VCEL - NASDAQ

Thank you for standing by. My name is Roselle, and I will be your conference operator today. At this time, I would like to welcome to the Vericel Corporation First Quarter 2025 Earnings Call. [Operator instructions]. I will now turn the conference call over to Eric Burns, Vericel’s Vice President of Finance and Investor Relations. Please go ahead.

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 Finance 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 fillings 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 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. The company is off to a solid start to the year with record first quarter MACI and total company revenue as well as continued strength in the MACI growth drivers and key performance indicators for the MACI Arthro launch. NexoBrid revenue also continued to progress and although Epicel revenue in the first quarter was lower than recent trends, biopsies were the highest in any quarter since 2023 and there’s been a significant uptake in Epicel performance to start the second quarter with grafts from cases completed or scheduled to date this quarter exceeding total graft volume in the first quarter. Based on the positive trends across the business to start the quarter, we expect strong second quarter performance with total company revenue growth of 22% to 25%. Given this momentum and the fact that we expect tariffs to have a negligible impact on the company’s business and margins, we are also reaffirming full year revenue guidance of 20% to 23% revenue growth and raising profitability guidance for the year. MACI had a strong quarter with record first quarter revenue of more than $46 million which was in line with our expectations and represented a similar growth rate as the first quarter of last year. MACI’s performance was driven by strong underlying 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 double-digit biopsy surgeon growth over last year and the second highest number of biopsies and surgeons taking biopsies in any quarter since launch. We also had the second highest number of biopsies in any month in March, which we then surpassed in April. Based on cases completed and scheduled for this quarter, as well as the momentum in MACI growth drivers, which we believe is attributable in part to the recent launch of MACI Arthro, we expect a very strong second quarter for MACI with revenue growth of 22% to 24% for the quarter. While we are still early in the MACI Arthro launch, we continue to see significant strength in several leading performance indicators. We’ve trained approximately 400 MACI Arthro surgeons through the April, which is ahead of the pace of surgeon training when we launched MACI in 2017, and both the biopsy and implant growth rates for MACI Arthro trained surgeons are substantially higher than the growth rates for surgeons that have not yet been trained, with year-to-date biopsy growth over 30% for trained surgeons. Notably, surgeons that historically used MACI predominantly for patella cases continue to make up a meaningful portion of the MACI Arthro trained surgeons. This cohort of surgeons has the highest biopsy growth rate among trained surgeons so far this year. Biopsies for patients with femoral condyle defects are driving much of the outsized biopsy growth for this MACI user cohort, suggesting that these surgeons may be considering MACI for a broader patient population that encompasses the largest segment of the addressable market, or approximately 20,000 patients per year. We are also encouraged by the fact that a significant percentage of MACI Arthro cases have been for patients with smaller defects outside the femoral condyles, which is the defect location that the MACI Arthro instruments were designed to treat. In particular, MACI Arthro is being used in a meaningful number of cases for patients with trochlea defects, an area of the knee behind the kneecap where MACI historically had low single digit penetration. Surgeon feedback suggests that MACI Arthro could become an attractive cartilage repair option for trochlea defects for many surgeons, similar to MACI’s use in the patella, given the enhanced access and procedural advantages provided by MACI Arthro compared to alternative treatments. The trochlea defect segment of MACI’s addressable market is similar in size to the patella segment at approximately 10,000 patients per year and has the potential to be a significant source of business and a meaningful driver of upside MACI growth beyond the treatment of femoral condyle defects. We expect that the positive biopsy trends that we’ve seen to start the year will continue over multiple quarters as we train a significant number of additional surgeons, and that MACI Arthro trained surgeons will drive hundreds of incremental biopsies this year. While it’s still too early to see a similar inflection in implant growth, given the median time from biopsy to implant, we expect the incremental impact of MACI Arthro on overall MACI implant volumes to accelerate as we move through the year and to provide a strong foundation for continued significant implant growth in 2026, similar to the dynamics we saw with the launch of MACI in 2017. Based on the strong MACI Arthro launch indicators to date and our expectation for MACI implant volume growth this year and over the next few years, we plan to begin our MACI sales force expansion in the second half of this year. Turning to Burn Care, NexoBrid first quarter revenue increased over 200% compared to last year and over 30% sequentially compared to the prior quarter. A key priority for NexoBrid remains driving deeper penetration and more consistent use across our nearly 60 ordering centers. To that end, we generated a higher proportion of our business from consistent ordering centers in the first quarter, and that segment also had a higher average number of units per order in the quarter. In addition, we continue to see strong surgeon interest in NexoBrid, as was demonstrated by the high level of engagement and attendance at NexoBrid symposia and other events at the recent American Burn Association Annual Meeting. For Epicel, despite having the highest number of biopsies in the first quarter since 2023, first quarter revenue was lower than anticipated, primarily due to significantly higher ratio of canceled cases to patient treatments in the quarter as a result of patient health issues. However, we are seeing much stronger Epicel performance to start the second quarter, with grafts from cases completed or scheduled so far this quarter exceeding total graft volume in the first quarter. The strong start to the second quarter is being driven by biopsies received in the first quarter, indicating that the first quarter shortfall was also due in part to timing of patient treatments. With Epicel graft volume increasing each month this year, we believe that the burn care franchise is positioned for much stronger performance in the second quarter. I’ll now turn the call over to Joe to provide a more detailed review of our financial results and guidance for 2025.

Thanks, Nick, and good morning, everyone. Moving to Q1 results, the company achieved record total net revenue for the quarter of $52.6 million with $46.3 million of MACI revenue, $5 million of Epicel revenue and $1.3 million of NexoBrid revenue. MACI had a strong first quarter with 15% revenue growth versus the prior year, which when adjusted for one fewer selling day in the quarter compared to last year represents approximately 17% growth. These results are in line with prior year growth and the MACI guidance for the quarter. NexoBrid revenue of $1.3 million represented 207% growth versus the prior year and 31% growth versus the prior quarter as the NexoBrid launch continues to progress. Epicel revenue was below our initial quarterly guidance, primarily as a result of a very high percentage of canceled orders related to patient health issues, lower grafts per patient and the timing of surgeries moving to the second quarter. As we have discussed previously, it remains very difficult to predict the cadence of Epicel quarterly revenue given the nature of the burn care market and the variability in the health of potential Epicel patients, demonstrating once again that Epicel trends can vary significantly on both a monthly and quarterly basis throughout the year, which is why we focus on trends over longer periods of time. Gross profit for the quarter was $36.3 million or 69% of net revenue, in line with the prior year gross margin of 69% despite the lower Epicel revenue. Total operating expenses for the quarter were in line with our expectations at $49.1 million compared to $40.8 million for the same period in 2024. The increase in operating expenses was primarily due to increased headcount and related employee expenses and additional costs related to the company’s new facility, including depreciation and MACI Tech transfer related activities. Moving forward, we continue to expect relatively similar quarterly operating expenses for the balance of the year. Net loss for the quarter was $11.2 million or $0.23 per share and non-GAAP adjusted EBITDA for the quarter was $3.2 million or 6% of net revenue. As we noted in our last earnings call, we expected to have the lowest margins of the year in the first quarter, given that it’s typically the lowest MACI revenue quarter of the year and expect as usual to have our highest margins in the fourth quarter, which is by far the highest MACI revenue quarter of the year. I would also note that the company’s margins in the first quarter were adversely impacted by the lower Epicel revenue during the quarter and we expect margins to be significantly higher in the second quarter. Finally, the company generated $6.6 million of operating cash flow and ended the quarter with approximately $162 million in cash, restricted cash and investments and no debt. With the investment for the company’s new facility nearly complete this quarter, we expect cash generation to inflect moving forward, further enhancing the company’s strong balance sheet and financial profile. With respect to tariffs, because the company’s manufacturing facilities are based in the U.S., with the vast majority of manufacturing costs being labor and overhead, and with all revenue derived from domestic sales, we anticipate very minimal impact on our business and operations from these tariffs or future tariffs on pharmaceuticals that may be announced. Further, because we maintain significant safety stock of most materials, including NexoBrid finished product and the Matricel collagen membrane used to manufacture MACI, we expect that the impact of current or future tariffs on cost of goods sold and gross margin in 2025 and 2026 will be negligible and will not impact the company’s financial guidance in 2025 or our mid-term profitability goals of high 70% gross margin and high 30% adjusted EBITDA margin by 2029. Turning to our financial guidance. For the second quarter, we are off to a strong start with both franchises and expect total revenue growth in the 22% to 25% range, with total revenue expected to be approximately $64 million to $66 million in the quarter. For MACI, we expect a strong second quarter with revenue growth of approximately 22% to 24%, with MACI revenue expected to be approximately $54 million and the balance of our revenue during the quarter from burn care, driven by a much stronger Epicel revenue in the second quarter. In terms of our second quarter profitability metrics, we expect a strong financial quarter with gross margin in the low 70% range and adjusted EBITDA margin in the 20% range. For the full year, we are maintaining our total revenue guidance with revenue growth expected to be 20% to 23% growth. In terms of profitability guidance, based on our financial results and strong brand leading indicators to date as well as the continued discipline in managing expenses, we are raising our gross margin guidance to 75% and raising our adjusted EBITDA margin guidance to 26% for the full year. Note that this updated profitability guidance includes operating expenses in 2025 related to the acceleration of our MACI sales force expansion. I will now turn the call back over to Nick.

Thanks, Joe. In terms of our longer-term growth initiatives, we continue to advance the MACI Ankle Development Program and remain on track to initiate the Phase III Mascot clinical study in the second half of this year. A potential MACI ankle indication represents a substantial longer-term growth driver for MACI with an estimated addressable market of $1 billion and would enable the company to expand into other orthopedic markets. We also remain on track to initiate commercial manufacturing for MACI in our new facility next year. In closing, we are very encouraged by the significant strength in both the underlying MACI business fundamentals and the early MACI Arthro leading indicators, which point to potential opportunities for incremental MACI utilization in surgeon and patient segments across the MACI addressable market. We believe that the strong pace of MACI Arthro surgeon training and the incremental biopsies those surgeons have and will generate provide a very strong foundation for MACI implant growth moving forward. In addition, the significantly improved trends for Epicel positioned the burn care franchise for much stronger performance this quarter. We believe the company is well positioned for another strong year of revenue and profit growth in 2025 and continued strong growth in the years ahead. We’ll now open the call up to questions.

[Operator Instructions] Your first question comes from the line of Ryan

Hey, good morning. Can you hear me okay?

Yes. Good morning, Ryan.

Hey, Ryan.

Good morning. So I want to start off talking about, MACI Arthro a little bit. Nick, talked about a bunch of metrics and you also talked about the femoral condyle and the trochlea potential of MACI Arthro. I’m curious if you could talk a little bit about kind of how you see the market opportunity for femoral condyle and trochlea specifically. Is is any of that additive to the current market sizing that you think about for patella? And just help us understand patient interest and willingness to get some of these other lesions treated beyond, say, the patella lesions that you already treat.

Yes. Thanks, Ryan. So as we’ve talked about in the past, the MACI Arthro instruments were designed to treat two to four square centimeter defects on the femoral condyles, and that makes up about twenty thousand of the sixty thousand patient TAM on an annual basis. What we found, as we sort of alluded to on our last call, is that many surgeons are also using the MACI Arthro instruments to treat trochlea defects, which is an area behind the patella or the kneecap that’s pretty difficult to access and anatomically different for every patient and so on. I think because of the procedural simplicity of MACI Arthro and enhanced access that those instruments provide that we’re just seeing that trochlea, as I mentioned, could become another area that opens up an area where we’ve had, if you think about our corporate presentation, the right hand of that slide where we segment out the patient population, there’s the 20,000 patients for femoral condyle defects, and then there’s 20,000 patient segment for these other smaller defects which includes the trochlea. So therein lies the opportunity to get deeper penetration into the existing market in an area that, quite frankly, the instruments weren’t necessarily designed to address, but the surgeons have found them, again, because of enhanced, access with the instruments, and the simplicity of the procedure that, you know, these, defects are amenable to be treated with the MACI Arthro instruments.

Yes. That’s helpful. And then here’s a follow-up on MACI Arthro. The comps arguably get a little harder through the year. You’ve already pointed to kind of what you think 2Q numbers could be. I am curious how you think about seasonality and pacing, particularly in the second half of the year. We have followed kind of a very prescriptive kind of component and pacing dynamic for MACI for many years now. But I’m wondering if we should be thinking about bucking that trend, if you will, because of the efforts you’re making to expand MACI Arthro as the growth driver. Because based on your guidance, it would suggest that there might be a more step up, a more enhanced level of step up in the second half of the year given some of these trends are starting to build? Thanks for taking the questions.

Yes. So good morning, Ryan. So I’ll take that one. This is Joe. I think as you think about MACI, I mean, I think to your point, I mean, it’s generally followed a pretty prescriptive pattern. And I would say, if you kind of look at the guidance generally, I’d say, as you kind of think about the full year guidance, I guess, the first kind of piece on MACI is, as Nick said, the leading indicators have been really strong, just the core leading indicators when we think look at things like surgeons and biopsies and the biopsies in particular. And I would say, when you think about those 400 trained surgeons, I mean, that’s a pretty meaningful percentage of our surgeon base that’s already trained. And to see that cohort driving biopsies kind of well above our typical average and the national average over 30%, I mean, that’s encouraging what we want to see and pretty significant. So I think to your point, I mean it sets the company up not only for a strong second quarter, but really for kind of strong quarters the rest of the year as kind of we think about what the pace of MACI for the remainder of the year. I would say if you kind of look at it, it still generally follows the kind of mix kind of first half and second half within the year. I would say as you think about our full year guidance, given what we have seen kind of on MACI to date, I think last quarter, we talked about kind of probably being in the high $230 million range on the MACI side. I think given what we have seen on these leading indicators, I think our we assume at this point that would be a bit higher. So the mix within our guidance, if you will, which can always shift a little bit during the year is probably I think we feel like MACI will be a bit higher. So I think MACI is set up for those strong quarters for the remainder of the year. And if you kind of think big picture on MACI to your point, but if you think on a full year basis, the last couple of years, we’ve been growing at 20% both of the last two years without Arthro. So I certainly think it’s reasonable if we get into, call it, the low 240s on MACI to be up a couple of points on a full year basis. You would expect pretty strong growth in the remaining quarters, just kind of given what we’re seeing in those positive trends on the indicators. And I guess just last one additional point is, what’s interesting is not just thinking about 2025, and I think Nick mentioned this in the prepared remarks, but also thinking about kind of the exit rate this year and what that could look like for MACI in 2026. If all 400 of those trained surgeons to date, for example, just do one additional case and you’re certainly not assuming that in our guidance, but it gives you a sense that would be north of $20 million and double digit growth just right there. So I think it gives you a sense of the potential opportunity. And I think we’re excited about what we’ve seen, but also kind of excited as we think about beyond 2025, what this may look like for MACI.

Thank you, Joe. Let me just squeeze one clarification. Was there any contribution in your MACI numbers in the first quarter? I’m just curious how to think about that with the 15.2% growth. Thanks for taking the question.

You mean specific contribution from Arthro?

Yes. Exactly.

Yes. Hey, Ryan. This is Nick. So one thing, again, we as we mentioned on the last call, it’s a little hard to parse out. Certainly, believe there are incremental cases that have occurred. It’s a little harder to parse out because as we mentioned, we kind of launched in earnest MACI Arthro in Q1. So those biopsies typically take four to six months to convert. So no doubt there’s some incremental impact, but we certainly expect that to inflect in the back half of the year and into 2026. And I’ll just point you to the dynamics that I referenced in my prepared remarks from 2017. When we launched MACI originally, you saw a very quick uptake in biopsy growth that translated into market increase in implants in the second half of 2017, where growth was up in the, call it, roughly 20% range. And then in 2018, to Joe’s point, that really came through with 54% MACI growth in 2018 over 2017. So we’re hopeful that the cadence we’re seeing here with early biopsy inflection then translates to implant growth and inflection in the back half of the year and into 2026 and beyond.

Okay. Thank you for taking my questions.

Thanks, Ryan

Your next question comes from the line of Richard Newitter with Truist Securities. Please go ahead.

Hi, thanks for taking the questions. I guess the first thing on your comments, thanks for the color on MACI. It sounds like striving for 240 plus. Do you need, MACI Arthro to inflect in order to achieve that? I guess the question is how reliant are you for an inflection to hit numbers, or is there some cushion there? And then the I’ll just ask a second question upfront just on the on the margin it’s a pretty substantial increase in -- step up and it sounds like you guys have a high level of visibility. Is that just all the Epicel visibility coming back? Do you feel really good about that step up and it’s as simple as that? Or maybe it’s expense timing. Just maybe any color just to get us to that 20% EBITDA margin. Thanks.

Yes. So good morning, Rich. So on the first question on MACI, I would say in terms of kind of how to think about kind of our throw in the inflection, Again, I think if you think last quarter, obviously, earlier in the year, we want to be kind of mindful of where we are to start the year and kind of how far through we were. I would say, as we sit here today, we’re kind of four plus months into the year. So I think as we’ve been talking about, there’s a lot more data and a lot much more, I’d say, kind of robust trends over four plus months on the Arthro side. Again, if you think about MACI going from, call it, 20% to 22%, I would say we are assuming a contribution clearly from Arthro to help drive that inflection on a year over year basis. But I would also say, it’s based on, I’d say, essentially the trends we’ve seen to date. So the surgeon training has been strong. We assume that’s going to continue. We’re seeing incremental biopsies from these surgeons. We are seeing other areas of the knee where kind of providing potentially new opportunities, etcetera. So certainly, it’s part of our I certainly think it’s part of our guidance assumption. But I wouldn’t say we’re looking for kind of inflection, if you will, in the underlying trends of MACI Arthro. It’s more of continuing to do what we’re doing. And as the lead the most important leading indicator for us is biopsies. So we believe as we kind of hit the back half of the year and again into 2026, that’s going to give us a nice opportunity to convert these incremental biopsies. So it’s essentially continuing in similar trends of what we’ve had that it’s a couple million higher, it’s not usually material from a change perspective. And then from a margin perspective, I would say, in the first quarter, when you see that lower Epicel revenue kind of coupled with what is typically our lowest MACI revenue, We did have, I’d say, pretty solid gross margin, still at 69%, which was simply the same as last year. If, for example, Epicel was a bit higher in the quarter, then certainly we could have been in that 70% range. So I think getting to the low 70s in Q2 with a base of revenue that we expect to be much higher in the mid-60s is certainly a reasonable expectation. And then for the year, we did talk about gross margin. We did increase our guidance a bit to 74% on a full year basis on the gross margin side, so we have some visibility there as well. And then from an adjusted EBITDA margin, again, the Q1 results certainly impacted by kind of lower revenue on both products. We kind of just think about where the revenue is and what our current expense base is. That’s kind of we did expect a lower margin in the first quarter. In the second quarter, I think to your point, once kind of the revenue gets up to a much more substantial number in the mid-60s, generally, as I commented, we probably assume similar operating expenses across all four quarters. And again, as we look to accelerate a bit of our MACI’s sales force expansion into this year, we’ve contemplated that on a full year basis as well. So it really is kind of that revenue level, I would say, that sort of drives what you are seeing on a quarter-over-quarter basis why it and where that change is coming from.

Thank you.

Thank you.

Your next question comes from the line of Mike Kratky with Leerink Partners. Please go ahead.

Hi, everyone. This is Sam [ph] on for Mike. Can you guys hear me all right?

Yes. Good morning.

Yes. Thanks, guys. So I know it’s early days, and you mentioned higher biopsy rates for MACI Arthro surgeons in the quarter. But can you kind of provide any color in terms of what you’re seeing in respect of conversion rates thus far? Again, I know it’s probably just a small number of procedures, but are they higher than traditional MACI implants? And how could this potentially translate to growth in the back half of the year?

Yes, this is Nick. So as I mentioned on the call, it’s a little early to kind of see the same kind of inflection in implants just because the median conversion time is, call it, four to six months. And obviously, we were referencing biopsies year-to-date, so in the first four months of the year. So it’s a little early to be able to see kind of what the impact will be on conversion rates. Although, for the reasons we’ve mentioned in the past that it’s a much simpler, faster, less invasive surgery, one would think that over time you would see a higher conversion rate for MACI Arthro. So regardless of that, just in terms of having those additional biopsies, we would expect that you would see, as I mentioned earlier, when you have a strong uptick in biopsies, those tend to show up as implants four to six months later or a couple quarters later, so that’s the impact we would expect in the second half of the year. And as Joe mentioned, I think it’s important to note that it doesn’t really require anything more than sort of maintaining the current trends we’ve seen year to date to be able to deliver on the guidance that we provided today.

Got it. Thanks. That’s very helpful. And then I just had one follow-up. So with your sales force like now fully trained on both Epicel and NexoBrid as of last quarter. Can you just provide any color on any cross selling opportunities that you’ve seen in 1Q? And in particular, how many Epicel accounts you’re in currently? And maybe how many previously dormant Epicel accounts you may have unlocked in the quarter and those kind of dynamics?

Yes. So as you noted, we did sort of expand the sales force in the middle of last year and yes, all the reps are cross trained on both products. And that’s an important part of the longer term sort of growth opportunity for our burn care franchise. I would say that each quarter we do see that we are getting biopsies from dormant accounts. Last year I think we had alluded to the fact that there were several million dollars’ worth of Epicel revenue that was attributable to what were at one time NexoBrid only accounts, we expect that to continue so we certainly get biopsies. Whether those translate into graphs and revenue just depends on those patient health issues treating the patients and so on. But there’s certainly, you know, the continued opportunity to do that, and that’s the goal, to have every account we’re in become both Epicel and NexoBrid users.

Got it. Thanks so much.

Thank you.

Next question comes from the line of Josh Jennings with TD Cowen. Please go ahead.

Hi. Good morning, Nick and Joe. Thanks for taking the question. I was, wanted to ask one on MACI Arthro, and it’s still early in the launch. But any you can share in terms of reporting back from your surgeon customers or from the field just on the acute outcomes for MACI Arthro procedures, anything on just recovery time and acute procedural success, etcetera, it’d be great to hear some of those data points.

Yes, hey Josh, thanks for the question. I would say from our corporate perspective, as I think I’ve mentioned previously, we currently have a MACI registry that is enrolling patients and that is intended for MACI Arthro patients to basically be able to demonstrate those early post-surgical recovery times and advances. It’s a little early to have data on that. Hopefully, next year or sometime we will be able to kind of have data on that. But there’s certainly a number you can do Google searches and see surgeons who have used MACI Arthro and the videos they post about the results they’re seeing with patients. And certainly, I think their impression is as we’ve expected and they would, which is when you have a less invasive surgery, you do have better post operative recovery, better range of motion, back to full weight bearing potentially sooner. Those things that would want to see and would expect to see with a less invasive surgery, I think those kinds of things from the surgeons themselves are sort of what we hear anecdotally. But again, no sort of published corporate data yet, but we hope to have that in the not too distant future.

Great. Just a quick follow-up on that one. Just on the procedural success rates, I mean, our understanding is that they are strong and that the learning curve is is not steep, but, just wanted to check that box as well. And I just have one follow-up.

Yes. Well, again, it’s early for outcomes data, but, as we’ve talked about previously, these surgeons do the vast majority of their cartilage repair procedures arthroscopically, so you would expect this is kind of right in their wheelhouse. And when we were working with surgeons both through the human factor study and the voice of the customer kind of training sessions, we ask about that. Is MACI Arthro, how does it compare to MACI open in terms of time and complexity, and essentially was that parity? And then compared to others cartilage repair procedures that they do, how does it compare? And again, at parity. So that would, sort of support a conclusion that, seems like you’ve heard that the learning curve is pretty quick.

Great. Then and then maybe for Joe. Sorry if I missed this, but just, the plan to expand MACI Arthro through salesforce, the margin guidance, positive revision, maybe just help us understand, maybe high level or detail just the spend associated with expanding MACI Arthro salesforce and how, just to get us comfortable with the back half weighting in the margin ramp clearly we can look to prior years and see the strength in the back half in terms of EBITDA margin expansion and gross margin expansion. But just wanted to balance that out with this initiative to expand the MACI Arthro sales force and the potential spend associated with it.

Yes. So Josh, maybe I’ll just start kind of on the expansion. We talked about this a little bit on our last call in response to a question. Obviously, MACI continues to grow very strongly. And as we finish up our analysis on a salesforce expansion, the details around it, which aren’t all fully concluded yet, but we have a pretty strong step up in the back of the year as we always do, and we want to make sure that we have the resources to support that expected growth and particularly in the high volume territory. So as we did last year, we want to be adding that support in a timely way and really setting people up to hit the ground running early in 2026 as well. So I don’t expect that it will necessarily be sort of a full-scale expansion from that perspective, but again, really designed to make sure we can support kind of the growth we’re expecting in part as a result of MACI Arthro.

Yes. No. I think to that, just to add, Nick, into that point, it’s really kind of just given the leading indicators that we’ve seen on MACI Arthro, you know, we want to make sure we’re kind of set up success and we’re investing behind that. So it’s really just it’s kind of that’s what’s driving the decision. And I would say from kind of a P&L perspective, to your point you made in your question, I mean, typically, because the back half of the year, really the fourth quarter is such a high quarter for MACI, we do have the stronger margins in the fourth quarter in particular. And so that’s just generally how the year plays out. I would say from an operating expense perspective, to Nick’s point, I mean, we’re not kind of instituting the full expansion in this year, but we are focused on those likely to focus on those higher volume territories. And this will clearly be kind of back half of the year, probably later in the year, realistically, by the time we’re kind of adding to the field. So certainly, as we think about our kind of investments for the year, I mean, this is something that we want to make sure is a priority. So there’s a bit of prioritization that kind of comes into that, but it doesn’t change our view in terms of how we’re thinking about our spend on a full year basis.

Appreciate it. Thank you.

Thanks.

Your next question comes from the line of Caitlin Cronin with Canaccord. Please go ahead.

Hi. Thanks for taking the questions. Just to provide more color on the Salesforce expansion that you guys were talking about, you touched on that it wouldn’t be necessarily a full expansion this year. Just a little more color on kind of the numbers for this year and then if you would plan to maybe make it more of a full expansion into 2026.

Yes. Thanks, Caitlin. I guess I would just start by saying again, we haven’t finalized the implementation plan. But just as we look out towards the end of this year and into 2026, 2027 and beyond, it’s clear based on the growth that we are expecting that we need to add resources. I think we talked about it in response to your question on the last earnings call. Think at that time, mentioned that wouldn’t be surprised if maybe we had a couple dozen territories. And then the question is, we obviously are we’ve done this a lot in the past, not over the past couple years, but, we expanded the Salesforce in 2017 through 2020, right, for four or five straight years. And we always grew through that and increased rep productivity on a revenue per rep basis and so, think our team knows how to do this well to make sure that, there’s no disruption, especially in the back half of the year. And so all of that goes into sort of thinking about if we want to add resources to make sure we’re well positioned for the end of this year, how we might do that. And so it’s really more of a making sure we sort of provide the support that’s needed without incurring any disruption and then setting ourselves up for 2026. So a little more to come on the exact numbers, but it gets in the ballpark of the range that, we had talked about previously.

That’s great. And then, just on Arthro, how many surgeons of the 400 that you’ve trained are, you know, legacy MACI users versus kind of the new Arthro inclined users you touched on in in your broader TAM?

Well, I’d say, the low hanging fruit as you would expect is that, these current MACI users get trained on the Arthro procedure. And the vast majority come out of the buckets or the cohorts that we talked about previously, which are current MACI users, half of which were really just sort of patella only surgeons or predominantly surgeons. And then, surgeons who did both condyles and patella cases. And so that’s where most of these surgeons are coming from. As you would expect, if you’re a sales rep, you go back to your customers, you train them on MACI Arthro, and then you start moving on over time to sort of prospect new users. So it it follows a playbook that I think would be expected and there’s a lot of advantages for us in that. These are surgeons that understand the clinical utility of MACI. They are as we alluded to or discussed on our call, thinking about a broader patient population that’s important as well. So there’s a lot of growth opportunity even within MACI users.

That’s great. And then just a quick one on Epicel. The lower graph per patient I think was also a dynamic last quarter. Do you see this as more of a systemic trend than what could potentially be driving that?

No. I we actually don’t see that as a trend because it it just moves each quarter depending on, again, sort of the patient population that you happen to be treating. So no, there’s no real as we’ve looked at things, obviously, as you might expect, a number of different ways. There’s no changes in the trends on, burnt surface area of patients for biopsies that were treating, etcetera. It just happens. And in some ways, you should think about it as sort of a carryover from Q4. So it was probably a less productive kind of set of biopsies that impacted Q4, unlike Q1 last year where we had sort of a huge number of Q4 2023 biopsies coming into Q1. Just didn’t have that this year. And so, it took a little while to sort of, I guess, dig out of that hole, but, there’s nothing fundamentally that’s changed in terms of the nature of the patients we’re treating or any of the dimensions around that.

Got it. Thank you so much.

Thank you.

[Operator Instructions] Next question comes from the line of Mason Carrico with Stephens. Please go ahead.

Hey, guys. Thanks for the questions. I was wondering how have the recent trade war headlines impacted your view on MACI internationally? I know it’s a dynamic situation, I was curious to hear how it’s impacted your view there, whether it be the timeline or really your market assessment process.

Yes. Well, obviously, it’s a very fluid situation, Mason. We believe there’s certainly potential for MACI outside of The United States. That is sort of the project we are engaged in evaluating right now MACI was a very, sort of important product in Europe previously. And so there’s still a lot of surgeons there who would certainly welcome having MACI as a primary option for repair now. So we are going to continue to explore it. I think, like everything here, it’s a pretty fluid situation. We would take anything related to sort of, tariffs or other sort of trade impacts into account before we made, any sort of final decision on whether expanding outside the U.S. makes sense for us.

Got it. Okay. And you somewhat touched on this in a prior question, but maybe asked another way. How are you prioritizing Arthro training across surgeon groups going forward? I mean, how much time is the sales force spending on driving adoption among those 2,000 or so Arthro focused surgeon group? And how are you really prioritizing adoption among that group in in the back half of this year and as we move into 2026?

Yes. I’d say generally, as I mentioned, first of all, a lot of these trainings occur at industry events. And so you kind of or sort of regional kinds of training sessions and things like that where as is typical, reps will invite surgeons to participate in these and they can choose to do so, etcetera. So there’s a lot of from a rep time perspective, there’s sort of these larger group training sessions, that that occur. And there are also individual sessions that occur. And those are a little more time consuming, know, especially if it’s a, an individual cadaver based training where you have to find a lab, you know, get the cadaver knee and coordinate all that stuff, I’d say, that those are more time consuming. They certainly are done if that’s a surgeon preference, but there’s also a lot of streamlined ways to train the surgeons, as I mentioned. Number one, they can train online. If they want, sort of lab training, they can do it in a number of ways either individually or at our larger regional trainings. We also provide what we call these already synthetic models to our reps that they can train surgeons on, which also cuts down on sort of the time and effort that’s required to train a surgeon. So it’s a synthetic model where they can kind of basically practice doing arthroscopic administration of MACI. We think that could become a very streamlined way to train a surgeon and we know that that’s how some surgeons who have been trained and done MACI Arthro implants have trained. I’d say, finally, as I alluded to in the prior question, I just think the low hanging fruit always is to go to your existing customers and train them, and then move on to sort of exploring the sort of high volume cartilage repair surgeons that haven’t used MACI yet. And I just think, there’s every situation you might imagine, but I would say that’s probably the most likely way on an individual rep basis that that these trainings occur.

Understood. Thanks again.

Thanks, Mason.

That ends the Q&A session. I will now turn the call over to Nick Colangelo for closing remarks. Please go ahead.

Okay. Well, thank you, and thanks, everyone, for your questions and continued interest in Vericel. Look forward to providing further updates on our progress on our next call, and have a great day.