UNITED STATES SECURITIES AND EXCHANGE COMMISSION for the fiscal year ended December 31, 2023 Washington, D.C. 20549 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-35280 VERICEL CORPORATION (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2023 increased 18% to approximately $45.6 million, exceeding guidance for the quarter [8][23] - Gross profit for the quarter was $30.6 million, representing a gross margin of 67%, which increased compared to both the prior quarter and the prior year [25] - The company ended Q3 with nearly $150 million in cash and investments, and no debt [8][27] Business Line Data and Key Metrics Changes - MACI revenue for Q3 reached a record $37.6 million, reflecting a 21% increase year-over-year and five consecutive quarters of over 20% growth [10][24] - Burn care revenue totaled approximately $8 million in Q3, with Epicel performing solidly and initial stocking revenue for NexoBrid contributing [18][24] Market Data and Key Metrics Changes - The anticipated launch of arthroscopic MACI is expected to significantly expand the addressable market, targeting approximately 20,000 patients annually [13][14] - NexoBrid is now commercially available in the U.S., with launch activities underway and initial patient treatments expected soon [19][21] Company Strategy and Development Direction - The company is focused on expanding its burn care franchise and anticipates NexoBrid to contribute significantly to revenue growth in 2024 [21][32] - The introduction of arthroscopic MACI is expected to drive further growth, with a commercial launch planned for the first half of 2024 [12][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving higher total revenue growth in 2024, driven by continued strength in the core MACI business and the launch of new products [9][33] - The company expects to enhance profitability metrics and gross margins in 2024, supported by sustained revenue growth [10][81] Other Important Information - The company has raised its full-year revenue guidance for 2023 to between $192.5 million and $197.5 million, marking the third increase this year [28][29] - Non-GAAP adjusted EBITDA for Q3 was $5.4 million, reflecting a 64% increase year-over-year [27] Q&A Session Summary Question: Can you elaborate on the commercialization of NexoBrid and revenue expectations for Q4? - Management indicated that they are ahead of their commercial plan for NexoBrid and expect meaningful revenue contributions in Q4, with initial stocking revenue recognized in Q3 [36][39] Question: What are the expectations for supply continuity of NexoBrid amid geopolitical concerns? - Management confirmed that manufacturing operations are ongoing and supply issues are currently under control, with deliveries received in October [54] Question: Will the arthroscopic MACI contribute to revenue growth in 2024? - Management confirmed that the launch of arthroscopic MACI is expected to contribute to revenue growth, particularly in the second half of 2024 [56][70] Question: What is the expected mix between traditional and arthroscopic MACI revenue? - Management indicated that while the exact mix is still to be determined, a significant portion of the addressable market falls into the arthroscopic category [71] Question: How will the company support the rollout of the arthroscopic delivery option? - Management plans to add a small number of support representatives to assist with the rollout, without significantly impacting the margin profile [75]

Financial Performance - Total revenue for Q3 2023 was $45.6 million, an 18% increase compared to $38.6 million in Q3 2022[3, 6] - Year-to-date total revenue increased 19% to $132.5 million[4] - Adjusted EBITDA for Q3 2023 was $5.4 million, a 64% increase compared to $3.3 million in Q3 2022[3, 6] - Net loss per share (diluted) for Q3 2023 was ($0.08) compared to ($0.14) in Q3 2022[6] - The company had approximately $149 million in cash, restricted cash, and investments as of September 30, 2023[6] Product Performance - MACI third-quarter revenue increased 21% to $37.6 million[4, 5] - NexoBrid generated $0.6 million in revenue in Q3 2023[3, 5] - Epicel generated $7.4 million in revenue in Q3 2023[3, 5] Guidance - The company increased its full-year 2023 net revenue guidance to $192.5-$197.5 million[7, 8] - MACI revenue is projected to be $160-$164 million for the full year 2023[8] - Burn Care revenue is projected to be $32.5-$33.5 million for the full year 2023[8]

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company's financial statements show revenue growth, a narrowing net loss, and increased total assets [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $318.1 million, driven by investments in a new facility and increased lease liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $186,211 | $186,866 | | Property and equipment, net | $30,216 | $15,837 | | Right-of-use assets | $73,294 | $41,535 | | **Total assets** | **$318,125** | **$273,003** | | **Total current liabilities** | $35,946 | $37,463 | | Operating lease liabilities | $77,734 | $43,268 | | **Total liabilities** | **$113,745** | **$80,731** | | **Total shareholders' equity** | **$204,380** | **$192,272** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue grew 18.2% in Q3 and 18.7% over nine months, leading to a significant reduction in net loss Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $45,581 | $38,551 | $132,520 | $111,671 | | Gross profit | $30,608 | $25,233 | $87,069 | $71,539 | | Loss from operations | $(5,057) | $(6,788) | $(19,195) | $(23,143) | | **Net loss** | **$(3,660)** | **$(6,577)** | **$(16,175)** | **$(22,631)** | | Net loss per share (basic & diluted) | $(0.08) | $(0.14) | $(0.34) | $(0.48) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations increased significantly to $25.2 million, contributing to a $32.5 million rise in total cash Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,225 | $10,712 | | Net cash provided by (used in) investing activities | $4,958 | $(14,477) | | Net cash provided by financing activities | $2,311 | $440 | | **Net increase (decrease) in cash** | **$32,494** | **$(3,325)** | | Cash, cash equivalents, and restricted cash at end of period | $83,561 | $65,216 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Key notes detail the U.S. launch of NexoBrid, a new facility lease, and a milestone payment to MediWound - The company commercially launched **NexoBrid in the U.S. on September 20, 2023**, for the removal of eschar in adults with deep partial-thickness and/or full-thickness thermal burns[25](index=25&type=chunk)[46](index=46&type=chunk) Revenue by Product - Nine Months Ended Sep 30 (in thousands) | Product | 2023 | 2022 | | :--- | :--- | :--- | | MACI | $108,114 | $85,617 | | Epicel | $23,808 | $25,387 | | NexoBrid | $598 | $667 | | **Total revenue** | **$132,520** | **$111,671** | - On June 1, 2023, the company gained control of a new 126,000 sq. ft. facility in Burlington, MA, recording a **right-of-use asset and lease liability of $35.5 million**[58](index=58&type=chunk)[62](index=62&type=chunk) - In February 2023, the company paid MediWound a **$7.5 million regulatory milestone** following the FDA's BLA approval of NexoBrid, which was capitalized as an intangible asset[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses revenue growth driven by MACI, the strategic launch of NexoBrid, and increased operating expenses [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Revenue growth was driven by MACI, while higher SG&A and R&D costs increased operating expenses Revenue by Product - Change vs. Prior Year | Product | Q3 2023 vs Q3 2022 | 9 Months 2023 vs 9 Months 2022 | | :--- | :--- | :--- | | MACI | +21.2% | +26.3% | | Epicel | +1.1% | -6.2% | | NexoBrid | +165.8% | -10.3% | | **Total Revenue** | **+18.2%** | **+18.7%** | - The increase in SG&A expenses was primarily due to **higher headcount and employee expenses**, increased travel and in-person events, and lease expense for the new Burlington facility[115](index=115&type=chunk)[116](index=116&type=chunk) - R&D expenses increased for the nine-month period due to increased costs for the **MACI arthroscopic development program** and lower reimbursement of expenses from MediWound compared to 2022[114](index=114&type=chunk) [Product Portfolio and Pipeline](index=23&type=section&id=Product%20Portfolio%20and%20Pipeline) The company is advancing its MACI pipeline and expanding its burn care market with the launch of NexoBrid - The company anticipates the commercial launch of the **MACI arthroscopic delivery program** during the first half of 2024[101](index=101&type=chunk) - The company is actively working on a clinical development plan for using **MACI to treat cartilage injuries in the ankle**, following pre-IND interactions with the FDA[102](index=102&type=chunk) - The FDA approval of NexoBrid expands the burn care franchise's **total addressable market**, allowing treatment of a significantly larger segment of hospitalized burn patients than with Epicel alone[106](index=106&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with sufficient cash and credit to fund operations and future commitments - The company believes its current cash, investments, and available borrowing capacity will be **sufficient to support operations for at least 12 months** from the report's issuance[128](index=128&type=chunk) - The company has a **$150 million five-year senior secured revolving credit agreement**, with no outstanding borrowings as of September 30, 2023[131](index=131&type=chunk) - Significant commitments include funding the remaining **$28.3 million for Burlington facility improvements** in early 2024 and a new supply agreement with Matricel requiring **€12.5 million in minimum purchases** over eight years[133](index=133&type=chunk)[134](index=134&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposures have not materially changed since the previous fiscal year-end - There have been **no material changes** to the company's market risk exposures since the end of the previous fiscal year[139](index=139&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The company's Certifying Officers concluded that disclosure controls and procedures were **effective as of September 30, 2023**[140](index=140&type=chunk) - **No material changes** were made to the company's internal control over financial reporting during the third quarter of 2023[142](index=142&type=chunk) [PART II — OTHER INFORMATION](index=30&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - As of the filing date, the company is **not involved in any material legal proceedings**[143](index=143&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) New risks related to financial industry instability and geopolitical events have been identified - A new risk factor highlights that adverse developments affecting financial institutions could **impair the company's access to cash** and impact operations and liquidity[145](index=145&type=chunk)[146](index=146&type=chunk) - A new risk factor was added concerning **economic uncertainty and market disruption** impacted by geopolitical instability, including the wars in Ukraine and between Israel and Hamas, and record inflation[147](index=147&type=chunk)[148](index=148&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) Several executives and directors adopted Rule 10b5-1 trading plans during the third quarter - Key executives and directors, including CEO Dominick Colangelo, COO Michael Halpin, and Chairman Robert Zerbe, entered into **Rule 10b5-1 trading plans** during the quarter[153](index=153&type=chunk)[156](index=156&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the quarterly report, including officer certifications and incentive plans

Vericel Corporation (NASDAQ:VCEL) Q2 2023 Earnings Conference Call August 2, 2023 8:30 AM ET Company Participants Eric Burns - VP, Finance and IR Nick Colangelo - President and CEO Joe Mara - CFO Conference Call Participants Ryan Zimmerman - BTIG Sam Brodovsky - Truist Securities Jeffrey Cohen - Ladenburg Swayampakula Ramakanth - HCW George Sellers - Stephens Incorporated Operator Ladies and gentlemen, thank you for standing by, welcome to Vericel's Second Quarter 2023 Conference Call. At this time, all par ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited financial statements for the period ended June 30, 2023, show increased total assets, significant revenue growth, and a reduced net loss, alongside positive operating cash flow [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2023, total assets increased to **$310.7 million**, driven by right-of-use assets, with a modest rise in shareholders' equity Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | $182,871 | $186,866 | | **Total Assets** | $310,711 | $273,003 | | **Total Current Liabilities** | $35,611 | $37,463 | | **Total Liabilities** | $111,783 | $80,731 | | **Total Shareholders' Equity** | $198,928 | $192,272 | - Cash, cash equivalents, and short-term investments decreased from **$119.5 million** at year-end 2022 to **$97.8 million** as of June 30, 2023, while restricted cash increased to **$27.8 million**[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2023 total revenue increased **24%** to **$45.9 million**, driving a **31%** increase in gross profit and narrowing the net loss to **$5.0 million** Q2 2023 vs Q2 2022 Performance (in thousands, except per share amounts) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | **Total Revenue** | $45,922 | $37,046 | | **Gross Profit** | $29,941 | $22,854 | | **Loss from Operations** | ($5,961) | ($9,082) | | **Net Loss** | ($5,020) | ($8,963) | | **Net Loss per Share** | ($0.11) | ($0.19) | Six Months 2023 vs 2022 Performance (in thousands, except per share amounts) | Metric | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | | **Total Revenue** | $86,939 | $73,120 | | **Gross Profit** | $56,461 | $46,306 | | **Loss from Operations** | ($14,138) | ($16,355) | | **Net Loss** | ($12,515) | ($16,054) | | **Net Loss per Share** | ($0.26) | ($0.34) | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Comprehensive loss for Q2 2023 improved to **$5.0 million**, driven by a smaller net loss and a shift from unrealized losses to gains on investments Comprehensive Loss Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net Loss** | $(5,020) | $(8,963) | $(12,515) | $(16,054) | | **Unrealized Gain (Loss) on Investments** | $15 | $(242) | $357 | $(701) | | **Comprehensive Loss** | $(5,005) | $(9,205) | $(12,158) | $(16,755) | [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased to **$198.9 million** by June 30, 2023, primarily from stock-based compensation and option exercises - Shareholders' equity increased by **$6.7 million** during the first six months of 2023, from **$192.3 million** to **$198.9 million**[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, the company generated **$18.1 million** in cash from operations, leading to a **$19.8 million** increase in cash and equivalents Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $18,056 | $6,611 | | **Net cash provided by (used in) investing activities** | $392 | $(13,666) | | **Net cash provided by financing activities** | $1,302 | $752 | | **Net increase (decrease) in cash** | $19,750 | $(6,303) | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business operations, revenue recognition, a new manufacturing lease, and an undrawn **$150 million** credit facility - The company markets three products: MACI for knee cartilage repair, Epicel for severe burns, and the newly FDA-approved NexoBrid for eschar removal in thermal burns[21](index=21&type=chunk) - In January 2022, the company entered into a lease for a new 126,000 sq ft headquarters and manufacturing facility in Burlington, MA, recording a **$35.5 million** right-of-use asset and lease liability on June 1, 2023[55](index=55&type=chunk)[59](index=59&type=chunk) - Following FDA approval of NexoBrid, the company made a **$7.5 million** regulatory milestone payment to MediWound in February 2023, recorded as an intangible asset[81](index=81&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2023 revenue growth, NexoBrid launch delay, MACI pipeline advancements, and strong liquidity [Overview and Product Portfolio](index=23&type=section&id=Overview%20and%20Product%20Portfolio) Vericel, a biopharmaceutical company, offers MACI, Epicel, and NexoBrid, with the latter's commercial launch delayed to Q1 2024 - The commercial launch of NexoBrid is expected in the first quarter of 2024, delayed due to a deviation associated with a third-party testing lab used in MediWound's manufacturing process[88](index=88&type=chunk)[103](index=103&type=chunk) - The company is developing an arthroscopic delivery method for MACI and evaluating MACI for ankle cartilage damage, planning to propose a clinical development plan to the FDA[96](index=96&type=chunk)[97](index=97&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Q2 2023 total revenue increased **24%** to **$45.9 million**, driven by MACI sales, improving gross margin and narrowing net loss Revenue by Product (in thousands) | Product | Q2 2023 | Q2 2022 | Change % | Six Months 2023 | Six Months 2022 | Change % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **MACI** | $36,336 | $28,613 | 27.0% | $70,526 | $54,607 | 29.2% | | **Epicel** | $9,586 | $8,213 | 16.7% | $16,413 | $18,071 | (9.2)% | | **NexoBrid** | $0 | $220 | (100.0)% | $0 | $442 | (100.0)% | | **Total** | $45,922 | $37,046 | 24.0% | $86,939 | $73,120 | 18.9% | - The increase in Selling, General and Administrative (SG&A) expenses was primarily due to higher marketing expenses, external costs, and lease expense associated with the new Burlington facility[109](index=109&type=chunk) - Research and development expenses increased, primarily due to costs for the MACI arthroscopic program and lower reimbursement from MediWound related to the NexoBrid BLA resubmission in 2022[108](index=108&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company maintained strong liquidity with **$70.8 million** in cash and equivalents, **$75.8 million** in investments, and an undrawn **$150 million** credit facility - The company has a **$150 million** five-year senior secured revolving credit agreement, which was undrawn as of June 30, 2023[124](index=124&type=chunk) - A **$200 million** at-the-market (ATM) share offering program is in place, but no shares have been sold under this agreement as of June 30, 2023[123](index=123&type=chunk) - The company has transferred approximately **$28.3 million** (50% of its required amount) into an escrow account for tenant improvement construction costs for the new Burlington facility[126](index=126&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposures have not materially changed since December 31, 2022 - There have been no material changes to the company's market risk exposures since the end of the fiscal year 2022[131](index=131&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[132](index=132&type=chunk) - No material changes were made to the company's internal control over financial reporting during the second quarter of 2023[134](index=134&type=chunk) [PART II — OTHER INFORMATION](index=29&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, other information, and exhibits for the reporting period [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - As of the filing date, Vericel is not involved in any material legal proceedings[135](index=135&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors except for a new one concerning adverse developments in financial institutions - A new risk factor highlights potential adverse effects of instability in the financial services industry on the company's operations and liquidity, including access to cash deposits held in excess of FDIC insurance limits[137](index=137&type=chunk)[138](index=138&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period - Not applicable[140](index=140&type=chunk) [Other Information](index=30&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2023 - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2023[143](index=143&type=chunk) [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications

Vericel Corporation (NASDAQ:VCEL) Q1 2023 Earnings Conference Call May 10, 2023 8:30 AM ET Company Participants Eric Burns - Vice President, Finance and Investor Relations Nick Colangelo - President and CEO Joe Mara - Chief Financial Officer Conference Call Participants Ryan Zimmerman - BTIG Sam Brodovsky - Truist Securities Jeffrey Cohen - Ladenburg Thalmann George Sellers - Stephens Sean Lee - H.C. Wainwright Operator Ladies and gentlemen, thank you for standing by. Welcome to Vericel’s First Quarter 2023 ...

▼VERICEL | --- | --- | --- | |-------------------------|-------|-------| | | | | | | | | | VERICEL Q1 2023 RESULTS | | | | MAY 10, 2023 | | | | --- | --- ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Vericel Corporation's unaudited condensed consolidated financial statements and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights (amounts in thousands): | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Total assets | $265,096 | $273,003 | | Total liabilities | $71,118 | $80,731 | | Total shareholders' equity | $193,978 | $192,272 | | Cash and cash equivalents | $61,834 | $51,067 | | Short-term investments | $57,442 | $68,471 | | Accounts receivable (net) | $38,359 | $46,539 | | Inventory | $15,370 | $15,986 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, including revenue, expenses, and net loss over a period Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, amounts in thousands, except per share amounts): | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Total revenue | $41,017 | $36,074 | | Gross profit | $26,520 | $23,452 | | Total operating expenses | $34,697 | $30,725 | | Loss from operations | $(8,177) | $(7,273) | | Net loss | $(7,495) | $(7,091) | | Net loss per common share (Basic and diluted) | $(0.16) | $(0.15) | | Weighted-average common shares outstanding | 47,387 | 46,985 | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section details the total comprehensive loss, including net loss and other comprehensive income/loss items Condensed Consolidated Statements of Comprehensive Loss Highlights (Three Months Ended March 31, amounts in thousands): | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Net loss | $(7,495) | $(7,091) | | Unrealized gain (loss) on investments | $342 | $(459) | | Comprehensive loss | $(7,153) | $(7,550) | [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section tracks changes in shareholders' equity, reflecting net loss, stock-based compensation, and other equity transactions Changes in Shareholders' Equity (Three Months Ended March 31, amounts in thousands): | Item | 2023 Change | 2022 Change | | :------------------------------------ | :---------- | :---------- | | Net loss | $(7,495) | $(7,091) | | Stock-based compensation expense | $8,731 | $9,531 | | Stock option exercises | $2,009 | $1,155 | | Shares issued under ESPP | $216 | $310 | | Restricted stock withheld for tax | $(2,097) | $(1,423) | | Unrealized gain (loss) on investments | $342 | $(459) | | Total Shareholders' Equity (End of Period) | $193,978 | $172,485 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, amounts in thousands): | Activity | 2023 | 2022 | | :------------------------------------------ | :----- | :------ | | Net cash provided by operating activities | $7,860 | $3,468 | | Net cash provided by (used in) investing activities | $2,800 | $(10,669) | | Net cash provided by financing activities | $107 | $503 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $10,767 | $(6,698) | | Cash, cash equivalents, and restricted cash at end of period | $61,834 | $61,843 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Organization](index=9&type=section&id=1.%20Organization) Vericel Corporation is a commercial-stage biopharmaceutical company specializing in advanced therapies for sports medicine and severe burn care - Vericel Corporation markets three commercial-stage products in the U.S.: **MACI®** for cartilage defects, **Epicel®** for severe burns, and **NexoBrid®** for eschar removal in burns[23](index=23&type=chunk) - The company's liquidity position as of March 31, 2023, includes **$61.8 million in cash and cash equivalents** and **$77.4 million in investments**, expected to support operations for at least 12 months[27](index=27&type=chunk) - The effects of the COVID-19 pandemic on the company's business and operations have moderated, but a resurgence could lead to future disruptions[25](index=25&type=chunk) [2. Basis of Presentation](index=10&type=section&id=2.%20Basis%20of%20Presentation) The condensed consolidated financial statements are unaudited, prepared in accordance with U.S. GAAP, and include management's estimates - No new accounting standards were adopted during the three months ended March 31, 2023, and existing ASUs are expected to have minimal impact[32](index=32&type=chunk) [3. Revenue](index=11&type=section&id=3.%20Revenue) Vericel recognizes revenue from MACI biopsy kits and implants, Epicel grafts, and NexoBrid based on ASC 606 Revenue by Product (in thousands) - Three Months Ended March 31: | Product | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | MACI implants and kits | $34,190 | $25,995 | $8,195 | 31.5% | | Epicel | $6,827 | $9,857 | $(3,030) | (30.7)% | | NexoBrid revenue | $— | $222 | $(222) | (100.0)% | | **Total revenue** | **$41,017** | **$36,074** | **$4,943** | **13.7%** | - The total allowance for uncollectible consideration for MACI implants increased from **$6.1 million** as of December 31, 2022, to **$7.1 million** as of March 31, 2023[37](index=37&type=chunk) [4. Selected Balance Sheet Components](index=13&type=section&id=4.%20Selected%20Balance%20Sheet%20Components) This section details changes in inventory, property and equipment, intangible assets, and accrued expenses Inventory (in thousands): | Category | March 31, 2023 | December 31, 2022 | | :--------------- | :------------- | :---------------- | | Raw materials | $14,264 | $15,101 | | Work-in-process | $1,043 | $832 | | Finished goods | $63 | $53 | | **Total inventory** | **$15,370** | **$15,986** | Property and Equipment, net (in thousands): | Category | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Total property and equipment, gross | $37,399 | $34,139 | | Less accumulated depreciation | $(19,202) | $(18,302) | | **Total property and equipment, net** | **$18,197** | **$15,837** | | Construction in process | $8,121 | $5,438 | Intangible Assets, net (in thousands): | Asset | March 31, 2023 | December 31, 2022 | | :---------------- | :------------- | :---------------- | | NexoBrid license (Cost) | $7,500 | $7,500 | | Accumulated Amortization | $(156) | $— | | **NexoBrid license (Net)** | **$7,344** | **$7,500** | | Amortization expense (Q1 2023) | $200 | N/A | Accrued Expenses (in thousands): | Category | March 31, 2023 | December 31, 2022 | | :------------------------------ | :------------- | :---------------- | | Bonus related compensation | $3,588 | $7,132 | | Employee related accruals | $2,739 | $3,101 | | Insurance reimbursement-related liabilities | $5,769 | $5,030 | | Other accrued expenses | $1,015 | $927 | | **Total accrued expenses** | **$13,111** | **$16,190** | [5. Leases](index=16&type=section&id=5.%20Leases) Vericel leases facilities in Ann Arbor and Cambridge, and is developing a new corporate headquarters in Burlington, Massachusetts - The Burlington Lease for a new **126,000 sq ft facility** is expected to commence mid-2023, with an initial annual base rent of **$57 per square foot**, subject to annual increases[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - The Burlington Lease includes a tenant improvement allowance of approximately **$24.4 million** from the landlord[56](index=56&type=chunk) Lease Assets and Liabilities (in thousands): | Category | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Right-of-use assets (Operating) | $40,851 | $41,535 | | Property and equipment, net (Finance) | $28 | $37 | | Current portion of operating lease liabilities | $4,497 | $4,302 | | Operating lease liabilities (Non-current) | $42,365 | $43,268 | | Total leased liabilities | $46,882 | $47,611 | [6. Investments](index=18&type=section&id=6.%20Investments) Vericel's marketable debt securities are classified as available-for-sale and carried at fair value Marketable Debt Securities (in thousands) - March 31, 2023: | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :------------------------ | :------------- | :--------------------- | :---------------------- | :------------------- | | Commercial paper | $14,306 | $— | $(48) | $14,258 | | Corporate notes | $43,157 | $— | $(559) | $42,598 | | U.S. government securities | $4,920 | $5 | $— | $4,925 | | U.S. government agency bonds | $15,600 | $— | $(29) | $15,571 | | **Total** | **$77,983** | **$5** | **$(636)** | **$77,352** | | Short-term investments | | | | $57,442 | | Long-term investments | | | | $19,910 | - As of March 31, 2023, the company's marketable securities had a gross unrealized loss of **$636 thousand**[62](index=62&type=chunk) [7. Fair Value Measurements](index=19&type=section&id=7.%20Fair%20Value%20Measurements) The company classifies fair value measurements into Level 1, 2, or 3 categories based on observability of inputs Fair Value Measurement Categories (in thousands) - March 31, 2023: | Asset | Total Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------ | :--------------- | :------ | :------ | :------ | | Money market funds | $39,906 | $39,906 | $— | $— | | Commercial paper | $14,258 | $— | $14,258 | $— | | Corporate notes | $42,598 | $— | $42,598 | $— | | U.S. government securities | $4,925 | $— | $4,925 | $— | | U.S. government agency bonds | $15,571 | $— | $15,571 | $— | | **Total Assets** | **$117,258** | **$39,906** | **$77,352** | **$—** | [8. Revolving Credit Agreement](index=19&type=section&id=8.%20Revolving%20Credit%20Agreement) Vericel has a $150.0 million five-year senior secured revolving credit agreement, with $6.2 million currently utilized for letters of credit - The company has a **$150.0 million five-year senior secured revolving credit agreement**, with a **$15.0 million sub-facility for letters of credit**, of which approximately **$6.2 million is utilized**[66](index=66&type=chunk) - As of March 31, 2023, there are **no outstanding borrowings** under the Revolving Credit Agreement, and the company is in compliance with all covenants[69](index=69&type=chunk)[123](index=123&type=chunk) [9. Stock-Based Compensation](index=20&type=section&id=9.%20Stock-Based%20Compensation) This section details the company's stock-based compensation plans and related expenses Non-Cash Stock-Based Compensation Expense (in thousands) - Three Months Ended March 31: | Category | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :----- | :----- | :--------- | :--------- | | Cost of product sales | $885 | $1,118 | $(233) | (20.8)% | | Research and development | $977 | $1,350 | $(373) | (27.6)% | | Selling, general and administrative | $6,869 | $7,063 | $(194) | (2.7)% | | **Total non-cash stock-based compensation expense** | **$8,731** | **$9,531** | **$(800)** | **(8.4)%** | - The weighted-average grant-date fair value of service-based options granted decreased from **$20.99 in Q1 2022 to $18.00 in Q1 2023**[75](index=75&type=chunk) - The weighted-average grant-date fair value of restricted stock units granted decreased from **$34.97 in Q1 2022 to $29.82 in Q1 2023**[76](index=76&type=chunk) [10. Net Loss Per Common Share](index=21&type=section&id=10.%20Net%20Loss%20Per%20Common%20Share) This section reports the basic and diluted net loss per common share for the period Net Loss Per Common Share (Three Months Ended March 31, amounts in thousands, except per share amounts): | Metric | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net loss | $(7,495) | $(7,091) | | Basic weighted-average common shares outstanding | 47,387 | 46,985 | | Basic loss per common share | $(0.16) | $(0.15) | | Diluted loss per common share | $(0.16) | $(0.15) | [11. NexoBrid License and Supply Agreements](index=21&type=section&id=11.%20NexoBrid%20License%20and%20Supply%20Agreements) Vericel holds exclusive North American rights to NexoBrid, with associated milestone payments and royalties - The FDA approved NexoBrid on **December 28, 2022**, for commercial use in the U.S., leading to a **$7.5 million regulatory milestone payment** by Vericel to MediWound in February 2023, recorded as an intangible asset[78](index=78&type=chunk)[80](index=80&type=chunk) - Vericel is obligated to pay MediWound up to **$125.0 million** contingent upon meeting certain sales milestones, with the first **$7.5 million** triggered when annual net sales exceed **$75.0 million**[81](index=81&type=chunk) - MediWound announced additional BARDA funding of **$3 million** in May 2023 to support the replacement of expired NexoBrid previously procured for emergency response preparedness[83](index=83&type=chunk) [12. Commitments and Contingencies](index=22&type=section&id=12.%20Commitments%20and%20Contingencies) The company is not currently a party to any material ongoing legal proceedings or investigations - As of March 31, 2023, Vericel has **no material ongoing litigation or investigations** by government or regulatory authorities[85](index=85&type=chunk) [13. Subsequent Events](index=22&type=section&id=13.%20Subsequent%20Events) This section details significant events that occurred after the balance sheet date - In April 2023, Vericel funded approximately **$28.3 million** (50% of its required cost) into a construction escrow account for tenant improvement costs at the Burlington facility, with the remaining 50% expected in late 2023 or early 2024[86](index=86&type=chunk) - The company plans to invest in the acquisition and installation of specialized manufacturing and laboratory equipment to support the expansion of autologous cell manufacturing operations at the new Burlington facility[86](index=86&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Vericel's financial condition and operational results for Q1 2023 [Overview](index=23&type=section&id=Overview) Vericel is a commercial-stage biopharmaceutical company focused on sports medicine and severe burn care, marketing FDA-approved products - Vericel is a fully-integrated, commercial-stage biopharmaceutical company with three FDA-approved products: **MACI, Epicel, and NexoBrid**[88](index=88&type=chunk) - Commercial launch activities for NexoBrid are underway following its FDA approval on **December 28, 2022**, with U.S. commercial sales anticipated to begin in the **third quarter of 2023**[88](index=88&type=chunk) [Business Environment and Risks](index=23&type=section&id=Business%20Environment%20and%20Risks) The company's operations are influenced by external factors such as COVID-19, global economic uncertainty, and product portfolio developments [COVID-19](index=23&type=section&id=COVID-19) The effects of the COVID-19 pandemic on the company's business have moderated, but a resurgence could lead to future disruptions - The effects of the COVID-19 pandemic on the company's business and results of operations have moderated, but a resurgence could lead to future disruptions[89](index=89&type=chunk) [The War in Ukraine](index=23&type=section&id=The%20War%20in%20Ukraine) The ongoing war between Russia and Ukraine creates substantial uncertainty in the global economy, though Vericel has no direct exposure - The ongoing war between Russia and Ukraine creates substantial uncertainty in the global economy, though Vericel has no direct operations or exposure in these regions[90](index=90&type=chunk) [Manufacturing](index=23&type=section&id=Manufacturing) MACI and Epicel are manufactured in Cambridge, Massachusetts, while NexoBrid manufacturing is conducted by MediWound in Israel - MACI and Epicel are manufactured in Cambridge, Massachusetts, while NexoBrid manufacturing is conducted by MediWound in Israel, with raw materials from Taiwan[91](index=91&type=chunk) [Product Portfolio](index=24&type=section&id=Product%20Portfolio) Vericel is evaluating arthroscopic delivery for MACI and potential indication expansion, while Epicel is now eligible for profit, and NexoBrid expands the burn care market - Vericel is evaluating arthroscopic delivery for MACI and a potential indication expansion for cartilage damage in the ankle, with a human factors validation study for arthroscopic delivery planned for **Q3 2023**[95](index=95&type=chunk)[96](index=96&type=chunk) - Epicel is no longer subject to HDE profit restrictions due to the inclusion of pediatric patients in its labeled indications, with an Annual Distribution Number (ADN) of **360,400**[97](index=97&type=chunk)[99](index=99&type=chunk) - NexoBrid's FDA approval expands Vericel's burn care franchise, targeting over **30,000 hospitalized thermal burn patients annually** in the U.S., and commercial sales are expected to begin in **Q3 2023**[101](index=101&type=chunk)[102](index=102&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Vericel reported increased total revenue and gross profit for Q1 2023, but also higher operating expenses and an increased operating loss [Summary of Consolidated Results](index=25&type=section&id=Summary%20of%20Consolidated%20Results) This section provides a consolidated overview of the company's financial performance for the period Consolidated Results of Operations (Three Months Ended March 31, in thousands): | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Total revenue | $41,017 | $36,074 | $4,943 | 13.7% | | Cost of product sales | $14,497 | $12,622 | $1,875 | 14.9% | | Gross profit | $26,520 | $23,452 | $3,068 | 13.1% | | Research and development | $5,212 | $4,860 | $352 | 7.2% | | Selling, general and administrative | $29,485 | $25,865 | $3,620 | 14.0% | | Total operating expenses | $34,697 | $30,725 | $3,972 | 12.9% | | Loss from operations | $(8,177) | $(7,273) | $(904) | 12.4% | | Total other income | $682 | $182 | $500 | 274.7% | | Net loss | $(7,495) | $(7,091) | $(404) | 5.7% | [Total Revenue](index=26&type=section&id=Total%20Revenue) Total revenue increased by 13.7% to $41.0 million, driven by MACI volume and price growth, offsetting Epicel and NexoBrid declines Revenue by Product (in thousands) - Three Months Ended March 31: | Product | 2023 | 2022 | Change ($) | Change (%) | | :---------- | :----- | :----- | :--------- | :--------- | | MACI | $34,190 | $25,995 | $8,195 | 31.5% | | Epicel | $6,827 | $9,857 | $(3,030) | (30.7)% | | NexoBrid | $— | $222 | $(222) | (100.0)% | | **Total revenue** | **$41,017** | **$36,074** | **$4,943** | **13.7%** | - MACI sales volumes historically show seasonality, with stronger orders in the **fourth quarter (average 35% of annual volumes)** due to insurance deductibles and patient preferences for rehabilitation timing[105](index=105&type=chunk) [Gross Profit](index=26&type=section&id=Gross%20Profit) Gross profit increased by $3.1 million (13.1%) due to higher MACI volume and price growth, despite increased costs - Gross profit increased by **$3.1 million (13.1%)** for Q1 2023 compared to Q1 2022, primarily driven by higher MACI volume and price growth, partially offset by increased employee costs, raw material prices, and external storage/manufacturing facility costs[103](index=103&type=chunk)[106](index=106&type=chunk) [Research and Development Expenses](index=26&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses increased by $0.4 million (7.2%), primarily due to lower reimbursement from MediWound Research and Development Expenses (in thousands) - Three Months Ended March 31: | Product | 2023 | 2022 | Change ($) | Change (%) | | :---------- | :----- | :----- | :--------- | :--------- | | MACI | $3,073 | $2,989 | $84 | 2.8% | | Epicel | $1,171 | $1,220 | $(49) | (4.0)% | | NexoBrid | $968 | $651 | $317 | 48.7% | | **Total R&D expenses** | **$5,212** | **$4,860** | **$352** | **7.2%** | - The increase in R&D expenses is primarily due to lower reimbursement of expenses from MediWound related to the NexoBrid BLA resubmission[107](index=107&type=chunk) [Selling, General and Administrative Expenses](index=27&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Selling, general and administrative expenses increased by $3.6 million (14.0%) due to higher headcount, travel, and marketing - Selling, general and administrative expenses increased by **$3.6 million (14.0%)** to **$29.5 million** for Q1 2023, driven by higher headcount and employee expenses, increased travel and in-person events, and higher marketing expenses[103](index=103&type=chunk)[108](index=108&type=chunk) [Total Other Income](index=28&type=section&id=Total%20Other%20Income) Total other income increased significantly by $0.5 million (274.7%), mainly due to investment returns - Total other income increased significantly by **$0.5 million (274.7%)** for Q1 2023, primarily due to fluctuations in returns on marketable debt securities, partially offset by interest expense from the Revolving Credit Agreement[103](index=103&type=chunk)[110](index=110&type=chunk) [Stock-based Compensation Expense](index=28&type=section&id=Stock-based%20Compensation%20Expense) Total non-cash stock-based compensation expense decreased by $0.8 million (8.4%) due to fluctuations in stock prices and award mix - Total non-cash stock-based compensation expense decreased by **$0.8 million (8.4%)** to **$8.7 million** for Q1 2023, mainly due to fluctuations in stock prices and the mix of service-based options and restricted stock units awarded[111](index=111&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Vericel's liquidity is supported by cash from product sales, existing cash, investments, and available borrowing capacity [Cash Flows](index=28&type=section&id=Cash%20Flows) This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Summary of Cash Flows (in thousands) - Three Months Ended March 31: | Activity | 2023 | 2022 | | :------------------------------------------ | :----- | :------ | | Net cash provided by operating activities | $7,860 | $3,468 | | Net cash provided by (used in) investing activities | $2,800 | $(10,669) | | Net cash provided by financing activities | $107 | $503 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $10,767 | $(6,698) | - Net cash provided by operating activities increased to **$7.9 million** in Q1 2023, primarily due to non-cash charges and a decrease in accounts receivable from strong collections[113](index=113&type=chunk) - Net cash provided by investing activities was **$2.8 million** in Q1 2023, a significant improvement from a **$10.7 million use** in Q1 2022, driven by higher investment sales/maturities and lower property/equipment expenditures, despite a **$7.5 million NexoBrid milestone payment**[115](index=115&type=chunk)[116](index=116&type=chunk) [Liquidity Outlook](index=29&type=section&id=Liquidity%20Outlook) Vericel expects its current cash, investments, and borrowing capacity to support operations for at least the next 12 months - Vericel believes its current cash, cash equivalents, investments, and available borrowing capacity will be sufficient to support operations for at least **12 months** from the report's issuance[120](index=120&type=chunk) [Sources of Capital](index=29&type=section&id=Sources%20of%20Capital) The company has a $200.0 million At-The-Market (ATM) program and a $150.0 million revolving credit agreement - The company has a **$200.0 million At-The-Market (ATM) program** for common stock sales, but no shares have been sold as of March 31, 2023[122](index=122&type=chunk) - Vericel has a **$150.0 million five-year senior secured revolving credit agreement**, with no outstanding borrowings as of March 31, 2023[123](index=123&type=chunk) [Contractual Obligations and Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commitments) Vericel began funding $28.3 million into a construction escrow for tenant improvement costs related to the Burlington Lease - In April 2023, Vericel began funding approximately **$28.3 million** into a construction escrow account for tenant improvement costs related to the Burlington Lease, with the remaining 50% expected in late 2023 or early 2024[126](index=126&type=chunk) [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) There have been no material changes to the company's critical accounting policies and estimates in Q1 2023 - There have been **no material changes** to the company's critical accounting policies and estimates in the three months ended March 31, 2023[128](index=128&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=30&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements regarding future business conditions, plans, and prospects, which are subject to significant business, economic, and competitive uncertainties[129](index=129&type=chunk)[130](index=130&type=chunk) - Key risk factors include uncertainties associated with future revenue, market penetration for products, profitability, clinical trial timing, FDA approvals, competition, third-party coverage, NexoBrid commercial launch, supply chain disruptions, global geopolitical tensions, and the ongoing impacts of the COVID-19 pandemic[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's exposures to market risk have not materially changed since December 31, 2022 - The company's exposures to market risk have **not changed materially** since December 31, 2022[131](index=131&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023 - The company's disclosure controls and procedures were evaluated and deemed **effective** as of March 31, 2023[132](index=132&type=chunk) - There were **no material changes** in internal control over financial reporting during the three months ended March 31, 2023[134](index=134&type=chunk) [PART II — OTHER INFORMATION](index=31&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings - Vericel is **not currently a party to any material legal proceedings**[135](index=135&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor concerning adverse developments affecting financial institutions has been added - A new risk factor has been added regarding adverse developments affecting financial institutions, which could impact the company's operations and liquidity[136](index=136&type=chunk)[137](index=137&type=chunk) - The company maintains cash and investments in deposit accounts that exceed FDIC insurance coverage, and potential liquidity constraints or failures of financial institutions could severely affect operations[138](index=138&type=chunk)[140](index=140&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable to the current report - Not applicable[141](index=141&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the current report - Not applicable[142](index=142&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the current report - Not applicable[143](index=143&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the current report - Not applicable[144](index=144&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q - The report includes an Exhibit Index listing various documents such as Restated Articles of Incorporation, Amended and Restated Bylaws, Description of Capital Stock, and Certifications of CEO and CFO[146](index=146&type=chunk)[148](index=148&type=chunk) [SIGNATURES](index=34&type=section&id=SIGNATURES) The report is duly signed on behalf of Vericel Corporation by its President and Chief Executive Officer and Chief Financial Officer - The report is signed by Dominick C. Colangelo, President and Chief Executive Officer, and Joseph A. Mara, Chief Financial Officer, on **May 10, 2023**[152](index=152&type=chunk)

Financial Data and Key Metrics Changes - For the full year 2022, total revenue exceeded $164 million, with MACI revenue growing 18% to $132 million, and record quarterly revenue of nearly $53 million in Q4 [7][25] - The company achieved a gross margin of 73% and an adjusted EBITDA margin of nearly 30% in Q4, both of which increased compared to the prior year [7][27] - Net income for Q4 was approximately $6 million, representing over 30% growth compared to Q4 2021 [7][28] Business Line Data and Key Metrics Changes - MACI revenue in Q4 was over $46 million, reflecting 24% growth year-over-year and approximately 50% sequential growth from Q3 2022 [8][25] - Epicel revenue for Q4 was lower than anticipated at $6.3 million, with a decline in the incidence of large burns impacting overall performance [9][26] - Total burn care revenue for the year was $32.4 million, with Epicel contributing $31.7 million and NexoBrid generating $0.7 million [26] Market Data and Key Metrics Changes - The company reported a record number of approximately 2,000 surgeons taking biopsies in 2022, marking a 10% increase from 2021 [8] - The approval of NexoBrid significantly increases the addressable market for the burn care franchise to over $0.5 billion [18] Company Strategy and Development Direction - The company plans to launch arthroscopic MACI in 2024, which is expected to drive broader surgeon adoption and further growth acceleration [12][22] - NexoBrid is anticipated to become a standard of care in eschar removal, with a significant share of its $300 million addressable market in the U.S. [23] - The company aims to leverage its existing burn care commercial infrastructure to support the launch of NexoBrid with limited incremental investment [18] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the strong start to 2023, with MACI growth expected to be approximately 20% in Q1 compared to the previous year [21][30] - The company expects total revenue for 2023 to increase to approximately $180 million to $188 million, driven by continued growth in MACI and the launch of NexoBrid [19][30] - Management highlighted the potential for increased utilization among current MACI users with the introduction of arthroscopic delivery [13] Other Important Information - The company ended 2022 with approximately $140 million in cash and investments and no debt [7][29] - The anticipated capital investment for the new cell therapy manufacturing facility is projected to be in the range of $30 million to $40 million for 2023 [34] Q&A Session Summary Question: Concerns about Epicel guidance and NexoBrid expectations - Management acknowledged the volatility of Epicel revenue and indicated that the $24 million run rate is a reasonable starting point, with NexoBrid expected to help offset variability [37][40] Question: Clarification on MACI growth and sales force adequacy - Management confirmed that the sales force is currently sized appropriately but will reassess based on the potential for increased surgeon adoption with arthroscopic MACI [44][47] Question: Insights on NexoBrid's market strategy - Management stated that the launch strategy for NexoBrid will target both current Epicel users and high-volume burn centers, with a focus on gaining P&T committee approvals [60][61] Question: Update on the new manufacturing facility timeline - Management confirmed that the new facility is on track for completion by the end of 2024, with commercial production expected to begin in early 2026 [62]