Vericel Corporation

Please stand by, we're about to begin. Good day and welcome to the VeriCell Corporation fourth quarter 2025 earnings call. Today's call is being recorded. At this time, I'd like to turn the call over to Eric Burns, VeriCell's vice president of finance and investor relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Joining me on today's call are VeriCell's president and chief executive officer, Nick Colangelo, and our Chief Finance Officer, Joe Morrow. Before we begin, let me remind you that on today's call, we will be making forward-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 materially from expectations and are described more fully in our filings of the SEC. In addition, all forward-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 fourth quarter financial results press release and a short presentation with highlights from 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. As highlighted in our preliminary financial results release last month, The company had a strong close to the year and delivered outstanding financial and business results in the fourth quarter, with significant revenue and profit growth and continued progress across a number of key business initiatives. From a financial perspective, the company generated record fourth quarter total revenue, which increased 23% over last year and exceeded our guidance for the quarter. This strong revenue performance drove significant margin expansion and profit growth as the company delivered record net income, gross margin of nearly 80%, and adjusted EBITDA margin of 40% for the quarter. We also ended the year with approximately $200 million in cash and investments and no debt as we continue to elevate the company's top tier financial profile. We also achieved several key business objectives in the quarter, including the successful completion of the Macy Salesforce expansion, and the initiation of the Macy Ankle Clinical Study, and made substantial progress on other long-term growth initiatives as we remain on track to begin commercial manufacturing of Macy in our new facility this year, and to potentially launch Macy outside the United States in 2027. Macy's second half momentum continued in the fourth quarter with record revenue of more than $84 million, representing 23% growth versus the prior year. This performance was driven by strong underlying fundamentals as we had the highest number of Macy implants, implanting surgeons, surgeons taking biopsies and biopsies in any quarter since launch. Macy's performance was particularly strong in December across all key performance metrics, including biopsy and implant procedures, as our commercial and operations team executed exceptionally well to close the year. Macy's leadership position in the cartilage repair market has continued to strengthen since we launched the product in the U.S. in 2017. Over the past nine years, Macy's generated compound annual revenue growth of 24% and has delivered revenue growth of 20% or more in each of the last three years. Notably, as of the end of 2025, more than 20,000 patients have now been treated with Macy. We believe that Macy's strong clinical profile together with the surgeon and patient benefits of a simpler, less invasive surgery have driven Macy's strong growth and will continue to do so moving forward. In addition, Macy's best-in-class pricing and reimbursement profile with prior authorization approval rates remaining over 95% for commercial patients in 2025 demonstrates the significant clinical value Macy represents to payers, hospitals, surgeons, and patients. With the strong Macy Foundation in place as we move into the new year, we're focused on executing on three strategic imperatives that we believe will position the company for sustained strong revenue and profit growth in 2026 and the years ahead. First, we're focused on capitalizing on our larger Macy sales force, which will meaningfully increase our reach across the entire Macy customer base. Starting the year with a significantly larger footprint provides an opportunity to not only continue to drive the expansion of new Macy surgeons, but also to drive deeper penetration and increase utilization within our current Macy surgeon base. We're also implementing a number of important commercial excellence initiatives across the organization. We've made significant investments in new tools and additional resources to enhance our commercial analytics and standardized best practices across our larger sales team, which we believe will elevate execution across our commercial organization and drive deeper penetration within our surge in user base, unlocking another key growth driver for Macy. Based on these initiatives and the quality of our entire expanded sales force, We expect that Macy's sales rep productivity will return to 2025 levels as early as next year. Our second strategic priority is to leverage Macy's arthro to drive continued strong growth in smaller cartilage defects, principally on the femoral condyles, which represents the largest segment of Macy's addressable market. As we discussed throughout 2025, we've been very successful in training physicians on the Macy-Arthro technique, with approximately 1,000 surgeons trained to date. Importantly, Macy-Arthro trained surgeons have continued to demonstrate a significant increase in biopsy and implant growth following training, and for those surgeons that have completed a Macy-Arthro case, even higher biopsy and implant growth and higher conversion rates. With this foundation in place, our objective is to leverage Macy-Arthro to drive significant growth in the treatment of small condyle defects, which historically have represented a smaller percentage of our overall patient volume and a lower growth segment for Macy. Notably, growth in the small condyle defect segment accelerated in Macy-Arthro's first full year on the market in 2025, as this segment became one of the highest Macy implant growth segments along with the patella segment, which consistently has been our highest volume and fastest-growing segment. We believe that the positive trends are driven by the fact that macearthro is a less invasive procedure with the potential for improved patient outcomes. Early data from ongoing investigative case series suggest a significant reduction in post-surgical pain, improved range of motion, and a meaningful acceleration in the timeline to achieving full weight-bearing following macearthro treatment. These initial results suggest very positive patient outcomes that could also lead to shorter overall rehab and recovery timelines. We expect these case series to be presented at upcoming industry meetings and in publications, and we continue to work with additional surgeons as they complete Macy-Arthur cases to collect prospective outcomes data in our Macy clinical registry. Our third strategic imperative is to leverage our lifecycle management initiatives to position the company for sustained longer-term growth. To that end, we initiated the Phase III Macy ankle mascot clinical study in the fourth quarter. A potential Macy ankle indication represents a substantial growth opportunity with an estimated addressable market of more than $1 billion. It would also enable the company to expand into other areas of the orthopedics market. We also remain on track to initiate commercial manufacturing for Macy in our new facility this year, which will allow the company to potentially commercialize Macy outside the United States. We're taking a staged approach to Macy OUS expansion with the first phase targeting a planned launch in the UK. The UK represents an ideal first step for Macy OUS expansion as there's clearly defined expedited approval and reimbursement pathways a high level of awareness and surgeon advocacy, given that Macy was previously on the market in the UK, and concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries. We expect to submit a marketing authorization application to the UK MHRA in the middle of this year and potentially launch Macy in the UK in 2027 as we seek to expand the long-term growth and value creation opportunities for the company. In summary, the company executed extremely well in the fourth quarter, generating record revenue and financial results while achieving a number of key objectives that helped position the company for continued growth in 2026 and beyond. I'll now turn the call over to Joe to discuss our financial results in 2026 guidance in more detail.

Thank you, Nick, and good morning, everyone. As Nick referenced, the company had an outstanding close to the year with record fourth quarter revenue of 92.9 million and 23% growth versus the prior year. For the full year, total revenue increased to 276.3 million, which was above the high end of our guidance range for the year. Macy also had a strong close to the year with record fourth quarter revenue of 84.1 million, representing 23% growth versus the prior year and 51% sequential growth versus the third quarter. For the full year, Macy revenue increased 21% to $239.5 million, and Burn Care fourth quarter revenue was $8.8 million, which was above our guidance range for the quarter. For the full year, Burn Care revenue was $36.8 million, consisting of $32.1 million of EpiCell revenue and $4.7 million of Nexabrid revenue. The company's substantial growth in the fourth quarter translated into significant margin expansion, with gross profit of more than $73 million in the quarter, or 79% of revenue, and adjusted EBITDA of more than $37 million, or 40% of revenue, representing the company's highest quarterly margins in any quarter to date. On a full year basis, the company also delivered meaningful margin expansion, with 74% gross margin, an increase of nearly 200 basis points compared to the prior year, and 26% adjusted EBITDA margin, an increase of over 300 basis points versus the prior year, which were both above our guidance to start the year despite the incremental investments in 2025 for our new facility and the Macy's Salesforce expansion. Gap net income also grew nearly 60% to $16.5 million for the full year as the company's profit growth continues to significantly outpace our strong revenue growth. Finally, the company generated a full-year operating cash flow of $52 million and ended the year with approximately $200 million in cash and investments, an increase of $35 million during the second half of the year, as the expected inflection in our cash generation following the completion of our new manufacturing facility is now being realized. Turning to our financial guidance, We are entering 2026 with a great deal of momentum and have gotten out to a very strong start of the year in the first quarter. Consistent with our commentary on our prior earnings call regarding 2026 revenue for both franchises, we expect total company revenue this year of approximately $316 to $326 million. For Macy, we expect another year of strong revenue growth, And as a starting point for our guidance, we expect Macy revenue of approximately 280 to 286 million for the full year. Our initial guidance reflects a continuation of current Macy key growth driver trends, including surgeon growth, biopsies per surgeon, conversion rate, and price to start the year. Recognizing that there is an opportunity for outperformance based on the momentum in our key performance indicators, our expanded sales force, and the commercial initiatives that we have put in place. As part of our initial framework, we expect a similar quarterly mix of Macy full-year revenue as last year, and importantly, a similar growth rate for Macy each quarter this year versus the prior year. For burn care, we are maintaining our run rate approach to guidance with revenue of approximately 9 to 10 million per quarter, recognizing that revenue can vary on a quarterly basis. For the full year, this points to approximately 36 to 40 million of total burn care revenue. Of note, we are not assuming any additional next-grade revenue in our initial guidance related to a potential BARDA award, although there is a reasonable possibility for incremental next-grade BARDA revenue during the year. For the first quarter, we are on track to exceed 20% total company revenue growth as we are off to a very strong start to the year for both franchises. Macy's fourth quarter momentum has continued into this year, with Macy performance trending toward higher first quarter growth than in recent years, and BirdCare performance trends have also been strong to start the year. As such, we expect Macy revenue of approximately $54 to $55 million and burn care revenue of $9 to $10 million for the first quarter. Moving down the P&L, for the full year, we expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%, which accounts for additional costs related to our new Burlington manufacturing facility, the incremental investments related to our Macy's Salesforce expansion, an increased Macy Ankle mascot clinical trial expense, as patient enrollment begins. We expect total operating expenses to be approximately $220 million for the full year and anticipate a similar level of spend each quarter. For the first quarter, we expect gross margin of approximately 70% and adjusted EBITDA margin of approximately 10%. Overall, 2026 is set up to be another positive year for the company with strong top line revenue growth as well as continued margin expansion and profit growth. As we look ahead, we believe that the durable growth of our portfolio positions the company to sustain strong top-line growth in the years ahead and supports our mid-term revenue and profitability targets. This concludes our prepared remarks. We will now open the call to your questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, star 1 to ask a question. We'll move to our first question, Ryan Zimmerman with BTIG.

Good morning. Can you guys hear me okay? Yeah, good morning, Ryan. Morning. Busy morning for a lot of us. So I'll try and squeeze in both questions, but, you know, I think there was a number of price increases on Macy that were taken in 2025. Correct me if I'm wrong on that, Joe. But, you know, how do you think about kind of the mix of price versus volume? You know, if you reflect back on 2025, particularly on volume, I think investors, you know, are rightly concerned that price drove some of the growth. And then as you look ahead to 26, kind of, you know, how do you think about that balance as well?

All right. I'll start. Do you want to ask your second question or just start there?

Oh, sorry. Let's just start there. Sorry, Joe. Thank you. Keeping me honest.

Yeah. So, yeah. So, look, from a pricing perspective, you know, obviously that, you know, remains a key growth driver for us. You know, Nick talked about in his prepared remarks, you know, our kind of access position remains very strong. I think over, you know, over 95% of our commercial cases from a prior authorization perspective are approved. So, you know, kind of looking back historically, and I would say looking forward, you know, certainly pricing kind of has been and will remain part of our growth algorithm. You know, if you look at the second half of last year, I mean, obviously there was a significant improvement in the METI performance. You know, I'd say that step up was, you know, was volume driven. Although, of course, I would say, you know, both price and volume, you know, play a part in the growth.

Yeah. Okay. And then one of the other key, I think, variables to the algorithm is new doctor growth. And so as you think about kind of who's adopting Arthro, I'm curious if you could reflect on maybe kind of existing or same source sales dynamics relative to kind of new doctor growth and appreciate the comments you gave about those adopting Arthro, certainly being more robust, but Is that a reflection of your existing customer base or potentially new doctor growth? Thanks for taking the question.

Hey, Ryan. I'll start. It's Nick. You know, I think the sort of ratio of trained surgeons that we talked about previously is held throughout the year. You know, about two thirds come from existing Macy users split between kind of former patella users and patella and condyle users. And then about a third from sort of either prior open targets who had not adopted Macy, uh, at that time. And then obviously the new, uh, arthro only surgeon. So that's kind of remained relatively consistent. And, you know, I'd say the dynamics that we see once the surgeons are trained, regardless of which bucket they come out of, uh, sort of hold true in terms of obviously increasing if they're new, uh, but even sort of former users, uh, increasing both biopsy and growth rates. And then particularly when they start doing arthro cases, their growth rates for both biopsies and implants are even higher. And their conversion rate was higher for the year as well.

So all obviously very encouraging trends for us as we move forward.

Thanks, Nick. We'll go next to Mike Krakke with LeeRank Partners.

Hi, guys, this is Sam on for Mike. Can you hear me? All right. Yeah, good morning. How are you? Yeah, doing good. Thanks, guys. So just, you know, during your 3Q25 earnings call, I think you had mentioned that 20% growth for Macy would kind of be a good starting point for fiscal 2026. But the current guidance kind of implies growth slightly below that at roughly 18% at the midpoint. Is this just a function of, you know, kind of 4Q being a little bit better than expected? And is there anything that materially changed from then versus now when you, you know, issued the new guidance here?

Yeah, so I'll start. I mean, I'll just give a quick update on the guidance, you know, maybe overall. And I would say just on that last part, I mean, nothing's certainly materially changed. You know, I think, you know, if anything, we probably, you know, really ended the year a bit stronger, you know, across the business, which was great. So, you know, just in terms of the guidance framework, you You know, I would say, you know, if you look at both franchises, you know, it's really consistent with the commentary we gave in the last call. So, you know, on the Macy's side, you know, the guidance is kind of in that low to mid $280 million range. That's, you know, consistent, I think, you know, right on top of consensus or very close. You know, we talked about in the last call having that similar year-over-year incremental growth, you know, which I think accomplishes as well kind of the midpoint of that range in the 283 range. 282 or 283 is right in line with last year, which is about a $42 million increase. You know, I'd say on the specific question around the 20%, I mean, obviously there's a range around Macy. You know, we want to be prudent to start the year. But, you know, what we said in the last call, in addition to having that similar incremental growth, was, you know, I think coming into the call, you know, there were analysts kind of on either side of that number. And, you know, I think we were comfortable with something at that range. But I think we tried to be clear that we were not going to guide above that. You know, I think more than anything, it's probably just being prudent on the Macy's side, but we feel really good about, you know, the start of the year on Macy's and the full year. And then just quickly on burn care, you know, I think that's important as well. So, you know, that one's pretty straightforward. You know, we said last quarter we're going to maintain this run rate framework, which I think has worked well in the last couple of quarters in particular. You know, call it $9 to $10 million per quarter, get your $36 to $40 or $38 million at the midpoint. know one thing that is probably a bit off you know coming into the call is you know we referenced the high 30s last quarter but if you actually look at external estimates the kind of more into the lower 40s so you know that's obviously impacting both burn care and the total company you know external starting points so you know did want to point that out so you put that together i think we have a nice balanced guide and you know something around You know, call it, you know, mid 280 or the middle of that range rather and high 30s and burn carrier probably around 320 or so at the midpoint, which we think is a very balanced starting point. And then just briefly on Q1, because I think that's important as well, you know, in the context of the guide. So just to reiterate what we said in the call, you know, we think we're off to a great start, you know, on track to exceed 20% as a company for the quarter. you know, the Macy metrics have been really strong and we are guiding Q1, you know, higher than, you know, we've trended and certainly higher than we've guided, you know, in the last couple of years. So obviously feel good about Macy and, you know, Burn Care has had a strong start as well. So very much on track to that, you know, run rate for Q1. So we think that sets us up well. And then, you know, lastly, just, you know, on the Macy question and just generally, you know, I think as we talked about in the last call, you know, I'd say we just want a very, I would say, prudent and disciplined start of the year in our initial guide. So, you know, Macy has a ton of momentum. We have a number of initiatives, including the increased sales force. You know, we did see some inflection in some of our growth drivers in the second half, but, you know, we're not baking any of that in. We're assuming, you know, pretty similar trends on a four-year basis. And similarly, I would say on the burn care side, you know, there's certainly an opportunity for incremental growth. Dariush Mozaffarian, Barta revenue. You know, I think that's a reasonable possibility or not baking that in. So, you know, I think it's prudent on both franchises. Dariush Mozaffarian, And just one last point on Macy, you know, we did make the comments, you know, Dariush Mozaffarian, If you look at the full year growth rate at the midpoint of that range. It's actually right in line with our Q1 guide. And so we felt like starting the year with not only a similar mix of business because we know our business is seasonal but also pretty essentially consistent growth rates, really the same growth rate across all four quarters was a good way to start the year. And I think positions us really well to potentially outperform on that if we execute well. But I think it's a prudent way to start the year, again, just given the seasonality of our business.

Understood. Thanks for the call, guys. Thank you.

We'll go next to Richard Newiter with Truist Securities.

Hi, this is Felipe on for Rich. So just on the Salesforce expansion, you know, you guys pretty quickly expand or expand your territories about 30% in the last couple of months. I'm just wondering, like, just talk me through like rep ads and the strategy for the year. And I guess like how does you expect those new territories to ramp? And then just the second question, if you could give some guidance and expectations for free cash flow ramp for the year, that would be helpful. Thanks so much.

Yep. Hey, it's Nick. I'll start with the Salesforce expansion. Well, you know, and obviously we're really excited about the expansion. As you will recall from last year, you know, we decided to accelerate the expansion into Q4 because we wanted to support what we knew were going to be significantly higher volumes in Q4 and make sure that we were positioned to take advantage of this momentum in Macy for the entire year and not kind of have the Salesforce expansion in the first third of the year. So really excited about that. Obviously, the larger footprint, as I mentioned on my prepared remarks, will increase our reach across the surgeon base and really gives us an opportunity to drive expansion of surgeons and deeper penetration in our existing surgeons. And I would just say, you know, I think the team executed flawlessly on the expansion. Obviously, people outside of the company can worry about disruption when you're expanding the sales force in your largest quarter. So, you know, great job by ourselves and commercial leadership team to execute and put a plan in place. great job by both the new and existing reps in the fourth quarter to not only drive our highest quarter ever, but to position us well as we come into 2026. And, you know, as we mentioned earlier, these are extremely experienced and talented reps that we think together with, you know, our existing sales force are going to drive strong performance as we move forward in through the year. So, you know, that's an important piece of it. I mentioned on the call that, you know, we expect our rep productivity to kind of get back to last year's level as quickly as next year. So really excited about the opportunity for Salesforce expansion and what it's going to mean for our business.

Yeah. And then in terms of kind of the sort of cashflow question, I think probably the best way to think about We're not guiding to that specifically, but obviously we think we are in an inflecting cash flow position, which is great. I think generally, I think what we talk about is our adjusted EBITDA as a good proxy for operating cash flow. It doesn't always line up because there could be collections at the end of the year and some timing differences, but kind of over time that tends to be a pretty good proxy for the most part. And then you can kind of look at our you know, run rate on the capex side in the last couple quarters, it's been in the low single-digit millions. Obviously, much lower as we've gotten back to more of a steady state, you know, after getting through the building project. So that's probably the right way to think about it, but, you know, we don't have a specific number we've guided to there.

And we'll move next to Mason Carrico with Stevens.

Hey, good morning guys and thanks for taking the questions in the context of your Macy outlook for this year and recognizing your comments. Joe that leaves some room for upside. How should we think about what's baked in in terms of the larger sales force conversion rates? Maybe surgeon growth that's in the guide today?

Yeah, so good morning, Mason. So, you know, I think it's, you know, again, from a Macy perspective, I think we wanted to start the year with a very balanced view. Obviously, Q1's off to a good start. And so, you know, I think as you think about the key growth drivers there, as I said, I would say, you know, you can think of those as, you know, similar on a full year basis, whether you're talking about, you know, kind of some of the key biopsy drivers or whatnot, you know, You know, I wouldn't say there's anything specific we're kind of baking in, in terms of, you know, the new sales force. I think it's probably more just overall looking at the overall trends. You know, to kind of Nick's earlier point, you know, I think we have pretty high expectations of, you know, our new ads and are excited about just the increased reach and frequency we're going to have. So we do think that can be impactful over time. But, you know, we're actually not really baking anything into the guide. And, you know, obviously it's a long sales cycle, so you want to have a little bit of um you know patience there but you know obviously at the same time we expect that to kind of get back to you know our productivity rates pretty quickly so you know i think there's certainly an opportunity if the teams can do a good job to help drive that out performance but nothing specifically we've baked in you know assuming kind of any sort of inflection and trends okay thank you for that um

Would you be able to share any thoughts or anything you can point us to on how conversion rates for Macy tracked over the course of 2025? What proof are you seeing that Arthro might be able to improve the conversion rates and really shorten that time from biopsy to implant? Thanks for taking the questions.

Yeah, so I think on an overall basis, you know, as Joe mentioned, that conversion rates, you know, were relatively stable for the year. But as I mentioned, you know, within that segment of Macy arthro trained surgeons that actually performed a case. Again, we see higher biopsy and implant growth rates than Macy-Arthro trained surgeons generally, which are higher than the overall average. And then we do see higher conversion rates for those Macy-Arthro implanting surgeons as well. So that's the evidence, as I mentioned on my earlier remarks.

And we'll move next to Jeffrey Cohen with Leidenberg Thalmann.

Hey, good morning. Thanks for taking our questions. So, in particular, could you unpack OPEX a little bit for your 26th guide? I'm curious on the Salesforce expansion from last year. Is there any pull-through or any anticipated expansion to this year and R&D as well?

Yeah, so, you know, I think we gave guidance at the total company level. So, we said, you know, approximately $220 million on a full-year basis in OpEx. Probably the easy way to think about that is, you know, call it, you know, $55 million a quarter, pretty consistent, including the first quarter. You know, I think to your kind of question and point, I mean, one thing we've been talking about is as we move into 26, you know, there are some incremental costs that are going to flow through the P&L, including on the OpEx side. So, To your question on the SG&A side, certainly it's the expansion of the sales force. So, you know, it's roughly 30 people. You know, you can think of that as, you know, probably something in the $10 million range on an annual basis. And then, you know, I'd say a pretty meaningful increase on the R&D side as well as part of that, where you can think about, obviously, the ankle trial, which was kind of in a startup phase is now, you know, thinking kind of more sites and patient enrollment and whatnot. So those are really the two key drivers from an OpEx perspective. that we baked in on a four-year basis.

Okay, and then as follow-up, with the arthro surgeons out there, the anticipation for 26 is being driven by new surgeons or repeat surgeons? Are you going, are there a thousand more surgeons to reach this year, or are you seeing more drive from existing physicians?

Hey Jeff, it's Nick. As I mentioned in my remarks, I mean, the Salesforce and Macy Arthro combined, you know, give us a greater reach on the Salesforce side. And then with Macy Arthro, you know, we expect to continue to train surgeons. But, you know, we're really focused given the dynamics you see with those trained and implanting surgeons on sort of the depth of penetration that you can achieve and with those um surgeons in their practice and so you know that that is a meaningful piece of what we're doing we've already trained you know a good portion of our you know existing macy users again i think we'll continue to uh to do that and it'll bring new surgeons into the fold with macy arthro but again getting depth uh into those practices is is really a key growth driver and and the subject of a lot of our commercial excellence initiatives that we referenced earlier on the call.

Got it.

Thanks for taking our questions.

Thank you.

We'll move next to Caitlin Roberts with Canaccord Genuity.

Hey, guys. It's McKayla on for Caitlin. Thanks for taking the questions. Our first one is, are you continuing to see dormant epicell accounts reactivated given NexoBrit, and what does the next stage of NexoBrit adoption look like, if you can give any more color there?

Yeah, so we definitely see, you know, more epicell dormant accounts. So that has continued as we've sort of, I think, just by way of reference, you know, we now have our entire network Burn care team of 17 territories cross selling both products. So you certainly see additional dormant accounts each year coming on board again. It's a pretty sporadic. Patient base and so you know you can have hospitals that may or may not see a patient in that particular year, but we definitely are bringing on additional episode accounts and then on next You know, we're continuing to see, you know, obviously changing the standard of care takes time, but we're continuing to see progress there. You know, we launched the product with about 90 target accounts. To date, over 70 accounts have actually placed orders for Nexabrid. So, you know, good penetration on the overall number of accounts. as we've talked about on prior calls it's really about how do you move all of the accounts up the curve to be consistent users which you know is what we're in the process of doing so you know we remain sort of optimistic on what nexa bird can do as we move forward uh and as joe mentioned you know while we're not baking any sort of barter award revenue into our guidance uh you know we think that is a strong possibility for the year. And if so, that will reinforce Nexabrid as a standard of care in addition to sort of, you know, some important financial enhancements for the company as well.

Great. That's helpful. Thanks. And then maybe just another quick one from us. Do you have any updates on when the Macy-Arthro 2.0 insurance will be launched and maybe what improvements you're making?

Yeah, so, you know, that's an ongoing process. You know, we wanted to have Macy Arthro instruments on the market for a sufficient period of time, you know, in the first year. And then, you know, gather feedback on enhancements that would be most important to continue sort of a journey of making improvements. macy arthro a simpler uh less invasive procedure so i'd say we're kind of gathering up that market input now um depending on changes you know these things can be you know by the time you develop new instruments go through the sort of validation process the approval process etc you know it's a call it an 18-month or more process. So, you know, that would suggest maybe next year, probably at the earliest, that we would have additional enhancements.

Great.

Thank you.

We'll move next to RK with HC Wainwright.

Good morning, Nick and Joe. Just a quick question on gross margin. So you recorded 79% gross margin in the fourth quarter, but the 2026 guidance calls for a margin of 75%. So I'm just trying to understand the 400 basis point compression. Is that coming from trying to get the manufacturing startup activities going? or is it some amount of depreciation baked into it? And when all is said and done and the MESI manufacturing is completely transitioned into the Burlington facility, what could be the steady state margin profile?

Yeah, so good morning, RK, and thanks for the question. You know, I would say, you know, just a reminder, you know, when we talked about the 79% margin, that's based on our Q4 performance in 2025. And so we do see some seasonality in terms of margins. And just because our business, you know, particularly Macy is so Q4 driven, of course, in terms of the mix of the year, we do tend to see our margins scale up in that quarter. So when you look on a kind of more apples and apples, I would say full year basis, you know, last year on a full year basis, we did 74%. you know, next year, or for 2026, rather, we're guiding to 75%, so some increase on a year-over-year basis. You know, broadly, I would say there are kind of some additional costs that we are absorbing as we move into the new facility here in Burlington, and now we have kind of multiple facilities that we're operating, but, you know, still feel like that's the right guidance assumption for the year. And then longer term, you know, just a reminder, we said on the gross margin side, you know, we think we can get into the high 70s, you know, by the end of the decade, and You know, I would say just generally kind of already being on a full year basis, you know, in the mid 70s and, you know, trending that way this year to start the year, you know, I think, you know, we're pretty well positioned in terms of that kind of long term target that's out there. And then maybe just to bring your Q4 data point back, you know, I think, you know, Q4 is helpful when you look at those margins because we tend to grow into similar margins over time as the company grows more on an annual basis. So it is a good market to look at, but again, I think on a full year basis, it is an increase on the gross margin side. It's just comparing Q4 to full year.

Thank you. One quick question on the ex-US business. So as you were stating, Nick, that you're planning to submit to the UK regulatory authorities in mid-2026, or in 2026. So how are you planning the commercial infrastructure there? Is this going to be a direct launch by you, or do you plan to enter into some sort of a partnership, you know, to initiate that business?

Yeah, thanks, RK. So, as I mentioned on, in my prepared remarks, you know, the UK is a very attractive first step for us, you know, from ACO-US expansion, because there is an expedited approval pathway, mutual recognition pathway, so that, you know, is very attractive, as well as established reimbursement pathways. And I also mentioned there's a you know, concentrated call points. So there's a dozen or so centers of excellence where patients in the UK with cartilage injuries are treated, which means it doesn't require a big commercial footprint. So we would absolutely plan to commercialize on our own in the UK.

Thank you. Thank you both for taking my questions.

Thanks, Akash. We'll take our next question from Josh Jennings with TD Cowan. Hello, can you hear me okay?

Yeah, good morning, Josh. Oh, I'm sorry. Yeah, I've got an operator in my ear. Sorry about that. I know you're not breaking out Macy Arthro contributions directly, and we're thinking about the Macy franchise holistically, but I was hoping maybe qualitative you can just share with us just whether the Macy Arthro launch in 2025 exceeded your internal expectations or in line with your internal expectations, but it seems like It's exceeded it, including what's going on in this first quarter of 2026, where you're combating historical seasonal trends and you're thinking you're going to deliver 20% growth or forecasting 20% growth of that Macy franchise here in 1Q26.

Yeah, thanks, Josh. So, yeah, I mean, I think when you look at different dimensions of the Macy-Arthro launch, I mean, surgeon training, as we said, we've now trained a substantial, you know, meaningful portion of our surgeon base, which is great. Their behavior, as you mentioned, and I've mentioned a couple times, you know, is exactly what you'd want to see in terms of increase in growth rates. And now for Macy-Arthro implanters, you know, having higher conversion rates. I'd say when you look at Macy growth overall, we had a couple hundred, nearly a couple hundred basis points of growth. And when you look at that in the context of the increase growth rate in our small condyle defect segment, it clearly accounted essentially for that accelerated growth for the year for Macy. So yeah, from that perspective, we're very pleased. obviously we entered last year with you know 150 trained surgeons we enter this year with kind of more like 900 as we mentioned um you know early in the year that's now grown uh since that time and so you know there's an opportunity if those trends continue to really sort of meaningfully uh impact the business as we move through 2026 and beyond thanks for that and then i know i was just hoping to

If you could share some details on this BARDA RFP, it sounds like the team's more optimistic that will come through. But what's left? Is it just administrative sign-off? And then I think this is in the public domain, but maybe just help us think about if that does come through, what type of revenue contributions in 2026 and beyond could this BARDA RFP deliver for Verso? Thanks for taking the questions.

Yep. So as you're aware, there were kind of three components to the RFP from BARDA. One was kind of strategic stockpiling for national preparedness and procurement revenue that would result from that. There was a desire to add additional indications for blast trauma and funding for that, and then for a room temperature stable formulation as well. So there were kind of three components to it that would flow through our income statement differently. You know that obviously was impacted by the government shutdown. Initially, as you're well aware, you know there were parts of funding for 2026 that were pushed out to the end of January, and it's that's still an ongoing issue. So while HHS was funded for the year as of the close of January, that's only, you know, a few weeks ago and so. you know obviously getting the machinery up and running takes a little time it seems um but you know we do think there's a pretty strong possibility that we'll be able to get that award done this year um and it would have the impacts that we mentioned you you know the rfp obviously set forth the stockpiling numbers, you know, starting with 2,750 units and then additional procurement down the line, you know, the exact revenue that would come out of that, you know, we're not prepared to share right now. It's obviously subject to the negotiations on pricing and so on. But, you know, as, you know, that moves forward, we can share more about that.

And that will wrap our question and answer session. I will now turn the call back over to CEO Nick Colangelo for any additional or closing remarks.

Okay, well, thanks everyone for joining us this morning. As we mentioned, the company had an outstanding fourth quarter and is very well positioned to continue to deliver What we believe is a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead. We look forward to providing further updates on our progress on our next call. So thanks again. Have a great day.

Thank you. That will conclude today's conference. Ladies and gentlemen, we thank you for your participation. You may disconnect at this time.