Vericel Corporation (VCEL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Vericel's Second Quarter 2026 Conference Call. [Operator Instructions] 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, Business Intelligence and Investor Relations.

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, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially from expectations are discussed more fully in the company's most recent filings with the SEC. Also, the discussions today will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release as an exhibit to Vericel's current report on Form 8-K filed today with the SEC. A short presentation with highlights from today's call is also 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. The company delivered excellent financial and commercial results across the business in the second quarter and achieved a number of key business objectives that position the company to continue to generate strong revenue, profit and cash flow growth in 2026 and beyond. The company generated record second quarter total revenue of more than $77 million, which increased 22% over last year and exceeded our guidance for the quarter, driven by substantial growth for both MACI and the Burn Care business. This strong revenue performance drove another quarter of significant profit and cash flow growth as the company generated GAAP net income for the quarter and over $14 million of free cash flow, ending the quarter with over $227 million in cash and investments. These results continued a very strong performance to date in 2026 as the company generated total revenue growth of 26%, adjusted EBITDA growth of 47% and nearly $30 million of free cash flow in the first half of the year. Based on these results and the significant momentum across the business, we're raising our full year revenue guidance to $330 million to $340 million, which represents total revenue growth of more than 20% at the midpoint of our guidance range. MACI had another great quarter as double-digit volume growth drove record second quarter revenue of more than $65 million, which exceeded our guidance for the quarter and represented 23% growth versus the prior year. MACI's trailing 4-quarter revenue growth of 23% is significantly higher than its 19% growth in the prior 4 quarters as we continue to execute on our strategic initiatives to deliver sustained high revenue growth for MACI. To that end, we're leveraging our larger MACI sales force to drive growth in new MACI users and deeper penetration within our current MACI surgeon practices. We continue to leverage MACI Arthro to expand overall MACI utilization, and our medical team has made significant progress in generating clinical data demonstrating the potential for improved patient outcomes with the less invasive MACI Arthro procedure. Our commercial excellence initiatives, together with strong execution from our MACI sales team led to double-digit biopsy and implant growth, record second quarter biopsies, implants and biopsy and implanting surgeons as well as the second highest number of biopsies and biopsy surgeons in any quarter since launch. Burn Care second quarter revenue increased 22% to $12 million, which was above our guidance range for the quarter and represented one of the highest Burn Care revenue quarters to date. Epicel had another strong quarter, and NexoBrid had its highest quarter of revenue, ordering centers and total hospital unit sales to date, continuing the trend of strong overall Burn Care results over the past 4 quarters. In terms of our longer-term growth initiatives, we remain on track to relaunch MACI outside the United States and submitted a MACI marketing authorization application in the U.K. in the second quarter, which, if approved, would enable the company to potentially launch MACI in the U.K. in 2027. We also continue to activate sites in the MACI ankle MASCOT study and began enrolling patients in the study in the second quarter. Finally, as part of the company's capital allocation strategy to maximize long-term shareholder value, this morning, we announced that our Board of Directors has authorized a $200 million share repurchase program. Our financial outperformance, robust cash generation and strong balance sheet position the company to continue to invest in our near- and long-term growth initiatives across all areas of our business and to opportunistically return capital to shareholders. Our significant ongoing investments, together with the launch of the company's first share repurchase program reflect our confidence in the sustained growth trajectory for the company in the years ahead. I'll now turn the call over to Joe to discuss our second quarter results and our updated 2026 guidance in more detail.

Thanks, Nick, and good morning, everyone. Company had a very strong second quarter across all key financial measures, including top line revenue, bottom line profitability and cash generation metrics. Total revenue increased 22% to $77.5 million, which was significantly above our guidance range for the quarter, driven by strength in both commercial franchises. MACI's momentum continued with double-digit volume growth and record second quarter revenue of $65.5 million, representing 23% growth versus the prior year and also marks the fifth consecutive quarter with MACI growth of 20% or more. Burn Care revenue was approximately $12 million with Epicel revenue of $10.4 million. And of note, Epicel revenue of more than $21 million in the first half of the year represents the second highest Epicel revenue total over a 6-month period since launch. NexoBrid revenue of more than $1.5 million was the highest quarterly revenue since launch, which increased more than 30% versus both the prior year and the prior quarter as NexoBrid utilization continues to increase. The company also delivered strong profitability metrics for the quarter with gross margin of 73% and adjusted EBITDA margin of 19%, both of which were above our guidance for the quarter. In addition, the company delivered GAAP net income for the first time in a second quarter with net income of $2.2 million. Finally, the company generated operating cash flow of $16.2 million and free cash flow of $14.3 million, representing the fourth consecutive quarter with free cash flow of $12 million or more. We ended the quarter with approximately $227 million in cash and investments, an increase of over $60 million compared to the end of the second quarter last year as the inflection in cash generation continues following the completion of our new facility. With the strong second quarter results, the company has generated significant top line, bottom line and cash generation growth across the business throughout the first half of 2026. And over the last 4 quarters, the company has generated total revenue growth of 23%, adjusted EBITDA growth of nearly 40% and $62 million in free cash flow as we continue to elevate the company's top-tier financial profile. Turning to our financial guidance. Based on the company's strong results across the business, we are increasing our full year total revenue guidance range to $330 million to $340 million for the year, which represents total company revenue growth of approximately 19% to 23%. After another very strong quarter for MACI, we are raising full year MACI revenue guidance to $284 million to $290 million, compared to the prior guidance of $282 million to $288 million. We are also raising full year Burn Care revenue guidance to $46 million to $50 million compared to our prior guidance of $44 million to $48 million. For the third quarter, we expect total revenue of approximately $76.5 million to $78.5 million with no change to our third quarter or second half revenue guidance framework for either franchise compared to prior guidance. At the midpoint of our guidance, this implies approximately $65.5 million of MACI revenue in the third quarter with high teens growth versus the prior year. For Burn Care, the midpoint of our third quarter guidance assumes approximately $12 million of total Burn Care revenue, which maintains our core commercial Burn Care guidance framework and includes approximately $3 million of BARDA procurement revenue. Moving down the P&L. For the full year, we continue to expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%. For the third quarter, we expect gross margin of approximately 71% to 72% and adjusted EBITDA margin of approximately 21% to 22%. Finally, we are pleased to announce our $200 million share repurchase program. This program, which reflects the company's significant cash generation and overall financial strength enables the company to continue to invest in both near-term and long-term growth initiatives and to opportunistically return capital to shareholders as part of our capital allocation strategy to maximize long-term shareholder value. Overall, 2026 is set up to be another strong year for the company. Our recent financial results continue to demonstrate the company's unique combination of sustained high revenue growth, profitability and cash generation. As we look ahead, we believe that the durable growth of our portfolio positions the company to sustain strong top line growth and supports our midterm revenue and profitability targets with significant cash generation. This concludes our prepared remarks. We will now open the call to your questions.

[Operator Instructions] We'll take our first question from Richard Newitter of Truist Securities.

Congrats on a great quarter here. I guess maybe just to start, the MACI acceleration, especially when you look at it on a 2-year stack, I mean, it's notable. And thank you for providing the last 12-month lookback trend because you could see the step-up there. So I guess maybe you could just go into a little bit of what's driving the step function increase? Is it MACI Arthro something in the underlying market? Or would love to just hear how durable. And if you could also address price and volume in that.

Rich, it's Nick, and I'll start. And I appreciate the comments. As we've talked about over the past several quarters, I'd say about this time last year, we were talking about being very proud to be on a path to $0.25 billion in revenues and similar for MACI and what we need to do to make sure we remain on track to reach $0.5 billion by the end of this decade, which has really been our focus. And so I would say at this point, it's really a combination of the fact that we increased our MACI sales force. We obviously launched MACI Arthro, which has had an impact, really spent a lot of time on the commercial excellence initiatives that have really elevated the execution of our MACI's commercial team and really doing the same thing on the Burn Care side. So I would say we're obviously seeing those results now. As I mentioned in my prepared remarks, our trailing 12-month growth rate is 23% versus 19% before that. So that's exactly what we had wanted and expected to see out of all the initiatives that we've talked about over the past several quarters.

Yes. And Rich, this is Joe. I mean just to add from a kind of price volume perspective, I think it's a pretty similar kind of mix that we saw over the last few quarters and very similar to Q1, where we saw strong biopsy growth, which, of course, is important. That's the key contributor to the pipeline. That translated into another quarter of strong double-digit implant growth similar to Q1 and strong pricing as well. So you kind of net that together and another strong quarter. And as Nick said, really, I think the execution from a team perspective has really elevated in both franchises, but obviously, the MACI results have been strong.

That's helpful. If I could just tag one on, on pricing durability. I mean, it's clearly part of the growth algorithm. And it looks like it's been sustainable for quite some time. About high single digit to low double digit is kind of what it feels like your pricing in any given year is contributing on MACI. What can you tell us as to why that's durable? Or what gives you confidence in the sustainability of that going forward?

Yes, Rich. So we talked a lot about this on the last call that MACI is in a pretty unique position. It's regulated as a combination device biologic advanced cell therapy by the FDA. And when you think about the rigorous pricing research that we regularly do and kind of how payers and hospital administrators think about the product, we're really well positioned. So compared to other cell and gene therapies, as we talked about, MACI's price is significantly lower than other cell therapies like CAR-T therapies that can be in the $0.5 million range or gene therapies in the $1 million-plus range. And so on a unit basis, it's significantly lower than those similar technologies. And when you look at the overall spend in any given category, whether it's those kinds of advanced cell or gene therapies, which are in the billions of dollars or even in our space of total knee, total hip, total shoulder replacements, the overall spend to any particular payer or system is very low compared to other areas in our space. And so I think for that reason, we remain well positioned. And as we talked about in our most recent market research, it suggested that those kind of similar price increases that we have been taking really over the past decade since we launched the product, we would expect those to continue over the next several years. So we've been very, kind of, clear that MACI is clearly a volume and price growth story for the foreseeable future.

We'll take our next question from Josh Jennings of TD Cowen.

Congrats on a good quarter. Just wanted to expand on guidance quickly. Certainly, I appreciate the 2-year stack perspective. But just looking at this year in isolation, you had a really strong 1H, but 2H implies a little bit of a slowdown across the board. I wanted to hear your comments there and just had a quick follow-up.

Yes. This is Joe. I'll take that one. So yes, I'd say from just a quick guidance update, I think pretty straightforward kind of similar to what we talked through last quarter. So obviously, a strong second quarter, beat by more than $2 million in each franchise. And on a full year basis, essentially incorporating that beat in total and in each franchise. So that's the full year update. And I think to your question, I think one thing we want to maintain is I think we've had a good guidance framework that's worked well for the company, and we want to keep that in place for the remainder of the year. So I'd say we're just trying to be prudent. Our assumptions in the second half have not changed or our guidance commentary rather. So whether you look at Q3 or Q4 in the MACI side, you're kind of in that high teens growth rate is kind of our guidance framework assumption. Similar on the Burn Care side, where I think last quarter, we pointed to essentially $12 million per quarter is kind of the right way to think about the back half, and that has not changed. So we pointed to $12 million in the third quarter, which is kind of $9 million core and $3 million BARDA, a similar assumption for the fourth quarter. And then just back to MACI and just maybe the framework, we talked about in terms of Q3, we have a revenue range out there. And obviously, there's some different scenarios. But probably a good midpoint again, is just to keep that high teens assumption on MACI, call it, around $65 million or so. And then again, Burn Care at around $12 million. So I think that's consistent. And then I would say kind of to your question, obviously, over the last 6 months to start the year and really going back to last year, we've had a number of strong quarters. And the reality is if the team continues to execute well from a MACI perspective, we have a strong pool of biopsies. The indicators are strong. We think we should be set up very well in the second half, certainly to meet our guidance and hopefully to outperform it. So that's certainly the goal. Our internal expectations remain higher. And I would say somewhat similar on the Burn Care side, which is -- that's obviously a more difficult market and franchise to predict. But we have seen a few quarters now of some consistent results on the Burn Care side have been a nice improvement. So just generally, I would say, to your question on kind of a decel in the second half, I mean, that's more of a guidance framework assumption, which I think is the right place to be and to be prudent on that. But again, our internal expectations remain higher and clearly, we're running at higher levels now.

Excellent. And just to clarify, it's John on for Josh. And then just moving to profitability on adjusted EBITDA. nice improvement there, strong quarter. Moving also to kind of an LRP question, you are aiming for high 30s adjusted EBITDA margin by 2029. What does that ramp look like given that implies considerable expansion over the next couple of years, particularly in the framework of current year guidance?

Yes. So I mean, in terms of our midterm targets generally, I feel like we're on track, whether it's revenue or the margin targets. I think what you're seeing, just as a reminder, in this calendar year is we're kind of adding [audio gap] 12 months, whether it's the sales force expansion, kind of the ramp-up of the ankle trial, some of our ex U.S. spend, et cetera, that's certainly contributing. And then, of course, on the gross margin side, which impacts EBITDA as well, kind of adding the cost for our new facility. So this is a bit of a kind of transition year on the P&L where we still expect some modest expansion and to expand a little bit in H1 from a margin perspective. But I would generally say we would expect once we kind of get through '26 and into '27, we'll probably get into those more significant year-over-year increases on the adjusted EBITDA side and start to see that leverage flow through. And then again, when you get towards the end of the decade, you probably see things like the ankle trial will start to wind down, for example. So that will help as we get there as well.

We'll take our next question from Ryan Zimmerman of BTIG.

Can you hear me okay?

Yes.

Congrats on the quarter. This is the first share repurchase authorization in the company's history. I'm wondering, Nick and Joe, how do you think about the use of that? I mean, is this something that you're using to offset maybe stock-based comp? Is it to hold the share price at a certain level? And just how do you think about it in the context of like your cash between that and then growth initiatives or M&A and kind of -- because if I think about kind of, again, the company's history, I mean, you guys have been on the hunt for additional assets for some time and just trying to understand what that means in the purview of -- in that context, I guess.

Ryan, it's Nick. Thanks for the question. I would just say that our capital allocation priorities remain the same. It's always about funding internal growth opportunities. And as we've talked about pretty consistently, our new facility where we made about $100 million investment and our cash still increased while we were doing that was really the biggest CapEx investment we were going to need to make to achieve our growth objectives. And with that behind us, you can see sort of the inflection in cash generation, free cash flow, et cetera, which will only ramp up as we move forward. So our internal funding of growth opportunities really falls within our operating plan. We've always aggressively invested for growth, whether it's a sales force expansion, expanding outside the U.S., doing the MACI ankle study, commercial excellence initiatives across the board, and that's not going to change. Secondly, we obviously have nearly $0.25 billion in cash now. And again, that's going to continue to ramp. We continue to look for M&A opportunities, additional product opportunities. We obviously built the company on business development transactions. So that's kind of in our core DNA, and that won't change either. But again, with kind of the performance of the business, our strong balance sheet, doing a share repurchase program where we can opportunistically return capital to investors, we can do both. So it doesn't change our overall capital allocation strategy, and it's just a reflection of the confidence that we have in our continued long-term growth.

Fair enough. And I guess there's a couple of questions I have. I'll try and keep it to just one. But -- when you think about your push into Europe, I'm curious if you can talk about what you think or what reimbursement looks like, how you think about pricing, how you think about the impact to margins as we potentially have the U.K. launch into 2027?

Yes. As we talked about on our last call, the U.K. opportunity is a great beachhead for us. MACI's got a lot of brand recognition, surgeon advocacy in Europe and particularly in the U.K. Those were the surgeons. MACI was developed in Europe. It was on the market in Europe. Those surgeons actually came over and trained our U.S. surgeons when we launched the product back in 2017. So very strong advocacy and desire to have MACI back in Europe and the U.K. in particular. From a commercial execution standpoint, it's a very concentrated market there with a dozen or so centers of excellence where patients in the U.K. and the national health system will be treated for cartilage injury. So that's great. And then there was the reimbursement and pricing. Back in the late teens, there actually was a review of ACI technologies and a positive opinion from NICE that had pricing that was certainly -- it's lower than the U.S., but certainly acceptable for us. We're going back. That's the next step. As we mentioned in our press release this morning, we submitted our marketing authorization application to the U.K. in the second quarter. So we remain on track for an approval, hopefully, by the end of the year and a launch into next year. Part of that whole process is a submission for a single technology assessment by NICE. So we'll go through that process again. And we expect, given the prior history and then the additional long-term data we have from MACI and some other changes sort of in that market that reimbursement will be at a range that will be sort of attractive to the company. That's important because other European countries will use that as a reference price, Canada, et cetera. So obviously, we wouldn't be doing this if we didn't think we would get pricing that would make sense for us outside the U.S.

Yes. And Ryan, just to add on your kind of P&L question, I would say, generally, I mean, this is going to fit in well with our margin profile. We can use some of our capacity and at times, excess capacity here in Burlington. So we expect that to fit in well with our margin profile. And then I think particularly starting in the U.K., I mean, as we talked about, a very concentrated market. So it's not going to be a huge kind of uptake in terms of kind of FTEs or to kind of get into that market from a kind of market model perspective or go-to-market perspective, I should say. So not huge investments on the sales and marketing side. So we think this will fit in well on the margin side in general for the company and obviously, hopefully, can scale over time.