VCEL - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Vericel Corporation Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode.

Following managements prepared remarks, we will have a question-and-answer session and instructions will be given at that time. [Operator Instructions] And As a reminder, today's conference is being recorded for replay purposes. It is now my pleasure to turn the conference over to your host, Gerard Michel, Chief Financial Officer. ahead. go Please

Gerard Michel

and quarter operator, results. everyone. to Welcome Thank conference good call second XXXX financial to Vericel's you, afternoon, discuss our

Before projections forward-looking remind we more we actual Act of Private and may me our today. on risks all Reform statements begin, and call of represent also and today's described judgments our cause Securities These you that could expectations Litigation from statements will forward-looking covered are statements that involve making XXXX, under in and the with be results of website. let filings differ as that to which our the fully are uncertainties our SEC on available

be any any views Nick. represent Officer. In forward-looking Executive relied I will Vericel's date. as subsequent our to our as turn statements Dan of call Chief and Operating representing Colangelo, us Officer; are as Nick only and over call our Orlando, the on should President today's of addition, views upon With not today now and Chief

Nick Colangelo

of Carticel for recorded half increase compared the XXXX, Thank the basis I'm of to XX% continued and with for reported million first the everyone. non-GAAP a launch on record we second We that the And to $XX the half for first the in of very strong revenues MACI, impact to basis million, excluding marking reported for the consecutive were half a a and $XX MACI Xth quarter you, quarter of following start first quarter report with increase revenues GAAP our Total good XXXX record pleased of company. reserve the at another Gerard, XXXX. solid quarter. on afternoon, the quarterly revenues net a XX% XXXX.

to XXXX the $XX to-date, full million for year our revenue year a previous the guidance second of guidance for million million half in well of to this as of performance our to we’ve forecasts million. year, raised MACI $XX As growth as $XX the result from our $XX

MACI follows second to expected growth about manufacturing case performance for distribution sales heels second and Our and year force quarter, in in of increased of of the the Dan implementing increasing half and more team, the pharmacy MACI the expanded management forecast network well forecast expanding the the demand. provide growth our support and MACI will drivers remainder Gerard our as capacity as the year. details for the on

completed financial million as We June. also the significantly of in the result strengthen a that offering position company’s we $XX.X public

of operations our sufficient revenue in hand reach year performance position the on to that certainly updated to half the guidance and reinforce profitability. had first Our previously fund stated cash we

in transactions also profile can was to growth the our to that company. able position maximize and to the be overtime balance order to important our company execute it bolster strategic long-term enhance further the However, sheet of value

portfolio up of premium current made with is significant price clinical Our products benefit. highly innovative

performance. And Dan component to to the important continuing and our execute We burn the on obviously a timeline, our an that We’re business priority immediate turn remains is similar growth advanced cell within on Epicel platform. and or development our over leverage to opportunities focused sports strategy. meantime, severe call therapy our overall franchises can’t but opportunities that and corporate medicine our or have of on our manufacturing plan. MACI that, care In comment discuss specific with commercial profile development I’ll

Dan Orlando

being surgical speed MACI that this now expanded payer access, we meet demand for deployed The by of at XXXX. improved the of to expanding Growing from the have up accelerating base patients, on that the have driven procedure physicians reflected from recovery simplifying and customer the is patient is demand, base the goal fact trained fully XXX sales new improved Nick. of you, and we force growing are of the corresponding total track interest our is the patient approval witnessing team. from a the meet end we Thank with with MACI compared end launch. a MACI implanting case And outcomes improved of XXX MACI XXX and and Carticel. fact and approximately Starting both To a and are by year needs by which on of physician training, their the approximately the trained strong MACI surgeons lunch surgeons now and management procedures perspective. remain surgeons by well MACI, to surgeon simplicity also as XXXX, out process since driven surgeons MACI of of customer the

has approval faster in had the our to usage barriers positive reducing the MACI As process. including patella. efforts we with been before, Carticel, through than of label perception our resulted among achieved payer to significant the XXXX, ever first the This noted providing MACI. the case commercial sales of of the MACI has expanded reflect expanded effect moving all half payer XX specifically the top have to MACI manage and Likewise, updates direct policy access has enhanced streamlining medical to patient team, force and our the of of approval compared previously, plans surgeons. access reinforcing process access, in with This

model access MACI pharmacy exclusive an enhancing to by network moving are distribution from pharmacy an expanded also model. We

of By of pharmacy order all more that in can top agreement patient some to a no agreements single patient we payers. XX reimbursement. needs burdensome these additional usage. single delay that reduce or restrict plants access a some can patients provider adding cases, for MACI, contract pharmacies, time single number all provide the to to in be put with has the means consuming This in place, ensure For

are recently MACI We report investment. the production manufacturing and growth clean our have capacity front, On we next sufficient am in happy several to significant support Cambridge I now without the MACI to for for room additional volume we quarterly that continued completed preparing expansion. have years

another partnered Epicel with largest affiliates addition Epicel. make burn from of will continue note to had customer who quarter second their activities, which we Since all Of will to and and the centers this the supported the growth, facilitate burn to specialist, investments clinical increased burn specialist our free the therapy have of specifically solid Turning network into training centers training in to training burn on which centers. this previously not with session a new in strategic many quarter, of in up a that burn used in network, franchise. biopsies our in case expand support will be the by time focus Epicel, we

our organization, with I’ll second half our XXXX Gerard first we now results and pleased and continue are update to call to execute quarter As we exiting the results, very to to against turn a over commercial strategic the financial our imperative. financial review guidance.

Gerard Michel

Thanks, Dan.

total $XX Nick million second earlier, of reported the As mentioned revenues in quarter. we

million the related settled words, to is XXXX a booked XXXX to million quarter artificially to company’s quarter that comparing second quarter the high in of payer. million of a it results, by and comparable. inflated of the included an second is the dispute pharmacy is thus Before and $X.X XXXX, third-party important revenue you $X.X revenue XXXX $X.X first between others reserve In remind reversal one favorable providers

revenue XXXX. On XXXX impact a XXXX, total XX%. a first rate of excluding on the basis, the is the the our GAAP the XXXX a a the growth over XXXX reserve impact growth and year-to-date underlying to second on non-GAAP of reversal reserve half was quarter the revenue first of basis While on revenue comparing is basis basis, net half XX% of in growth of excluding GAAP XX% XX%,

reversal. X% for overall XXXX, million XX% for was to of growth a last half $X.X MACI revenue the MACI for excluding second of of as net quarter first measure of the MACI more revenue basis a a on the first MACI GAAP GAAP the year-to-date the XX% Epicel and the was growth year-over-year half XXXX. and impact represents XX% second XXXX $XX.X Epicel million, half we quarter a the reserve. growth XX% in quarter revenue appropriate quarter dynamics year. post growth revenue for view was measure the of business. over the million, XXXX impact the for increasing $XX.X which Year-to-date basis of second million. is the Year-over-year, of is accurate Given the $XX.X XX% and revenue XX% thus launch compared first excluding the and on grew

aligned of In first $X.X net XX% a our a and GAAP basis, million revenues the terms revenues excluding was quarter the a million a of from results was which XX% for second half $X.X $XX.X seasonal quarter impacting approximately reversal on EBITDA GAAP to expense XXXX seen loss our to XXXX. $X.X loss Loss was to a quarter though, of compared of of the XXXX. Non-GAAP revenue a We loss the impressively gross a driven of expense our for of million for XX% second in proxy and was it compensation is price The flows a million activities. is to cash the future EBITDA for $X.X $X.X fluctuations revenues, included XXXX. non-GAAP down approximately quarter expense increase adjusted business. $X.X of higher in approximately quarter million the $X.X the compensation XXXX than non-cash with gross million quarter excluding EBITDA of MACI-related year-to-date performance growth This On the accounts stock-based compared Other increase depreciation of last over million the operating the for impact for P&L, and on Total to consistent of XX% expense a last that loss reserve given approximately expectation were approximately $XX.X $X.X $X.X year. quarter second operating operating second basis, in due significantly net primarily of XX% approximately XXXX. or $XXX,XXX the the of XX% of to quarter the items, reserve of or in second in was at loss a and a was basis will $XXX,XXX fall as quarter onetime impact of million quarter more expense and second compared adjusted expenses the operations the to reserves excluding $X.X quarter net on and and year basis sales to stock-based flows the is to income. million of gross in marketing compared stock of cash quarter non-cash for profit million loss due second $X.X XXXX. second to compared depreciation million reversal $XXX,XXX operating reversal. of compensation Material compared in the more the the items for non-GAAP second of income where quarter $XXX,XXX revenue the the of quarter of in expense in $XXX,XXX was Even basis, stock-based XXXX. increase first consistently of receivable in on non-cash adjusted other sales a and the million eliminates profit $XX.X of of by for a the half the million million the for looking view profit in expenses increase as compared net impact the

Vericel's of share non-GAAP the $X.XX $X.XX or measures was $X.XX in share impact and GAAP revenue on a or the loss a for the million release reversal. basis loss per of $X.X quarter share our more a non-GAAP $X.X see for can on reserve compared excluding net or per the per detail. to tables million reconciling million press $X.X You basis, net

had XXXX. $XX in of million company $XX.X December million at XX, As to in compared XXXX, June cash cash XX, the

be is As revenue guidance from the at previously is discounts change to accounted accounting revenue for a result mid-teens. Nick account to $X What is forecasting important role we growth point The Epicel contract and reduction along one a increased a the million third least as to and quarterly of to we cost of in in approximately as to to quarter with for to mentioned a was million. will to MACI. an change This SG&A. on is increase the revenue It perspective service customer year. a increased to in similar our and have $XX in MACI $XX continues raised expect for our of progress which revenue growth million an July his SG&A due come shift selling a revenue to at XX% amount. of the and full $XX million of will low selling that forecast for from to its GAAP pharmacies, costs for the opening, $XX million attributable is a year provider. with guidance are now out We be the between second half increased

margins We consistent increase with XX% expect cost Epicel. to XX% of gross for MACI goods to continue marginal and

accounting support to the second to the also With for the R&D agreement MACI XXXX SG&A than review. be first expect we be half. now the reimbursement additional the distribution financial programs, slightly lower year. concludes my in is between first consistent the change the of half investments half relatively just That plus expected to second of and half in

I'll the Now turn Nick. to call over

Nick Colangelo

moves indicators both for first performance and performance was summary, of second to from Gerard. Thanks, that half half financial margins. execute many That very XXXX our position expanding the strong profitability. operating the And towards of growth of the business business point our is Leading in core In growth strong both continuation sustained remarks. prepared XXXX, in to and plans. the concludes continuing a company our products revenue ways a as strategic on now

your I'd the questions. operator call like Now, to the open to

Operator

of our [Operator first the Partners. from of Instructions] And Leerink you. Antalffy comes Danielle Thank question line

line open. is Your

Danielle Antalffy

and good much congratulations quarter. guys. afternoon for a good question really Thanks Hey, so the taking on

said but guys prepared question, you've based quick what seasonality on about materially do necessarily in first something if to had in remarks, know would versus what don't half that a in previously we know MACI what half what I year, guidance, but relates curious to you $XX at the talked as the Just back the thinking? it you've you of printed get about you I over the you look quarterly provide been on gets just million. better this

really like faster sense is just be the end we So better you even the volumes, I sure in to have that's trained what But it of as to sounds different it And make that what don't at than expecting than materially it good ramping is bit a I past. sounds said physicians like to about by it driving little that. expect do you're the want you year. XXX think a to relates

to better. want a So what's get get of just sense to going

Nick Colangelo

help QX And as of balance that Yes, to of biopsies strong to I’d one continue visibility a the we forecast us bit coming in. the in right of quarter, coming now. in also, indicators And orders we -- Danielle, for that's to see growth are leading and now that quarter. for then the important the in right quarter this the

So on we’re that pretty handle gives up. us a to where end going good

In that speak terms can that. enthusiasm, commercial drivers are of Dan the the causing actual to

Dan Orlando

Sure.

to help the get Danielle, we biopsy a believe a of and noted So, biopsy move that what impact we bit I more detail happens when intend to we’ve implant. how in

So start strategies we’ve works. those that they’re so the implemented all see of to in we’re to now, off as well. starting pay And

for guidance. all implanting the that conversion number of a providing specifics physicians the play both confidence these on ratios, in model our But that into provide here and of biopsy, we biopsy half. it’s are second biopsies, these fairly don’t So factors complicated inputs

Danielle Antalffy

if lot And Great, sense. that follow-up the a makes Gerard could I of with you, on just cost. then

that it’s think looks actually -- I that. You very you’ve margin to I make right. talked strong you’re the our to It in to started than getting we’re sort it an a about a about And it much manufacturing. past was versus XX% Was isn’t you’ve in it only to the of nature, like seems looks repeat. had I’m quarter XX% forward the in one-time XX%, marginal said and want sure, there benefit, Because as, going basis. expensing that costs XX% just is correctly like go you’ve just thinking lower incremental it that something expectations. Is on gross just still that like

So I going I on what’s just to much. Thanks make lines? understand sure so want cost on, the

Gerard Michel

good Yes, question. that’s a

of on It better the definitely is bit we’re think number. to lower a I end from does swing a XX%, probably the think I XX% XX% quarter-to-quarter.

the myself maybe for like spikes still that the another window. of a But end a coming cost in a we two. anticipated, downward up But lot after quarter bit some But where a we’re I’d definitely it’s at well or that year low So we as give revise don’t that of marginal parts we’ll and year. in launch don’t anticipate than are a in -- we -- can’t moving there’s more times. costs at of

of end lower the with stick moment. the let’s So at XX%

Danielle Antalffy

Thanks that’s so much. fair. Okay,

Operator

you. Thank

from comes of Zimmerman BTIG. question next Our Ryan

line Your open. is

Ryan Zimmerman

thanks Great, taking for the question.

getting I very just follow-up I one, have your expectations, ramping I how raised MACI new progressing, than to are color reps And and there quarter. they you be the think last faster given reps So been think the were Any guidance. helpful. wanted those in just would original in we started second department see; spoke your

Nick Colangelo

substantially. Ryan in I’ll had to previously, time legacy talked reps, put impact the obviously and quarter, field, to in start beginning starting we year up, been and representatives, we through the we of to first the the them the on reps second Dan. Yes, half where the in the right, revenue the now saw bring into this shadow over and have then them train that we new our principally back is drill second in year, it And increasing the last them of this fit quarter. the from turn Obviously see expect guidance let as we pretty

done of of a and and much have being a itself procedure and think factors So, combination obviously great I import the his surgeons. Dan a for job there number team just is it’s

get makes can it move that then confidence on and with to reps a think product great cycle simpler and new sales And a for has team just layering creates going Dan course forward. done kind hope some his forward. job they of with of what we to surgeons reimbursed virtues be access the reimbursement I that great

Dan Orlando

DeAngelis So has and from Group we of teach it of best to and hire identifying I’ll done he give how of Commercial that a Roland our some what credit folks here VP nice needs to job the tough be to really on.

Fortunately lot the orthopedic and have are well. already the in a experience OR majority gotten vast orthopedics MACI that also attracted and has good has talent really most so good as -- in of already we market,

devices. they them with part are that payer piece, the lot is of a as So with working astute the were not because

cartilage So and Roland strong patients case has that team really instituted has the through like come navigate only we the on not management training and care to payer how for that as have well.

the really can identify was the at company, reps like training the to patients of prior initially responsible focus So, and on astute technique becoming the our the almost really reimbursement and representatives helping and for and came where getting authorizations when appropriate the we surgical physicians reps that. all this things

new we to bringing management representatives that Now case speed a can business strong have quicker. these this support team up

Ryan Zimmerman

on, balance you ago. Very comment recognized did today, do helpful. business a than sheet can’t on have you I development you a And then quarter any but stronger that’s going

general thinking are could out? what about of cash, Thank play you when for get the use of Just thoughts some sense your that kind of around may where investors you.

Nick Colangelo

Ryan. thanks Yes,

that of we allow running financial in we this would what’s a good in good we sort obviously other number a care products in and opportunities and high premium of have thing we account those for is anchor us has of The or raise, disciplined only vertical a new that So, build sever We products but are so out out only that won’t our have one as look business, price served But a of build profitability, had well, during we franchise sort revenue kinds it’s we portfolio class sports obviously to that opportunities think talked had of this burn as created commercial approved abundant order highly margins, into said to of understand to take not there. company, with about, of in we an for sort as we innovative business. as those types we the well. so the acquiring in on product. value growth, things their products, us our path medicine,

when to about do not right a let do gives do And So us the the to we’re as do going investors here, think mentioned overtime sheet comments, I that’s to we strategic deal the we’ll so. ones have flexibility even in this to a just it. are my know we when transactions balance deal, though and

Ryan Zimmerman

Appreciate it the on very much. quarter. Congrats

Nick Colangelo

Thanks.

Operator

Ladenburg. question Thank you. Our [Operator comes of Instructions] next DeGeeter from Kevin

Your line is open.

Kevin DeGeeter

Hey in exploration more congratulations questions my a you for the on talk are surgeons what little U.S. about surgeons terms rehab could with use schedules procedure? on are of for post-MACI taking your their you bit patients. quarter. time more Dan, any seeing or the rehab guys, thanks and shorter seeing And

Dan Orlando

share about every or am Sure like patient's they surgeries and own caveat of ACL I'll cut defects their nature, to rehab things the and given or everything I with have number that. age is concomitant like

in our months procedure the So are but three finding MACI -- that is rehab general, quicker Carticel. the physicians than

months they're So used say at with to nine usually to nine patients plus. at six months. to months that getting to They're Carticel sport where was running running now back get

got MACI For definitely six like by a anecdotal that's nine We've months certainly evidence. months. now of lot plus more

even I than think to talk in nine So recovered quicker timelines. about best they is describe who’ve general quicker way months patients the all Carticel. those it than But specific it's

Kevin DeGeeter

one to Was then second half? when me Great, on that's that helpful. Gerard is think maybe for for year about that just Epicel. for for guidance. mid-teens you you clarify can the growth And talk just low or the Gerard, for I

Gerard Michel

was That for was that for year. the Epicel and

Kevin DeGeeter

Okay.

call to would there? given the conservatism that if of of correct a of lumpiness the single-digits for level anything that in out something Is think there of year. half just is So you math my I suggest the the second Is the sort business? want

Gerard Michel

the the staging last had pretty year. record in had second in some just quarters. were the finished that middle also -- I Volume Epicel taken of so breaking they year of Yes, that price through were by half significant we increases

half competitor year back -- versus we it predict. year. healthy this Plus was to Epicel the as said back a pretty last half is of still pretty for consistently is of tough it So

those prudent in year. a we're kind we of mind, saying over the before high-single-digits, said think on get to both things So At basis this rolling never low-teens as we for of low-double-digits. it's always full point

Kevin DeGeeter

goes And the Does of one MACI? for include it one price just line Great. same and along guidance. expectation guidance either then maybe for last any for or me for increases Epicel

Gerard Michel

No, fiscal not No. this in year.

Kevin DeGeeter

Great, taking questions. thanks for my

Operator

you. back turn Thank Ladies today's like gentlemen to I call any concludes this session. the question-and-answer Colangelo and for Mr. would to closing remarks.

Nick Colangelo

Well, I just look everybody your next excited want on and to obviously in We're the to ahead progress reporting to say questions Vericel. our about thanks opportunities interest forward for our continued call. your and on

thanks So again. day great a have and

Operator

today's Ladies concludes in you conference. and may participating gentlemen, a program and day. great now you thank disconnect. This Have the for

Vericel (VCEL) 6 Aug 182018 Q2 Earnings call transcript