Finally, the company generated $8.2 million of operating cash flow and ended the second quarter with approximately $164 million in cash and investments and no debt. With the investment for the company's new facility completed in the second quarter, we expect cash generation to inflect moving forward, further enhancing the company's strong balance sheet and financial profile. Turning to our financial guidance, we are maintaining our Macy revenue guidance and expect Macy full year revenue growth in the low 20% range, with third quarter revenue growth in the low 20% range as well, or approximately $54 to $55 million for the quarter. For Burn Care, while we are very encouraged by EPICEL's improved performance in the second quarter and the meaningful increase in biopsies in the first half of the year, we are updating our second half quarterly Burn Care revenue guidance to be more in line with recent run rates of approximately $10 million per quarter, consistent with our second quarter revenue and our average quarterly run rate in 2024. Importantly, our internal expectations for Burn Care performance remain higher, and we believe there are still multiple scenarios to achieve our initial guidance range. However, we believe that updating our guidance framework and resetting external expectations for Burn Care revenue in the second half is appropriate at this point in the year, given the difficulty in accurately predicting EPICEL quarterly revenue, recognizing that if our team continues to execute well and maintains the current momentum, there remains an opportunity to significantly outperform this updated guidance. I would also note at this point we are not assuming any additional Nexabrid revenue related to the BARDA RFP process that was recently initiated, although there is potential for incremental Nexabrid BARDA revenue in the fourth quarter of this year. In terms of profitability metrics, we expect another quarter of strong financial results in the third quarter, with both gross margin and adjusted EBITDA margin in a similar range as the second quarter. For the full year, we have reaffirmed profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%. Note that this profitability guidance includes the operating expenses in 2025 related to the acceleration of our Macy's Salesforce expansion. I will now turn the call back over to Nick.

Thanks, Joe. We are very pleased with the pace of Macy Arthro Surgeon training and the resulting strength in both the Macy Arthro leading indicators as well as the overall Macy business fundamentals, which provides a strong foundation for Macy implant growth moving forward. The significantly improved trends for EPICEL and Nexabrid position the Burn Care franchise for stronger performance as well. So we believe that the company is well positioned to continue to deliver a unique combination of sustained high revenue and profitability growth in the second half of this year and the years ahead. With that, we'll open the question or the conference call for questions.

Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for a question and we'll pause just briefly to assemble our queue. And we'll take our first question from Ryan Zimmerman with BTIG. Please go ahead.

Good morning. Thanks for taking our questions, Nick and Joe. I want to start with Macy. I appreciate many of the metrics that you provided that point to an uptick in the second half, but if we can unpack the second quarter a little bit. I mean, if I think about the guidance, Joe, 53-8, 54-6, that didn't happen. So what do you think's happening here that's impacting that growth, at least right now? And again, I appreciate the confidence, but if you could speak to certainly the uptick in the fourth quarter especially and the conversion ratio that you're expecting to allow you to either beat or meet that guidance for

Macy. Yep. So good morning, Ryan, and thanks for the question. So in terms of Macy, maybe just talk a little bit about the second quarter and the cadence as part of your question. So in terms of the second quarter, I mean, I'd say we're relatively in line at 53.5 million. I'd say slightly below kind of that range, we'd call it approximately 54 million. But first off, I would say, as we talked about on the call and Nick talked about, the underlying indicators remain strong. The biopsy growth was strong in the second quarter, and we are starting to see an acceleration of both biopsy growth and implant growth as we get into of late into July. So that's certainly encouraging. I would say probably on the margins, there was probably some degree of, there are probably a few implants from a timing perspective, if you will, where if we looked at what we predicted in the second quarter, perhaps some of the kind of where June ended up, some of those implants probably moved into July relative to our assumptions to start the quarter. I wouldn't say that was all that material, but it's certainly one thing to point at as you think about Q2. So I think Q2 generally was in line with our expectations. It was a significant step up from the first quarter and solid year over year growth. And so then, as you kind of think about the rest of the year, first off, I would say, as we said in the last call, we're still kind of in that $240 million range that I referenced in the last quarter. And so if you think about the cadence for the second half, the first thing I would point really even getting into Arthrow, it's a pretty similar mix when you kind of look at that revenue level from H1 to H2. So that's not all that different. Q3 and Q4, there certainly could be some variability there, which is why we're providing a range, sometimes kind of August and September, or difficult months to forecast just given kind of out of office and vacations, particularly as you move kind of farther from the COVID dynamics. But generally, again, I think what we're seeing is a lot of strong metrics. The trained surgeons continue to tick up. We're seeing very strong metrics from that group in particular. So I would say nothing has really changed as we move from where we were last quarter, and we kind of continue to progress throughout the year.

Yeah.

As you think about it, making a full year basis.

And just to be clear, Joe, or Nick, if you want to answer this, and then I have a follow-up on Epistel, but the 100 arthrobiocese that you did so far year to date, can you comment and obviously give us specifics if you're comfortable, how much of those have converted to MACE at this point?

Yeah, so we don't

talk about sort of how those biopsies have converted. We haven't seen any difference in sort of how the arthro segments and just the segments generally have converted versus normal rates. So it's really just a timing issue of when those biopsies convert. And so I would just say, kind of as we discussed, whether you're talking about MACE, arthro opening up different surgeon segments or kind of different locations in the knee, all of those trends are in line with kind of what we had hoped for or expected. And the dynamic that Joe was referring to that we saw when MACE was originally launched, that biopsies increased first, over time, implants tended to catch up with those biopsies. It's kind of all unfolding as we expected and as we discussed on our last conference call.

Yeah, and Ryan, just one thing to add too. The 100 biopsies, that was just one data point from our kind of new arthro only segment. It wasn't meant to represent all of arthro, just to make sure that was clear in our prepared remarks.

No, I appreciate the clarification there, Joe. And then just turning to Epistel. So, you know, the biopsies were, I think, up 38% in the first half. You do have a price benefit as well. So, you know, you alluded to this a little bit, Joe, that, you know, the patients are experiencing health issues, whether that's expiration or some point. But, you know, trying to reconcile the lower guidance on the burn business overall with that biopsy dynamic, you know, this seems to be kind of sustaining despite what would have been maybe a blip, right, with some of these health issues. So, just what's the new reality there that you're factoring in the guidance in terms of patient expiration for these severely burned patients in the back half of the year? Thanks for taking my question.

Yeah, yeah, Ryan, I'm going to start and then Joe can take that. So, so what we said on the call was that biopsies were up 38% in the second quarter. But, you know, for the first half of the year, biopsies were actually up 20% over last year. So, you know, one would expect that, you know, you might see some volume growth on graphs as well, you know, even with kind of the regular patient health issues that we face. So, that I think, you know, based on the analytics we've had over time would have would have suggested, you know, kind of the uptick that we had sort of started guiding to earlier in the year. You know, obviously, as we said, June was the strongest month we've ever had for epicell biopsies. So, while they didn't convert into revenue in full in the second quarter, you know, obviously, that's what supports our third quarter commentary that we're off to a strong start with epicell. So, you know, there's a bit of that, you know, the patient health issues we've referred to where we didn't see quite. And again, part of this started from Q4 last year into Q1 where again, it was a sort of unproductive cohort of biopsies that impacted Q1. So, you know, we don't we expect these things normalize over time. There's nothing, you know, different in the underlying dynamics. We do track, you know, all of the metrics you might expect, you know, the TBSA of biopsies we received, the TBSA of patients that are treated. And there's really no change in any of those underlying patient demographics or otherwise. So, it really, you know, we think there's no reason it won't normalize as usually happens.

Yeah. And just to maybe talk a little bit about the epicell and sort of the burn care kind of change in our approach, Ryan, I think which I think is important. And we had some of this in the prepared remarks. But you know, again, I think what we're saying on the burn care side, as Nick said, you know, we've had it we had a stronger second quarter, you know, around 10 million. Obviously, episodes, biopsies are very strong, you know, strong start, you know, really strong start for both brands to start the third quarter. So, you know, at this point, our metrics are pointing to a higher Q3. But I think what we are what we're talking about or what we're doing here is we're essentially making a change to our approach for the second half of the year. And so, you know, as we've often talked about, you know, precisely forecasting epicelles is very difficult because of these unpredictable patient health dynamics. And, you know, just the reality is over the last two to three quarters in particular, our underlying trends, you know, to go into the quarter, our forecast, you know, has supported higher volumes. And so for whatever reason, which, you know, we've seen a higher ratio of cancel patients and whatnot, you know, we've either been on the low end or below, you know, a little bit below our epicelle forecasted range. And just to be clear, this is not where we want our guidance to be. And so, as Nick said, you know, the first half of the year, we've actually generated strong biases that hasn't correlated to the revenue expected yet. And so from a guidance perspective, to better account for this, we're essentially shifting to more of a run rate concept versus kind of thinking about our forecast and how we start the quarter. So, you know, as we talked about the average quarterly revenue last year was 10 million. That's what Q2 was. That's, you know, going to be our guidance for Q3 and Q4 right now. You know, I would also say, you know, to some of your question around the stronger start in Q3, you know, importantly, this is not our forecast for burn care. And our metrics today, you know, are pointing to something higher. Our expectations are higher. Our team's commercial goals are higher than this. So, you know, certainly, you know, we think it's an opportunity to help perform this guidance. And that's what we're focused on. But, you know, again, where, you know, just a couple of patients could be the difference between a million dollars and a quarter. You know, we think just being a bit more conservative with the guidance is appropriate as we close out the year on the EpiCell and the burn care side.

Yeah. Thanks, Scott. Thank you.

We'll go next to Richard Neuwitter with Truist Securities. Please go ahead.

Hi. Can you hear me okay? Yes. Yes. Morning. Morning, Rich. Thank you.

A couple of questions here. So, it's, I was jumping around some calls, so apologize. But it sounds like the, effectively reiterating Macy, even though QQ wasn't, you know, quite at the guide, but just under. And it's really just maybe a slight call down from EpiCell for the full year and you hope to exceed that, but just to be prudent. A, is that the summary? Yeah,

I think that's fair. Was I like. Okay. So,

two quick follow-ups on that. One, on Macy, with respect to, you know, the range of outcomes of when your conversion rates could hit, do you feel confident that that's just a matter of timing within a six-month time frame, a three-month time frame, or it could extend beyond because Macy-Arthro is a bit of new territory for you. So, while the biopsy trends are improving and good, is there anything that's different versus Macy-traditional and Macy-Arthro in the conversion rate or the timeline to conversion that, you know, maybe just won't work the same as it has in the past? That's one follow-up.

Yeah, Rich. So, this is Nick. No, we have not seen, as I mentioned previously, any difference in conversion rates for Macy-Arthro cases versus, you know, Macy-Open cases. So, you know, as we talked about previously with the launch of Macy in 2017, you saw a very steep increase in biopsies and then, you know, an increase in implant growth, but that kind of played out over the back half of 2017. And then as we talked about on the last call, you know, you went from 40-plus percent biopsy growth in the back half of 2017 to 54 percent implant growth in 2018. So, you know, it definitely doesn't play out over a quarter. It plays out over multiple quarters. And any time we've seen a sort of biopsy growth outpacing implant growth, it tends to catch up over time. And there's no reason to think that that won't happen here. And on our prepared remarks, we mentioned that, you know, the Macy both, and this is really encouraging, you know, obviously biopsies outpaced implants in the first half of the year, but even biopsy growth is now accelerating and implant growth is accelerating. And I think we've kind of laid the foundation for this kind of dynamic earlier this year. And those are the trends that we're

seeing play out now. Okay, thank you. Thanks, Rich.

If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll move next to Mike Cracke with Learing Partners.

Hi, everyone. This is Sam on for Mike. Thanks for taking our question. You know, you mentioned biopsy growth outpaced implant growth in the first half of the year. You know, are you just seeing a deceleration in biopsy conversion rates around this time of year? And, you know, what's ultimately the underlying cause of this? And then, you know, kind of appreciate that you saw an acceleration in July. But, you know, what really gives you confidence that these biopsy and implant rates can converge in the second half of the year? And then I have

a follow up. Yeah, I mean, so, you

know, I think, again, as Nick talked about, we've seen this dynamic before, you know, in the Macy launch, which I think is very important context, which is, you know, there's times when biopsy growth can be growing faster than implants. I would just say broadly, you know, when we think about kind of conversion, you know, biopsy growth and implants, you know, they tend to kind of move together when the conversion is stable, which is what has been going on, you know, for the last few years. You know, that said, there can certainly be points in time or kind of points during a year where one might be kind of moving slightly different than the other. So, you know, I don't think this is it's not a typical that they're not moving, you know, they're not exactly sort of in sync at any point in time. But, you know, I think at this point, you know, what's what's encouraging is we've seen that strong biopsy growth in the first half of the year. And, you know, I think that we think that puts us in a very good position as we think about both the second half of 25, but also into next year, as we talked about as well. So, you know, again, this is not a typical to see that move in a slightly different pace. And, you know, it's what we would have expected with with the artful launch.

Got it. That's helpful. And then as the second question, you know, can you just kind of comment on, you know, to what degree may see arthro surgeons that have been trained to date or surgeons from, you know, your existing may see customer base or have you kind of begun to get more meaningful penetration in the incremental 2000 arthroscopic surgeons that you flag as being part of your TAM expansion?

Yeah, that's a great question. You know, obviously, as we mentioned, we're really pleased to be at 600 trained surgeons through the end of the end of July. And as we talked about sort of the surgeon segments on the last call, you had, you know, about 2500 existing may see users prior to launch. And those were broken out into surgeons who had typically done patella only implants previously. And then the other half of those users would do patella and typically smaller or larger, I'm sorry, condyle defects. So we'd say about a third of our 600 trained surgeons come out of each of those two buckets, the existing may see users. And then the other third comes out either the former may see open targets who had not engaged yet, or the new new may arthur only surgeons that we added when we launched may see so really encouraged to see, you know, the trained surgeons, the third coming out of those prior non users. And as we mentioned on the call, you know, we've now had 100 biopsies, more than 100 biopsies out of the kind of arthur only segment as well. So exactly what we would want to see for the prior users who were patella only, they are obviously now are increasing both biopsy and implants in terms of their growth rates and expanding into condyle defects. And then what you see out of the prior kind of combo patella and larger femoral condyle defect users, they're migrating down into the smaller may see arthur defects. So it's exactly the dynamic that you would want to see in these early launch indicators.

Understood. Thanks. Okay, thank you.

We go next to the line of Joshua Jennings with TD Cowan. Please go ahead.

Hi, this is Eric on for Josh. Thank you guys for taking the question. On may see angle, congrats on receiving the IND there. It sounds like the clinical studies going to be kicking off in the back half of the year. Are you able to share any detail on what the trial design looks like there? Any any thought on patient enrollment and what the timing could be for completing enrollment? Thank you.

Yeah, so obviously, very pleased that we received FDA IND clearance or the may see ankle study, I mentioned on the call, you know, it's about a billion dollar addressable market for us. So we think it could be a substantial longer term growth driver for the business over time. You know, it's a not to get into too much detail as it's listed on Clinton trials.gov, but it is, you know, perspective, open label randomized, controlled phase three study, two year endpoint, just like the summit study for may see in the knee will be approximately 300 patients that you know, two to one ratio between may see and bone marrow stimulation or micro fracture, which is the active comparator. And then, you know, it will focus on patients with lesions that are greater than 1.2 square centimeters. So pretty, pretty straightforward. And then the endpoints are much like the endpoints were in the summit study where you're looking at pain and functions improvements at two

years. Great, thank you for reviewing that. And then just curious to check in on some of the midterm profitability targets that you guys have in play for gross margin and adjust EBITDA margin by 2029. Are those high 70% and high 30% margin targets respectively still in play here? Thank you for the questions.

Yeah, so you know, we had, you know, from a profitability perspective, you know, the company had a pretty strong second quarter, you know, a gross margin in the second quarter was kind of in that mid 70% range, you know, consistent with our full year guidances that we, you know, re reaffirmed as well from a profitability perspective, you know, adjusted EBITDA was strong as well kind of into the low 20s into the second quarter, which is which is strong for a middle of the year quarter for us. And we reaffirmed our full year there. So yeah, I know, as we think about kind of end of the decade, you know, kind of getting from the mid 70s to the high 70s on the gross margin side, certainly still seen, you know, that we're nothing's changed, I would say in our view on either gross margin or adjusted EBITDA. So again, we're not too far on the gross margin side, you know, we need to keep kind of driving strong revenue growth and kind of manage our spend. But you know, certainly from the adjusted EBITDA perspective, you know, we very much remain on track there as well. So, you know, no change in terms of our kind of long midterm targets, I would say on the profitability side.

Okay, that's great to hear. Thank you again. Thank you.

Once again, if you'd like to signal for a question, please press star one on your telephone keypad at this time. And we'll move next to Caitlin Cronin with Canaccord Genuity.

Hi, thanks so much for taking the questions. I guess just to start off with the the arthropbiopsies, you mentioned 100 arthropnaive surgeons with the biopsies. I mean, how many total biopsies to date are you seeing across all the surgeon cohorts? And then, you know, how many of those have converted already into implants?

Yeah,

so,

you know, the it's not really possible, I suppose you could, you know, look at the size and location of defect and say this may be a defect that's intended to be treated arthroscopically. But even there, you know, it really depends precisely on location and so on. So, you know, I guess we would just say this biopsies generally, as we said, increased at a double digit rate in the first half of the year. And that's accelerating as we move into the second half of the year, you know, as we would have expected, because, you know, we're now up to 600 NACI arthro trained surgeons, both their implant and biopsy growth rates are significantly higher than the overall averages. So as we continue to train more surgeons, and they take more and more biopsies, that's the dynamic that ends up leading towards, you know, this accelerating biopsy growth. And we did mention on the call as well, that the small femoral condyle defects increased 40% in the second quarter this year over last year. So, you know, good indicator there about the impact that that Macy Arthro can have. And as you know, we've talked about with you before, it's the largest part of our addressable market. So when that growth rate is kind of ripping like that, you know, it can have a pretty big impact on our business over time.

That is okay. And then just any more color on the Macy Salesforce expansion, and you know, how many have been hired already, and then just the timeline to just add the further members this year.

Yeah, so you know, these positions were posted last night. So we haven't hired anyone yet. But I expect it will be done in pretty short order. And the whole rationale there, as we mentioned on the call is that, you know, we have some, we're going to have some very significant volumes in the fourth quarter. And, you know, we're already kind of right at the beginning of August. And so, you know, you'll have reps who will be hired kind of towards the end of August into September. So we expect, you know, a decent number, meaningful number of reps will be in the field supporting our current reps in their existing territories, you know, probably by early October. And so give them a good chance to again, support a very high volume quarter, and then realign the territories and all the representatives will be in their new territory starting on January 1. And we believe that is very important, you know, as Joe mentioned on our last call, you know, things don't change when the calendar flips to January 1. And the momentum that we're seeing and expecting the back half of the year, we want to capitalize on that day one in 2026. And that is what led to accelerating the growth based on the leading indicators we're seeing from ACR throw, and sort of our expectations for implant growth in the back half of the year.

That's great. And then just one more quick one, any update on if you're continuing to see this kind of dynamic of dormant EPISCEL accounts becoming active given the next of engagement in those accounts?

Yeah, we definitely, you know, it continued this year where, you know, I'll just roughly say, a handful of centers that hadn't used EPISCEL recently, you know, are sending in biopsies, and so, you know, we think as we continue to have a greater presence in a larger number of burn centers, you know, that dynamic will continue.

Great, thanks so much.

Thanks, Caitlin.

We go next to the line of Mason Caracol with Stevens. Please go ahead.

Hey, guys, thanks for the questions here. I'll ask my two up front if that's all right. You've called out Macy ASP increasing mid to high single digits annually. I think approval rates have stayed north of 90%. Can you just confirm or speak to your confidence in sustaining that price momentum moving forward without triggering some form of access pushback? Then second, could you just update us on the international expansion opportunity? What are your latest thoughts there on the timeline specific geographies you may plan on targeting?

Yeah, so on pricing, you know, Mason, as we've talked about before, we do an extensive amount of Macy and really for all our products pricing research to make sure that, you know, we can optimize pricing on what are considered by payers, surgeons, patients alike, you know, highly innovative products. And so, you know, we've always, you know, been thoughtful about how we implement price increases. You know, as we've said, Macy is a biologic product. Payers and hospital administrators expect that you'll be taking sort of, you know, mid to high single digits prices on an annual basis. And, you know, we've done that. And, as you know, as you mentioned, you know, our prior approval rate for Macy cases is in the mid 90% range. And so we haven't seen any change in that over the years as we've, you know, continued to take price. And so that's an important part of the equation for us. And, you know, it's a pretty unique position to be in, you know, in the med tech space. On the OUS side, you know, we continue to progress with our evaluation with our outside sort of global consulting group. And, you know, we had planned and expect to have a roadmap for the OUS opportunity by the end of the year. So it's progressing well, you know, I think we have a clear intent to be able to expand in just certain OUS geographies, sort of in the next few years. You know, we prioritized Europe and entry into that region first. And there are some interesting pathways that, you know, kind of along the mutual recognition front that would allow us to do that in a relatively, you know, at a relatively fast pace. So, you know, that timeframe of potentially launching in, you know, certain countries or in the 2027-28 timeframe is still our

current thinking. Got it. Thank you. Thank you.

We turn next to Jay Collin with Leidenberg-Ballman. Please go ahead.

Oh, hey, Nick and Joe. Thanks for taking our questions. Could you talk, Joe, I guess, could you tease out a little bit the back half of SG&A guide and talk about sales expansion and perhaps talk about geographies as well? Thank you.

Yeah, so good morning. And so, yeah, I would say, you know, from an operating expense perspective, you know, we've been kind of around 49 million in total in the last couple quarters. You know, there may be a little bit of a mixed shift as we kind of close out the year as we start hiring kind of on the sales side. But, you know, I think I said in the prepared remarks, you know, obviously reaffirming our overall guidance from profitability perspective of both gross margin and adjusted EBITDA. And I think we, you know, we're assuming essentially kind of flat quarters or around that same number from an op-ex perspective over the next couple quarters. So, you know, as we talked about, the hiring will probably sort of, you know, by the time kind of everyone's hired, it'll take some time for that. And so there'll be, you know, some impact in the fourth quarter. But really, it's more of an annualized, you know, if you think about, you know, roughly 25 additional sales reps, it's kind of more of a 2026 impact, I would say, from a sales force expansion perspective.

Okay, got it. That's helpful. And then, secondly, for us, can you talk about the bar to RFP as far as the time frame or duration and size of the RFP that's out there?

Yes. So, you know, the RFP is in the public domain. And so, you know, anybody who's interested can take sort of a deeper look at it. But, you know, proposals or responses are due in sort of late August. And, you know, presumably a decision will be made shortly thereafter. You know, what the RFP covers would be procurement of a basically of a stockpile for preparedness. And the details of that, you know, are clearly stated that, you know, initial procurement would be for, you know, 2750 units. There would be a management funding for that. There's a second ramp up procurement that is, you know, listed. So, the first one is between October of this year and end of September next year, the ramp up procurements for the year after that. And then there's just a number of other items around managing, what's essentially a VMI inventory for BARDA, other development projects for room temperature formulations, different indications, and so on. So, there's a pretty long list of about a dozen funding opportunities under that RFP. Obviously, at this point, you know, the timing, the negotiations around that have not occurred. So, there's, you know, we can't really speak to, you know, whether we would assume that BARDA typically when they fund a program and then look to stockpile a program that it would be, you know, next subgrid will have a very strong opportunity. But in terms of the exact timing and funding amounts, you know, that's left to negotiation after being selected.

Got it. That's helpful. Thanks for taking our questions. Thank you.

And we go to our next question from Sawayam Pakura Ramakant with HC Wainwright. Please go ahead.

Thank you. Good morning, Nick and Jill. A couple of quick questions. So, in your prepared remarks, Jill, you were talking about there's a potential for the burn franchise to outperform your 10 million per quarter guidance. So, what are the pushes and pulls for that to happen?

Yeah, I mean, so, I mean, again, I try to lay out, I think it was Ryan's initial question. I just wanted to make sure people understood, you know, from an external guidance perspective, we want to be very clear, which is our external guidance is 10 million a quarter. It's more of a run rate concept. So, that's our approach. You know, I would say internally, as we talked about, you know, I'd say the first piece is we've had a pretty strong start to July on both products. So, that's always kind of what you want. And so, again, our guidance is not meant to be our forecast, but, you know, essentially, if, you know, Nexabrid can continue on a stronger run rate that we've seen in June and July, for example, you know, that could kind of help it continue to tick up. And it's really at this point, you know, obviously more about epicell, given the scale of the two products. And really, it's about, you know, what happens from a conversion of those strong biopsies in second quarter. You know, it's been a strong start in July, but we need to see how that plays out in August and September. Again, our metrics point to, you know, this is a strong start, so it points to it should be, you know, a stronger quarter. But again, we just don't want to get ahead of ourselves, not knowing exactly what, you know, the rest of August looks like, you know, let alone September at this point with epicell, because you can always have cancellations and whatnot. But, you know, again, strong start. So, it would be continuing to drive kind of a high, you know, conversion rate or a more average conversion rate, and then, you know, not getting those cancellations to the patient health. That's probably what's most variable as we think about the quarter, but again, a strong start.

And I would just add that, you know, as Joe mentioned in his preparer, at this point, we're not including any potential barter revenue that could come in the fourth quarter in our guidance. So, there's a commercial piece that could allow us to outperform, and then there's some potential barter revenue as well. Again, timing and amount can't determine at this point, but there's multiple paths to kind of exceed the guidance that Joe provided.

Nick, you kind of stole my question, but on that barter revenue from the fourth quarter, potential, in general, is there a range you folks are thinking about, you know, on the dollar amount, if it happens?

That's what I said earlier. I mean, RFP clearly states forth or sets forth the sort of procurements that BARDA is interested in. So, the 2,750 units, you know, from October of this year through September of next, and then, you know, up to 5,000, you know, in the following year. Obviously, without knowing sort of the pricing on that, you can't really estimate the revenue. And then, of course, there's management contracts to manage that VMI inventory and other things, so that are stated there. I think they'd like to have access to some commercial inventory, and there's funding for that that would be involved. So, you know, there's a lot of pieces, and it's just impossible at this point to kind of quantify from a revenue perspective what that would be or the timing thereof. But, you know, one would expect that if BARDA is interested in having an available stockpile through a VMI kind of procedure that, you know, they'd want to have it sooner than later. So, anyway, more to come on that.

And then, on the Arthro product, you know, you stated that there are 600 trains at this point. In general, you know, once a surgeon gets trained, you know, how long does it take for them to kind of become comfortable enough to start taking biopsies and, you know, start sending them over to you folks?

Yeah, I'd say actually, you know, it often happens in reverse, where surgeons will take biopsies and then get trained when they're ready to move forward with the procedure. So, no time at all to get comfortable taking a biopsy. They do arthroscopic chondroplasties all the time, and that's when they end up taking a biopsy. So, that's not, you know, no impact there at all.

Okay, perfect.

All right.

Thank

you very much.

Thanks. Okay, thank you. It's okay.

There are no further questions. I'd like to turn the floor back to Nick Colangelo for any additional or closing remarks.

Okay, well, we just wanted to say thank you to everyone for your questions and continued interest in Baricell, and we look forward to providing further updates on our progress on our next call. So, thanks again and have a great day.

This concludes today's conference. We thank you for your participation. You may disconnect at this time.