VCEL - NASDAQ

Good day, and welcome to the Vericel Corporation Fourth Quarter 2025 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our fourth 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. As highlighted in our preliminary financial results release last month, the company had a strong close to the year and delivered outstanding financial and business results in the fourth quarter with significant revenue and profit growth and continued progress across a number of key business initiatives. From a financial perspective, the company generated record fourth quarter total revenue, which increased 23% over last year and exceeded our guidance for the quarter. This strong revenue performance drove significant margin expansion and profit growth as the company delivered record net income, gross margin of nearly 80% and adjusted EBITDA margin of 40% for the quarter. We also ended the year with approximately $200 million in cash and investments and no debt as we continue to elevate the company's top-tier financial profile. We also achieved several key business objectives in the quarter, including the successful completion of the MACI sales force expansion, and the initiation of the MACI Ankle clinical study and made substantial progress on other long-term growth initiatives as we remain on track to begin commercial manufacturing of MACI in our new facility this year and to potentially launch MACI outside the United States in 2027. MACI's second half momentum continued in the fourth quarter with record revenue of more than $84 million, representing 23% growth versus the prior year. This performance was driven by strong underlying fundamentals as we had the highest number of MACI implants, implanting surgeons, surgeons taking biopsies and biopsies in any quarter since launch. MACI's performance was particularly strong in December across all key performance metrics, including biopsy and implant procedures as our commercial and operations team executed exceptionally well to close the year. MACI's leadership position in the cartilage repair market has continued to strengthen since we launched the product in the U.S. in 2017. Over the past 9 years, MACI has generated compound annual revenue growth of 24% and has delivered revenue growth of 20% or more in each of the last 3 years. Notably, as of the end of 2025, more than 20,000 patients have now been treated with MACI. We believe that MACI's strong clinical profile, together with the surgeon and patient benefits of a simpler, less invasive surgery, have driven MACI's strong growth and will continue to do so moving forward. In addition, MACI's best-in-class pricing and reimbursement profile with prior authorization approval rates remaining over 95% for commercial patients in 2025, demonstrates the significant clinical value MACI represents to payors, hospitals, surgeons and patients. With this strong MACI foundation in place as we move into the new year, we're focused on executing on 3 strategic imperatives that we believe will position the company for sustained, strong revenue and profit growth in 2026 and the years ahead. First, we're focused on capitalizing on our larger MACI sales force, which will meaningfully increase our reach across the entire MACI customer base. Starting the year with a significantly larger footprint provides an opportunity to not only continue to drive the expansion of new MACI surgeons, but also to drive deeper penetration and increased utilization within our current MACI surgeon base. We're also implementing a number of important commercial excellence initiatives across the organization. We've made significant investments in new tools and additional resources to enhance our commercial analytics and standardize best practices across our larger sales team, which we believe will elevate execution across our commercial organization and drive deeper penetration within our surgeon user base, unlocking another key growth driver for MACI. Based on these initiatives and the quality of our entire expanded sales force, we expect that MACI sales rep productivity will return to 2025 levels as early as next year. Our second strategic priority is to leverage MACI Arthro to drive continued strong growth in smaller cartilage defects, principally on the femoral condyles, which represents the largest segment of MACI's addressable market. As we discussed throughout 2025, we've been very successful in training physicians on the MACI Arthro technique with approximately 1,000 surgeons trained to date. Importantly, MACI Arthro trained surgeons have continued to demonstrate a significant increase in biopsy and implant growth following training, and for those surgeons that have completed the MACI Arthro case, even higher biopsy and implant growth and higher conversion rates. With this foundation in place, our objective is to leverage MACI Arthro to drive significant growth in the treatment of small condyle defects, which historically have represented a smaller percentage of our overall patient volume and a lower growth segment for MACI. Notably, growth in the small condyle defect segment accelerated in MACI Arthro's first full year on the market in 2025 as this segment became one of the highest MACI implant growth segments along with the patella segment, which consistently has been our highest volume and fastest-growing segment. We believe that the positive trends are driven by the fact that MACI Arthro is a less invasive procedure with the potential for improved patient outcomes. Early data from ongoing investigator case series suggest a significant reduction in postsurgical pain, improved range of motion and a meaningful acceleration in the time line to achieving full weight bearing following MACI Arthro treatment. These initial results suggest very positive patient outcomes that could also lead to shorter overall rehab and recovery time lines. We expect these case series to be presented at upcoming industry meetings and in publications, and we continue to work with additional surgeons as they complete MACI Arthro cases to collect prospective outcomes data in our MACI clinical registry. Our third strategic imperative is to leverage our life cycle management initiatives to position the company for sustained longer-term growth. To that end, we initiated the Phase III MACI Ankle MASCOT clinical study in the fourth quarter. A potential MACI Ankle indication represents a substantial growth opportunity with an estimated addressable market of more than $1 billion and would also enable the company to expand into other areas of the orthopedics market. We also remain on track to initiate commercial manufacturing for MACI in our new facility this year, which will allow the company to potentially commercialize MACI outside the United States. We're taking a staged approach to MACI OUS expansion with the first phase targeting a planned launch in the U.K. The U.K. represents an ideal first step for MACI OUS expansion as there's clearly defined expedited approval and reimbursement pathways, a high level of awareness and surgeon advocacy given that MACI was previously on the market in the U.K. and concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries. We expect to submit a marketing authorization application to the U.K. MHRA in the middle of this year and potentially launch MACI in the U.K. in 2027 as we seek to expand the long-term growth and value creation opportunities for the company. In summary, the company executed extremely well in the fourth quarter, generated record revenue and financial results, while achieving a number of key objectives that help position the company for continued growth in 2026 and beyond. I'll now turn the call over to Joe to discuss our financial results and 2026 guidance in more detail.

Thank you, Nick, and good morning, everyone. As Nick referenced, the company had an outstanding close to the year with record fourth quarter revenue of $92.9 million and 23% growth versus the prior year. For the full year, total revenue increased to $276.3 million, which was above the high end of our guidance range for the year. MACI also had a strong close to the year with record fourth quarter revenue of $84.1 million, representing 23% growth versus the prior year and 51% sequential growth versus the third quarter. For the full year, MACI revenue increased 21% to $239.5 million, and Burn Care fourth quarter revenue was $8.8 million, which was above our guidance range for the quarter. For the full year, Burn Care revenue was $36.8 million, consisting of $32.1 million of Epicel revenue and $4.7 million of NexoBrid revenue. The company's substantial growth in the fourth quarter translated into significant margin expansion with gross profit of more than $73 million in the quarter or 79% of revenue and adjusted EBITDA of more than $37 million or 40% of revenue, representing the company's highest quarterly margins in any quarter to date. On a full year basis, the company also delivered meaningful margin expansion with 74% gross margin, an increase of nearly 200 basis points compared to the prior year and 26% adjusted EBITDA margin, an increase of over 300 basis points versus the prior year, which were both above our guidance to start the year despite the incremental investments in 2025 for our new facility and the MACI's sales force expansion. GAAP net income also grew nearly 60% to $16.5 million for the full year as the company's profit growth continues to significantly outpace our strong revenue growth. Finally, the company generated full year operating cash flow of $52 million and ended the year with approximately $200 million in cash and investments, an increase of $35 million during the second half of the year as the expected inflection in our cash generation following the completion of our new manufacturing facility is now being realized. Turning to our financial guidance. We are entering 2026 with a great deal of momentum and have gotten off to a very strong start of the year in the first quarter. Consistent with our commentary on our prior earnings call regarding 2026 revenue for both franchises, we expect total company revenue this year of approximately $316 million to $326 million. For MACI, we expect another year of strong revenue growth. And as a starting point for our guidance, we expect MACI revenue of approximately $280 million to $286 million for the full year. Our initial guidance reflects a continuation of current MACI key growth driver trends, including surgeon growth, biopsies per surgeon, conversion rate and price to start the year, recognizing that there is an opportunity for outperformance based on the momentum in our key performance indicators, our expanded sales force and the commercial initiatives that we have put in place. As part of our initial framework, we expect a similar quarterly mix of MACI full year revenue as last year and importantly, a similar growth rate for MACI each quarter this year versus the prior year. For Burn Care, we are maintaining our run rate approach to guidance with revenue of approximately $9 million to $10 million per quarter, recognizing that revenue can vary on a quarterly basis. For the full year, this points to approximately $36 million to $40 million of total Burn Care revenue. Of note, we are not assuming any additional NexoBrid revenue in our initial guidance related to a potential BARDA award, although there is a reasonable possibility for incremental NexoBrid BARDA revenue during the year. For the first quarter, we are on track to exceed 20% total company revenue growth as we are off to a very strong start to the year for both franchises. MACI's fourth quarter momentum has continued into this year with MACI performance trending toward higher first quarter growth than in recent years and Burn Care performance trends have also been strong to start the year. As such, we expect MACI revenue of approximately $54 million to $55 million and Burn Care revenue of $9 million to $10 million for the first quarter. Moving down the P&L. For the full year, we expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%, which accounts for additional costs related to our new Burlington manufacturing facility, the incremental investments related to our MACI sales force expansion and increased MACI Ankle MASCOT clinical trial expense as patient enrollment begins. We expect total operating expenses to be approximately $220 million for the full year and anticipate a similar level of spend each quarter. For the first quarter, we expect gross margin of approximately 70% and adjusted EBITDA margin of approximately 10%. Overall, 2026 is set up to be another positive year for the company with strong top-line revenue growth as well as continued margin expansion and profit growth. As we look ahead, we believe that the durable growth of our portfolio positions the company to sustain strong top-line growth in the years ahead and supports our midterm revenue and profitability targets. This concludes our prepared remarks. We will now open the call to your questions.

[Operator Instructions] We'll move to our first question, Ryan

Busy morning for a lot of us, so I'll try and squeeze in both questions. But I think there was a number of price increases on MACI that were taken in 2025. Correct me if I'm wrong on that, Joe. But how do you think about kind of the mix of price versus volume? If you reflect back on 2025, particularly on volume, I think, investors are rightly concerned that price drove some of the growth. And then as you look ahead to '26, how do you think about that balance as well?

All right. I'll start -- do you want to ask your second question or just start there?

Sorry, let's just start there. Sorry, Joe. Keeping me honest.

Yes. So look, from a pricing perspective, obviously, that remains a key growth driver for us. Nick talked about in his prepared remarks, our kind of access position remains very strong. I think over 95% of our commercial cases from a prior authorization perspective are approved. So kind of looking back historically, and I would say looking forward, certainly, pricing kind of has been and will remain part of our growth algorithm. If you look at the second half of last year, obviously, there was a significant improvement in the MACI performance. I'd say that step-up was volume driven, although, of course, I would say both price and volume play a part in the growth.

Yes. Okay. And then one of the other key, I think, variables to the algorithm is new doctor growth. And so as you think about kind of who is adopting Arthro, I'm curious if you could reflect on maybe kind of existing or same-store sales dynamics relative to kind of new doctor growth. And appreciate the comments you gave about those adopting Arthro certainly being more robust. But is that a reflection of your existing customer base or potentially new doctor growth?

Ryan, I'll start. It's Nick. I think the sort of ratio of trained surgeons that we talked about previously has held throughout the year. So about 2/3 come from existing MACI users split between kind of former patella users and patella and condyle users and then about 1/3 from sort of either prior open targets who had not adopted MACI at that time and then obviously, the new arthro-only surgeons. So that's kind of remained relatively consistent. And I'd say the dynamics that we see once the surgeons are trained regardless of which bucket they come out of sort of hold true in terms of obviously increasing if they're new, but even sort of former users increasing both biopsy and growth rates. And then particularly when they start doing Arthro cases, their growth rates for both biopsies and implants are even higher, and their conversion rate was higher for the year as well. So all obviously very encouraging trends for us as we move forward.

We'll go next to Mike Kratky with Leerink Partners.

This is Sam on for Mike. So just during your 3Q '25 earnings call, I think, you had mentioned that 20% growth for MACI would kind of be a good starting point for fiscal 2026. But the current guidance kind of implies growth slightly below that at roughly 18% at the midpoint. Is this just a function of kind of 4Q being a little bit better than expected? And is there anything that materially changed from then versus now when you issued the new guidance here?

Yes. So I'll start. I mean I'll just give a quick update on the guidance maybe overall. And I would say just on that last part, I mean nothing certainly materially changed. I think if anything, we probably really ended the year a bit stronger across the business, which was great. So just in terms of the guidance framework, to your question, I would say, if you look at both franchises, it's really consistent with the commentary we gave in the last call. So on the MACI side, the guidance is kind of in that low to mid $280 million range. That's consistent, I think, right on top of consensus or very close. We talked about in the last call, having that similar year-over-year incremental growth, which I think accomplishes as well kind of the midpoint of that range and the $282 million or $283 million is right in line with last year, which is about a $42 million increase. I'd say on the specific question around the 20%, I mean, obviously, there's a range around MACI. We want to be prudent to start the year. But what we said in the last call, in addition to having that similar incremental growth was, I think coming into the call, there were analysts kind of on either side of that number. And I think we were comfortable with something at that range, but I think we try to be clear that we were not going to guide above that. So I think more than anything, it's probably just being prudent on the MACI side, but we feel really good about the start of the year on MACI and the full year. And then just quickly on Burn Care, I think that's important as well. So that one is pretty straightforward. We said last quarter, we're going to maintain this run rate framework, which I think has worked well in the last couple of quarters, in particular, call it, $9 million to $10 million per quarter, get to $36 million to $40 million or $38 million at the midpoint. One thing that is probably a bit off coming into the call is we referenced the high 30s last quarter, but if you actually look at external estimates, they're kind of more into the lower 40s. So that's obviously impacting both Burn Care and the total company external starting point. So I do want to point that out. So you put that together, I think we have a nice balanced guide, something around, call it, mid-280 or middle of that range rather and high 30s in Burn Care, you're probably around 320 or so at the midpoint, which we think is a very balanced starting point. And then just briefly on Q1, because I think, that's important as well in the context of the guide. So just to reiterate what we said in the call, we think we're off to a great start on track to exceed 20% as a company for the quarter. The MACI metrics have been really strong, and we are guiding Q1 higher than we've trended and certainly higher than we've guided in the last couple of years. So obviously, feel good about MACI. Burn Care has had a strong start as well. So very much on track to that run rate for Q1. So we think that sets us up well. And then lastly, just on the MACI question and just generally, I think as we talked about in the last call, I'd say we just want a very, I would say, prudent and disciplined start of the year in our initial guide. So MACI has a ton of momentum, we have a number of initiatives, including the increased sales force. We did see some inflection in some of our growth drivers in the second half, but we're not baking any of that in. We're assuming pretty similar trends on a full year basis. And similarly, I would say, on the Burn Care side, there's certainly an opportunity for incremental BARDA revenue. I think that's a reasonable possibility, but we're not baking that in. So I think it's prudent on both franchises. And just one last point on MACI. We did make the comments. If you look at the full year growth rate at the midpoint of that range, it's actually right in line with our Q1 guide. And so we felt like starting the year with not only a similar mix of business because we know our business is seasonal, but pretty -- or essentially consistent growth rates, really the same growth rate across all 4 quarters was a good way to start the year, and I think positions us really well to potentially outperform on that if we execute well. But I think it's a prudent way to start the year, again, just given the seasonality of our business.

We'll go next to Richard Newitter with Truist Securities.

This is Felipe on for Rich. So just on the sales force expansion, you guys pretty quickly expanded your territories about 30% in the last couple of months. So I'm just wondering like just talk me through like rep adds and the strategy for the year and I guess, how you expect those new territories to ramp? And then just a second question, if you could give some guidance and expectations for free cash flow ramp for the year, that would be helpful.

It's Nick. I'll start with the sales force expansion one. And obviously, we're really excited about the expansion. As you will recall from last year, we decided to accelerate the expansion into Q4 because we wanted to support what we knew were going to be significantly higher volumes in Q4 and make sure that we were positioned to take advantage of this momentum in MACI for the entire year and not kind of have the sales force expansion in the first third of the year. So really excited about that. Obviously, the larger footprint, as I mentioned on my prepared remarks, will increase our reach across the surgeon base and really gives us an opportunity to drive expansion of surgeons and deeper penetration in our existing surgeons. And I would just say, I think the team executed flawlessly on the expansion. Obviously, people outside of the company can worry about disruption when you're expanding the sales force in your largest quarter. So great job by our sales and commercial leadership team to execute and put a plan in place, great job by both the new and existing reps in the fourth quarter to not only drive our highest quarter ever, but to position us well as we come into 2026. As we mentioned earlier, these are extremely experienced and talented reps that we think, together with our existing sales force are going to drive strong performance as we move forward through the year. So that's an important piece of it. I mentioned on the call that we expect our rep productivity to kind of get back to last year's level as quickly as next year. So really excited about the opportunity for the sales force expansion and what it's going to mean for our business.

Yes. And then in terms of kind of the sort of cash flow question, I think probably the best way to think about -- we're not guiding to that specifically, but obviously, we think we are in an inflecting cash flow position, which is great. Generally, I think what we talk about is our adjusted EBITDA is a good proxy for operating cash flow. It doesn't always line up because there could be collections at the end of the year and some timing differences. But kind of over time, that tends to be a pretty good proxy for the most part. And then you kind of look at our run rate on the CapEx side in the last couple of quarters, it's been in the low single-digit millions, obviously, much lower as we've gotten back to more of a steady state after getting through the building projects. So that's probably the right way to think about it, but we don't have a specific number we've guided to there.

And we'll move next to Mason Carrico with Stephens.

In the context of your MACI outlook for this year and recognizing your comments, Joe, that leaves some room for upside, how should we think about what's baked in, in terms of the larger sales force conversion rates, maybe surgeon growth that's in the guide today?

Yes. So again, from a MACI perspective, I think we wanted to start the year with a very balanced view. Obviously, Q1 is off to a good start. And so I think as you think about the key growth drivers there, as I said, I would say you can think of those as similar on a full year basis, whether you're talking about kind of some of the key biopsy drivers or whatnot. I wouldn't say there's anything specific or kind of baking in, in terms of the new sales force. I think it's probably more just overall looking at the overall trends. To kind of Nick's earlier point, I think we have pretty high expectations of our new adds and are excited about just the increased reach and frequency we're going to have. So we do think that can be impactful over time, but we're actually not really baking anything into the guide. And obviously, it's a long sales cycle, so you want to have a little bit of patience there. But obviously, at the same time, we expect that to kind of get back to our rep productivity rates pretty quickly. So I think there's certainly an opportunity if the teams can do a good job to help drive that outperformance, but nothing specific that we've baked in, assuming kind of any sort of inflection in trends.

Okay. Would you be able to share any thoughts or anything you can point us to on how conversion rates for MACI tracked over the course of 2025? What proof are you seeing that Arthro might be able to improve the conversion rates and really shorten that time from biopsy to implant?

Yes. So I think on an overall basis, as Joe mentioned, that conversion rates were relatively stable for the year. But as I mentioned, within that segment of MACI Arthro trained surgeons that actually performed a case, again, we see higher biopsy and implant growth rates than MACI Arthro trained surgeons generally, which are higher than the overall average. And then we do see higher conversion rates for those MACI Arthro implanting surgeons as well. So that's the evidence, as I mentioned on my earlier remarks.

And we'll move next to Jeffrey Cohen with Ladenburg Thalmann.

So in particular, could you unpack OpEx a little bit for your '26 guide? And curious on the sales force expansion from last year, if there's any pull-through or any anticipated expansion for this year in R&D as well?

Yes. So I think we gave guidance at the total company level. So we said approximately $220 million on a full year basis in OpEx. Probably the easy way to think about that is, call it, $55 million a quarter, pretty consistent, including the first quarter. I think to your kind of question and point, I mean, one thing we've been talking about is as we move into '26, there are some incremental costs that are going to flow through the P&L, including on the OpEx side. So to your question on the SG&A side, certainly, it's the expansion of the sales force. So it's roughly 30 people. You can think of that as probably something in the $10 million range on an annual basis. And then I'd say a pretty meaningful increase on the R&D side as well as part of that, where you can think about, obviously, the Ankle trial, which was kind of in a start-up phase is now thinking of kind of more sites, and patient enrollment and whatnot. So those are really the 2 key drivers from an OpEx perspective that we baked in on a full year basis.

Okay. And then as a follow-up, with the Arthro surgeons out there, the anticipation for '26 is being driven by new surgeons or repeat surgeons? Are there 1,000 more surgeons to reach this year, or are you seeing more drive from existing physicians?

Jeff, it's Nick. As I mentioned in my remarks, I mean, the sales force and MACI Arthro combined, give us a greater reach on the sales force side. And then with MACI Arthro, we expect to continue to train surgeons, but we're really focused given the dynamics you see with those trained and implanting surgeons on sort of the depth of penetration that you can achieve with those surgeons in their practice. And so that is a meaningful piece of what we're doing. We've already trained a good portion of our existing MACI users. Again, I think we'll continue to do that, and it will bring new surgeons into the fold with MACI Arthro. But again, getting depth into those practices is really a key growth driver and the subject of a lot of our commercial excellence initiatives that we referenced earlier on the call.

We'll move next to Caitlin Roberts with Canaccord Genuity.

It's [ Michaela ] on for Caitlin. Our first one is, are you continuing to see dormant Epicel accounts reactivated given NexoBrid? And what does the next stage of NexoBrid adoption look like, if you can give any more color there?

So we definitely see more Epicel dormant accounts. So that has continued as we've sort of, I think, just by way of reference, we now have our entire Burn Care team of 17 territories cross-selling both products. So you certainly see additional dormant accounts each year coming on board. Again, it's a pretty sporadic patient base. And so you can have hospitals that may or may not see a patient in that particular year, but we definitely are bringing on additional Epicel accounts. And then on NexoBrid, obviously, changing the standard of care takes time, but we're continuing to see progress there. We launched the product with about 90 target accounts. To date, over 70 accounts have actually placed orders for NexoBrid. So good penetration on the overall number of accounts. And as we've talked about on prior calls, it's really about how do you move all of the accounts up the curve to be consistent users, which is what we're in the process of doing. So we remain sort of optimistic on what NexoBrid can do as we move forward. And as Joe mentioned, while we're not baking any sort of BARDA award revenue into our guidance, we think that is a strong possibility for the year. And if so, that will reinforce NexoBrid as a standard of care in addition to sort of some important financial enhancements for the company as well.

And then maybe just another quick one from us. Do you have any updates on when the MACI Arthro 2.0 instruments will be launched and maybe what improvements you're making?

Yes. So that's an ongoing process. We wanted to have MACI Arthro instruments on the market for a sufficient period of time in the first year and then gather feedback on enhancements that would be most important to continue sort of a journey of making MACI Arthro a simpler, less invasive procedure. So I'd say we're kind of gathering up that market input now depending on changes, these things can be by the time you develop new instruments, go through the sort of validation process, the approval process, et cetera, it's, call it, an 18-month or more process. So that would suggest maybe next year, probably at the earliest that we would have additional enhancements.

We'll move next to RK with H.C. Wainwright.

Just a quick question on gross margin. So you recorded 79% gross margin in the fourth quarter, but the 2026 guidance calls for a margin of 75%. So I'm just trying to understand the 400 basis point compression. Is that coming from trying to get the manufacturing start-up activities going? Or is it some amount of depreciation baked into it? And when all is said and done and the MACI manufacturing is completely transitioned into the Burlington facility, what could be the steady-state margin profile?

And thanks for the question. I would say, just a reminder, when we talked about the 79% margin, that's based on our Q4 performance in 2025. And so we do see some seasonality in terms of margins and just because our business, particularly MACI is so Q4 driven, of course, in terms of the mix of the year, we do tend to see our margins scale up in that quarter. So when you look on a kind of more apples and apples, I would say, full year basis, last year, on a full year basis, we did 74% next year for 2026, rather, we're guiding to 75%. So some increase on a year-over-year basis. Broadly, I would say there are kind of some additional costs that we are absorbing as we move into the new facility here in Burlington and now have kind of multiple facilities that we're operating, but I still feel like that's the right guidance assumption for the year. And then longer-term, just a reminder, we said on the gross margin side and we think we can get into the high 70s by the end of the decade. And I would say just generally kind of already being on a full year basis in the mid-70s and trending that way this year to start the year, I think we're pretty well positioned in terms of that kind of long-term target that's out there. And then maybe just to bring your Q4 data point back, I think Q4 is helpful when you look at those margins because we tend to grow into similar margins over time as the company grows more on an annual basis. So it is a good marker to look at. But again, I think on a full year basis, it is an increase on the gross margin side. It's just comparing Q4 to full year.

One quick question on the ex-U.S. business. So as you were stating, Nick, that you're planning to submit to the U.K. regulatory authorities in mid-2026 or in 2026. So how are you planning the commercial infrastructure there? Is this going to be a direct launch by you, or do you plan to enter into some sort of a partnership to initiate that business?

Yes. Thanks RK. So as I mentioned on -- in my prepared remarks, the U.K. is a very attractive first step for us for MACI OUS expansion because I mean it is an expedited approval pathway, mutual recognition pathway. So that is very attractive as well as established reimbursement pathways. And I also mentioned there's a concentrated call point. So there's a dozen or so centers of excellence where patients in the U.K. with cartilage injuries are treated, which means it doesn't require a big commercial footprint. So we would absolutely plan to commercialize on our own in the U.K.

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

I know you're not breaking out MACI Arthro contributions directly and we're thinking about the MACI franchise holistically. But I was hoping maybe qualitative, you can just share with us just whether the MACI Arthro launch in 2025 exceeded your internal expectations or in line with your external expectations, but it seems like it's exceeded it and including what's going on in this first quarter of 2026, where you're combating historical, seasonal trends and you're going to -- thinking you're going to deliver 20% growth or forecasting 20% growth of that MACI franchise here in 1Q '26.

Yes, thanks Josh. So yes, I mean -- I think when you look at different dimensions of the MACI Arthro launch, I mean, surgeon training, as we said, we've now trained a meaningful portion of our surgeon base, which is great. Their behavior, as you mentioned, and I've mentioned a couple of times, is exactly what you'd want to see in terms of increasing growth rates and now for MACI Arthro implanters having higher conversion rates. I'd say when you look at MACI growth overall, we had nearly a couple of hundred basis points of growth. And when you look at that in the context of the increased growth rate in our small condyle defect segment, it clearly accounted essentially for that accelerated growth for the year for MACI. So yes, from that perspective, we're very pleased. Obviously, we entered last year with 150 trained surgeons. We enter this year with kind of more like 900, as we mentioned early in the year that's now grown since that time. And so there's an opportunity if those trends continue to really sort of meaningfully impact the business as we move through 2026 and beyond.

And then I know -- I was just hoping if you could share some details on this BARDA RFP, it sounds like the team is more optimistic that will come through. But what's left? Is it just administrative sign-off? And then I think this is in the public domain, but maybe just help us think about if that does come through, what type of revenue contributions in 2026 and beyond could this BARDA RFP deliver for Vericel?

Yes. So as you're aware, there were kind of 3 components to the RFP from BARDA. One was kind of strategic stockpiling for national preparedness and procurement revenue that would result from that. There was a desire to add additional indications for blast trauma and funding for that and then for a room temperature stable formulation as well. So there were kind of 3 components to it that would flow through our income statement differently. That obviously was impacted by the government shutdown initially. As you're well aware, there were parts of funding for 2026 that were pushed out to the end of January, and that's still an ongoing issue. So while HHS was funded for the year as of the close of January, that's only a few weeks ago and so obviously, getting the machinery up and running takes a little time, it seems. But we do think there's a pretty strong possibility that we'll be able to get that award done this year, and it would have the impacts that we mentioned. The RFP obviously set forth the stockpiling numbers, starting with 2,750 units and then additional procurement down the line. The exact revenue that would come out of that, we're not prepared to share right now. It's obviously subject to the negotiations on pricing and so on, but as that moves forward, we can share more about that.

And that will wrap our question-and-answer session. I will now turn the call back over to CEO, Nick Colangelo, for any additional or closing remarks.

Okay. Well, thanks, everyone, for joining us this morning. As we've mentioned, the company had an outstanding fourth quarter and is very well positioned to continue to deliver on what we believe is a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead. We look forward to providing further updates on our progress on our next call. So thanks again, and have a great day.