Vericel Corporation (NASDAQ:VCEL) Q1 2024 Earnings Call Transcript May 8, 2024
Vericel Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Vericel’s First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Eric Burns, Vericel’s Vice President of Finance and Investor Relations.
Eric Burns: Thank you, operator, and good morning, everyone. Joining me on today’s call are Vericel’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 forward-looking statements covered under the Private Securities 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 with 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 first quarter financial results press release in a short presentation with highlights from today’s call are available in the Investor Relations section of our website. I will now turn it over to Nick.
Nick Colangelo: Thank you, Eric, and good morning, everyone. I’ll begin today’s call by discussing our financial and business highlights for the first quarter as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of our first quarter financial results and guidance for 2024 before opening the call to Q&A. We entered the year with a great deal of momentum after an outstanding close to 2023 and that momentum continued through the first quarter as we delivered another quarter of top tier revenue growth, including record first quarter total revenue and significant growth in profitability. Total revenue for the quarter increased 25% to more than $51 million which was above the top end of our guidance range with record first quarter MACI revenues and more than 60% growth in Burn Care revenue.
This strong top line growth translated into significant margin expansion and profit growth as we generated record first quarter gross margin, which increased more than 400 basis points compared to last year and adjusted EBITDA growth of more than 300% as the company’s profit growth continues to outpace our high revenue growth. Based on the strong start to the year, we’re increasing our full-year revenue guidance to $238 million to $242 million. MACI had another excellent quarter with revenue growing 18% to more than $40 million which was above the top end of our guidance range for the quarter. MACI’s first quarter performance was driven by strong underlying business fundamentals, as we continue to expand the MACI Surgeon customer base and drive growth in biopsies.
While the first quarter typically is the seasonally lowest quarter of the year, we had the second highest number of MACI biopsies and surgeon taking biopsies in any quarter since launch behind only the fourth quarter of last year, making the last two quarters the highest quarters ever on both of those metrics as our sales and marketing teams continue to execute at a very high level in building a strong foundation for continued MACI growth. To that end, surgeon interest and engagement with MACI remains high as the number of peer-to-peer programs and training labs for MACI more than doubled and overall program attendance more than tripled in the first quarter compared to last year. The high level of surgeon interest is driven by the strength of MACI’s long-term clinical outcomes, which were highlighted in a study published in the American Journal of Sports Medicine in the first quarter.
This prospective study showed excellent long-term results for MACI patients treated for both patellofemoral defects, where we currently have our highest penetration rates as well as femoral condyle defects, which is the focus of the MACI Arthro program. Pre-launch commercial activities for MACI Arthro continue to progress in advance of our anticipated launch in the third quarter of this year. In connection with the launch we’re expanding our target surgeon base from 5,000 to 7,000 surgeons to include surgeons that perform high volumes of cartilage repair predominantly through arthroscopic procedures. Based on our experience to date, we’d expect to achieve more than 50% penetration of this larger target surgeon base over time, meaning that surgeon adoption and biopsy growth will continue to be important growth drivers for MACI in the years ahead.
In addition, MACI Arthro instruments target smaller cartilage defects that comprise the largest segment of our addressable market representing approximately 20,000 patients per year or one-third of the $3 billion addressable market for MACI. We believe that MACI Arthro will take a greater share of these procedures and provide significant upside growth opportunity for the company. We also continue to advance the MACI development program to treat cartilage defects in the ankle and remain on track to initiate the MACI Ankle clinical study in 2025. Cartilage defects in the ankle represent the second largest market opportunity for MACI. We believe that potential ankle indication with an estimated $1 billion addressable market could be another significant growth driver for MACI in the next decade and beyond.
Turning to our Burn Care franchise, first quarter revenue increased more than 60% to over $11 million as we delivered another quarter of high revenue growth with total Burn Care revenue above the high end of our guidance range. Epicel revenue grew 56% to over $10.5 million in the first quarter, representing the second highest quarterly revenue ever for Epicel. Epicel continues to benefit from our expanded sales force and a higher share of voice in the care market as there was a meaningful contribution to Epicel revenue in the quarter from new or dormant accounts. NexoBrid launch momentum continued during the quarter as we made significant progress with respect to burn center key performance indicators and growth in underlying NexoBrid demand metrics.
Through the end of the first quarter, more than 60 burn centers have completed P&T committee submissions, approximately 40 centers have gained P&T committee approval and more than 30 centers have placed an initial product order. In addition, there was a significant increase in the number of patients treated with NexoBrid in the first quarter and significant growth in the number of burn center orders and NexoBrid units ordered by hospitals versus the prior quarter. We remain very pleased with the strong surge in interest in NexoBrid as was demonstrated by the high level of attendance and engagement at NexoBrid events at the recent American Burn Association Annual Meeting, the progress in onboarding burn centers, the excellent clinical outcomes and positive feedback from surgeons treating patients and the clear impact that our broader burn care portfolio and expanded sales team is having on Epicel performance.
We believe that these factors will enable the company to build a strong foundation for NexoBrid in 2024 and that the company is now very well positioned to deliver sustained growth with the second high growth franchise in place. Overall, the company delivered another strong quarter and based on the strength of our core portfolio and the expected contributions from our new product launches, we believe the company is very well positioned for continued high revenue and profit growth in 2024 and beyond. I’ll now turn the call over to Joe.
Joe Mara: Thanks, Nick, and good morning, everyone. Starting with our first quarter results. Total net revenue for the quarter was $51.3 million representing 25% growth over the prior year, which was above the top end of our guidance range for the quarter. MACI revenue increased 18% to $40.2 million and total Burn Care revenue increased 63% to $11.1 million both of which exceeded our guidance for the quarter. Epicel revenue was $10.7 million, an increase of 56% versus the prior year, which represented the second highest quarterly revenue for Epicel to date. NexoBrid revenue was $0.4 million which as anticipated was similar to revenue in the fourth quarter. While underlying arthro orders and units grew significantly versus the prior quarter, As previously noted, specialty distributor and ordering patterns as well as inventory dynamics can impact quarterly revenue results.
Gross profit for the quarter was $35.4 million or 69% of net revenue, an increase of more than 400 basis points versus the prior year and the company’s highest first quarter gross margin to date. Pull through of incremental revenue to gross profit also remained very strong in the first quarter at more than 85%. Total operating expenses for the quarter were $40.8 million compared to $34.7 million for the same period in 2023. The increase in operating expenses was primarily due to development activities for MACI arthroscopic instruments, increased headcount and related employee expenses and lease expense associated with the company’s new facility that is under construction. Net loss for the quarter was $3.9 million or $0.08 per share compared to $7.5 million or $0.16 per share for the first quarter of 2023.
Non-GAAP adjusted EBITDA for the quarter increased 325% to $7.2 or 14% of net revenue compared to $1.7 million or 4% of net revenue in 2023. As adjusted EBITDA growth continued to significantly outpace our high revenue growth. This increase in adjusted EBITDA margin of approximately 1,000 basis points and what typically is our seasonally lowest quarter of the year clearly demonstrates the strong P&L leverage and the top tier profitability profile for the company. Finally, the company generated $7.2 million of operating cash flow in the quarter and ended the first quarter with $148 million in cash, restricted cash, investments and no debt. Turning to our financial guidance. After a very strong start to the year, we are increasing our full-year total revenue guidance to $238 million to $242 million or 20% to 23% total revenue growth.
For the quarter, we expect MACI revenue to be approximately $42.5 million. For Burn Care, we expect total revenue in the second quarter to be approximately $10 million with another strong Epicel quarter above our 2023 quarterly run rate and sequentially higher NexoBrid revenue. Based on our second quarter guidance, the trailing 12-month revenue growth rate will be above 20% for MACI, Burn Care and total company revenue as we continue to drive high top line growth across both of our franchises. For the full-year, we continue to expect gross margin of approximately 70%, adjusted EBITDA margin of approximately 20% and operating expenses to be approximately $165 million. For the second quarter, we expect gross and adjusted EBITDA margins to be in a similar range to first quarter margins.
The company had a very strong start to the year with 25% top-line growth in the first quarter and significant profitability growth and margin expansion. In addition, on its trailing 12 month basis, the company has delivered 23% total revenue growth and 74% adjusted EBITDA growth, demonstrating sustained high growth in the top line and the bottom line as we continue to significantly enhance the company’s financial profile. Overall, we believe that the company is very well positioned for another strong year in 2024 and has a solid foundation in place for continued strong growth in the years ahead. This now concludes our prepared remarks, and we will open the call to questions.
See also 15 Best Places to Retire in Rhode Island and 10 Stocks Hedge Funds Are Talking About.
To continue reading the Q&A session, please click here.