VCEL - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Vericel Corporation Third 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] 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 third XXXX financial to Vericel’s you, morning, 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

Thank I’m to continued everyone. we that in the very strong for and you, performance quarter report with our good XXXX pleased company. another Gerard, record morning,

quarter representing sixth for quarter $XX.X third of MACI. the marks of quarter following growth reported consecutive the XXXX, million, revenues to compared third quarter Our of revenues of the XX% record the launch

positive full million. year-to-date, million, previous forecast the cash the flow quarter. in of to generated margins improvements demonstrate gross we’ve to of $XX $XX and our in $XX strength Gross on in guidance third raised business our year fourth quarter, XX% revenues significant our for this up margins, cash leverage updated revenue revenue and guidance achieved continue XXXX, the to third net our quarter results from growth to XXXX quarter as to of $XX of well for XX% to million Based we also EBITDA million operating as Our model, the as profitability the for margins adjusted positive expanded performance, strong our compared flow. gross and

strong forecast the Our expansion the in the updated trends force and MACI or of following biopsy and earlier half continued second management sales team by orders growth date growth is strength of our based as in quarter second of year on this year. year to – reflected MACI case the

expanded growth MACI results of Given to we’ve of market well third-party decided MACI, in XXXX. for MACI accelerating the force expand completed further the significantly our sales as addressable as assessment demonstrating recently market a the

of and Our the sales recruit, quarter most is the train demonstrate forces one effectively ability sales accomplished new industry, rapidly results in deploy team our and representatives. our to third

well I’ll details the as For Dan. in on turn forecast our drivers sales and now our more expansion the to force moving as performance forward, over call quarter third

Dan Orlando

I’d Nick. start you, the expansion. like force Thank exciting about with news to sales the MACI

We MACI sales XX%, be XX the to from representatives. sixth increasing sales adding region will increasing a and XX force by

will QX XXXX, we representatives that early the to alignment existing spaces implementation white overall so is geographic our on reach effective X. smooth increase expect and we minimal impact focused April with expansion principally to selling this frequency, a The territories. be trained very will be with in and As two move sales into and expansions previous expect hired territory force hires the the XXXX fully new new will new XXXX, by the

MACI to the to surgeons sales procedure expand surgeons at for improving over XXXX, expansion in was remain total expansion simpler successfully to on the up the and are to we end process and MACI the demand Nick from the sales best-in-class by is and the reflected launch. access two our The defects. to our based XXX but end solely the of utilization base decision Cigna speed markets. of as improved be expanding patient fact trained surgical team representatives’ include a by We the driven sales and to support XXX years, surgeons approximately increase The XXXX following expect on in by the of demand goal procedure, commercial date executed surgeon drive on As have track strong recent medical the of since rehabilitation of demonstrated in force performance case continued MACI surgery, just that XXX from MACI the successful. meet patient efforts this the surgeons, and underpenetrated XXXX. last management adopters ability of as new training policy Their customer our mentioned, on not MACI by early patella has geographic fully expansion considerations, trained growing continually the

we demand are online which expansion, came prepared MACI meet Fortunately, this third a recently as of quarter. our to increased room clean result completed the during

as Given and volume positive a of recently for third-party completed target evidenced rapidly by physician base growth, or accelerating the addressable MACI, market, the expanding we experience with assessment TAM, customer MACI.

believe one part use study commissioned surgeons launch, MACI. primary over This this and As with project, and initiated a after XXX was cartilage of overall the repair best location, that repair or market better in Epicel. significant to our age a MACI turning and size, defect, the population rate underpenetrated this Epicel procedure to assessment significance TAM gain we expected now penetration the qualitative in second available of potential previously patients the that the solid customer this undergoes be on cartilage MACI’s epidemiology which allowed of the the with and we and which facilitate used franchise. market. network, which understanding all quantitative of for year quarter of required of and ordered of this long-term to data, of burn centers expansion approximately current the Based to We of with a many the aligns patient that addressable shared Epicel. training had Of sessions us represents of largest Quickly the MACI procedures. growth TAM large growth XX,XXX deeper continue output we segment future with make to undertake to was surgeons’ the in MACI the procedures research determined had ability market. in all this by their our better strategic research published and and rehabilitation trajectory approximately annually, another market We to quarter, reflects investments and not repair partnered cartilage

our from so quarters. over turn the through Gerard results updated call pleased quarter I’ll Overall, since continue are affiliates now to results we orders over on these the helped with to have and commercial strategic imperatives. review past our the a our third growth fuel that to quarter guidance. very two pleased the organization, We’re network Epicel of XXXX, third as that we financial training, financial execute as XXXX

Gerard Michel

Thanks, Dan.

for and Vericel’s of compared in million Nick for pharmacy increased a the the third Other to period income to expense million stock-based the $XX.X of As XXXX. in XXXX. is million $XX.X loss the in loss $X.XX expense. noncash Material the a third and million quarter operating $X operating and quarter $X.X revenues quarter in of of expenses. over earlier MACI million for of net earlier, the adjusted the $XX Total a of a items $X.X exploration XX% recognized net $X.X unexercised was of The and the for the revenues in compared XXXX. of operating million million for million million of the third or EBITDA quarter for per in included million mentioned of XXXX. quarter the million revenues warrants per we MACI quarter increase MACI in impacting million and in distributors; value respectively, primarily for of was net third quarter growth for approximately $X.X of result for to in was Epicel XXXX. increase the MACI $X.X million million quarter XXXX. in loss XX% MACI $X $X.XX to other net same fair quarter ended included over MACI $X $X Total MACI warrants income expenses stock-based the share to $XX.X $X $XXX,XXX net third quarter as XXXX $X.X compared to $X.X of due the income third or result XXXX, revenue, million in share a from or $XXX,XXX support increase Loss a million million XX% depreciation expenses was the quarter for in of September XX% increase compared of Non- $XXX,XXX the of XX, Gross quarter million to compared $XX.X for services total XXXX. sales approximately reimbursement from compared of compensation for operations the net third represents the third compared for loss million were expenses quarter due change an of XXXX. approximately revenue This of of and a was expense force net $X.X the an XXXX, million to million or net of loss a of Epicel, fees for GAAP The third $X.X in the to quarter the increase the third demand; quarter of respectively. $X.X was quarter profit this Epicel of the primarily paid $XX.X current of revenue – upon of expense reported compensation as third XXXX. in force for the revenues of an of quarter of to expansion for increase year; to sales net third compared $XX.X revenues quarter service

is flow. operating the million cash of to that million quarter, for million third investments company $XX XXXX. $XX.X the we – cash to short-term September $X December XX, $XX.X positive XX, note compared at As XXXX, and had million approximately important cash It in of had in

cash third significant ability profitability revenue growth translate demonstrated in to consistently The our improvements margins, gross into quarter and flow.

profit revenue gross relative XXX% quarter XXXX. adjusted the in million grew more million incremental an XX%, additional $X.X of in the of third to $X.X EBITDA than the to grew revenue While XXXX. third quarter And compared our generated

to $XX $XX to As opening, range expect between mentioned to $XX.X from have million. we Nick fourth to million million we a $XX guidance implies be This of and that of million raised $XX quarter million a his $XX.X million. revenue range our revenue in

over be XXXX on by was record expect that growth Epicel the last for to growth not for to quarter given fourth QX in year compared fourth XXXX do expect Epicel. quarter quarter quarter MACI. We single the fourth We significant of the highest entirely driven

Epicel. Year-to-date, margins but measured XX% that We we the the marginal marginal learning range, to expect bit as XXXX MACI is of high gross in than half a costs, for curve. with and both Carticel when MACI mainly a our expense were manufacturing first been while manufacturing and increase due to had lower XX% manufacturing as to initial continue MACI XXXX, cost goods against well the this to being comparator of

We review. quarter of benefits from expect be to we R&D quarters completes the quarter SG&A That slightly up and first what as while quarter. the second my closer the to fourth third financial phasing the expenses, in third this in some year, will expenses be from reported the

turn the Nick. I’ll over Now to call

Nick Colangelo

Gerard. Thanks,

cash revenue which to and the and and translates full decision supports flow. into addressable point We indicators margins, market growth, continuing, raise to growth sales our year demonstrate deliver third revenue expand MACI improvements expanded in gross further strong that revenue how XXXX to growth an results guidance performance Leading force. and significant that profitability our quarter continue

in plans. our perform and is to company on strategic well, execute That both very concludes prepared Our and remarks. position continues business a our the to business strong operating

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

Operator

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

is now open. line Your

Danielle Antalffy

guys, quarter. good morning Congrats questions. thanks very see. great taking to Hi, This on strong is for the a

So also excited very about highlighting. that the you’re TAM new

XX,XXX larger? about much term significantly downward to us the there How do if XX,XXX a bit so Wondering of you for pushback before. the is and think you give you be is inputs to larger color Or or whether could about few same some the that? the size just questions ASP saying a long there. safe from because were And had think little patients how competition in? could think more than potential given is I it patients payer market potentially assume obviously think or about coming we the market pressure, that’s I Do

Gerard Michel

Yes.

it of the in occur types demographic. of we on procedures that, That published the of ASP took that – actually the first, me inputs we understand and arthroscopies, how was epidemiology back data are was cetera. on the diagnostic And currently it same in procedure cuts demographic the TAM, really So old And out what’s is about let take take at the did data. question. that cartilage the diagnoses terms TAM the turns and size assuming have. is seen let of What the created. representative we is step seen on And the U.S. and from answer from a et was ASP terms lesions This were Gerard. new to what looking into epidemiology overall of being me that are then The age, that it’s nor procedure not overlaid – and the you representative BMI, lesions. of it explain data just the

percentage there think just So if our diagnostic than you fit procedures cartilage the on a of higher look many you epidemiology repair much would is label data. at more,

is second better survey, doctors, the The understand talk to we fit. to thing that’s to they would tried MACI large thought where

on have had of type what we of epidemiology layered lesions much, actually, much data, at would top So the because, the treated a in of otherwise, larger data it survey terms are TAM. that

TAM. qualitative a basis that’s using now with to So up used on use to we’re we the the how come framework and

Danielle Antalffy

raise Okay. utilizing strategy? transparent June M&A – on only M&A. very in TAM now pursue change is in reinvest me then for as Does now much. That’s this for that that this business? so still that the TAM potentially you much did much And versus guys you been last to cash small have early fact to planning are that execute MACI. larger does pretty you a question – invest Thanks we intend the Or to so or How and just about – about think helpful. larger

Nick Colangelo

been this a strong addressable investing changed. plan going fit business saying strategic and Good and hasn’t And in potential the does forward. not products that this pretty Nick. is have morning, not mutually new at larger We’ve Danielle, our change that market all on bringing strategic exclusive, consistent are

continue with we’re think investment a force. demonstrated, we’ve that’s planning rapid sales a expand MACI to We As to very great the payback.

continue to other the maximize we’ll the in business, at so also And invest long-term can opportunities but product that look value of company.

Danielle Antalffy

that. for Thanks Okay.

Operator

from Zimmerman of comes Ryan question BTIG. next Our

open. Your line is now

Ryan Zimmerman

morning. Good

Nick Colangelo

Ryan. morning, Good

Ryan Zimmerman

So strong quarter. congrats on a very

I expansion sentiments moment. me Let the to a want rep echo that shared. Danielle talk for about

Just created – you sixth territory. a

that It you your in a And like think territories have about today? you have how imply those go can maybe the that But territories does any follow-up. do bit of where have little to the a so reps And sounds not to deeper existing in with existing you I disruption addition today? going then penetration reps. you’re

Dan Orlando

this Ryan, is Dan.

space across that geography, going concept – is the to every So we when white territory so disrupt say country. we’re the not the

is these going being dozen We MACI. will rather confidence half successive we for or that with a untapped through markets what expansions into found our confidence have new TAM along to a evidence so our And this geographies. it’s a that in from relatively or market able and large create handful disrupt that built

we heart this to that that’s we’re or in would breaking So geography, geographies. it’s the the And help important our very important of new – very either of we years the in been representative, that think of for not from the of past we’re utility that, it think two that hires majority a it factor distance, business. is territories the existing drive previous their MACI that’s this going as legacy relationship from but not of rep-physician of for built representatives the entirety not a of What majority into it, because means space getting travel expansion, hope.

I’m proved will every relatively of the order, So profitable these confidence about like And reps two done the demonstrative new this short excited very that have our it’s work turn that do of expansions in able other been geographies we have in was expansion. proven. the And positive to previous both It’s new have the in years. what TAM.

Ryan Zimmerman

midpoint, Okay, fourth Gerard. guidance above on commented implied Street a where is helpful. the currently this is the And quarter then At sitting. the bit, little you certainly

us about again? in raise fourth confidence quarter what talk you’re the Just seeing to the to supports that

Gerard Michel

Yes, question. we’ve same past, in it’s so an and the things it’s the important discussed

First in can that that handle of so of very indicator, all, leading the to give and come a confident the are biopsies business pretty can going good the we percentage strong get. us we’re be on

the momentum. flatten, overall shows moving of which a process, that have past. report, but of use. then pipeline a so are so have But the just expect, through just all we again, the the And number we cases about authorization many gives all important window. factored we – to talked inputs again, sudden, We a in also we’ve We growth the and how variables us models good don’t medical And it’s that that. us all a question,

Ryan Zimmerman

Okay, me, back helpful. last then and for in And queue. I’ll one hop

talked capacity. expanding MACI You’ve about manufacturing

what tell terms kind standpoint for of you’re the expansion Just in where a us at and from does of you capacity manufacturing.

Nick Colangelo

Yes.

I actually fact much was we where the had MACI a manufacture clean and think, we’ve Ryan, that about facility the which clean a larger. Carticel MACI room, room talked

able room MACI on Carticel space no when manufacturing convert we’ve capacity. the Carticel clean simply to so And market, been to longer existing just was

the adding new it’s in us, the incubators. just for that So in there, and really great footprint real place. It hoods terms is estate is already involves

capacity this thousand case, us, a In adding about expand for increased clean hundred another couple by XX%. room dollars to So it’s our capacity.

Ryan Zimmerman

you. Great. Thank

Operator

Our next of Chad Instructions] [Operator Messer question comes Needham. from

now is line open. Your

Chad Messer

congratulations and another add quarter. my me let morning strong Good Great. Great. on

the sales XX% the force sales the be your of and is is it you’ve larger doing expansion. five than expansion. where wouldn’t market I up of is orders addressable I larger, the force this think now. about magnitude , third of But that in measurably a said know, your view past, we’re So size times incremental

wondering you might – of given larger than the how wondering in Just need future big that I’m sales you’d you this been force is thinking. much previously a think market

Nick Colangelo

Thanks, Nick. Chad. is This

we’ve it orders I continues continue as wouldn’t need target able and There’s even reach business X,XXX call service past, you service again, think the And about surgeons medicine sort the that over to component. frequency component. our terms of magnitude, we to add grow of in There’s a expands. business but as self-identified to about be time the expands, said, as will of to incrementally in talked be a surgeons, sports business the expand. more that group. And we’ve reps it would probably

I interesting think surgeons, business that the assessment some of of self-identified orthopedic actually for research sports forward surgeons, of are will things the to capture out one most be could market that breadth that analysis not repair the out and surgeon that there medicine the are of that are medicine surgeons is we that not there. effectively another other procedures, area sports and understand that’s us really how surgeons universe do going

that moving So a forward. at be looking project be will we’ll

Chad Messer

this you the if this a for And it kind being it? are just actually strong seasonality we MACI. like, Wondering we’ve year, broken change pushed weakest growth looks past XQ Thanks. past Or of in so seasonality. Great. essentially of that that’s seeing is a

Gerard Michel

reached that’s itself, don’t to seasonality due bit The because we’ve growth I say the next pushed say don’t moment. wouldn’t conclusion growth best past take primarily so how – you’re we’ve guess, Yes, going quarter automatically growth. seeing it’s I the not have that volatility this that’s say growth the seen growth growth it. think But I you’re a – the primary a has to I it. think think on purely more the really it’s hypothesis So is want – see at if quarter but to that’s is it the in guess pushed that’s I we I and reason what I

Chad Messer

All Thanks and Great. congrats again. right.

Operator

any would and the Ladies Colangelo over today’s remarks. gentlemen, like session. to call this turn closing for concludes I question-and-answer back Nick to

Nick Colangelo

to Obviously, very appreciate Well, we call. we on reporting that lie opportunities again, look And much. the thank And in next we’re you day. continued progress Vericel. our Have and a on our forward excited everyone’s Okay. questions great about ahead. very interest

Operator

gentlemen, conclude This in and a Everyone, you great have you and thank program, Ladies conference. today’s for now day. participating does the may disconnect.

Vericel (VCEL) 6 Nov 182018 Q3 Earnings call transcript