Vericel Corporation Q2 2026 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to Vericel. S second quarter 2026 conference call. At this time, all participants are in a listen only mode. 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, Vice President of Finance, Business Intelligence and Investor Relations.

Thank you. Operator, and good morning, everyone. Joining me on today's call are Vero 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 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 positioned 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 from both Macy 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 continue 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 to $340 million, which represents total revenue growth of more than 20%. At the midpoint of our guidance range.

Macy 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. Macy's. Trailing four quarter revenue growth of 23% is significantly higher than its 19% growth in the prior four quarters. As we continue to execute on our strategic initiatives to deliver sustained high revenue growth for Macy. To that end, we're leveraging our larger Macy sales force to drive growth in new Macy users and deeper penetration within our current Macy's surgeon practices. We continue to leverage Macy Arthro to expand. Overall, Macy utilization, and our medical team has made significant progress in generating clinical data, demonstrating the potential for improved patient outcomes. With the less invasive Macy Arthro procedure. Our. Commercial excellence initiatives, together with strong execution from our Macy 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.

FSL 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 four quarters. In terms of our longer term growth initiatives, we remain on track to relaunch Macy outside the United States and submitted a Macy marketing authorization application in the U.K. in the second quarter, which, if approved, would enable the company to potentially launch Macy in the UK in 2027. We also continue to activate sites in the Macy 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 is authorized a $200 million share repurchase program Our financial outperformance, robust cash generation and strong balance sheet positioned 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. 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. Accompanied. Had a very strong second quarter across all key financial measures, including top line revenue, bottom line profitability and cash generation metrics. Revenue increased 22% to 77.5 million, which was significantly above our guidance range for the quarter, driven by strength in both commercial franchises. Macy'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 Macy's growth of 20% or more. Revenue was approximately 12 million, with revenue of 10.4 million. And of note, SSL revenue of more than 21 million in the first half of the year. Represents the second highest revenue total over a six 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 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 and cash generation continues. Following the completion of our new facility. With the strong second quarter results, the company has generated significant top line and line and cash generation growth across the business throughout the first half of 2026 and over the last four 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 to 340 million for the year, which represents total company revenue growth of approximately 19 to 23%. After another very strong quarter for Macy's, we are raising full year Macy revenue guidance to 284 to 290 million compared to the prior guidance of 282 to 288 million. We are also raising full year revenue guidance to 46 to 50 million compared to our prior guidance of 44 to 48 million.

For the third quarter, we expect total revenue of approximately 76.5 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 mid. Point of our guidance, this implies approximately 65.5 million of 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 barter procurement revenue. Moving down the P and L for the full year, we continue to expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%. 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 mid-term revenue and profitability targets with significant cash generation. This concludes our prepared remarks. We will now open the call to your questions.

Thank you. If you. Are dialed in via the telephone and would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Again, press star one to ask a question. We'll take our first question from Richard Newitter of Truist Securities.

Hi. Thanks for taking the questions and congrats on a great quarter here., I guess I maybe just to start, you know, the Macy's acceleration, especially when you look at it on a two year stack, I mean, it's notable and thank you for providing the last 12 month look back, trend because I you can see the step up there. So I guess maybe you could just go into a little bit of what's driving this step function increase. Is it. Macy Arthro something in the underlying market or would love to just hear how durable and, and if you could also address price and volume in that. Thank you.

Yeah. Hey, Rich, it's Nick and I'll start and, you know, appreciate the comments as we've talked about over the past several quarters, you know, I'd say about this time last year, we were talking about, you know, being very proud to be on a path to, you know, a quarter billion in revenues. And, and, you know, similar for Macy's. And, you know, what we need to do to make sure we're we remain on track to reach half a billion,, you know, by the end of this decade, which is really been our focus. And so I would say at this point, it's really a combination of the fact that, you know, we increased our Macy's sales force. We obviously launched Macy 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 Macy's commercial team and really doing the same thing on the burn care side. So I would say, you know, 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.

Yeah. And just good morning, Rich, this is Joe. I mean, just to add from a kind of price volume perspective, you know, I think it's a pretty similar,, kind of mix that we saw, you know, over the last few quarters and, you know, very similar to Q1 where we saw strong biopsy growth, which, which of course is important. That's the key contributor to the pipeline. You know, that translated into another quarter of strong double digit implant growth, you know, similar to Q1 ,, and strong pricing as well. So you kind of net that together and, you know, another strong quarter. And as Nick said, really, I think the execution from a team perspective is really elevated in both franchises. But obviously the Mason 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 of the. Growth algorithm. And it, it looks like it's been sustainable for quite some time. You know, about high single digit to low double digit is kind of what it feels like you're pricing in any given year is contributing on Macy. What can you tell us as to why? Why that's durable or what you know, what gives you confidence in the sustainability of that going forward?

Yeah. Rich. So, you know, we talked a lot about this on the last call that, you know, Macy's in a pretty unique position. You know, it's regulated as a combination device. Biologic advanced cell therapy by the 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, you know, we're really well positioned. So compared to other cell and gene therapies, as we talked about, you know, Macy's price is significantly lower than, you know, other cell therapies like Car-T therapies that can be in the half million dollar range, or G gene therapies. And the million plus range and so on a unit basis, it's, you know, 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, you know, in the billions of dollars or even in our space of total knee, total hip, total shoulder replacements, you know, the overall spend to any particular payer or system is very low compared to, you know, other areas in our space. And so I think for that reason, you know, we remain well positioned.

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

Thank you. And congrats.

Thanks, Rich.

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

Hi. Good morning, everyone, and thanks for taking the question. Congrats on a good quarter. I just wanted to expand on guidance quickly. Certainly appreciate the two year stack perspective, but just looking at the Syrian isolation, you know, you had a really strong one. HP2H implies, you know, a little bit of a slowdown across the board. I want to hear your comments there and just had a quick follow up.

Yeah. So good morning. This is Joe. I'll take that one. So yeah, I'd say from, you know, just a quick guidance update, you know, I think pretty straightforward, kind of similar to what we talked through last quarter. So, you know, obviously a strong second quarter., you know, beat by more than 2 million in each franchise and on a full year basis, you know, essentially incorporating that beat in total in each franchise. So that's, that's the full year update. And I think to your question, you know, I think one thing we want to maintain is, you know, I think we've had a good guidance framework that's worked well for the company. And, you know, we want to keep that in place for the remainder of the year. So, you know, I'd say we're just trying to be prudent., you know, our assumptions in the second half ,, have not changed our guidance commentary, rather. So whether you look at Q3 or Q4 in the Macy's side, you're kind of in that, you know, high teens,, high teens growth rate is kind of our guidance framework assumption, you know, similar on the, on the burn care side, where, you know, I think last quarter, we pointed to essentially 12 million per quarter as kind of the right way to think about,, the back half.

And that has not changed. So, you know, we pointed to 12 million in the third quarter, which is kind of 9 million corn and 3 million Barda, you know, similar assumption for the fourth quarter. And then just back to Macy and just maybe the framework, you know, we talked about in terms of Q3, you know, we have a revenue range out there. And obviously there's some different scenarios, but, you know, probably a good midpoint again, is just to keep that high teens assumption on Macy. You know, call it around 65 million or so., and then again, burn care at around 12 million. So I think that's consistent. And then, you know, I would say kind of to your question, you know, obviously, you know, over the last, you know, six months to start the year and really going back to last year, we've had a number of strong quarters., you know, and the reality is if the team continues to execute well from a Macy perspective, we have a strong pool of biopsies. The indicators are strong. You know, we think we should be set up. You know, very well in the second half. Certainly to, you know, 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, you know, that's obviously a more difficult market and franchise to predict. But, you know, we have seen, you know, a few quarters now of some consistent results on the burn care side that have been a nice improvement. So, you know, just generally, I would say to your question on kind of the DSL in the second half, I mean, that's more of a guidance framework assumption, which I think is, you know, 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. Thank you. And just to clarify, it's John on for Josh. And then just moving to profitability on adjusted EBITDA., you know, 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,, you know, considerable expansion over the next couple of years, particularly in the framework of your guidance.

Yeah. So I mean, in terms of our mid-term targets, generally, you know, I feel like we're, we're on track, whether it's revenue or the margin targets. You know, I think what you're seeing, just as a reminder in this calendar year is, you know, we're kind of adding a number. Each. 12 months, whether it's the sales force expansion, kind of the ramp up of the ankle trial, some of our X US spend, etc. that's, you know, certainly contributing. And then of course, on the gross margin side, which impacts EBITDA as well, kind of adding the costs for a new facility. So this is a bit of a kind of transition year on the P and L, where we still expect some modest expansion and to expand a little bit in each one 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 toward the end of the decade, you know, you probably see, you know, things like the ankle trial will start to wind down.

For example. So that will help as we get there as well.

Excellent. Thank you very much. And congrats again.

Thank you.

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

Hey guys, can you hear me? Okay.

Yeah. Good morning Ryan.

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

Yeah. Hey, Ryan, it's Nick. Thanks for the question., you know, I would just say that our capital allocation priorities remain the same., it's always about, you know, funding internal growth opportunities. And as we've talked about, you know, pretty consistently, our new facility where we made, you know, about $100 million investment, you know, in 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, you know, growth objectives. And with that behind us, you know, you can see sort of the inflection in cash generation, free cash flow, etc., which will only ramp up, you know, as we move forward. So, you know, our internal funding of growth opportunities is really falls within our operating plan. We've always aggressively invest for growth, whether it's a sales force expansion, expanding outside the US, doing the ankle study, commercial excellence initiatives across the board. And that's not going to change. Secondly, you know, we obviously have nearly a quarter billion dollars in cash now. And again, that's going to continue to ramp up., we continue to look for, you know, M&A opportunities, additional product opportunities.

We obviously built the company on business development transactions. So that's kind of in our, our core DNA. And that won't change either., but again, with, with kind of the, the performance of the business, our strong balance sheet, you know, doing a share repurchase program where we can opportunistically ,, return capital to investors, we can, you know, 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, our continued long term growth.

Fair enough. And, you know, I could there's a couple. Of questions I have. I'll try and keep it to just one. But. When you think about, you know, your push into Europe,, you know, I'm curious if you can talk about, you know, what you