Vericel Corporation Stock

Thank you very much. This is Peter Harrison from Morgan Stanley's Investment Banking Group. I'd like to welcome you to the Vericel chat. Today with us is Nick Colangelo, the CEO; and Joe Mara, the CFO. With that, we'll get started. Thank you very much for attending the conference. We greatly appreciate it.

Happy to be here. Thank you.

Thanks for having us.

Let's start with MACI, of course. It's your lead product for cartilage repair in the knee. TAM is $4 billion in the U.S. You're currently preparing to launch it outside the U.S. and conducting a trial for the product in ankle. Can you provide an update on these 2 initiatives and how they will continue to drive what's been an extremely impressive growth profile for MACI?

Yes. And I'll just start by taking kind of a step back for those who are less familiar. So MACI is our lead product, as you mentioned. It's an advanced cell therapy that's used to restore cartilage -- repair cartilage and restore function that we launched in 2017 for the treatment of knee cartilage injuries. And since that time, it's become far and away the leading restorative cartilage repair brand on the market and the only FDA-approved product in its class. And I'm sure we'll talk a little bit about sort of the growth drivers for MACI over time, which really had to do with -- it was a kind of tech procedural advancement from a technology standpoint versus the prior product that was on the market at the time. So it made it a much simpler, faster clinically effective product for surgeons, which expanded the use in the U.S. So there's a bunch of sort of growth drivers that we talk about in the short term, but the ones you mentioned are really the longer-term growth drivers for MACI. So immediately after launch, we started to think about how do we continue down the pathway of sort of procedural advancements to continue to make it less invasive, simpler, faster procedure, and that's kind of the launch of MACI Arthro that I'm sure we'll talk about a little later.

In addition, you have articular cartilage in all joints. The knee is the greatest opportunity since it's the greatest weight-bearing joint, and that's why all the injuries occur in the knee. But ankle is a second opportunity for us. And so moving into other joints has been a long-term growth driver and initiative for the company as has OUS expansion.

So I'll start there. Just by way of background, MACI was actually developed in Europe by a German company there before Genzyme purchased that company back in the 2010. It -- the pivotal study for MACI both in Europe and in the U.S. was conducted in Europe. So there's a long history -- and it was marketed in Europe. So long history of MACI in Europe. Once we completed our manufacturing facility in the U.S. that allows us to go back into Europe because we design that facility with global CMC requirements in mind, so that facility was completed and approved by the FDA for MACI production earlier this year. And we announced last year that we intended to go back into Europe and in a staged manner and that we would start with the U.K. And we did that for a number of reasons. Number one, there's a high degree of brand awareness and surgeon advocacy for MACI in the U.K. So because the clinical study was conducted in Europe, U.S. surgeons when we launched in 2017 didn't really have experience with the product. And it was surgeons from the U.K. that came over and trained our trainers who then went out and trained other surgeons in the U.S. So long history there.

Number two, there's an expedited approval and reimbursement pathway in the U.K. So if you have a product that's approved in the U.S., Japan, Europe, other countries, then the U.K. has a mutual recognition procedure, which we qualify for and we're following. So it's an expedited approval process.

And then from a commercial standpoint, there really are, if you're in the national health system there, which most patients are, there are 12 or 13 Centers of Excellence, joint restoration or preservation, Centers of Excellence in the U.K. where these patients will be treated. So a very sort of concentrated call point for us.

So we're really excited about the opportunity there. We submitted our marketing application in the second quarter. The processes that you have to go through a validation of that application. You have to have facility inspection, just like we did by the FDA earlier this year. And then the clock starts ticking. And so hopefully, sometime next year, we'll be in a position where the product is approved, and we can launch in the U.K. So really excited. And then we would move beyond that to other countries in Europe, potentially Canada and so on. So a really nice opportunity for us in the back half of this decade to sort of continue to drive growth for MACI outside the U.S.

MACI ankle, as I mentioned, we've always been focused on other joints and MACI ankle really -- the ankle represents the second largest opportunity behind the knee. So just like we did in terms of the opportunity for knee cartilage repair in the U.S., a quantitative market assessment, we did the same thing for ankles. There's about 170,000 or so cartilage resurfacing procedures that are done in the U.S. each year in the ankle. Our TAM is probably about 20,000 patients a year, but at our price point of, call it, roughly $70,000 per implant, it represents a really nice $1 billion-plus market opportunity for us. And that's really somewhat of a longer time frame for us in that it will be, call it, a 3-year enrollment, a 2-year follow-up, a couple of years for regulatory approval. So that's more of a 2030 kind of -- early 2030s kind of opportunity. But when you take a big step back and you say, we launched MACI in 2017. We're kind of in our tenth year on the market. We've had a 24% CAGR in terms of revenue growth over those years. So really strong momentum in the business. We launched MACI Arthro last year that allows us to access another part of the addressable market. That's an important one. You can layer on OUS opportunities and then MACI in the ankle, and you can see this multiyear, multi-decade opportunity for MACI, especially because there's no MACI-like products on the horizon.

Super helpful in the longer term. When I think about that 24% CAGR in the last couple of years and in the near term, as you bridge the OUS and the ankle. What has been the driver of MACI over the last couple of years? Is it the price? Is it volume? Is it occupation awareness?

Yes. So I would say, like our whole portfolio, and we can use MACI as an example, but essentially, we have a product portfolio, including MACI, where it's the only FDA-approved product in its class. We can talk about the burn care products a bit later, but they follow a similar model where these are -- because they're the only FDA-approved products in their class, they are sort of kind of the most clinically proven product. So there's a great deal of clinical data for all of our products. And essentially, we have a model that is premium priced products, concentrated call points. And so that has supported both the revenue growth but also sort of the profitability and cash generation that we can talk about as well.

For MACI, in particular, there's a very large addressable market. So I mentioned the ankle addressable market. It's probably 3x the size for the knee, about 60,000 patients each year. So it's a large addressable market. Relatively low penetration for restorative therapies like MACI, but that market is shifting pretty dramatically towards restorative therapies. Obviously, there's a pricing component to our growth as well, but it's really driven by continued penetration into our target surgeon base. So as I mentioned, is a less invasive, simpler procedure. It's kind of a tried and true med tech play where you're less invasive, simpler to do. The number of surgeons that use the product grows. That's been a principal driver to date. We also look at depth of penetration. So how many biopsies per surgeon are we getting as they adopt MACI into their practice. How those biopsies convert into implants.

And so yes, I mean, that 24% CAGR not over a couple of years, it's over a decade. And so it's been very strong growth. And we think there's a lot of opportunity as we go forward. MACI's growth is actually inflected somewhat since we launched MACI Arthro and a couple of other initiatives over the past year. Rolling 4-quarter growth is about 23% versus 19% in the fourth quarter before that. So we're seeing sort of good strong growth. It's grown 20% plus each of the last 3 years. And so we think there's a lot of room ahead for us with MACI that will continue to drive durable growth not only through the back half of this year but into 2027 and beyond.

On that room for growth, you did a sales force expansion at the end of last year. How is that going? How is the productivity of the sales force ramp up as we move into the second half of this year and beyond? And do you think you'll see additional sales force increases in the foreseeable future?

Yes. The sales force expansion was sort of 1 of a few initiatives that we engaged in. So mid last year, we were kind of on a path to get to about $0.25 billion in revenue. And we said that's great. But a lot of times, companies don't transition from that to what -- to our next goal, which is about $0.5 billion in revenue by 2029. We've set that as a midterm target along with our margin targets and what got us to $0.25 billion may not be what's necessary to get us to $0.5 billion. So we did a number of things. We accelerated our planned sales force expansion at the end of last year. That's when we did the hiring, but they actually went into their new territories, all the reps as of January 1 of this year. So that's a relatively sort of new development. We obviously talked about them a bunch of our earnings calls. We had launched MACI Arthro at the beginning of 2025. That's kind of contributing to our growth. And then we invested multi-millions of dollars in commercial excellence initiatives that also have sort of combined with the expansion in MACI Arthro contributed to the growth.

So I'd say on the expansion itself, it's gone exactly to plan. Obviously, folks worry about disruption when you're expanding a sales force. We've done it a number of times. And each time we've done it previously, we see our rep productivity to go up often in the same year that we expand, which is somewhat unusual. So we made a comment on our first quarter earnings call that we had double-digit biopsy growth. That was the rep's first quarter in place and biopsy growth in new territories was particularly strong. So they were doing exactly what we'd want to see, which is taking the existing biopsies, converting those into implants, but also building their own pipeline as they were moving forward. Second quarter, we said both biopsy and implant growth had accelerated in the new territory.

So I think they're doing really well. And I think the important point that we mentioned is not only does it set them up for a strong second half of the year in our business overall, but we look at sort of how reps progress over time. And we looked at cohorts of post-COVID hires, and they clearly contribute immediately. And again, they're not walking into white spaces and starting from scratch. So they're able to move the needle pretty quickly. But it's really years 2 and 3, where their in growth rates in both biopsies and implants are actually the highest versus legacy territories or other new territories. So for us, what that means is, again, we feel we're set up well for the back half of '26, but also for '27 and '28 as those -- it's a pretty big percentage of our sales force, about 30% expansion sort of get up to speed. And just the time it takes from go -- to go from a biopsy to an implant, it all sort of makes sense. In year 1, they're converting business, building a book of biopsies, but those convert over multiple quarters and sometimes multiple years. And so they're just building this foundation where you really see the strongest growth in years 2 and 3.

Helpful. You mentioned in passing the commercial excellence initiatives in that answer. What -- can you go into a little more detail on what those have been and how they have also contributed to the growth we've seen?

Yes. I mean I think a lot of it has to do that with the fact that we're now able to access sort of better procedural data for the surgeons that we target. So that allows you to sort of segment the surgeons at a different level. Our growth -- we've always talked about the fact that there are 4 MACI growth drivers. It's adding more surgeons who are taking biopsies. It's getting more biopsies per surgeon, that's the depth into their practices. It's how those convert and then it's price. And for the past few years, it's -- our growth has principally been driven by more surgeons adopting the product, taking biopsies, so you're getting more biopsies because you have more biopsy and surgeons and price. Last year, we started to talk about the fact we're starting to see an uptick in biopsies per surgeon. So -- and as surgeons mature, they typically end up taking more biopsies and treating more patients. And so that has become sort of a growth driver for us as well. And so it's really focusing through these commercial excellence sort of the segmentation first of all, which surgeons are really going to grow your business because you can see the number of qualifying procedures they do. You can target those surgeons better. It's also about sort of standardizing the playbook. So there are different segments if you have a surgeon that doesn't take a ton of biopsies and could take more, but the biopsies, they take, they convert at a very high rate. Okay, you want to kind of run plays that allow you to grow their biopsies because you know they're going to convert. You might have the opposite with some other surgeons where they take a lot of biopsies. But don't convert at such a high rate. So how do you get them to convert at higher rates. And so there's different things you can do. And really just standardizing best practices across a larger sales force is an important piece of that. And then implementing what will be a sales force CRM, so it ties everything together and allows them to sort of do better account planning focus on the right surgeons. It's a great performance management tool. All of those things combined to just have more productive reps out in the field that can really drive our business.

Makes sense. And the last question on MACI before we move on. You mentioned Arthro a couple of times. What did that do from a competitive position? And how do you see that contributing to growth over time?

Yes. So as I mentioned, continuous procedural advancements is an important and kind of tried and true playbook, right? So the predecessor product Carticel was highly invasive. MACI is a less invasive surgery. MACI Arthro is really designed to continue down pathway. And what it did, basically, MACI over the years, became sort of the go-to product for larger defects, just the way the product works, we take a patient's cells, we put them onto a collagen membrane that's surgically implanted or the cells that migrate down to the subchondral bone and basically generate the cartilage in the -- which essentially a pothole, the surface of the knee. And because it was a -- it's a simpler procedure, that's what initially kind of catapulted MACI growth.

MACI Arhtro -- but again, it's more -- its position prior to MACI Arthro was in larger defects, and then defects on the back of the knee cap because there really aren't other good alternatives for treating those kinds of patella defects. And that's a big part of the market. So those were always the go to as MACI continued to grow post launch.

The MACI Arthro instruments are designed for smaller defects, 2 to 4 square centimeters on the femoral condyle. And that's a place where we have business, but we had lower penetration, lower overall volumes because there are other things that surgeons can do. And so our whole goal there, it's probably 1/3 of the addressable patient market, have smaller femoral condyle defects. And that's why we developed the MACI Arthro instruments so that we'd have the most competitive positioning in a very large part of the market.

So that's been an important evolution for us. We launched -- kind of did a full launch last year, early 2025. At that time, we probably had 2,500 surgeons out of our 5,000 or so targets that we're taking biopsies in any given year, probably higher than that cumulatively. And out of the gate, we trained around 1,000 surgeons last year. It was kind of a critical mass of sort of getting surgeons trained on doing a MACI Arthro procedure. They represented that trained surgeon cohort more than half of our implants last year. And we saw that while patella defects not only is our highest volume, but it's typically been our highest growing segment. We saw those small femoral condyle defect that growth rate sort of at par with patella. And so that was an important sort of development for us. We've seen continued strength in the leading indicators.

So I think it refreshes the brand, it allows us to access a different part of the addressable market with a more competitive offering. And it will allow us to continually innovate because this was just version 1.0. We're working on additional enhancements to the MACI Arthroscopic instrument set. We'll look at developing a specific set of instruments for use arthroscopically in the patella. And it's kind of as you would expect, a less invasive procedure is better for the patient. And we're also focused on publishing data. Sort of like MACI, when it was launched, we didn't really have clinical data in the U.S. because the pivotal study was run in Europe. We have a registry now to generate MACI U.S. patient data. We have some publications out there already. The arthro instruments were approved with the human factor study. So we didn't have to do a clinical study. We just had to demonstrate that surgeons could follow the instruction and implant the MACI membrane properly. And so now we're focused on demonstrating, surgeons would expect to be the case. And we know is the case that with a less invasive surgery, you have better post operative outcomes in that less postoperative pain, better range of motion, back to full weight-bearing more quickly. And so we're generating that kind of data and that we think also will help with MACI Arthro uptake.

Interestingly, MACI was on the market in Europe and Australia for years. And about a month or so ago, there was an arthroscopic long term publication coming out of Australia that demonstrated after 13.5 years of follow-up patient satisfaction with arthroscopic administration, not our instrument set, but they just use standard arthroscopic instruments, they had the highest patient satisfaction outcomes after that period that we've seen. They're all typically pretty high in the 90-plus percent range, this was like 100% patient satisfaction, 13.5 years on average after treatment.

So we know the long-term outcomes will be great. We also want to have data that our sales reps can use showing those shorter-term postoperative outcomes are better as well.

That's helpful. Before we go on to the burn franchise, let's step back a little bit and -- what this is built as a company that has both growth, strong -- very strong margins and cash flows, which is fairly unique in med tech and companies that's been tied with. What do you think contributes to this kind of durable top line plus the margin pull-through in cash flow generation you all bring to bear for investors?

Yes. So we've talked about MACI and its growth over the last decade. But the company as a whole since we launched MACI in 2017 has grown at a 20% CAGR. So not far behind MACI. And that's both because MACI's had strong growth, but also burn care as well. As I mentioned, all of our products sort of fall into this category being highly innovative products, great clinical outcomes, premium pricing and then concentrated call points. So again, we're generating what would be close to $300 million in MACI revenue this year with 100 sales reps. So I mean the rep productivity is very strong. We obviously have the whole infrastructure case management team and other support around them. But that's a pretty high sort of productivity for the reps.

In our burn care franchise, we've guided like $46 million to $50 million this year. So it's a smaller part of our business. And there, we have 17 territories. So again, it's a very concentrated call point. There's only 140 or so burn centers in the U.S. And so you take that combination of innovative products, premium pricing, concentrated call points. And yes, we've taken our margins up to this year, we've guided to about 75% with our midterm targets in 2029 being high 70% range, which is typically, what we see in the fourth quarter, which is our seasonally strongest quarter. And then our adjusted EBITDA margins this year will be 27% is what we guided to. In the fourth quarter, those strong quarters, I think we were at 40% last year, and that's a good proxy for sort of what we grow into over our next couple of years as the business scales.

So yes, it's sort of unusually or uniquely, I would say, profitable company in addition to the revenue growth.

I think when you look back over the past 4 quarters, our company revenue growth is 23%, burn care is 23%, MACI is 23%. Adjusted EBITDA is up like 40%, and we generated this next piece, which was about $60 million in free cash flow or operating cash flow over that time frame. So we kind of hit the profitability inflection point a couple of years ago, and that's continuing to increase.

Now with our new facility behind us, which is about a $100 million investment that we self-funded, it grew our cash balance while we were doing that. Now we're at a point where our CapEx will be, call it, roughly $10 million a year and our adjusted earnings are a good proxy for operating cash flow. So you can do the math if you look at our long-term targets, not only for this year, but our midterm targets, I should say, in 2029, get to $0.5 billion in revenue, close to 40% adjusted EBITDA margins. That's a good proxy for operating cash flow, minus a little bit of CapEx. I mean it's a pretty strong cash generation engine as well for us.

It's a very powerful engine for sure. On the burn care franchise, NexoBrid had been a bit slow since the launch. But as we saw in the Q2, appear to be a relatively strong quarter. Are there signs that we're seeing an uptick in that launch and increased revenue growth there?

Yes. Just to take a step back quickly. So in the burn care space, we focus on severe burn patients that are hospitalized. So that's kind of where we are, which is why I said it's a pretty concentrated call point. So 2 products there, NexoBrid first is what you use, enzymatic sort of topically applied to remove that burn tissue and then you figure out how you're going to cover the wound, which is where Epicel comes into play.

So Epicel has been on the market for about 30 years now. So we can talk about that later. The only FDA-approved permanent -- or full thickness skin replacement product. And then NexoBrid, we launched a few years ago. And the interesting thing there is that it's a really important product for patients. So the only -- the standard of care before NexoBrid was launched was surgical removal of the eschar. So you take a patient into the OR, and they basically cut away the dead skin. It's very traumatic. There's a lot of blood loss. So to have a product now that's basically a mixture of proteolytic enzymes that you can simply apply and it dissolves the dead tissue and leaves the healthy skin, I mean that's a big deal from a patient perspective. You're basically going to burn surgeons and say, don't do surgery anymore use this product. So it takes a little while to change the standard of care. It's more about sort of operationalizing it. They're used to saying, okay, I'm the surgeon. I need a nurse. I need an anesthesiologist. I need OR time for an hour. Now you have sort of a different flow and how do you staff that. How do you operationalize it. It may sound trivial, but in a hospital with certain sort of workflows that they've used for decades, that takes a little time to change.

And so really, when we launched the product, there are about 90 centers we are targeting. When we got the pediatric indication, we added, call it, 20 more. And to date, we've had about 80 centers that have used the product. So I think that's a good testament to people under -- surgeons and health care providers understand the benefit of NexoBrid. It's really about how do you get them up the curve on continuous use, get those protocols operationalized. And yes, we said in the second quarter, we're starting to see that momentum build and we expect that to continue.

Also layered on top of that is sort of this BARDA contracts. So BARDA is very worried about mass burn casualty events in the U.S. And if you have that kind of an event, you don't have enough surgeons and you don't have enough OR space to surgically take care of those patients. So that's why they funded the development of NexoBrid and that is kicking in now. So we are generating revenue from the BARDA contract. I can touch upon that for a minute which is, it's close to a $200 million contract. The first piece of that is about $35 million. And whether it's the full contract or that first funded piece, about 2/3 of the benefit of that goes to us. First in the form of procurement for stockpiling. So again, they want to have an available inventory of NexoBrid if there's a mass casualty event. We recognize that as revenue. Of the $35 million upfront, $10 million of that will be procurement revenue that we are recognizing, we gave guidance on that $3 million this quarter, $3 million next quarter, $4 million first quarter of 2027. The rest of it is BARDA is very interested in developing a new room temperature formulation, a new blast indication and so on. And so we manage those subcontractor activities. And the other part of the 2/3, call it, $10 million plus comes to us over period of a few years sort of for managing that product project as cost offsets. And the same sort of dynamics apply for the full contract where they're interested in ramping up procurement, maybe procuring the new formulation, et cetera. But they typically -- those are options that they exercise over time.

Before we go on to the P&L, maybe real quickly on Epicel, talk a little bit about the competitive position of the product, how it's been growing and the synergies. You mentioned a little bit the synergies with NexoBrid.

Yes, well, clearly, from a treatment pathway, it's highly synergistic because, again, once you remove the eschar, if it's a full thickness burn, really Epicel's the go-to product area. And again, we're treating catastrophic burn patients who can have 80%, 90% of their body burned. You don't have enough healthy tissues to do -- tissue to do sort of serial autographs. So it's a life-saving, very important product. It's had very strong performance over the past 4 quarters and it's kind of operating -- we're never going to be able to control the number of catastrophic burns that occur and how many patients survived to be treated. But of those that do survive, I think the team is doing an outstanding job of sort of converting the biopsies, we get to create the skin grafts into sort of treatments for the patients. And it's really through a sort of multidisciplinary, our burn care team, the sales reps really putting treatment plans together for these patients. And it is like a capital sale and med tech sense where these -- 1 treatment can be $0.5 million. And so it's a big sort of investment for the hospitals and we want to work with them to make sure there's great patient outcomes, and that's really sort of how we approach it. And I think it's really sort of given the business some good, strong consistent quarters over the past year and change.

Great. Quickly, as we're wrapping up here. Your gross margin and EBITDA, as you referenced, have expanded. With your new facility, which is super impressive, where can they go in the next couple of years?

Yes. So Nick touched on some of this, but we've talked about in our midterm targets. We think we can get to the high 70% range from a gross margin perspective, the high 30% range, adjusted EBITDA. We've also talked about that kind of $0.5 billion plus rather from a revenue perspective. So generally, I would say margins have been pretty strong in the first half of the year, ahead of our guidance in the first and the second quarter. We feel like we're on track for our full year guidance. This is a year we are absorbing some of the investments for some of the initiatives we talked about, everything from absorbing a new facility, the sales force expansion, the ankle spend of the trial there and then some ex U.S. prep as well. But I'd broadly say we know from a company profile perspective, we've had a history of strong revenue growth. We feel like we're well positioned as we move forward there. We've had that inflection in profitability. We think that will continue, particularly with the strong revenue and the pull-through there. And then again, as Nick referenced, really the cash generation piece is just starting as we finish that new facility. So moving forward, we think those are kind of all key aspects of the profile.

Great. And lastly, as an investment banker, lead -- end with capital allocation. You all announced a $200 million share repurchase program. You have been active -- selectively active in M&A over time to grow the burn care franchise. How do you think about your capital allocation evolving from here?

Yes. Well, I think we've always said that to achieve our growth objectives, kind of the big CapEx spend was going to be the facility, right? And so that's behind us. That's great. I'd say all the other things we're doing, whether it's sales force expansion, MACI ankle study, expanding OUS, that's kind of in our operating plan that's reflected in the margin guidance that Joe has given. So you're really down to business development transactions. And you're right. I mean, we purchased this business from Sanofi back in 2014. We added NexoBrid through a license agreement, that's kind of how we've built the company, and we will continue to add there or obviously, capital returns to shareholders, and that's where the buyback or the repurchase program comes in. And fortunately, I mean, we ended last quarter with nearly $0.25 billion in cash. We can do both things, right? We can selectively or opportunistically return capital to shareholders. We have got enough financial resources to do the kinds of deals that we'd be interested in doing. So I think it's perfect position for us.

Great. And with that, we're out of time, and I appreciate the chat today.

All right. Very good. Thanks again.

Congrats on your momentum.

Thank you.

Thank you.

Ladies and gentlemen, thank you for standing by. Welcome to Vericel's Second Quarter 2026 Conference Call. [Operator Instructions] I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Eric Burns, Vericel's Vice President of Finance, Business Intelligence and Investor Relations.

Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially from expectations are discussed more fully in the company's most recent filings with the SEC.

Also, the discussions today will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release as an exhibit to Vericel's current report on Form 8-K filed today with the SEC. A short presentation with highlights from today's call is also available in the Investor Relations section of our website.

I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. The company delivered excellent financial and commercial results across the business in the second quarter and achieved a number of key business objectives that position the company to continue to generate strong revenue, profit and cash flow growth in 2026 and beyond.

The company generated record second quarter total revenue of more than $77 million, which increased 22% over last year and exceeded our guidance for the quarter, driven by substantial growth for both MACI and the Burn Care business. This strong revenue performance drove another quarter of significant profit and cash flow growth as the company generated GAAP net income for the quarter and over $14 million of free cash flow, ending the quarter with over $227 million in cash and investments.

These results continued a very strong performance to date in 2026 as the company generated total revenue growth of 26%, adjusted EBITDA growth of 47% and nearly $30 million of free cash flow in the first half of the year. Based on these results and the significant momentum across the business, we're raising our full year revenue guidance to $330 million to $340 million, which represents total revenue growth of more than 20% at the midpoint of our guidance range.

MACI had another great quarter as double-digit volume growth drove record second quarter revenue of more than $65 million, which exceeded our guidance for the quarter and represented 23% growth versus the prior year. MACI's trailing 4-quarter revenue growth of 23% is significantly higher than its 19% growth in the prior 4 quarters as we continue to execute on our strategic initiatives to deliver sustained high revenue growth for MACI.

To that end, we're leveraging our larger MACI sales force to drive growth in new MACI users and deeper penetration within our current MACI surgeon practices. We continue to leverage MACI Arthro to expand overall MACI utilization, and our medical team has made significant progress in generating clinical data demonstrating the potential for improved patient outcomes with the less invasive MACI Arthro procedure.

Our commercial excellence initiatives, together with strong execution from our MACI sales team led to double-digit biopsy and implant growth, record second quarter biopsies, implants and biopsy and implanting surgeons as well as the second highest number of biopsies and biopsy surgeons in any quarter since launch.

Burn Care second quarter revenue increased 22% to $12 million, which was above our guidance range for the quarter and represented one of the highest Burn Care revenue quarters to date.

Epicel had another strong quarter, and NexoBrid had its highest quarter of revenue, ordering centers and total hospital unit sales to date, continuing the trend of strong overall Burn Care results over the past 4 quarters.

In terms of our longer-term growth initiatives, we remain on track to relaunch MACI outside the United States and submitted a MACI marketing authorization application in the U.K. in the second quarter, which, if approved, would enable the company to potentially launch MACI in the U.K. in 2027. We also continue to activate sites in the MACI ankle MASCOT study and began enrolling patients in the study in the second quarter.

Finally, as part of the company's capital allocation strategy to maximize long-term shareholder value, this morning, we announced that our Board of Directors has authorized a $200 million share repurchase program. Our financial outperformance, robust cash generation and strong balance sheet position the company to continue to invest in our near- and long-term growth initiatives across all areas of our business and to opportunistically return capital to shareholders. Our significant ongoing investments, together with the launch of the company's first share repurchase program reflect our confidence in the sustained growth trajectory for the company in the years ahead.

I'll now turn the call over to Joe to discuss our second quarter results and our updated 2026 guidance in more detail.

Thanks, Nick, and good morning, everyone. Company had a very strong second quarter across all key financial measures, including top line revenue, bottom line profitability and cash generation metrics.

Total revenue increased 22% to $77.5 million, which was significantly above our guidance range for the quarter, driven by strength in both commercial franchises.

MACI's momentum continued with double-digit volume growth and record second quarter revenue of $65.5 million, representing 23% growth versus the prior year and also marks the fifth consecutive quarter with MACI growth of 20% or more.

Burn Care revenue was approximately $12 million with Epicel revenue of $10.4 million. And of note, Epicel revenue of more than $21 million in the first half of the year represents the second highest Epicel revenue total over a 6-month period since launch.

NexoBrid revenue of more than $1.5 million was the highest quarterly revenue since launch, which increased more than 30% versus both the prior year and the prior quarter as NexoBrid utilization continues to increase.

The company also delivered strong profitability metrics for the quarter with gross margin of 73% and adjusted EBITDA margin of 19%, both of which were above our guidance for the quarter. In addition, the company delivered GAAP net income for the first time in a second quarter with net income of $2.2 million.

Finally, the company generated operating cash flow of $16.2 million and free cash flow of $14.3 million, representing the fourth consecutive quarter with free cash flow of $12 million or more. We ended the quarter with approximately $227 million in cash and investments, an increase of over $60 million compared to the end of the second quarter last year as the inflection in cash generation continues following the completion of our new facility.

With the strong second quarter results, the company has generated significant top line, bottom line and cash generation growth across the business throughout the first half of 2026. And over the last 4 quarters, the company has generated total revenue growth of 23%, adjusted EBITDA growth of nearly 40% and $62 million in free cash flow as we continue to elevate the company's top-tier financial profile.

Turning to our financial guidance. Based on the company's strong results across the business, we are increasing our full year total revenue guidance range to $330 million to $340 million for the year, which represents total company revenue growth of approximately 19% to 23%.

After another very strong quarter for MACI, we are raising full year MACI revenue guidance to $284 million to $290 million, compared to the prior guidance of $282 million to $288 million. We are also raising full year Burn Care revenue guidance to $46 million to $50 million compared to our prior guidance of $44 million to $48 million.

For the third quarter, we expect total revenue of approximately $76.5 million to $78.5 million with no change to our third quarter or second half revenue guidance framework for either franchise compared to prior guidance. At the midpoint of our guidance, this implies approximately $65.5 million of MACI revenue in the third quarter with high teens growth versus the prior year.

For Burn Care, the midpoint of our third quarter guidance assumes approximately $12 million of total Burn Care revenue, which maintains our core commercial Burn Care guidance framework and includes approximately $3 million of BARDA procurement revenue.

Moving down the P&L. For the full year, we continue to expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%. For the third quarter, we expect gross margin of approximately 71% to 72% and adjusted EBITDA margin of approximately 21% to 22%.

Finally, we are pleased to announce our $200 million share repurchase program. This program, which reflects the company's significant cash generation and overall financial strength enables the company to continue to invest in both near-term and long-term growth initiatives and to opportunistically return capital to shareholders as part of our capital allocation strategy to maximize long-term shareholder value.

Overall, 2026 is set up to be another strong year for the company. Our recent financial results continue to demonstrate the company's unique combination of sustained high revenue growth, profitability and cash generation. As we look ahead, we believe that the durable growth of our portfolio positions the company to sustain strong top line growth and supports our midterm revenue and profitability targets with significant cash generation.

This concludes our prepared remarks. We will now open the call to your questions.

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

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

Rich, it's Nick, and I'll start. And I appreciate the comments. As we've talked about over the past several quarters, I'd say about this time last year, we were talking about being very proud to be on a path to $0.25 billion in revenues and similar for MACI and what we need to do to make sure we remain on track to reach $0.5 billion by the end of this decade, which has really been our focus.

And so I would say at this point, it's really a combination of the fact that we increased our MACI sales force. We obviously launched MACI Arthro, which has had an impact, really spent a lot of time on the commercial excellence initiatives that have really elevated the execution of our MACI's commercial team and really doing the same thing on the Burn Care side.

So I would say we're obviously seeing those results now. As I mentioned in my prepared remarks, our trailing 12-month growth rate is 23% versus 19% before that. So that's exactly what we had wanted and expected to see out of all the initiatives that we've talked about over the past several quarters.

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

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

Yes, Rich. So we talked a lot about this on the last call that MACI is in a pretty unique position. It's regulated as a combination device biologic advanced cell therapy by the FDA. And when you think about the rigorous pricing research that we regularly do and kind of how payers and hospital administrators think about the product, we're really well positioned.

So compared to other cell and gene therapies, as we talked about, MACI's price is significantly lower than other cell therapies like CAR-T therapies that can be in the $0.5 million range or gene therapies in the $1 million-plus range. And so on a unit basis, it's significantly lower than those similar technologies.

And when you look at the overall spend in any given category, whether it's those kinds of advanced cell or gene therapies, which are in the billions of dollars or even in our space of total knee, total hip, total shoulder replacements, the overall spend to any particular payer or system is very low compared to other areas in our space. And so I think for that reason, we remain well positioned.

And as we talked about in our most recent market research, it suggested that those kind of similar price increases that we have been taking really over the past decade since we launched the product, we would expect those to continue over the next several years. So we've been very, kind of, clear that MACI is clearly a volume and price growth story for the foreseeable future.

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

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

Yes. This is Joe. I'll take that one. So yes, I'd say from just a quick guidance update, I think pretty straightforward kind of similar to what we talked through last quarter. So obviously, a strong second quarter, beat by more than $2 million in each franchise. And on a full year basis, essentially incorporating that beat in total and in each franchise. So that's the full year update.

And I think to your question, I think one thing we want to maintain is I think we've had a good guidance framework that's worked well for the company, and we want to keep that in place for the remainder of the year. So I'd say we're just trying to be prudent. Our assumptions in the second half have not changed or our guidance commentary rather.

So whether you look at Q3 or Q4 in the MACI side, you're kind of in that high teens growth rate is kind of our guidance framework assumption. Similar on the Burn Care side, where I think last quarter, we pointed to essentially $12 million per quarter is kind of the right way to think about the back half, and that has not changed. So we pointed to $12 million in the third quarter, which is kind of $9 million core and $3 million BARDA, a similar assumption for the fourth quarter.

And then just back to MACI and just maybe the framework, we talked about in terms of Q3, we have a revenue range out there. And obviously, there's some different scenarios. But probably a good midpoint again, is just to keep that high teens assumption on MACI, call it, around $65 million or so. And then again, Burn Care at around $12 million. So I think that's consistent.

And then I would say kind of to your question, obviously, over the last 6 months to start the year and really going back to last year, we've had a number of strong quarters. And the reality is if the team continues to execute well from a MACI perspective, we have a strong pool of biopsies. The indicators are strong. We think we should be set up very well in the second half, certainly to meet our guidance and hopefully to outperform it. So that's certainly the goal. Our internal expectations remain higher.

And I would say somewhat similar on the Burn Care side, which is -- that's obviously a more difficult market and franchise to predict. But we have seen a few quarters now of some consistent results on the Burn Care side have been a nice improvement.

So just generally, I would say, to your question on kind of a decel in the second half, I mean, that's more of a guidance framework assumption, which I think is the right place to be and to be prudent on that. But again, our internal expectations remain higher and clearly, we're running at higher levels now.

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

Yes. So I mean, in terms of our midterm targets generally, I feel like we're on track, whether it's revenue or the margin targets. I think what you're seeing, just as a reminder, in this calendar year is we're kind of adding [audio gap] 12 months, whether it's the sales force expansion, kind of the ramp-up of the ankle trial, some of our ex U.S. spend, et cetera, that's certainly contributing. And then, of course, on the gross margin side, which impacts EBITDA as well, kind of adding the cost for our new facility.

So this is a bit of a kind of transition year on the P&L where we still expect some modest expansion and to expand a little bit in H1 from a margin perspective. But I would generally say we would expect once we kind of get through '26 and into '27, we'll probably get into those more significant year-over-year increases on the adjusted EBITDA side and start to see that leverage flow through. And then again, when you get towards the end of the decade, you probably see things like the ankle trial will start to wind down, for example. So that will help as we get there as well.

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

Can you hear me okay?

Yes.

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

Ryan, it's Nick. Thanks for the question. I would just say that our capital allocation priorities remain the same. It's always about funding internal growth opportunities. And as we've talked about pretty consistently, our new facility where we made about $100 million investment and our cash still increased while we were doing that was really the biggest CapEx investment we were going to need to make to achieve our growth objectives. And with that behind us, you can see sort of the inflection in cash generation, free cash flow, et cetera, which will only ramp up as we move forward.

So our internal funding of growth opportunities really falls within our operating plan. We've always aggressively invested for growth, whether it's a sales force expansion, expanding outside the U.S., doing the MACI ankle study, commercial excellence initiatives across the board, and that's not going to change.

Secondly, we obviously have nearly $0.25 billion in cash now. And again, that's going to continue to ramp. We continue to look for M&A opportunities, additional product opportunities. We obviously built the company on business development transactions. So that's kind of in our core DNA, and that won't change either. But again, with kind of the performance of the business, our strong balance sheet, doing a share repurchase program where we can opportunistically return capital to investors, we can do both. So it doesn't change our overall capital allocation strategy, and it's just a reflection of the confidence that we have in our continued long-term growth.

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

Yes. As we talked about on our last call, the U.K. opportunity is a great beachhead for us. MACI's got a lot of brand recognition, surgeon advocacy in Europe and particularly in the U.K. Those were the surgeons. MACI was developed in Europe. It was on the market in Europe. Those surgeons actually came over and trained our U.S. surgeons when we launched the product back in 2017. So very strong advocacy and desire to have MACI back in Europe and the U.K. in particular.

From a commercial execution standpoint, it's a very concentrated market there with a dozen or so centers of excellence where patients in the U.K. and the national health system will be treated for cartilage injury. So that's great.

And then there was the reimbursement and pricing. Back in the late teens, there actually was a review of ACI technologies and a positive opinion from NICE that had pricing that was certainly -- it's lower than the U.S., but certainly acceptable for us.

We're going back. That's the next step. As we mentioned in our press release this morning, we submitted our marketing authorization application to the U.K. in the second quarter. So we remain on track for an approval, hopefully, by the end of the year and a launch into next year.

Part of that whole process is a submission for a single technology assessment by NICE. So we'll go through that process again. And we expect, given the prior history and then the additional long-term data we have from MACI and some other changes sort of in that market that reimbursement will be at a range that will be sort of attractive to the company. That's important because other European countries will use that as a reference price, Canada, et cetera. So obviously, we wouldn't be doing this if we didn't think we would get pricing that would make sense for us outside the U.S.

Yes. And Ryan, just to add on your kind of P&L question, I would say, generally, I mean, this is going to fit in well with our margin profile. We can use some of our capacity and at times, excess capacity here in Burlington. So we expect that to fit in well with our margin profile.

And then I think particularly starting in the U.K., I mean, as we talked about, a very concentrated market. So it's not going to be a huge kind of uptake in terms of kind of FTEs or to kind of get into that market from a kind of market model perspective or go-to-market perspective, I should say.

So not huge investments on the sales and marketing side. So we think this will fit in well on the margin side in general for the company and obviously, hopefully, can scale over time.

We'll take our next question from Mike Kratky of Leerink Partners.

Congrats on the really strong quarter. Maybe just one from my side, but can you provide any additional color on to what extent you're seeing MACI Arthro adoption within patella and some of the larger defects versus seemingly driving more penetration in smaller condyles and other defects? How market expanding has MACI Arthro been now that you're a little further out from launch?

Yes. Mike, it's Nick. So first of all, as you know, the MACI Arthro instruments are designed to treat smaller femoral condyle defects, 2 to 4 square centimeter defects, and that's obviously where they are being used.

As we've talked about on prior calls, we have seen use outside the femoral condyle. So in the trochlea in particular, which was a nice sort of upside and then even some patella cases as well. But again, they tend to be in the smaller defects.

And so I'd say, overall, we talked last call about the fact that 2025 was really a year around building the foundation of trained surgeons, which we outperformed on. We continue to train those surgeons, but we're really focused on having surgeons now move on to MACI Arthro cases because we've seen that while trained surgeons have higher activity levels than pre-Arthro, those that are actually doing MACI Arthro cases actually outperform all of them have higher conversion rates and so on.

So those trends continue as we move into 2026, and we expect that to continue. So I think it's again intertwined with all the other commercial initiatives that we have going on that have really elevated the execution. And now we're excited to see that publications are starting to flow.

So even just last week, there was an OUS long-term MACI outcomes publication for arthroscopically-administered MACI with an average kind of time line of about 13 years. And the data there was excellent. Obviously, they weren't using the MACI Arthro instruments, but great long-term outcomes and really, sort of, the highest patient satisfaction results we've seen in any of the 10-year-plus data that was out there with MACI. So really great outcomes there.

And then here in the U.S., as we mentioned previously, the first publication was accepted, hasn't been published yet, but we expect that to show those shorter-term positive outcomes that we talked about previously around return to full weight bearing on a faster basis, range of motion, et cetera, less postoperative pain. And so we expect that, that kind of clinical data will also support increased uptake with MACI Arthro as well.

Understood. Super helpful. And maybe just one quick follow-up, you talked about the sales force expansion. To what degree are you already seeing kind of full utilization and those new reps having ramped and contributing already versus is that still something that you might see more upside from in the back half of 2027?

Yes, that's a great question. So obviously, unlike our expansions back in, sort of, the late teens or 2020, where we were kind of filling in some white spaces here, there's established MACI business across the country. And so the new reps come in and they are contributing immediately. And we talked about the fact that we saw some of the highest biopsy growth rates in the first quarter coming out of those new territories, and they've continued to perform from that perspective in Q2 and implant growth accelerating as well.

And interestingly, as we look at sort of more recent adds to our sales force over the past couple of years, you really see an inflection in the growth in years 2 and 3. That's when they really hit their stride and typically outperform sort of some of the more established territories. And so yes, that's a great point that we're excited about that. This is not just a first half 2026 phenomenon. This is something that we should see through the remainder of '26 into '27 and maybe beyond as well. So yes, we're really pleased with the execution to date. And certainly, it's helping fuel the growth we've seen.

We'll take our next question from Caitlin Roberts of Canaccord Genuity.

Congrats on the great quarter. I would love to touch on Arthro just a little bit more. I think the last number of surgeons you mentioned that were trained on Arthro was about 1,000. I mean just any color you talked about switching to the focus being on cases completed now. Any color on how many of your surgeon users have completed an Arthro case at this point? And any update on the next-gen instruments and time line for those launching?

Yes. Thanks, Caitlin. Good to talk to you. I think on the MACI Arthro surgeon users, we haven't really sort of kind of track that or publicly disclose that. I mean what we're really focused on is increasing those MACI Arthro cases as we talked about for the reasons we talked about where they have higher growth rates, conversion, et cetera.

It's certainly not -- if a surgeon is trained on MACI, obviously, they're very interested in using MACI Arthro, then they have to find a patient who's got a defect that's amenable to using Arthro, and the patient then has to move forward. So you know this is sort of a long sales cycle.

But what we do see in those trained surgeons, regardless of when they do their first case is that they're definitely treating more smaller implants, and so that's kind of what we've been looking for to grow that share in the largest part of the market. And again, we're happy with the progress. As you know, with MACI, these things sort of play out over longer periods of time just because the sort of sales cycle is elongated for MACI. So everything remains on track that we'd want to see and a lot of excitement remains.

In terms of sort of next generation, that's something we're continually working with surgeons on. Our goal is always to continue to reduce time for MACI Arthro cases to simplify that. And so we work with a number of surgeons in labs to develop those instruments. And I'd say, like the first round, once we have a design freeze, which will happen here in the next couple of quarters, call it, it's usually another year or so after that to get through the whole validation and approval process. So I'd say probably maybe 2028 would be a good time frame to think about next sets of instruments coming out.

Awesome. And just turning to pricing again. We've talked a lot about the MACI price increases. But what about Epicel and NexoBrid, how much is pricing a part of the equation there?

Yes. So I mean, generally, I think we've talked about in the past, it's probably somewhat similar. It can vary because it can look a little bit different across different kind of parts of the channels. But generally, I would say Epicel is -- we've had a strong year, a very strong year from a volume perspective. That is clearly what's driving our kind of outsized results this year. But we do typically take kind of something similar on the MACI side in terms of price increases on the Epicel side.

And we actually haven't done a whole lot on the NexoBrid side, but I think we just took a modest, I think, our first price increase around midyear this year. So that's kind of a modest piece on the NexoBrid, but pretty similar in terms of, I would say, the framework around something typically mid-single digits, could be a little bit higher depending on kind of the channel.

We'll take our next question from Mason Carrico of Stephens.

Are you willing to share what percentage of the new-to-MACI surgeon cohort has completed a MACI procedure at this point? I think you guys have said that, that group of surgeons maybe made up 1/3 of the 1,000 trained that you highlighted earlier this year. And then among those that have, are you seeing signs that they're increasing their use of MACI in their practice in general? Have they kind of been more one and done? Just any insight there?

Yes. So Mason, we really haven't gone back and continued to parse out sort of kind of how many of those trained into the different segments have actually sort of moved through the funnel to date for the reasons that I just mentioned. But I will say that, again, once we end up having those surgeons sort of trained, we do see increases in biopsies and so on. And ultimately, one would expect that those turn into implants over time. So those are kind of the early indicators that we look for out of all 3 of the segments for those -- the MACI-trained surgeons.

So I'd say kind of equivalent behavior across the board, and we actually don't spend a lot of time at this point trying to parse out sort of differential rates out of different buckets. So -- and we did note that those trained surgeons, again, we're kind of at a critical mass where as I mentioned on our last call, we'd expect over time that every MACI surgeon is going to be trained on MACI Arthro. And we're just kind of seeing similar behavior across the board there.

[Operator Instructions] We'll take our next question from Jeffrey Cohen.

So just a couple. I did want to follow up on sales organization and back half and potential expansion. Could you talk about back half? Do you plan to add commercial folks at least domestically? And then maybe talk about what preparations are being made in the U.K. from a commercial standpoint prior to launch?

Jeff, it's Nick. So I guess I'll address it for both commercial businesses. On the Burn Care side, over the past couple of years, we've expanded pretty meaningfully to about 17 territories and Burn Care support specialists. And at this point, we don't have any plans for sort of a wholesale revamp of that. Obviously, they're executing well and performing well.

And so -- and on the MACI side, obviously, we just completed early this year sort of the bigger sales force expansion. So I think we're pretty good. I don't have any plans for the second half of the year on either of those accounts.

And I would say, as we go forward, it's kind of probably going to be more about opportunistically increasing or adding reps where necessary in different parts of the country as opposed to any kind of wholesale increase again over the next, call it, year or 2.

Got it. That's helpful. And as...

Sorry, just on the U.K. front, you mentioned that would be something, hopefully, with the submission in. Hopefully, we get an approval by early next year, can launch in 2027.

As Joe mentioned, given that there's really 12 or 13 centers of excellence that perform these cartilage -- restorative cartilage repair procedures in the U.K., we're not going to need more than really a handful of commercial folks over there at any point. So that will probably happen late this year, early next year.

Got it. And then could you talk about NexoBrid a little more as far as what you're seeing on utilization and sites and maybe talk about overlap or not with some of the Epicel accounts as far as existing and new customers?

Yes. Well, we -- I think we're starting to feel the momentum build for NexoBrid. Obviously, we said it was a record revenue, ordering center, hospital unit sales quarter for us and that we're essentially up to about 80 ordering centers cumulatively over time since launch. So feeling good about sort of the consistency of orders coming through and so on.

So it feels like that is kind of, again, building momentum, and we're excited about that, especially in combination with sort of the BARDA award, which remains on track. As Joe mentioned, it's part of our guidance for the third quarter, and we're certainly well positioned to begin that procurement process pretty early in this quarter.

It appears there are no further questions at this time. I'll turn the conference back to our speakers for any additional or closing remarks.

Okay. Well, thank you. I just want to say thanks again for joining us this morning. Company had a great second quarter and first half of the year, and we look forward to providing further updates on our performance on our next call. So thanks again, and have a great day.

This concludes today's call. Thank you for your participation. You may now disconnect.

Good day, and welcome to the Vericel Corporation First Quarter 2026 Earnings Call. [Operator Instructions] Today's conference is being recorded. At this time, I would like to turn the conference over to Eric Burns, 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 Financial Officer, Joe Mara.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially from expectations are discussed more fully in the company's most recent filings with the SEC. Also, the discussions today will include certain non-GAAP financial measures. 

Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Vericel's current report on Form 8-K filed today with the SEC. A short presentation with highlights from today's call is also available in the Investor Relations section of our website. I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. The company had a great first quarter as we delivered outstanding financial and commercial results across the business and achieved a number of key business objectives that position the company to continue to generate strong revenue, profit and cash flow growth in 2026. The company generated record first quarter total revenue of more than $68 million, which increased 30% over last year and significantly exceeded our guidance for the quarter, driven by substantial growth for both MACI and the Burn Care business. 

This strong revenue performance drove significant margin expansion and profit growth as gross margin increased over 300 basis points, adjusted EBITDA margin increased nearly 800 basis points and adjusted EBITDA tripled to nearly $10 million. We also generated more than $15 million of free cash flow, ending the first quarter with over $210 million in cash and investments as we continue to strengthen the company's top-tier financial profile. Based on our first quarter outperformance, the significant momentum across the business that has continued with a strong start to the second quarter and the NexoBrid BARDA procurement revenue expected in the second half of the year, we're raising our total revenue guidance range by $10 million for the full year.

MACI had another great quarter as double-digit volume growth drove record first quarter revenue of more than $56 million, representing 22% growth versus the prior year. Notably, MACI's trailing 4-quarter revenue growth rate increased to 23% compared to 19% in the prior four quarters, as we continue to execute on our strategic initiatives to deliver sustained high revenue growth for MACI. To that end, we're capitalizing on our larger MACI sales force, which meaningfully increases overall reach across our MACI target surgeons and provides an opportunity to continue to drive growth in new MACI surgeons as well as deeper penetration within our current MACI surgeon practices. 

This was the first quarter with the expanded MACI sales force in their new territories, and they're off to a great start as we generated record first quarter biopsies, implants and biopsy and implanting surgeons as well as the second highest number of biopsies and biopsy surgeons in any quarter since launch. Importantly, as the quarter progressed, implant growth accelerated for both new and legacy territories, driving strong double-digit implant growth in the quarter. Growth in biopsies per surgeon also accelerated in the quarter, demonstrating deeper penetration within MACI surgeon practices and driving another quarter of double-digit biopsy growth, which was particularly strong in our new territories. 

Finally, with more concentrated call points in the smaller territories, biopsy pull-through to implants increased during the quarter, demonstrating the potential for the larger sales force to increase the biopsy conversion rate over time. Overall, we're very pleased with the progress to date of the expanded MACI sales force as well as the impact of our commercial excellence initiatives, which have enhanced our commercial analytics and standardized best practices across the larger sales team. We believe that these initiatives will continue to elevate execution across the MACI commercial organization and drive deeper penetration within our surgeon user base. 

We're also focused on leveraging MACI Arthro to drive continued growth in the treatment of smaller cartilage defects and to expand overall MACI utilization. Leading indicators remain strong in the small condyle segment with higher first quarter and trailing biopsy growth rates than the overall biopsy growth rate and higher biopsy conversion rates to date for surgeons that have completed a MACI Arthro case. 

We're also making significant progress in our efforts to generate new clinical data, demonstrating the potential for improved patient outcomes with the less invasive MACI Arthro procedure. Early data from ongoing investigator case series suggests 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 data results, which were recently accepted for publication, suggest positive patient outcomes that could also lead to shorter overall rehab and recovery time lines. We're also continuing to work with additional surgeons as they complete MACI Arthro cases to collect prospective outcomes data in our MACI clinical outcomes registry. 

Finally, we achieved an important milestone for the company with the FDA approval for MACI commercial manufacturing at our new facility, which began in the second quarter. This important achievement not only increases our manufacturing capacity to support the long-term growth of MACI in the U.S., but also enables the potential commercialization of MACI outside the United States. To that end, we remain on track to submit a MACI marketing application in the U.K. later this year, and if approved, to 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. 

Burn Care first quarter revenue increased over 90% to $12 million, which was above our guidance range for the quarter and represented one of the highest Burn Care revenue quarters to date. We also announced a BARDA award valued at up to $197 million for the procurement and advanced development of NexoBrid. The base period contract of $35 million includes approximately $10 million over the next 12 months for the initial procurement of NexoBrid, funding for vendor-managed inventory-related services and initial development activities for a potential indication for the treatment of blast trauma injuries. 

The contract also includes optional awards for additional procurement and advanced development of NexoBrid over the 10-year period. We're very pleased to work with BARDA to support U.S. national preparedness for potential mass casualty events and to drive further development of NexoBrid. More broadly, we believe that the BARDA award underscores the clinical importance of this innovative product and can help enhance the overall utilization of NexoBrid in the U.S. market.

I'll now turn the call over to Joe to discuss our first quarter results and our 2026 guidance in more detail.

Thanks, Nick, and good morning, everyone. As Nick referenced, from a financial perspective, the company had its strongest first quarter to date across all key financial measures, including top line revenue, bottom line profitability and cash generation metrics.

Total revenue increased 30% to $68.4 million, which was significantly above our guidance range for the quarter, driven by strength in both commercial franchises. MACI's momentum continued as strong double-digit volume growth drove record first quarter revenue of $56.4 million, representing 22% growth versus the prior year, which was significantly higher than recent first quarter growth rates for MACI and marks the fourth consecutive quarter with MACI growth of 20% or more.

Burn Care first quarter revenue was $12 million, which was well above recent run rates and our guidance range for the quarter. Epicel revenue of $10.9 million was particularly strong, while NexoBrid revenue of $1.1 million increased nearly 60% versus the fourth quarter. With these strong first quarter results, the company is generating significant top line growth across the business. MACI's trailing four-quarter growth rate increased to 23% and the trailing four-quarter growth rates for both the company and Burn Care are also above 20%.

The company also delivered meaningful margin expansion in the first quarter. Gross margin increased over 300 basis points to 72% and adjusted EBITDA margin increased nearly 800 basis points to 14%, with adjusted EBITDA growing 195% versus the prior year to $9.6 million.

Finally, the company generated operating cash flow of $16.4 million and free cash flow of $15.1 million, representing the third consecutive quarter with free cash flow of $12 million or more as the company's expected inflection in cash generation continues following the completion of our new manufacturing facility. We ended the quarter with approximately $211 million in cash and investments, an increase of nearly $50 million compared to the end of the first quarter last year.

Turning to our financial guidance. Based on our very strong first quarter results across the business as well as expected NexoBrid procurement revenue in the second half of the year under the recent BARDA award, we are increasing our full year total revenue guidance range by $10 million. We now expect total revenue of $326 million to $336 million for the year, which represents total revenue growth for the company of approximately 20% at the midpoint of our guidance range.

After a very strong first quarter, we are raising full year MACI revenue guidance to $282 million to $288 million compared to the prior guidance of $280 million to $286 million. MACI is off to another strong start in the second quarter, and we expect approximately $62.5 million to $63.5 million of MACI revenue for the quarter. Our guidance implies similar growth rates for remaining quarters of the year, which is consistent with our framework 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.

We are also increasing our Burn Care revenue guidance based on the strong first quarter performance as well as the incremental NexoBrid BARDA procurement revenue expected this year. We now expect full year Burn Care revenue of approximately $44 million to $48 million compared to our prior guidance of $36 million to $40 million. And for the second quarter, we expect approximately $9 million to $10 million of total Burn Care revenue. In terms of NexoBrid BARDA procurement revenue, at this point, we expect approximately $5 million to $6 million of revenue in the second half of the year with procurement expected to begin in the third quarter.

Moving down the P&L. For the full year, we continue to expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%, which accounts for additional costs related to our new Burlington manufacturing facility, the incremental investments related to our MACI sales force expansion, increased MACI ankle clinical trial expense and incremental life cycle management investments. For the second quarter, we expect gross margin of approximately 72% and adjusted EBITDA margin of approximately 18%.

Overall, 2026 is set up to be another positive year for the company with strong revenue growth as well as continued margin expansion, profit growth and cash generation. As we look ahead, we believe that the durable growth of our portfolio positions the company to sustain strong top line growth and supports our midterm revenue and profitability targets.

This concludes our prepared remarks. We will now open the call to your questions.

[Operator Instructions] We will go first to Richard Newitter with Truist Securities.

I'm juggling calls this morning, so I may have missed it. But just on the guidance outlook, can you -- you increased it looks like by the 1Q outperformance. I would just love to hear kind of what your assumption set is, especially for MACI trends and MACI Arthro moving through the year and most particularly in the 2Q?

Good morning Rich, this is Joe. I'll take that question. So thanks for the question. So in terms of the guidance update and the increase, I would say, on a full year basis, you're right, there's kind of two key drivers. So one, the outperformance in the first quarter at a company level, whether you look at guidance or consensus, it's kind of in that $4 million to $5 million range. We've included that in our full year guidance update to let that flow through.

And then the second piece is the remainder of that increase is really the incremental NexoBrid BARDA revenue, which we expect to begin in H2 and call it, we said about $5 million to $6 million. So, if you kind of put that together, just quickly on the assumptions to the second part of your question, starting with Burn Care, obviously, a very strong first quarter across the board for Burn Care. It's actually our highest quarter since 2024 and a particularly strong Epicel quarter. So, I feel like we're really executing well on the Burn Care side.

So, to your question, we've assumed, call it, about $2 million of outperformance from Q1 in our full year outlook on Burn Care and then that remainder, call it, about $6 million on the BARDA side. So up 8% on a full year basis on the Burn Care side. So if you kind of think about the guidance going forward, obviously, there's some moving pieces, but we're sticking with our framework that's worked quite well on the Burn Care side over the last few quarters and our run rate framework, which has been, call it, $9 million to $10 million on a quarterly basis, and then we're adding in the second half quarter.

So, to be clear on kind of just how to think about that and how to model it, it's really, call it, $9 million in the second quarter and it steps up to $12 million in both Q3 and Q4 with that incremental, call it, $3 million of BARDA revenue flowing through. So, that gets you to call it, $45 million on a full year basis on Burn Care. So again, we're not changing our assumptions in the back half of the year in terms of the core business. We're sticking with that run rate. But obviously, great performance in the first quarter and the incremental BARDA revenue has been included.

On the MACI side, so a very strong first quarter, as we talked about, our first quarter with our expanded sales force, we feel like the team executed extremely well there, a much higher Q1 growth rate than we've seen in recent years. And importantly, we pointed to another quarter of both double-digit biopsy and implant growth in the first quarter. I also say we've gotten off to a strong start in Q2 and April as well. So, I feel very good about kind of the MACI execution, particularly with that larger sales force.

So, from a full year perspective, again, call it about a $2 million beat in the first quarter on MACI. We've included that on a full year basis. You kind of add that updated $285 million on MACI. You're right around $330 million or so at the midpoint, which also is the midpoint of our guidance is also 20% company growth. So that's important and good to see.

In terms of the MACI assumptions for the remainder of the year, I think importantly, we're not changing any assumptions or our approach for whether it's the second quarter or the back half of the year in Q3 and Q4. So, we're keeping the same framework and approach we used in Q1. I'd say we're going to remain very prudent on the guidance. We've done that on the Burn Care side with the run rate framework. We're going to continue to do that with MACI going forward.

So, the assumptions for MACI in total are essentially keeping that high teens growth for both Q2 as well as the back half. And I think importantly, that also implies kind of similar year-over-year dollar revenue growth assumptions, which, again, we feel like is a balanced starting point and consistent to how we started the year. So, it implies about $63 million in the second quarter. That's about 18% growth at the midpoint of our guide, and it's pretty similar for the remaining two quarters.

And so again, I would just say from a second half outlook perspective, we definitely do not want to assume an acceleration in growth in the second half in MACI. So, this is consistent to what we talked about last quarter. So, we think this positions us really well. And to that point, whether it's kind of the sales force contribution, continue to ramp up in Arthro, I would just say broadly, if we maintain the recent trends we're seeing. If we continue to execute well, we think this sets us up for potential outperformance both in the second quarter, but also on a full year basis.

So, for MACI in particular, the pieces are in place with a very strong pool of biopsies. We had a particularly strong Q4 that we think will play out during the year from a biopsy growth perspective. Leading indicators remain strong. And again, we have the larger sales force, which we think can be impactful. So, we're going to remain prudent on both franchises, but certainly, the goal internally is to outperform that. But again, we're not going to change the approach on the guidance, and we'd rather just stay prudent there.

Really helpful. And then maybe just a follow-up. On the competitive landscape, you have a competitor that will likely be stepping into some better reimbursement situations in the first quarter of next year. Just wanted to get a feel for how you see the market kind of segmenting? How you're kind of thinking and preparing for this? What you're hearing, if anything, from your customer base on expectations for that product? And how it may or may not impact you guys?

Yes. Rich, this is Nick. And so, I'll take that question. And obviously, you're referring to Agili-C, which is a product we've talked about for years now as we've talked about potential sort of new market entrants. And the position that we've kind of taken is one that's kind of aligned with our surgeon and KOL feedback that Agili-C is really a product that's geared towards use in older patients with osteoarthritis and really as a bridge to a partial or full knee replacement where those patients have no other options.

And the product has been -- it was approved four years ago. So, it's been around and really obviously hasn't had an impact on MACI to date nor should it. As you know, these are two different patient populations, older osteoarthritic patients that are potentially more appropriate for Agili-C and then the young active patients where MACI is typically used. And there's -- when you think about sort of the typical MACI patient, less than, if you look at publications, a very small low single-digit percentage of patients that are treated with MACI have any sort of bone involvement, even though it's included in the label. And there's no way if you have a clean cartilage injury that a surgeon is going to sort of core out over a centimeter of bone to use a product like Agili-C.

So, we actually don't think there's a lot of overlap. There hasn't been to date nor should there be for these patients. And as you think about sort of the -- if you take a double hook count, a couple of dimensions. Number one, as you know, the patella treatment or treatment of patella defects for MACI is our largest and fastest-growing part of the business historically. And Agili-C is contraindicated for use in patella defects. And so, absolutely no impact on the biggest part of our business. It's not indicated for arthroscopic -- administration. So, we actually haven't seen much, if any, impact at all from Agili-C nor do we expect to see it. And we do pulse surveys pretty frequently and out of our -- the surgeons that we talk to haven't used it and don't really plan to use it in the future. So.

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

Congrats on a very nice quarter. So, you provided some encouraging commentary on accelerating implant growth. So would love to get a sense of some of the progress you're seeing specifically for MACI Arthro. Where -- and what portion of your implants today are coming from MACI Arthro and whether you've been able to get some traction among those new accounts that you identified that typically were ortho only?

Hey Mike, it's Nick. So yes, on MACI Arthro, obviously we're very pleased with our progress to date. As we talked about on our last call, really strong foundation established in 2025, where we trained upwards of 1,000 surgeons on MACI Arthro and we're at critical mass where those trained surgeons are responsible for over half of our implants already.

So really great critical mass there, a great job by the team, both the medical and sales teams in training surgeons.

Obviously, we talked about the fact that contributed to growth last year and in the first year on the market, as the smaller femoral condyle defects that MACI Arthro are intended to be used for. The growth rate there was at par with patella which was great compared to lower single-digit penetration and lower growth in prior years. As we said on the call, the leading indicators for MACI Arthro remain strong. We had higher first-quarter and trailing biopsy growth rates than the overall biopsy growth rate and we continue to see that MACI Arthro implanters had higher biopsy conversion rates.

So it's clearly been one of the factors in a multifactorial dynamic that has elevated MACI's overall performance. The fundamentals, as Joe mentioned, coming into this year were very strong, with biopsy acceleration in the fourth quarter. We have a larger sales force that's off to a great start. We have MACI Arthro in there as well, which has generated a ton of interest. And then the commercial excellence initiatives are clearly taking hold as well. So we're pretty excited about the MACI Arthro start to date, and we expect it's going to continue to contribute to growth as we move forward.

Super helpful. And maybe just one follow-up. I would love to hear a little bit more about the progression of the BARDA award. Obviously, some nice contribution expected already in the back half of this year. But how and when could we see that remaining -- $197 million start to materialize over time?

Yes. We're really excited about working with BARDA to help with U.S. national preparedness for mass casualty burn events. We had talked about this potential award. Obviously, it was delayed a little bit with the government shutdown, but it's a very meaningful overall contract. As you mentioned, nearly $200 million and a $35 million initial award.

And just to be clear, about 2/3 of the value of that award whether it's the base contract or the overall flows in one form or another to Vericel, either through procurement and VMI service revenue or other cost offsets for some of the work that would go on.

So the base contract is the $35 million. Obviously, that includes the initial procurement and then VMI establishment and related services and work around a potential blast indication. And those are already funded. And as Joe mentioned on the procurement side, we expect that revenue over a 12-month period begin in the third quarter, $5 million to $6 million this year, the remainder early in 2027 on the procurement revenue. So that's $10 million of the first $35 million.

The other will involve obviously doing the work around the proof of concept for the blast trauma indication, and that will start later this year and flow through. So we'll probably give a little more guidance potentially on that as we go through the year.

In terms of the optional awards, there is a number of components there as well, including additional ramp-up for procurement, which is a -- pretty meaningful clin or option. That will depend -- if you think about when BARDA had the initial stockpile, it was something like 16,500 units when they worked with MediWound on that. Our initial procurement is about call it roughly 3,000 units, with a ramp-up of another 5,000. So I think BARDA is pretty interested in increasing the stockpile because we run it through a VMI structure that will require commercial progression and so on. So that will play out. It's intended to start after the first year of procurement.

And then obviously, if the proof of concept on the blast trauma indication works out, that could trigger the second and further development for that indication. And then MediWound has also been working on room-temperature formulation, and that work will continue and to the extent that moves forward over the course of the next year, that could trigger further work on that room-temperature formulation and additional procurement of that product in -- starting in 2027 and beyond.

We'll go next to Josh Jennings with TD Cowen.

I was hoping to just have you share your view just on the environment. There have been some concerns around ortho procedure volumes just trending down, pressures from access, hurdles like the ACA subsidy expiration. Clearly, you're not seeing that in Q1 with the MACI franchise. The guidance suggests that you're not -- expecting to see much but have you baked in any just over high level ortho procedure volume pressures into the guide? It seems like there is some conservatism in terms of the setup for the rest of the year in terms of how you've positioned guidance for MACI post-Q1. But would love to just hear what you're hearing and any more insights into your outlook.

Yes, hey, Josh, it's Nick. I'll start and Joe can kind of talk about our guidance perspective. So, we made a point on our Q4 earnings call because there was some commentary out there about slowing procedures in December and so on. And we actually had a stellar December, and we didn't see any impact there. And obviously, as we talked about, we had strong double-digit biopsy and implant growth in the first quarter. So I would say we haven't seen anything, nor have we baked any sort of procedural slowdown into the guidance.

And Joe, you can cover that a little bit more…

Yes. I mean, I'd just echo what Nick said, we certainly haven't baked into any expectations on kind of the negative side there. Again, I'd probably go back to where Nick started, which is I think we referenced we feel like we have a great pool of biopsies. We continue to generate double-digit growth there. And just to talk again about Q4, I mean, we really saw an acceleration, a pretty significant acceleration in biopsy growth in the fourth quarter and had a particularly strong December. And obviously, that's our highest quarter in terms of activity.

So that's really encouraging as we kind of make the turn into 2026 or having made the turn. And so what's important there, as you know, Josh, is there's a longer cycle here when we think about conversion. And from a conversion perspective, I mean, those typically convert over the subsequent quarters. So some of that is probably early in Q1, but most of that is, frankly, whether it's Q2 or the back half of the year.

So we feel like we're in a very good position. Of course, we're going to be mindful of the environment, but we haven't seen any signals that any of that slowdown is impacting any part of our business.

Excellent. That's great to hear. And I also wanted to just touch on the international MACI expansion opportunity. I know you guys are set up for potential launches in 2027. But can you just help us think about the buzz that's been generated by MACI, MACI Arthro? Is there pent-up demand in specific countries? Maybe just anything, again, a little temperature check question in terms of what you guys are hearing from international ortho sports medicine specialists and the anticipation for getting access to MACI and MACI Arthro for their patients? Appreciate it.

Yes. Josh, it's Nick again. Certainly, the international cartilage repair sort of community is very concentrated. And MACI, as you know, was on the market in Europe when we first bought this business. And so there is a significant sort of interest in having MACI come back. We talked about it with the U.K. being our first beachhead for a lot of reasons, potential expedited approval process, very high surgeon awareness and advocacy over there. We had a positive nice opinion for MACI back in the late teens.

So really set up well and concentrated sort of cartilage repair surgical centers, centers of excellence in the U.K. So it's a perfect beachhead for us, as I mentioned. And yes, there's a ton of interest and excitement about potentially having MACI back because there's very limited options in Europe right now for restorative cartilage repair procedures.

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

Congrats on the great quarter. Maybe just starting with the sales force. It seems like they were beginning to really contribute this quarter. Maybe just provide some metrics around that and the time you're seeing it take these reps to reach breakeven or close to breakeven.

Yes. Caitlin, it's Nick. Obviously, as we kind of referenced on our prepared remarks, I mean, we're really pleased with the initial expansion and the contribution that the new territories are making to our overall business. And I would just remind the listeners that the fact that we expanded our sales reps in Q4 and then obviously, we realigned the territories and everyone went into their new territories in Q1 with absolutely zero disruption in Q4 as the new reps were working together.

And then obviously, a super strong performance in Q1. As Joe mentioned, a higher growth rate than we've typically seen in the first quarter over the past several years. I mean, I think that says it all in terms of the flawless execution from the commercial leadership team and great execution from the reps themselves.

So as we referenced on the call, as the quarter progressed, we saw implant growth accelerate for both new and legacy territories, which led to that strong double-digit implant growth. And that continued into April for both legacy and new territories. So off to a strong start, as Joe alluded to as well.

The growth in biopsies per surgeon also accelerated in the first quarter, which is always our metric that we refer to for deeper penetration within MACI surgeon practices, and that led to another quarter of double-digit biopsy growth. And that was particularly strong in the new territories. So that continued. We had strong biopsy growth in the fourth quarter, accelerated again in Q1 in terms of biopsies per surgeon. So really great metrics there.

And then obviously, they're getting up to speed very quickly. We talked about the fact that the pull-through to implants was very strong across the board. They're smaller, more concentrated territories now. So you're seeing great pull-through. So again, I -- we don't look at it in terms of sort of how quickly do they get to breakeven. They're probably -- certainly a good portion of them who are already beyond breakeven as they moved into these new territories. Because again, it's not like they moved into white spaces. They were existing territories, existing biopsies. They did a great job on pulling those biopsies into implants in their territories and then obviously, building a pipeline for the rest of the year with their strong biopsy growth. So honestly, I don't think it could have gone any better.

That's great. And then maybe just talk through the Epicel dynamics in the quarter and what really drove the strength?

Yes. So obviously, as Joe mentioned, one of the highest Burn Care quarters we've had ever and strongest since 2024. And we talked about it last year that we were taking a different approach to how we were evaluating and working through each of the biopsies we receive. And I'd say probably the biggest contributor to Epicel's performance was some growth on biopsies, which is great, but really converting those biopsies into grafts. And again, that's just a sales force execution with clinical support on the patient treatment parameters as well. So really just different level of execution, not only for Epicel, but across the entire commercial organization.

We'll go next to Mason Carrico with Stephens Inc.

On the potential near-term publication of data showing less post-op pain, faster range of motion -- earlier weight bearing. I guess, how material could that publication be in terms of catalyzing broader adoption or higher utilization of MACI Arthro? Are there docs out there that are saying they'd like to see this peer-reviewed data on better patient outcomes for adopting or ramping use? Just trying to get a sense of what that can mean.

Yes. Hey, thanks, Mason. It's Nick. So obviously, we've been talking about the fact that because MACI Arthro was approved through human factors study, that you didn't really have that kind of clinical data at launch, but that we were very focused on building it both through individual KOLs who do a lot of MACI Arthro cases and have these case series, which is the first set of data that demonstrates those early positive outcomes, which could lead to the longer-term patient outcomes and the benefits there as well as through our MACI clinical outcomes registry where that can lead to a series of publications over time.

So there's no doubt that clinical data is important. I don't think we hear a lot of we need to see those outcomes. I think it's just intuitive to the surgeons that a less invasive surgery, you have these better early outcomes, but we definitely want to have the clinical data to support that.

I would use our experience with patella as an analog back in the teens. In 2017, when MACI was launched, there were no patella patients in the study. And over time, there were publications about the effectiveness in the patella of MACI treatment that led to even broader coverage by insurance companies. We referenced back in the early 2020s, UnitedHealthcare adding patella cases to its medical policy.

And so there's no doubt over time that that kind of clinical data will just support continued utilization and uptake of MACI Arthro. So yes, we're really focused on that. We think it will have a very positive impact.

That's helpful. And then on the dynamic of arthro-trained surgeons showing higher biopsy and implant growth than untrained surgeons, has that gap widened or narrowed or stayed the same as the trained base of surgeons has grown?

Yes. I mean, obviously, I would say broadly and at the higher level, those trends that we saw in trained surgeons remain. Now we're kind of getting into a point now where we have this relatively large critical mass of MACI users who are now trained and you're lapping the quarterly things. So the gap is a little narrower, but the trends remain the same that they definitely increase their biopsy and growth rates.

We'll go next to Jeffrey Cohen with Ladenburg Thalmann.

Just one from our perspective. Could you drill in a little bit further on the Burn franchise? I want to know a little more about Epicel, maybe per case, number of cases and NexoBrid and talk a little bit about the franchise as well as the commercial organization and some cross-selling and awareness on NexoBrid.

Yes, I'll start, Jeff, and Joe can jump in. I'd say on Epicel, it's as I mentioned. I mean, obviously, it was a very, very strong quarter, driven mostly by biopsy growth, but more importantly, of the biopsies we received, a higher treatment rate for those patients, which is great.

As you know, in some quarters in the past couple of years, there were issues around patient health and those biopsies didn't really convert into the grafts. I think that was my point around commercial execution. I think the team, both the medical and commercial teams are doing a great job in focusing on how you take those biopsies and treat patients and realize that patient benefit of Epicel. So that's the dynamic with Epicel. We're encouraged. It's been a series now of good, strong quarters for Epicel.

On NexoBrid, we remain excited about the opportunity. Obviously, the BARDA contract reinforces the clinical utility of the product. And as we've talked about, it takes time to change standard of care, especially when you're going from a surgical to a nonsurgical approach. So this obviously bolsters the revenue and utilization potentially for NexoBrid as we move forward. So we expect that over time, we're going to see that continued uptick in NexoBrid utilization, a very positive broadening of the number of ordering centers for NexoBrid to start the year, which, again, we think will translate into higher utilization as we move through the year.

And obviously, we have reps now that, to your cross-selling point, promote both Epicel and NexoBrid. And yes, we've talked repeatedly about the fact that ideally, we have utilization of both products in every burn center. But certainly, having NexoBrid has allowed us to regain traction with some of the dormant burn centers over time. So I think a good string of quarters now for burn care, and we certainly expect that to continue.

Yes. I mean, I would say not a lot to add. This is Joe. I mean just to echo a couple of Nick's points, I think the commercial excellence initiatives we're talking about, just to be clear on those, we obviously talk about that a lot from a MACI perspective. But certainly, there's a number of things we're doing on the burn care side to replicate the same commercial excellence, better analytics, et cetera, as we think about execution.

So I think certainly on the burn care side, that's important to point out. And then as Nick talked about on the NexoBrid side or just in burns in general, you can see quarter-to-quarter there could always be changes in terms of the number of burns and we look at that data. But we are definitely encouraged on NexoBrid. We are starting to see a broadening of centers, and we've seen actually a growth in the number of orders. So our strategy to drive higher uptake there is how can we not only get our regular ordering centers continue to stay high and strong, but try to move the rest of the business from starting to use NexoBrid more towards the middle and making them more regular orders.

So we're actually seeing some good signals there on the NexoBrid side. So I think similar to MACI, I think on the burn care side, if you take a step back, the execution has been quite strong, in particular over the last few quarters, and obviously, we had a great Q1.

We'll go next to Ryan Zimmerman with BTIG.

This is Izzy on for Ryan. Just to start, Nick, you touched on this to a earlier question, but I was hoping you could speak a little bit more about the segmentation that you're seeing in the market for cartilage lesions between MACI and other two-step procedures in terms of the lesion type, anatomical segmentation, grade levels, et cetera.

Yes. I mean I don't think anything has changed. As I mentioned, we've talked about the competitive landscape for MACI for several years. It's been -- obviously very static certainly over the past four years plus and pretty much essentially since we launched the product.

So MACI stands alone as the clear market leader in cartilage repair. There are no other MACI-like products. So that hasn't changed at all. We've talked about on -- I mean, there's very complicated decision -- treatment algorithms that are publicly available for how surgeons think about different patient types based on size, location of the defect, age, ability to do rehab, things like that, and that hasn't changed at all over the years to any significant degree.

We talked about there's Agili-C for older osteoarthritis patients and then some other more microfracture augmentation kinds of products. And there's been a bunch of both of those kinds of things. Synthetic implants have come and gone over the years. You have a bunch of microfracture augmentation products that are out there for smaller defects. So I'd say relatively status quo. And MACI, again, just remains the clear market leader, and that has expanded over time.

Appreciate that. This is maybe a longer-term dynamic, but could we ever see a master cell line for a one-step MACI in the future?

Yes. We have looked at -- obviously, MACI is an autologous cell therapy product. There have been those in years gone by that have thought about allogeneic approaches. We, in fact, have developed an allogeneic cell line. And so is it possible? Perhaps, there's a lot of technical issues that would be required there. And there's nothing that's, to my knowledge, I think there was one potential early-stage clinical study more than a decade ago that was abandoned. So there's really nobody anywhere near clinical development right now for that.

And I guess it's a misnomer to a certain extent to say that a product like that would be a one-step procedure. There's not a lot of one-step off-the-shelf procedures in cartilage repair. There's often -- probably most often a diagnostic arthroscopy to determine the extent of a cartilage injury or as part of other arthroscopic investigational procedures, cartilage defect is noted and then a treatment plan is put in place. So it's, again, a bit of a misnomer to talk about one-step procedures and especially where prior authorizations will be needed to -- or just patient -- patients being informed and consenting to a certain treatment will be required. So anyway, hope that helps.

Our next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright.

This is RK from H.C. Wainwright. I have a couple of them since most of my questions have been answered. On the biopsies and implants, in terms of the biopsy and implanting surgeon counts, is there -- what percentage of them were repeat versus first-time users? And also with the increased biopsy, I mean with record biopsies, how much of that is coming from the new sales force? What incremental gain did you get from the new sales force?

Yes. Good morning RK, this is Joe. I'll start. I'd probably say we can certainly talk about the metrics, but perhaps at a slightly higher level. I would say we've obviously seen very strong biopsy growth over the last few quarters, really the last several years since COVID, we've seen that consistent double-digit growth in biopsies. So we think that positions us well.

I think we're highlighting the biopsies per surgeon because we feel like that's an important metric to make sure we're driving gaps. And we think that those are surgeons that we think have a significant -- probably a more significant opportunity when we see that metric tick up to sort of pull through those biopsies into implants. So it's an important metric. Obviously, that's coming from -- you're going to see a mix of existing and new surgeons, but that will be weighted more toward existing surgeons just based on the metrics. So that's important for us.

I will say -- one note on that is with the strong biopsy growth, we've obviously seen similar implant growth over the last few years and a few quarters tracking, they generally track together. And you would expect that with a stable conversion rate that we've talked about. As Nick referenced in his prepared remarks, we're seeing some good signals from an Arthro implanter perspective in terms of some of the conversion metrics there. And obviously, very early days with the new sales force, but encouraged with the pull-through we've seen there.

So I'd say our conversion rate has consistently been stable, but we are seeing some positive signs there. And so for example, if that ticked up a bit, that would be upside for us. We're not going to bake that into our guidance or long-range outlook. But that's been a metric we have been highly focused on for the last few years. And so that's something we'll continue to focus on. And then remind me of the second part of your question?

No, I was just wondering how much of the gains came from the new folks on the sales force?

Yes. I mean I'd probably just point to what we talked about, which is we definitely saw significant strength in the metric I'd say across the board. And as Nick talked about the execution to bring on our new sales force, how they were integrated into Q4, which was strong, how they performed so far in Q1. So I would say we've been pretty pleased right out of the gates, and these are very experienced reps that have relationships they're bringing into -- our business. So I think it's certainly a mix, I would say, of our existing reps and our legacy reps, I should say, our new reps, but we've been encouraged with what we've seen so far from our new sales force.

Okay. One last question, if I may. This is on the Arthro product. What do you think is the Arthro penetration within the small condyle defect TAM? And also, what is your estimate of the addressable Arthro eligible patient population right now?

Yes. So we think, obviously, there's been a meaningful contribution for MACI Arthro in that segment because that's what the instruments are designed to do. So we're very pleased there. As we talked about, when you take it up a level, these instruments -- the biggest part of our business is in patella. It's a fast-growing part of the business. The current instruments aren't really designed for those, although some surgeons are using that. That is a life cycle iteration that we're considering doing for patella.

But right now, that's typically done open. The larger defects are done open procedures, but within appropriate size 2 to 4 square centimeter defects on the femoral condyle, as you know without concomitant kinds of other procedures that need to be done, we're pretty pleased with the penetration we're seeing in that subsegment of the smaller femoral condyle defects. So it's the biggest part of our TAM. That's why we're focused on growing it. And again, just like patella, we think over years that we're going to see some pretty significant impact in that particular segment.

This concludes today's portion of the Q&A. I would like to turn the call over to Nick Colangelo for any closing or additional remarks.

Okay. Well, I'll just close by thanking everyone for joining us this morning. Obviously, the company had an outstanding first quarter, and we feel like we're really well positioned to continue to deliver what is a very unique combination of sustained high revenue growth, profitability and cash generation in 2026 and the years ahead. So we look forward to providing further updates on our next call. And thanks again, and have a great day.

This concludes today's call. Thank you for your participation. You may now disconnect.

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 Zimmerman with BTIG.

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.

Thank you. That will conclude today's conference. Ladies and gentlemen, we thank you for your participation. You may disconnect at this time.

Good morning, everyone. I'm Dishayu Kapadia. I'm an associate with the Healthcare Investment Banking Group at JPMorgan Chase. Thank you for joining us for the company presentation for Vericel Corp. at the 44th Annual JPMorgan Healthcare Conference in San Francisco.

Today, we are joined by Nick Colangelo, who is the President and CEO at Vericel, who will be leading the presentation and the Q&A. For the Q&A, we have the last few minutes reserve. So please save your questions for the end. Thank you.

Okay. Well, thank you. It's great to be here today. And before I begin, I will remind listeners that this presentation contains forward-looking statements, and so you should refer to our materials on file with the SEC for further information.

So Vericel is a leading provider of advanced therapies for the sports medicine and the severe burn care market. We have a portfolio of highly innovative cell therapies and specialty biologics that are used to repair tissue and restore function for patients with tissue injuries. So the company or our business as it exists today, was really came about with the acquisition of MACI and Epicel from Sanofi in 2014. So these assets were part of the old Genzyme biosurgery business. And when we bought the business, they were -- the products were doing something less than $50 million and was sort of flat to declining. And since the time of our acquisition, we've actually turned this business and our company into a leading medtech growth company with a very unique profile of both high revenue and profit growth as well as cash generation.

So our lead product is MACI, which is an advanced cell therapy that uses a patient's own cells to repair cartilage damage which we launched in 2017 for the repair of cartilage injuries in the knee. MACI is by far the leading cartilage repair product on the market and the only FDA-approved product in its class. And we recently gained FDA approval for arthroscopic administration of MACI, which makes it the only restorative biologic cartilage repair therapy that's been approved for arthroscopic delivery by the FDA.

On the Burn Care side of the business, we're really focused or our products are focused on the treatment of hospitalized patients with severe burns. So for these patients, the treatment pathway entails, first, removing the damaged tissue or eschar and then covering or grafting the injured area to close the wound. And we actually have two products that address each of those pathways. So NexoBrid, which is a product that we acquired North American commercial rights to and launched recently in the U.S. is an orphan biologic product that's indicated for the removal of eschar in adult and pediatric patients with severe burns.

And then our other product, Epicel, is again, skin graft product that uses a patient's own cells, and it's the only permanent skin replacement approved by the FDA for large, greater than 30% body surface area wounds. And so we think with products that treat both aspects of the treatment pathway that we have one of the premier portfolios in severe Burn Care.

And I would say one of the defining characteristics of our company is that our entire portfolio, each of the products have significant competitive moats and significant competitive barriers to entry. So MACI and Epicel are both regulated by the FDA as combination device biologic products. So there's no defined biosimilar pathway as there are for other biologic products or 510(k) pathway for device products. And so any other competitors that want to enter into this field will have to run full-blown clinical development programs, which is exceedingly difficult to do in these areas. Others have tried and not been able to do so. And there's no like competitors for MACI or Epicel anywhere on the horizon.

Similarly, with NexoBrid, as I mentioned, it's an orphan product in the U.S. So in addition to its patent protection, it also has orphan market exclusivities and data -- biologic data exclusivities as well. So we think it's an exceptional portfolio that will support continued strong growth for the company going forward.

And we think we're in a great position to do so. So it starts with our overall financial profile. So as we'll talk about, in addition to our strong revenue growth since we launched MACI back in 2017. We've consistently delivered sustained positive adjusted EBITDA and operating cash flow every quarter for the last 5.5 years, even through COVID and were GAAP net income positive last year, we expect to be so this year as well. And we have a very strong balance sheet with $200 million cash to end the year in investments and no debt. So a very strong profile to continue to invest in the business to sustain our strong growth.

We also expect to enhance our leadership position, not only in cartilage repair, but as a premier sports medicine company. Right now, as I mentioned, MACI is by far the leading cartilage repair product on the market. Since we launched the product 9 years ago, it's actually had a 24% compounded annual revenue growth rate, so sustained strong growth, including 20% or more growth in each of last 3 years post-COVID. So that strong momentum that we have with MACI in addition to other expansion initiatives we have, including MACI Arthro we just completed a 30% sales force expansion that went into place at the beginning of this year as well as other investments in commercial excellence initiatives, we think will sustain that strong growth as we move forward in 2026 and beyond.

We also expect to expand our leadership position in Burn Care with continued uptake of NexoBrid, which again was recently launched as well as increased Epicel utilization given the larger commercial footprint, we now have for our Burn Care business.

And then finally, expanding our core portfolio in a couple of key life cycle management and geographic expansion areas. So we initiated in the fourth quarter a clinical study for the use of MACI to treat ankle cartilage defects, which is the second largest market opportunity in terms of cartilage repair. And then we expect to be commercially manufacturing MACI in our new facility this year, which will allow us to potentially launch MACI back into the countries outside the U.S., and we'll talk more about that as well. So we think we have a sustained runway for continued strong growth with MACI as we move forward.

In the large underserved markets that we serve, certainly will support that growth. Our current portfolio has addressable market of north of $4 billion, the addition of a potential MACI Ankle indication would take that to over $5 billion in the years ahead. So again, I think we're still in the early innings in terms of the overall growth for the company moving forward.

So just to double-click a little bit on revenue, which again, has been strong since we launched MACI at a company level in 2017, we've had 20% compound annual growth rate through 2024. We did just announce our preliminary 2025 financial results yesterday. We expect revenue to be about $276 million, which was the high end of our guidance range. So good strong growth for the company again. And then MACI had a particularly strong second half of the year and fourth quarter. So MACI came in at the high end of our guidance range, close to $240 million for the year. Again, a really strong fourth quarter overall, 23% revenue growth for the company, 23% revenue growth for MACI.

And the MACI performance was really underpinned by really strong underlying business fundamentals. So we had our highest number of biopsies and biopsying surgeons from MACI, implants and implanting surgeons. And we had a particularly strong close to the quarter in December. So we had record implants, record biopsies in December by a wide margin. So really strong close to the year, a lot of momentum as we move into 2026. So we expect strong growth in 2026. And as I mentioned, we just implemented a MACI sales force expansion of going from 75 to 100 territories, so about a 30% expansion, supplementing that with other commercial excellence initiatives that will support growth -- continued growth in the next several years. And then as you look out a little longer, OUS expansion opportunities for MACI as well as the MACI Ankle indication really give us a long runway over the next decade to continue MACI growth. So really excited about where we are with that.

So as I mentioned earlier, we really do have one of the unique sort of combinations for growth companies and not just high revenue growth but also strong profitability growth and cash generation. So from a revenue perspective, we talked about that already revenues doubled from 2020 to 2025, we expect them to essentially double again by the end of the decade and approach about $500 million by 2029. That strong revenue growth given the leverage in our business model has translated over the years into strong. We kind of hit an inflection point in profitability over the past couple of years, where we now expect gross margins for this year to be in line with our guidance of about 74% and on track to hit our midterm targets of the high 70% range by 2029.

And the same thing with our adjusted EBITDA which is also a good proxy for our operating cash flow, where we expect to have about a 26% adjusted EBITDA margin for 2025 and then achieve our midterm targets of the high 30% range by 2029. And you can look at, for instance, we haven't given all the profitability details for the fourth quarter, but you can back into it or look at last year in 2024, the fourth quarter had about $75 million in revenue. Gross margin was about 78%. Adjusted EBITDA margin was about 40%. So you can see at that which would translate into roughly $300 million. We're certainly on track to hit those midterm financial. So really strong performance from a profitability perspective.

And now we're entering a phase of really strong cash generation inflection as well. So we recently invested over the past couple of years about $100 million in our new manufacturing facility. We actually increased our overall cash balance at the same time. So that was great. But now as we move forward, we really expect to see that operating cash flow kind of make its way onto our balance sheet as well. So we expect about $50 million in operating cash flow this year. That will get north of $100 million on an annual basis as we move into 2029. So we expect that cash generation to follow suit with our strong profitability as well. So we're really excited about the financial profile of the company and I think we have really great things ahead of us.

So I'll start now with our products and starting with MACI and the cartilage repair market. So knee cartilage injuries obviously are a significant issue. Cartilage injuries are found on about 60% of knee arthroscopies. And the damage is caused by either acute or repetitive trauma or degenerative conditions. And the issue is that cartilage unlike most other tissues in your body does not have intrinsic healing properties. So there's no blood vessels that bring repair cells into the cartilage. There's no lymphatics to carry away cellular debris. There's no nerves. And so once you have a cartilage -- a focal cartilage injury on the knee, which is like a pothole on the surface of the knee. It's not going to heal itself. And so that obviously leads to pain, dysfunction, ultimately, osteoarthritis and partial or full knee replacement. So the treatment goals in cartilage repair are obviously to reduce symptoms, improve function and prevent degeneration. And other than MACI, there's not really a lot of good treatment options for surgeons.

They typically fall into three buckets. The first is palliative. So if you have a knee injury and a suspected cartilage injury, often a surgeon will do an arthroscopic procedure or a chondroplasty, scope the knee, clean out any debris, if you have frayed cartilage, shave that. And so it's a palliative treatment. It obviously doesn't heal the cartilage defect, but it can provide some pain relief. And that's the vast majority of procedures that happen as we'll talk about in a moment.

The middle bucket are, what I referred to as sort of reparative techniques, so bone marrow stimulation. You've probably heard of microfracture, where a surgeon will drill into the subchondral bone, the bone marrow bleeds into the defect. It fills up the defect. There's often microfracture augmentation, scaffolds that are used with that. It's really sort of falling out of favor with larger defects because it tissue is really fibrocartilage and doesn't have the durability of repair of the native tissue, but it is used in very small defects pretty extensively to this day.

And then the third category is restorative cartilage procedures. And really, MACI is the only FDA-approved product. The other options in the restorative category include basically an osteochondral autograft transplantation or OATS, where you take cartilage from one part of the knee and plug the defect. So you create one injury to fix the other. So that's not a widely used technique anymore, but it does get done, or cadaver-based options, which are osteochondral allografts , where you take a cadaver knee, as the name implies, you take a punch of cartilage and bone, and that's what's put into the patient's knee. So neither of those were sort of BLA-approved products, obviously, they're tissue regulated products like MACI. So MACI really stands alone as the most effective and clinically proven treatment option in the cartilage repair space.

So the MACI product itself is and was the first tissue-engineered autologous cellularized scaffold product approved by the FDA in any therapeutic area. And the product consists taking the patient's own cells, the chondrocytes, seeding them onto a resorbable collagen membrane that's been surgically implanted.

And the process, and you'll hear us talk about biopsies a lot. Let's starts with a biopsy. So when a surgeon is doing a chondroplasty and cleaning up the knee, we'll take a small tick-tack size, biopsy from a non-weight-bearing portion of the knee that's sent to our manufacturing facility. We isolate the chondrocytes, we expand them to a few hundred thousand cells, cryopreserve them for up to 5 years. And then when a patient and surgeon are ready to move forward with a surgery, all the cells, further expand them, they're seeded onto collagen membrane, and about 0.5 million to 1 million cells per square centimeter. That shipped off to the surgical site, where the surgeon will prepare the defect and simply cut the collagen membrane to the size of the defect, glue it in with fibrin glue.

And then those chondrocytes, which are spindle cells that grab onto collagen fibers migrate down to the subchondral bone, they start to replicate, produce the extracellular matrix that develops into the cartilage and replaces that cartilage within hyaline-like cartilage that's naturally present in knee. And so that's how the product works. So it's a very innovative one-of-a-kind product certainly in the space.

And given the large incidence of cartilage injuries is really a great commercial opportunity for us. So when we look at the addressable market, we did a very large quantitative market research project several years ago. It's well understood that there's about 750,000 cartilage repair procedures that are done in the U.S. each year. As I'll talk about in a moment, MACI has a very broad label. And so a lot of those patients technically would qualify for MACI treatment, about 40% or 315,000 of those. We sort of diverted from a normal TAM sort of evaluation when we did this project with a couple of hundred surgeons said, okay, we know that your patients would fit within the MACI label, but how many do you think would be clinically appropriate given the size, the location, sort of the demographic characteristics of patients, do they have time and ability to do rehab and so on.

And so that went down to about 125,000 patients. And then typically, insurance plans have a sort of a 1 square centimeter defect or above cutoff. And so when you do that, you end up with about 60,000 patients a year. Now our revenue per implant is north of $60,000. So when you kind of multiply that, we have a very large addressable market for MACI. And so that has supported the growth we've seen close to $0.25 billion in revenue in 2025.

And we think there's a lot of room to grow because if you look at those restorative techniques that I mentioned, it's a very -- it's a really small part of the market right now. So of the 750,000 procedures, probably 0.5 million or more are chondroplasty, which are not reparative. Another couple of hundred thousand plus are microfractures, which, again, are not restorative either. And so the number of restorative procedures are still less than 10,000 a year when you look at MACI osteochondral allografts and OATS out of those 60,000 patients. So this is really about making sure over the long term that patients are getting appropriate therapy and that's what gives us a lot of sort of excitement and enthusiasm about our ability to continue to grow MACI from here.

So what supports that strong growth for MACI, there's really a number of product attributes. So number one, as I mentioned earlier, it starts with the fact that MACI has a very broad label. So the FDA label basically provides that MACI is appropriate for defects anywhere in the knee, no limits on the size, whether there's bony involvement or not. So there's really not a lot of limitations on the use of MACI. And MACI is the only product that in randomized controlled clinical trial demonstrated superiority versus microfracture, which is the FDA-mandated comparator in these studies. So sort of unsurpassed clinical data, very broad label. And what that means is it's a viable treatment for a larger number of patients.

From a surgeon perspective, really the advancement -- the technological advancement for MACI is that earlier generations of this product, which, in our case, was called Carticel was the same concept where you took expanded cells, but it was in the cell suspension. So it was very difficult to fill a pothole with a cell suspension of essentially water, right? It's hard to -- you had to micro-suture flap over the top of the defect and inject the cells, et cetera. So it was highly invasive, time consuming, technically demanding. So it was a pretty niche product in the Carticel days. But there's 20-year outcomes data. And so once you repair the cartilage, it actually can last a lifetime unless there's another injury. So it was used.

But the advancement for MACI is that because the cell are seeded on the collagen membrane. It's a much less invasive surgery, so it's a mini-arthrotomy, 1- or 2-centimeter incision. It's much simpler because all you do is cut -- it's like arts and crafts, you cut the membrane to the size of the defect, and you glue it in, and it's much faster. So that's what's led to the broad adoption among the orthopedic surgeon community of MACI, because it's less invasive, there's also shorter rehab protocols, so that's obviously a great advantage from a patient perspective.

And then MACI has an excellent reimbursement profile. So every major insurance plan in the country has a medical policy or a medical benefit that covers MACI. And because it's a medical benefit, we have to get a prior approval and those cases are approved about 95% of the time. So as long as the patient meets the medical policy criteria, which again is typically a grade 3 or grade 4 focal cartilage defect, ability to do rehab above 1 square centimeter or so, those cases are going to get approved. And so that's really driven a lot of the growth as well that we've been able to develop case management -- a case management team that can help surgeons get these cases approved very quickly and sort of unlocked a lot of value.

So when you look at MACI over the last 9 years, as I mentioned earlier, the compounded annual revenue growth rate is about 24%. And we think there's a lot of reasons that we'll be able to sustain really strong growth going forward.

So when we look at MACI Arthro which was, as I mentioned, approved recently by the FDA for MACI administration, it's really kind of this tried-and-true medtech playbook of you take highly invasive surgeries, open heart surgery and you end up having these minimally invasive surgery. So MACI was a big step in that direction. MACI Arthro is continuing that progression that allow us to kind of deliver on the strategy that we've developed to make MACI a simpler, less invasive procedure. And that's important when you kind of double-click on the addressable market for MACI.

So this slide is a little busy, but essentially on the left side, the whole slide breaks out the addressable market of 60,000 patients by size and location of the defect. So on the left-hand side, that's essentially the go-to area for MACI prior to the MACI Arthro launch. So MACI is a go-to product for patella or back of the knee cap. When you had -- there's a lot of cartilage injuries that occur there, about 10,000 patients a year. It's very hard to do. It's really not blood flow or bone marrow back there to do kind of microfractures. It's hard to do osteochondral allografts there. So we have probably half our business pre-MACI Arthro launch is in the patella. And interestingly, it's the fastest -- has been the fastest-growing part of our business.

So it's patella defects, which are about 10,000 patients a year, larger defects, which are more than 4 square centimeters. So that's a very large defect. Again, those are sort of go-to places for MACI, where we have double-digit penetration overall in those segments.

It's the right-hand side of the slide that MACI Arthro is intended to address. So smaller defects on the end of the thigh bone or the femoral condyle, there's about 20,000 patients a year that have those defects. It makes sense. That's where your bones meet. There's a lot of stress and forces on the cartilage. And so you have a lot of injuries on the femoral condyle and 2 to 4 square centimeter defects are the most common. So our instruments from MACI Arthro are designed to treat either 2, 3 or 4 square centimeter defects. We obviously have business there, but our penetration rate is much lower.

So there -- those defects, plus there's another 20,000 patients with small defects in other parts of the knee as well. So our goal with MACI Arthro is to sort of get to the same kind of growth rates and penetration in those smaller defects that we've had in MACI over time. And that's kind of why we've developed the MACI Arthro instruments and expect that it can have an impact on our business in the years ahead.

So just to kind of summarize, MACI the clear and convincing leader in the cartilage repair market. We think between MACI Arthro the increased sales force, investments in commercial excellence that we'll be able to continue to get broader surgeon penetration and expand our customer base. We're focused on deeper penetration, treating more patients within each practice. And then because of the innovation profile for MACI, we've had strong pricing power, and we expect that to continue. So all of these together, we expect will help MACI growth in the years ahead.

In addition to that, we're looking at OUS expansion for MACI. Again, when we have our new commercial manufacturing facility up and running this year that will allow us to go back into, for instance, countries in Europe, where MACI was previously marketed and has great brand awareness and strong surgeon advocacy. So that's one element of our growth strategy going forward, and that can happen in the next few years.

Longer term, the MACI Ankle indication, we did the same kind of addressable market analysis. It's the second largest opportunity in cartilage repair. There's about 165,000 cartilage repair or resurfacing procedures in the U.S. each year. Same sort of exercise asking surgeons of the patients you see, how many would you deem to be clinically appropriate. It was about 40% of those patients and about 20,000 patients with larger defects that would be great candidates for MACI. At our current price, that's another $1 billion-plus market opportunity. So we initiated that study as we had said we were going to do in the fourth this year, and we look forward to the opportunity over the longer term to be able to have a MACI Ankle cartilage repair solution out there as well.

So turning to Burn Care. As I mentioned earlier, we're really focused on not sort of the general wound care space, but hospitalized burn patients with these severe burns. And the way these patients are treated is if they have a full thickness burn, which means all the way down to the bone, muscle or fat of any size or a partial thickness burn, which is into the dermal layer of the skin, that's greater than 10% body surface area, which in itself is huge. Your hand -- the size of your palm is about 1% of body surface area. So even a 10% burn is a very large burn. Those are the patients that are typically treated in one of the 140-or-so burn centers in the U.S. And as I mentioned, the treatment pathway is you need to get rid of the damaged tissue and then figure out how you're going to graft wound to promote healing.

So those are the patients we're focused on. It's a relatively large addressable market as well. So there's about 0.5 million burns in the U.S. each year, about 40,000 patients are hospitalized, as I mentioned. Our estimate is about 30,000 or 3/4 of those hospitalized patients will have some sort of eschar removal done, and I'll get into the different options there in a moment.

So at our price point and the number -- the amount of NexoBrid that's used on a typical patient, it's about a $300 million opportunity for us. When we go down the funnel to Epicel patients and again, these are the really catastrophic burn patients who have 30% or more body surface area burns, and we're typically treating 60%, 70%, 80% body surface area burns. It's a smaller patient population. There's about 600 to 800 of those patients with 40% plus burns that survive each year. But they need a large number of skin grafts. And so when you kind of do the math there, it's another $300 million market opportunity. So combined, it's a relatively strong addressable market for us, particularly considering there's only 140 burn centers. So the commercial footprint you need to address this market is not very large compared to other areas.

So I mentioned earlier that NexoBrid is an orphan biologic product that's indicated for eschar removal in adult and pediatric patients with severe thermal burns. So the standard of care prior to NexoBrid, and that's what we're focused on changing. When you have these burns, typically the patients are taken into the OR and the eschars removed surgical. So surgeons will take a knife and they will slice away the damage tissue and burns are variable death. So you're invariably taking some healthy tissue along with that. There's a lot of blood loss and it's very dramatic for patients.

There are some nonsurgical products out there that are widely recognized as having limited efficacy. So there's clearly a need for a selective and effective eschar removal product like NexoBrid, and it's really a fascinating product. So it's a mixture of proteolytic enzymes derived from pineapple stems that somehow can recognize, it's topically applied in those enzymes recognized collagen proteins in the skin that are denatured by thermal burns. It doesn't work if it's an electrical burn. It's just the characterization of they're denatured.

And it's applied and over the course of a few hours, basically, it dissolves the dead tissue and leaves the healthy tissue. And then they wake that away and then they figure out how they're going to treat the wound. So it's really -- from a patient perspective, you couldn't ask for a better advancement. And again, we're focused on changing the standard of care that takes time, but we think over time, this will become the standard of care for eschar removal.

Epicel, as I mentioned, is a grafting product after you've done that. Only FDA-approved permanent skin replacement, and a very important and potentially life-saving product for these patients. So if you have these large catastrophic burns, skin is highly immunogenic. It's function -- even though it's an organ whose function is to protect the body. So it's highly immunogenic. You can't do a transplant of someone else's skin, the body will sluff it off. So really, the only option for these patients is to do serial autografts where they'll take an autograft with a dermatome, they'll end up and try to -- they do split thickness meshes to try to make it as big and cover as much as they can. But if you've got a very large burn, you just don't have enough healthy tissue to be able to do that.

So that's where Epicel comes in. Same concept where we take posted stamp-sized biopsy of healthy skin. We can isolate the keratinocytes, which are the predominant cells in the epidermal layer of the skin. We culture those and they create the skin grafts that you see in this slide put a petroleum gauze on, and those are applied to the patient. And so it's really another exceedingly important product. There's data that's been published that at each decile burn, which is how these patients are treated and thought about. There's a profound mortality benefit for patients who are treated with Epicel. So great product there as well.

When we look at the growth opportunities for this franchise, it's a little variable because there's not a large number of these severe burns, and so it can bounce around a little bit. But we believe with the larger commercial footprint that we have now, with both products being cross-sold by all of the reps that the strong clinical outcomes will continue to drive NexoBrid uptake over time. And we think Epicel utilization will increase as well as we have a larger commercial footprint. And again, more presence in these burn centers with NexoBrid as well.

So in addition to our core portfolio, which provides a lot of growth opportunities for us, we do, obviously, as you'd expect, have a business development and corporate development out there. We look at a lot of products in our sports medicine space. There's a relatively limited set of additional products in the burn space. And then we also look at products that kind of take advantage of our cell therapy development manufacturing and commercialization capabilities. And so that's kind of where we spend the predominant amount of our time. It's a pretty high hurdle. We've got a great portfolio. We've got a great financial profile. So anything we would look to bring in needs to sort of enhance that. And so we don't need to do deals to sort of grow, but we are out there looking at ways to maximize the value for the company.

And so just in summary, it's been a great ride over the past 10 years. We've taken, again, a business that was kind of just sort of flat to declining. We've built it into one of the fastest-growing and most profitable for our scale companies out there, and we think there's a lot of room in the years ahead to continue down that path and enhance the overall profile of the company.

So I will end there, and we'll open it up for questions.

Perfect. Thank you, Nick. If you have any questions, we'll have the mic runners providing you with the mic. But I'll get the room started with one question that keeps me curious, which is you spoke about MACI's expanded sales force. Can you give any additional information on how the transition has been and what can we expect from this initiative in 2026?

Yes. So it's -- we had done our -- when we launched MACI in 2017, essentially every year, we had expanded our sales force 2017, '18, '19 and 2020. They were sort of incremental until 2020 when we sort of increase the sales force from 49 to 76 territories. So about a 50% increase. COVID hit, so things were a little choppy, but we expected that would be sufficient for several years as we continue to grow. The business has grown very strongly. We knew we would have to expand at some point. Always thought probably 100 reps would be about the right next step.

And then it really came down to a decision of when do we want to implement that in sort of middle of last year, often in the early days, we'd expand sort of in the first quarter. We knew our fourth quarter was going to be very large. We wanted to get the reps on board as soon as we could, not that we realigned the territories because you don't want to disrupt sort of your largest quarter. But we wanted them there to support the volumes that we knew we were going to have in the fourth quarter. And we also wanted them to be able to move into the new territories and execute on the realignment on January 2 and not give up part of the year recruiting.

And so the transition went great. I guess the proof is in the pudding that there was no disruption in the fourth quarter. It was our highest quarter ever. So that part was great. I think in terms of the profile that we're able to attract, I'll just say if you're in the sports medicine business, even at larger competitors, Vericel has a very attractive opportunity. MACI is just sort of a unique product. You get a lot of airtime with the surgeons. And so it's not particularly hard to recruit top sales reps who have a lot of experience in this field, and we typically recruit from the large medtech companies that you would expect that have big sports medicine franchises.

So we're really excited about it. I mean it's one piece of the puzzle. We think MACI Arthro can help continue to grow a larger sales force. These investments in commercial excellence that I referred to are important. So how do we continue to broaden our surgeon base but also go deeper? How do we standardize best practices across the entire sales force? So you need to do things a little differently, going from $40 million to $0.25 billion is one thing and how you get from $0.25 billion to $0.5 billion is another. And so we're -- that is top of mind for us. And we're certainly making all the investments we need to make to be able to make sure we get what's kind of right out there in front of us.

That's good. And we are like 1 minute short, but one last question would be what are the key imperatives that you see for 2026 for Vericel?

Yes. Well, I think first of all, it's just around operational excellence. So we have a new facility that needs to be approved by the FDA and get that up and running, which we're well on track to do. So that's kind of right on the time lines that we've communicated before. Commercial execution is also top of mind for the reasons that I mentioned. And so that's really sort of what's driving sort of our focus in 2026. Rep productivity has always been very high for us. Anyone can do the math and say, if you have 75 or 76 reps last year and you did $240 million in revenue. You're generating a lot of revenue per rep. So when you have an expansion like this, you want to make sure you're kind of on track to get right back up there and beyond, which we think we'll be able to do.

So it's those kinds of sort of execution, executing on our MACI Ankle clinical study to make sure we get off to a great start in enrollment. So it's really around execution.

Perfect. Any other questions from the room?

Do you have any data on how long the MACI treatment lasts? Do patients need to redosed? And then after they get the treatment, do they need to like not use their leg for a while to let it kind of get it...

Yes. On the latter question of sort of rehab, yes, there's always rehab after any surgical procedure. I think, as I mentioned earlier, in the Carticel days, when it was very invasive to be able to do the work you had to do to micro-suture a cover on to the defect or periosteal flap, I mean, it was a highly invasive surgery. And so that entailed a lot longer rehab. Currently, it's MACI's kind of -- because it's a less invasive surgery, it's kind of on par with other options. But there's always going to be a rehab. And you can even look at the MACI website. And it's kind of -- we're focused on functional based, how quickly you can move to the next stage, but it's a 6- to 9-month sort of rehab process for any of these surgeries.

And I'm sorry, the second part of the question?

How long is it persistent?

Okay. So yes, so durability of repair, I mentioned that earlier. So even with Carticel, we had 20-year outcomes data. So that's where you're following these patients, and pain and function scales are sort of the endpoints. And you saw just great outcomes even 20 years out. So once you repair that tissue unless you have another injury, you don't have to go back in and have another one. And MACI is a newer product, so it's a little behind, but we published 10-year data, outcomes data. And it's really impressive. I mean in the pivotal study, there was like a 90% responder rate. So you achieved a certain pain and function improvement, and that's high for any therapeutic. So great clinical outcomes for MACI.

And we can take one last question.

For us to go to outside the U.S., how about the manufacturing?

Yes. So that's what I was mentioning earlier. So the pivotal study for MACI was conducted in Europe. And we have an existing facility that was the Genzyme facility in Cambridge, Massachusetts and the clinical trial material was made there, shipped over to Europe, and that's what was used for the study. So when we purchased the business, it was actually approved in Europe. There was a manufacturing facility in Denmark. We just said we need to sort of get approval in the U.S., and then we'll figure out how we want to go back. So we kind of left the European market. But this new facility that should come online this year is designed with global manufacturing requirements in mind. There are small differences harmonization and sort of floors and doors and things like that. And we were never going to change our facility in Cambridge for the European market. But there's a 6-day shelf life for MACI. So it's easy to fly it over to London and treat the patient. So that's sort of what we're going to do.

And again, there was a -- MACI was developed in Europe. A lot of surgeons have brand awareness. When we launched in the U.S., there were actually U.K. surgeons who came over and trained the U.S. surgeons. There's an expedited approval process there, so mutual recognition. So it's a very short approval time line. And we did have a positive NICE opinion as well. So there's a lot of reasons to kind of make the U.K. our beachhead and then decide what we would do from there.

Okay. Thank you, everyone.

Thank you, Nick. Thank you, everyone.

Thanks. Appreciate it.

Good day, and welcome to the Vericel Corporation Third Quarter 2025 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference 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 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 third 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 delivered outstanding financial and business results in the third quarter with strong top line revenue growth and even higher profit growth, a significant inflection in operating cash flow, and continued progress across a number of key business initiatives.

The company generated record third quarter total revenue, which exceeded our guidance for the quarter, record third quarter MACI revenue, which increased 25% over last year and the highest quarterly burn care revenue of the year as Epicel had one of its highest revenue quarters to date and NexoBrid had its highest quarterly revenue since launch.

The strong revenue performance translated into significant profit growth and cash generation as the company delivered GAAP net income of more than $5 million and adjusted EBITDA margin of 25% for the quarter as well as record third quarter operating cash flow of more than $22 million.

MACI's third quarter performance was driven by strong underlying business fundamentals as we continue to expand the MACI surgeon base and drive growth in biopsies with the launch of MACI Arthro. As anticipated, the strong MACI biopsy growth in the first half of the year, which outpaced implant growth to that point, drove an acceleration of implant and revenue growth in the third quarter.

MACI also had another quarter of double-digit biopsy growth with record third quarter highs in both MACI biopsies and the number of surgeons taking biopsies. This momentum continued into the fourth quarter as we had the highest number of MACI biopsies and surgeons taking biopsies in any month since launch in October.

In addition to the strength of the core MACI fundamentals, the early launch indicators remain very strong for MACI Arthro, which clearly is contributing to MACI's overall biopsy and implant growth. We now have more than 800 MACI Arthro trained surgeons through the end of October, and the biopsy and implant growth rates continue to increase substantially for trained surgeons and remain significantly higher than the growth rates for surgeons that have not yet been trained.

In addition, early data indicates that the cohort of surgeons that have completed a MACI Arthro case to date have a markedly higher implant growth rate than biopsy growth rate, suggesting a higher overall conversion rate for MACI Arthro implanting surgeons. We believe that this dynamic may be driven by the fact that MACI Arthro is a less invasive procedure with the potential for improved patient outcomes. To that end, we remain focused on generating clinical data to demonstrate these potential patient benefits, including a shorter rehab period with MACI Arthro administration.

Early data from ongoing investigator case series suggests 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 outcomes, which could also lead to a shorter overall recovery time line for patients. We expect to see these cases presented at industry meetings in early 2026 as well as in future 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.

Finally, the MACI sales force expansion is on track to be completed in the fourth quarter, with the new reps supporting current territories this year and moving into their new territories at the start of next year, which will support our significant fourth quarter volume growth and position MACI for a continued strong performance for the full year in 2026.

In terms of our longer-term MACI growth initiatives, we remain on track to initiate the Phase III MACI Ankle clinical study this quarter, which represents a substantial growth opportunity for MACI 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, which is designed to meet both U.S. and global manufacturing requirements and will allow the company to potentially commercialize MACI outside the United States.

To that end, we're initiating a stage approach to our MACI OUS expansion with the first phase targeting a planned MACI launch in the U.K. This is an ideal first step for OUS expansion in that the U.K. has an international mutual recognition procedure that allows for accelerated approval and market access. There's a high level of awareness and surgeon advocacy for MACI given that the product was previously marketed in the U.K.

There's an established reimbursement pathway for this technology given a prior positive NICE opinion for MACI, and there are concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries in the U.K. We'd expect to submit a marketing application in the middle of next year and potentially launch MACI in the U.K. in the first half of 2027 as we seek to expand the long-term growth and value creation opportunities for the company.

In summary, MACI remains the clear market leader for knee cartilage repair with a significant competitive moat. Based on the strength of its underlying business fundamentals, we believe that MACI is very well positioned for a strong close to 2025 and continued strong growth in 2026 and beyond. The early launch indicators for MACI Arthro remain very strong and clearly are contributing to the overall biopsy and implant growth for MACI.

As we move into 2026, we expect to capitalize on having a full year to engage with the current MACI Arthro trained surgeons and to continue to meaningfully expand the number of trained surgeons next year. In addition to increasing the MACI sales force to drive further growth, we're also supporting the expanded MACI sales team with additional investments across our sales operations, marketing and medical functions to enhance our operational excellence and commercial execution and create additional opportunities for surgeons to engage with Vericel.

We believe that all of these initiatives will reinforce MACI's leadership position and drive continued strong revenue and profit growth in 2026 and the years ahead. I'll now turn the call over to Joe.

Thanks, Nick, and good morning, everyone. The company delivered very strong financial results in the third quarter with record total revenue of $67.5 million. MACI had a strong quarter with revenue growing 25% to $55.7 million, which was above the high end of our guidance range for the quarter. Importantly, year-to-date MACI revenue growth is over 20% with its growth rate having increased each quarter during the year.

Burn Care also had a strong third quarter with revenue of $11.8 million, which increased 21% sequentially over the second quarter. Epicel revenue of $10.4 million was the highest quarter of the year and one of its highest quarters to date, while NexoBrid revenue of $1.5 million represented its highest quarterly revenue since launch, growing 38% versus the prior year and 26% versus the prior quarter.

The company's substantial revenue growth translated into significant margin expansion with gross profit of nearly $50 million or 73.5% of revenue. Company also delivered GAAP net income of $5.1 million and adjusted EBITDA increased nearly 70% to $17 million or 25% of revenue, an increase of nearly 800 basis points versus the prior year as the company's profit growth continues to outpace our strong revenue growth.

Finally, the company generated record third quarter operating cash flow of $22.1 million, nearly matching the fourth quarter of last year. And with just $2.6 million of CapEx during the quarter, the company achieved record free cash flow of nearly $20 million, ending the quarter with $185 million in cash and investments as the expected inflection of our cash generation following the completion of our new manufacturing facility is now being realized.

Turning to our financial guidance. We expect full year total revenue of approximately $272 million to $276 million. For MACI, we are maintaining our revenue guidance expectations of low 20% growth for the full year and expect full year MACI revenue of approximately $237.5 million to $239.5 million and fourth quarter revenue of approximately $82 million to $84 million.

Given MACI's strong third quarter results and expectations for its continued strong performance in Q4, MACI remains on track for a significant acceleration in revenue growth from 18% in the first half of the year to approximately 23% in the second half of the year. For Burn Care, we expect full year revenue of approximately $34.5 million to $36.5 million, with fourth quarter revenue of approximately $6.5 million to $8.5 million as Epicel trends to date in the fourth quarter are similar to Q4 of last year.

I would also note that we are not assuming any additional NexoBrid revenue related to the BARDA RFP process initiated in August, although there is potential for incremental NexoBrid BARDA revenue in the fourth quarter. From a profitability perspective, we have reaffirmed our full year profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%.

For the fourth quarter, we expect gross margin of approximately 77%, approximately $50 million of total operating expenses, which includes the investments related to our recent sales force expansion and adjusted EBITDA margin of approximately 40%. Overall, 2025 is set up to be another positive year for the company with strong top line growth as well as significant margin expansion and profit growth.

As we look ahead to next year and beyond, 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 profitability targets that we announced earlier this year of gross margin in the high 70% range and adjusted EBITDA margin in the high 30% range by 2029.

This now concludes our prepared remarks. We will now open the call to your questions.

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

This is Josh Jennings from TD Cowen. Is that -- am I coming through okay?

We can hear you fine.

I'm sorry I got operating notice. I didn't hear my name called. So maybe just -- I appreciate your comments. Congratulations on the strong 3Q results. Your comments just a moment ago, Joe, on 2026 continued momentum. Just sorry for the typical question, a little bit too early prior to 2026 guidance, but maybe just for the MACI franchise, just thinking about MACI Arthro contributions in 2026, additive versus cannibalistic of standard MACI and how we should be thinking about the MACI growth as we move into the coming quarters next year? I have one follow-up.

Yes. So Josh, again, and thanks for the question. So first off, just a reminder, we haven't given any specific '26 commentary as of yet, but happy to give kind of our initial thoughts. Of course, we'll kind of give more formal guidance as we move into next year. I would say -- I'll kind of hit just briefly on both franchises, but certainly cover MACI.

So, I would say across the portfolio, our expectations next year are very high. We have a number of impactful initiatives that we're very excited about across both franchises, particularly MACI. But I do think we'll be pretty prudent to start the year from a guidance perspective. So maybe just briefly starting with Burn Care, I think that one is pretty straightforward. So we talked about last quarter this kind of run rate concept, which we think is appropriate.

We said we would adjust it kind of as needed on a quarterly basis. But if you look at our run rate over the last several quarters, we've kind of been in that $9 million to $10 million range on burn care. So I think as a starting point for next year, kind of being in that range, call it in the high 30s on a full year basis next year is a good place to start. We do have expectations that NexoBrid will continue to increase.

Certainly, there remains a possibility of some potential BARDA-related revenue that could materialize. But just given Epicel's variability, we're just going to be prudent on that, and I think that one is pretty straightforward. So from a MACI perspective, I would say, as we think about the guidance and kind of what next year looks like, if you kind of look at where analysts are, I mean, most analysts are kind of right around 20% on a full year basis, plus or minus. We think that's a good starting point as we think about '26.

If you look at where we were on a full year basis last year, MACI was 20%. It's 20% on a year-to-date basis this year. So we're not going to get ahead of ourselves and plan to start the year guiding above the trends of that 20%. So again, that's a good place to start. You can also look at kind of the incremental revenue on a year-over-year basis. That points to something kind of similar in that $40 million plus range. Again, we don't want to get ahead of ourselves.

And I guess kind of the last point I will make on the arthro question. I think as we think about '26 and really moving forward, we're not really thinking about this as kind of arthro versus non-arthro. We're thinking about this from a MACI total level. But if you kind of step back and think about the progression during the year, I think we're seeing exactly what we wanted to see as we kind of march through the year. So first off, great foundation in terms of engagement with surgeons. We're up to 800 trained surgeons. I think the majority of those are either new to MACI or new to smaller defects. So that's exactly what we'd want to see.

The second point there that we've talked about for a few quarters now is we are seeing higher biopsy and implant growth after surgeons are trained. So that's obviously exactly what we want to see, and we think that could be impactful over time.

And then the last point, early days, but when we look at our arthro implanters, so the surgeons that have done arthro implants, we're actually seeing signals of a higher conversion rate.

So, I mean, if you kind of look at that collectively, that is a pretty strong data set and consistent to what we hear externally. So good signals on Arthro for sure. But I would say, certainly, we're mindful of that, but we're just not going to get ahead of ourselves in terms of a planning assumption or guidance next year and would rather start the year a bit more prudently, which we think sets us up for success as we move throughout the year.

Appreciate that. And it's great to see the conversion rate thesis playing out for MACI Arthro. We've anecdotally kind of gotten back from some surgeons that patient demand for MACI Arthro is increasing. More patients are seeking out ortho surgeons that perform MACI Arthro or coming in requesting MACI Arthro. Just wondering if that -- if what we're picking up is a trend and whether that's helping kind of drive surgeon adoption rates, surgeons hearing from patients and then they're getting more interested or also driving volumes? But anything you can share on that dynamic would be helpful.

Josh, it's Nick. Yes, I mean, as we've talked about repeatedly, we've heard and seen the anecdotal feedback since the early days with MACI Arthro. There's a lot of social media activity from top MACI Arthro implanters. That certainly can be one contributing factor to sort of patients' awareness of a MACI Arthro option. So that makes perfect sense to us. And as Joe mentioned, besides the anecdotal kind of feedback we've been getting, which has been very positive. Everything -- the parameters that Joe mentioned just sort of line up with everything we expected to happen, and it's the progression that we've been talking about for the entire year.

So yes, really kind of pleased with the trends. And I think there's -- makes a lot of sense that patients would be interested in a less invasive procedure that has potential benefits in terms of faster recovery and potentially overall rehab time lines. And then, of course, the surgeon interest. We're well ahead of where we expected to be on trained surgeons for the year. So that awareness and engagement has been really positive as well.

We'll move to our next question from Richard Newitter with Truist Securities.

Congrats on the quarter. I just wanted to get a better understanding of where you're potentially seeing MACI Arthro actually potentially getting used where the traditional MACI was not? . Just the cannibalization versus market expansion, anything anecdotal that you can give us there? And then I have a follow-up.

Rich, it's Nick. So I think it's kind of continuing the trends that we've talked about on the past quarters. And again, we don't really -- cannibalization is not sort of how we think about this. We look at increasing MACI utilization and whether a surgeon implants MACI through a mini arthrotomy or small open incision or arthroscopically, that all contributes to the strong MACI growth that we are seeing.

So as we talked about before and as Joe alluded to, when you think about it from a surgeon perspective, the trained surgeons and now the biopsying and implanting surgeons come from existing MACI users, but also new users who were former open targets or the new arthro-only targets that we added. And the training kind of breaks down, as we talked about before, roughly 1/3 of sort of the former -- the MACI users who were primarily condyle users and then 1/3 from those that did both condyle and femoral condyles and then 1/3 new users, whether they were open targets or the new targets. So good distribution of surgeons, all of whom are taking biopsies and obviously doing implants.

And then from a defect location or a patient perspective, we've talked a lot about that we've seen use not only on the femoral condyles, but also in areas of the knee like the trochlea and tibia, even a few patella cases here and there. And that, I think, will continue, especially as we think about the continued innovation with the MACI Arthro instruments where we will work with surgeons, design the next version 2.0 of MACI instruments that will allow access to different portions of the knee and so on. So I think it's pretty broad-based as we've been talking about all year and supports the growth that we've seen in this third quarter.

Okay. That's really encouraging to hear. I'm just curious, just given where you are in kind of a new product launch here. As we look to next year, understanding you might not want to provide official guidance, totally understand that for '26. But anything that we should be aware of on the cadence on revenue or on the P&L? Just -- it's been a little bit counterintuitive for the last 2 years and just to preempt any surprises as we all calibrate our models into next year?

So thanks, Rich, for the question. This is Joe. So I would say, as we go into any year, I mean, I think from a MACI perspective, there's always going to be that seasonality. I mean it can certainly ebb and flow a bit on a quarterly basis. I would say one thing as we're thinking about -- we're talking about the full year, but we have tended to see in the last couple of years that the first quarter has tended to be at kind of a lower growth rate for whatever reason coming off Q4. So I mean that, of course, is a dynamic we've seen that I would point out, that was present in the last couple of years. So that's probably one piece.

In general, I would say it typically follows a pattern as we've seen. And again, it can vary a bit by quarters, but halves tend to look pretty similar. So nothing I would call out, obviously, on the burn care side, which I don't think you're necessarily getting to. But clearly, there can be variability there. And again, we're going to kind of stick with that run rate framework, and we'll adjust as needed, as we've done in the fourth quarter here just based on what we're seeing because we certainly want to make sure we're not going to get ahead of ourselves in any quarter on burn care. So that's more of a framework question.

I would say on the -- maybe just to hit the profitability for next year and kind of the profitability concept. I mean nothing to call out next year quarterly. But I would say, as you're thinking about the year and just going forward, I'd say, first off, I think it's pretty notable if you look back at Q3 that this is -- of course, the fourth quarter, just based on the MACI trajectory is always our highest revenue quarter, highest margin quarter, et cetera. But to be net income positive at a $5 million level, I think, is pretty notable in the third quarter.

We achieved 25% adjusted EBITDA margin in the third quarter, which is also pretty notable. And then just on the cash generation for a moment, I mean, whether you look at free cash flow or operating cash flow, you're kind of around $20 million for the quarter. So we talked a few years ago about that P&L inflection that we're starting to really get on the stronger side of. And I think we're just starting that kind of inflection on the cash generation piece.

In terms of the fourth quarter, obviously, we would expect a strong quarter there as well, as I talked about in the remarks. Next year, I would say, as you think about next year, I think we would expect on the margin side things to continue to tick up on both the gross margin and the adjusted EBITDA side. Probably want to just be a little bit prudent there to start the year in the sense that the last 2 or 3 years have been really strong and probably a bit ahead of our expectations in terms of how quickly the margin has gotten up the curve.

But I certainly think kind of being up, call it, 1 point in gross margin, maybe 1 point or 2 on adjusted EBITDA is a reasonable starting point. We will have to -- there will be investments on the sales force on a full year basis on the Ankle trial ramping up, cost of goods sold will absorb some of the new buildings. So that has to be contemplated next year.

Lastly, I would just say, I think from a broader lens, if you kind of look at where the kind of financial trajectory of the company is and our P&L metrics, they are really kind of starting to ramp up pretty significantly. So last year we had $50 million of adjusted EBITDA. This year our guidance is pointing to $70 million. So we're already starting to get into that $100 million zone on adjusted EBITDA level now.

And so, if you assume even similar revenue growth over the next few years and a high 30% adjusted EBITDA, I think it's certainly reasonable to be kind of getting close to that $200 million EBITDA range by 2029, call it. So, I think we're pretty excited about, obviously, everything that's going on in the MACI's side and across the business, but we're also very focused on that kind of financial trajectory in '26, but really over the next several years, which could be pretty significant. And again, we think it makes us pretty unique for a company of our size and scale.

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

Can you hear me okay? Nice quarter. Just given the biopsy trends you saw early in the year, the results this quarter, MACI -- the MACI guidance was tightened. And I'm wondering why fourth quarter wouldn't step up maybe relative to your prior guidance given what you're seeing and your commentary about biopsies in the third and into the fourth quarter?

Yes. So thanks for the question, Ryan. So I'll take that. I mean I think, clearly, a very strong third quarter, as we referenced, the biopsies at the start of the year led to that higher implanted revenue growth, which is great to see. To your point, the leading indicators have been strong. I'd say particularly the biopsies, which is, of course, a key leading indicator for us.

I think in terms of the guidance, I would say another dimension there is, with that strong third quarter, it really derisks where we need to be in the fourth quarter to achieve our full year guidance. So, to your point, we're essentially maintaining the full year guide at the same level. It kind of points to about $82 million to $84 million in the fourth quarter, which is right in line with kind of where estimates and consensus are.

But I'd also say this kind of points to a pretty strong acceleration still from an H1 to H2 perspective, depending on where you're in the range, it's 18% to call it 22% to 23%. So a pretty significant step-up in the second half. It also gives us, I'd say, a pretty achievable step-up Q3 to Q4. And I'd just say broadly, we just want to be prudent here on Q4. We recognize there certainly remains a wider range given some of the leading indicators.

We've got a great foundation of biopsies in place, but Q4 is our largest quarter. December is our highest month because there always can be some variability at quarter end, particularly with the year-end holidays. So we think this is appropriate. It's an achievable step-up. And I would say just we do not want to get ahead of ourselves as we close out the year.

Yes. Okay. Fair enough. And the other question, and you kind of talked about this, Nick, which is you're seeing adoption in MACI Arthro. But I guess I'm not clear. I mean, what -- how much MACI Arthro sales were in the third quarter? And what are you expecting relative to legacy MACI, if you will, as we convert and move into the -- both the fourth quarter, but then into 2026? I mean, if you were to kind of think about it with broad strokes, I mean, does it entirely convert over this next quarter? Do you convert over the course of 2026? I guess I'm just curious kind of how you think about the rise of MACI Arthro relative to maybe the decline of legacy MACI?

Yes. So we kind of don't, like we said earlier, think about a decline of legacy MACI. I mean, legacy MACI was principally focused on patella defects and large defects anywhere in the knee. And I'd say that patella defects is one of the strongest, if not the strongest growth drivers, for core MACI, and that remains the case. So they're not like a decline in the core MACI.

And again, you're never going to have full sort of switch over to MACI Arthro because MACI Arthro instruments are designed for the smaller defects. If it's above 4 square centimeters, you're doing an open procedure. If it's a patella case, you're typically going to do an open procedure. And so the small defects were the smaller part. We had lower penetration there. That's the whole thesis for launching the MACI Arthro instruments. And so, as we've seen an increase in biopsies and implants on smaller condyle defects, those are kind of MACI Arthro attributable cases.

So, again, we don't think about it as it's got to be blank on the core and then blank on arthro. You can often start intending to do an arthro case and flip to open if the defect got bigger since you did a biopsy. I mean, it's almost like a halo effect on the whole brand. And so, that's how we approach it. But no [ doubt ], as we've talked about that the trends for trained surgeons and how they're behaving is exactly what you want to see and supports the overall growth for the brand.

Okay. That's very helpful. And if I could sneak one last one in, and I'll hop back in queue. If you go back, some of the insurance carriers and their policies don't restrict lesion size. Some do. Have you had to work through that? And is there any impact or any gating factor there in terms of lesion size as you launch MACI Arthro?

Yes. So the answer -- short answer is not at all. As you mentioned, there are some plans that don't have any sort of size restrictions or parameters there. There are some that require that the defect be 1, 1.5 or 2 square centimeters or above. That's again exactly what the MACI Arthro instruments are designed for. They are 2, 3 or 4 square centimeter defects. So really, that has not been an issue at all. And as we've talked about often, every major medical plan has a policy, a medical policy for MACI and our prior approval rates are up in the mid-90% range. So for the appropriate patients, MACI gets approved.

We'll take our next question from Caitlin Roberts with Canaccord Genuity.

Congrats on the quarter. Just to start with Burn Care, can you just walk us through the puts and takes here? You said Epicel you expect similar Q4 dynamics this quarter and last year. And then the BARDA contract, any more color on that and why there could be some BARDA upside to NexoBrid? And also has the new Category III code for NexoBrid helped uptake there?

Caitlin, this is Nick. So just on the Epicel trends coming into the quarter that Joe referenced, I mean, what we said was to start the quarter, and again, we're still relative -- we're only 1/3 of the way through the quarter that the trends to date, which essentially is sort of the biopsies that we had coming into the quarter and in the first weeks of the quarter were more like Q4 last year. So that's what we're going to guide to.

As you know, we still have a good amount of the quarter to go. The biopsies for patients we're going to treat in December aren't even sort of in-house yet. So we just don't have the visibility on that. So we -- as Joe mentioned, we want to be very prudent in sort of making sure that we don't get ahead of ourselves on Epicel guidance given its variability.

On the BARDA opportunity, as you know, the RFP is public and was intended to sort of begin on October 1st. Obviously, we're all aware there's a government shutdown. So things sort of came to a screeching halt. But we are hopeful and expect that when the government reopens, that there's an opportunity to move forward on that RFP and the procurement, et cetera, and advanced development of NexoBrid. So more to come on that. But obviously, until that happens, we can't really kind of share much more about it.

And then on the CPT code, I think we have, as we've talked about, had a pretty good number of P&T committee approvals for NexoBrid, up in the 70 range and more than 60 ordering centers. So kind of in the CPT world, I think we feel comfortable. There's pretty widespread utilization. And we would expect that next year we'll pursue a permanent code, which would then become effective in 2027. So that would be our plan right now. So more to come on that as we get into next year.

That's great. And then just maybe touching on the MACI sales force hiring. Where are you now? And you noted you're on track to be completed in Q4. Any changes to the amount that you noted last quarter that you would hire into the year?

Yes. No, we said we were going to be adding 25 new territories and 3 new regions, and that is essentially virtually complete, [ onesie, twosies ] left to go on that. So we are extremely pleased with the quality and caliber of the talent we've brought in. If you're in the sports medicine business, this is a great place to be with MACI. So 0 issues in attracting top talent and couldn't be more excited to kind of have this expanded team as we -- again, to support our Q4 volumes, but also as we move into next year. And so really excited about that. And that, quite frankly, is just one piece, as I mentioned, of sort of the overall sort of investments and enthusiasm around MACI, so expanding the sales force.

we're really proud to have kind of built this franchise from a $30 million product 10 years ago to close to $0.25 billion now, and we're really focused on the people, the resources, the processes that we have to have in place to take it from $0.25 billion to $0.5 billion product over the next several years. And that's what we're focused on. The sales force expansion is one piece of it.

As I alluded to in my prepared remarks, we're also focused on additional marketing, sales ops and other kinds of investments in medical affairs and engagement with our key customers to make sure that we drive and achieve what's clearly right in front of us as we move forward over the next several years.

We'll take our next question from Mike Kratky with Leerink Partners.

Congrats on a nice quarter. You've continued to show great progress on some of the leading indicators like biopsies and surgeons taking biopsies. Can you just clarify how much of your 3Q growth for MACI is being driven by implant volume versus pricing? Have you seen some of these really positive leading indicators start to materialize in your MACI volume growth? And how has that tracked relative to your expectations?

Yes. Mike, thanks for the question. So yes, I mean I'd say kind of the acceleration that we're seeing in Q3 in terms of the performance, I mean, that's really volume driven. As we've talked about early in the year, we obviously had some strong biopsy growth. The implant growth was not tracking at the same level. And so what we really saw in the third quarter, which is what we anticipated, was really the volume from an implant perspective really ticked up.

And then again, as you kind of think going forward, obviously, the most important indicator as we look forward, or one of the most important, of course, is that biopsy growth. And that's really something that has continued to be strong, and Nick referenced October was really strong as well, I think our highest month ever. So that's -- it's really kind of been driven by that piece, both in Q3. And then again, you think about those volumes as we start Q4, that's what's going to drive us going forward.

We'll take our next question from Mason Carrico with Stephens.

This is Ben on for Mason. In terms of the MACI Arthro trained surgeons, you called out that 1/3 split between surgeon types. Could you compare and contrast arthro biopsy growth and maybe arthro procedures across these different groups?

Yes. So just to be clear, we talked about the fact that we had former MACI users, about half of whom were condyle-only surgeons or users. And then we had the other half of those prior users that did both femoral condyle and patella cases and then we have new users. And so it kind of splits between those 2, 1/3, 1/3 or 3 and 1/3. And to be honest, we've seen kind of biopsy growth across the board. And I don't think there's any sort of notable sort of groups that are outperforming the others.

Obviously, if they were smaller users and they ramp up even a handful, it's a high biopsy growth rate or if you're a new one, it's a really high biopsy growth rate. So I think the rates across those segments are relatively similar. And it's -- as Joe alluded to, it's pretty exciting for us to say between the new users, 1/3 of the surgeons being trained and then another 1/3 coming from Patella only.

I mean, that's 2/3 of these trained surgeons who probably didn't think about using MACI or certainly didn't in smaller condyle defects. And so that's, again, exactly what we would have wanted to see this early in the launch.

Great. And then you've historically called out mid to high single-digit pricing for MACI. Could you speak to the durability of that pricing moving forward or just the durability of that in light of the current reimbursement environment?

Yes. So again, just so everybody understands, MACI is reimbursed under a medical benefit. So it requires prior approval by each plan before a case can move forward. So obviously, the pricing is known when plans include MACI in their medical benefits. They know the appropriate patients are going to be treated because they have to approve them in advance. And that's what leads to sort of these high sort of mid-90% prior approval rates that we've achieved consistently for the last decade since we launched MACI.

So some of the other things, we don't have a big, obviously, Medicare business at all. And so a lot of this sort of macro stuff that's circulating out there doesn't really apply to MACI. In terms of the sort of mid to high single-digit price increases that we've sort of routinely taken, I mean, we do a lot of pricing research with plans and hospital administrators. And again, this is viewed as a very sort of high-tech product where -- more like a biologic in the pharma space where mid to high single-digits are pretty routine. So we're pretty comfortable in our pricing practices and our approach.

We'll move to our next question from Jeffrey Cohen with Ladenburg Thalmann.

Congrats on the quarter. Two specifically. Firstly, Joe, perhaps you could talk about R&D a bit and anticipation for Q4 full year and general commentary there?

Yes. I mean so we haven't -- from a spend perspective, broadly, I mean we don't typically kind of get into the pieces. But I would say, I think we called out -- as you're thinking about kind of Q4, we called out about $50 million of total OpEx, which I think kind of gets us back to a similar point on a full year basis that we've been talking about all year.

And I think as you think about kind of R&D going forward, and really kind of all the buckets, again, I referenced it earlier, but there's sort of 2 key incremental investments on the operating expense side, which are the sales force expansion, and Nick talked about we have some related investments around that, which I think will be important, and that will be incremental next year. And then the Ankle trial, really next year will become much more operational where you're going to see more sites and potentially patients kind of ramping up.

So I would expect that to increase particularly next year, but we'll kind of get to where next year's spend is as we get into next year, probably at a somewhat similar rate in terms of growth this year, perhaps a bit higher just with some of those investments. But again, on Q4, we did specifically call out $50 million, just to be clear of kind of what was expected there.

Okay. Got it. And then secondly, I know, Nick, you brought up postsurgical pain. Could you talk about that a little more detail as far as anything that has been noted or you've noted as far as the medical treatment as well as the weight bearing and some of the [ times ] and some of the medications that you've understood so far?

Yes. So this started way back even in the first quarter when we were talking about the fact that surgeons who had done the initial MACI Arthro cases were posting on social media about sort of these immediate positive benefits in terms of postsurgical pain or range of motion or sort of back to full weight bearing. Those are kind of the key early indicators. And as expected, both by us and surgeons through our market research using the product, when you have a less invasive surgery, you have less arthrofibrosis, so the knee is not swollen, you get better range of motion, et cetera. And so it just promotes a faster -- potentially faster healing process.

And we've been really focused. We were fortunate to be able to get MACI Arthro instruments on the market quickly through the human factor study pathway, which didn't involve a clinical study. So obviously, we didn't have the clinical data supporting a faster post-surgical recovery. But that's what we've been focused on, and I alluded to in my comments that through case series and through the MACI clinical outcomes registry, we've been gathering that data and would expect in early 2026 that those -- that data will be presented at industry conferences, ultimately, hopefully make its way into publications.

And we think in the progression of MACI when you go -- Arthro when you go from high awareness and training, which obviously we've checked that box, to sort of surgical technique demonstrations, which you see, for instance, at the International Cartilage Repair Society meeting that was recently held in Boston, very effective presentation there and then you move into these clinical benefits for patients. That's sort of the progression you would expect to see for MACI Arthro. And -- so that's kind of exactly what we're seeing and sort of why we made those comments in our prepared remarks.

Nick and Joe, can you hear me okay? This is Arthur on for RK. So I just had a quick question on the MACI side. So maybe for the MACI Arthro, could you give us more color regarding the timing from the surgeon finished the training to they are taking their first biopsy? How does that compare to the initial MACI launch? And on the conversion-wise, you mentioned there's a high conversion rate in terms of Arthro. But how about the average time to -- for the conversion, how that compared to the open surgery?

Yes. So just starting with the training, it's very much like MACI -- core MACI when we launched where training is never really a barrier. You can train online, you can do cadaver labs. We have MACI Arthro synthetic knees they can practice on. And obviously, in the first cases that were done, biopsies were already taken and then they trained and did the MACI Arthro procedure. So there's really no sort of gating item around training.

Often, if there's a surgery that a surgeon intends to do arthroscopically, those get trained ahead of the training. So there's really not a connection between whether you take a biopsy first, you get trained first and then take a biopsy, et cetera. So any of those scenarios, MACI Arthro training, we make a lot of different methodologies available to surgeons, and they just kind of do what they feel most comfortable with.

In terms of the conversion rate, I think we mentioned on our last call that we haven't seen any sort of differences in the MACI Arthro conversion time lines versus regular. So kind of early days on that, but kind of similar at this point.

And last one, could you discuss the timing and scale of the MACI Ankle phase? How should we think about the data read out there?

Well, just in terms of the timing, we said we're set to initiate the study in the fourth quarter of this year. We've kind of built a time line very much like the pivotal study -- the summit pivotal study for the indication in the knee, which was 2 years to enroll, 2-year follow-up and then, call it, 18 months plus on the regulatory pathway.

So we've always said this is kind of a [ 2030 ]-plus opportunity. That's a very important part of our sort of long-term strategy for MACI with the core business, obviously, with a ton of momentum, MACI Arthro, then MACI OUS expansion opportunities and then MACI Ankle following that. So just kind of this sort of long runway of growth opportunities for MACI, particularly with no like competition on the horizon.

Okay. Well, I believe that concludes all of the questions. So I just want to thank everyone for joining us this morning. Obviously, we had an outstanding third quarter and very well positioned for a strong close to the year and to continue to deliver a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead.

So we look forward to providing further updates on our progress on our next call. And thanks again, and have a great day.

This concludes today's call. Thank you again for your participation. You may now disconnect and have a great day.