[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]

▼ VERICEL | --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------------------|-----------------|-------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | VERICEL | | | | | | | | | FEBRUARY 23, 2023 | Q4 2022 RESULTS | | | | | | | | | | | | | | | Safe Harbor Vericel Q4 2022 Financial Results – February 23, 2023 2 Vericel cautions you that all statements other than statements of historical fact included in this presentation that address act ...

for the fiscal year ended December 31, 2022 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-35280 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 ...

Vericel Corporation (NASDAQ:VCEL) Q3 2022 Earnings Conference Call November 9, 2022 8:30 AM ET Company Participants Eric Burns - Head of Financial Planning and Analysis & Investor Relations Nick Colangelo - President & Chief Executive Officer Joe Mara - Chief Financial Officer Conference Call Participants Ryan Zimmerman - BTIG Sam Brodovsky - Truist Securities Jeffrey Cohen - Ladenburg Thalmann George Sellers - Stephens Operator Ladies and gentlemen, thank you for standing by. Welcome to the Vericel's Third ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents unaudited financial statements, management's analysis of financial condition, market risk disclosures, and internal controls [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies and specific financial line items for the periods ended September 30, 2022 and 2021 [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 - Total assets increased to **$248.0 million** as of September 30, 2022, from **$243.7 million** as of December 31, 2021[9](index=9&type=chunk) - Total liabilities decreased to **$70.2 million** as of September 30, 2022, from **$73.2 million** as of December 31, 2021[9](index=9&type=chunk) - Total shareholders' equity increased to **$177.8 million** as of September 30, 2022, from **$170.5 million** as of December 31, 2021[9](index=9&type=chunk) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Total Assets | $248,017 | $243,705 | | Total Liabilities | $70,180 | $73,243 | | Total Shareholders' Equity | $177,837 | $170,462 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance over specific periods, including revenue, expenses, and net loss - Net loss increased significantly for both the three and nine months ended September 30, 2022, compared to the same periods in 2021[11](index=11&type=chunk) Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $38,551 | $34,506 | $111,671 | $108,593 | | Gross Profit | $25,233 | $22,098 | $71,539 | $71,993 | | Loss from Operations | $(6,788) | $(4,961) | $(23,143) | $(11,995) | | Net Loss | $(6,577) | $(4,931) | $(22,631) | $(12,006) | | Basic Net Loss Per Common Share | $(0.14) | $(0.11) | $(0.48) | $(0.26) | [Condensed Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section outlines the total comprehensive loss, including net loss and other comprehensive income or loss items - Comprehensive loss for the nine months ended September 30, 2022, was **$(23,623) thousand**, significantly higher than **$(12,043) thousand** for the same period in 2021, primarily due to increased unrealized losses on investments[13](index=13&type=chunk) Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss | $(6,577) | $(4,931) | $(22,631) | $(12,006) | | Unrealized loss on investments | $(291) | — | $(992) | $(37) | | Comprehensive Loss | $(6,868) | $(4,931) | $(23,623) | $(12,043) | [Condensed Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section details the changes in shareholders' equity, reflecting net losses, stock-based compensation, and other equity transactions - Total shareholders' equity increased from **$170,462 thousand** at December 31, 2021, to **$177,837 thousand** at September 30, 2022[15](index=15&type=chunk) - Key changes contributing to shareholders' equity include net losses, stock-based compensation expense, stock option exercises, and unrealized losses on investments[15](index=15&type=chunk)[17](index=17&type=chunk) - Stock-based compensation expense for the nine months ended September 30, 2022, was **$29,443 thousand**, contributing positively to equity[15](index=15&type=chunk)[63](index=63&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities - Net cash provided by operating activities decreased to **$10.7 million** for the nine months ended September 30, 2022, from **$18.5 million** in the prior year[20](index=20&type=chunk)[117](index=117&type=chunk) - Net cash used in investing activities increased to **$14.5 million** for the nine months ended September 30, 2022, from **$5.4 million** in the prior year, driven by investment purchases and property/equipment expenditures[20](index=20&type=chunk)[117](index=117&type=chunk) - Net cash provided by financing activities significantly decreased to **$0.4 million** for the nine months ended September 30, 2022, from **$7.8 million** in the prior year, mainly due to lower proceeds from common stock issuance and debt issuance costs[20](index=20&type=chunk)[117](index=117&type=chunk) Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $10,712 | $18,489 | | Net cash used in investing activities | $(14,477) | $(5,386) | | Net cash provided by financing activities | $440 | $7,830 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(3,325) | $20,933 | | Cash, cash equivalents, and restricted cash at end of period | $65,216 | $54,764 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, significant estimates, and specific line items within the financial statements [Note 1. Organization](index=10&type=section&id=Note%201.%20Organization) This note describes Vericel Corporation's business, product focus, and the impact of external events like COVID-19 and geopolitical instability - Vericel Corporation is a commercial-stage biopharmaceutical company specializing in advanced therapies for sports medicine (MACI) and severe burn care (Epicel)[24](index=24&type=chunk) - The company holds North American rights to NexoBrid, a registration-stage biological orphan product for severe thermal burns[24](index=24&type=chunk) - The COVID-19 pandemic has caused volatility in operations due to surgical procedure delays and staffing shortages, but the company has sustained operations and maintained raw material safety stock[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - The ongoing war in Ukraine creates global economic uncertainty, but Vericel has no direct operations or exposure in Russia or Ukraine[29](index=29&type=chunk)[30](index=30&type=chunk) - As of September 30, 2022, the company had an accumulated deficit of **$405.9 million** and a net loss of **$22.6 million** for the nine months, but expects existing cash and borrowing capacity to support operations for at least 12 months[31](index=31&type=chunk) [Note 2. Basis of Presentation](index=11&type=section&id=Note%202.%20Basis%20of%20Presentation) This note outlines the accounting principles and assumptions used in preparing the unaudited financial statements - Financial statements are unaudited and prepared in accordance with SEC rules and U.S. GAAP, requiring management estimates and judgments[32](index=32&type=chunk) - The full impact of the COVID-19 pandemic on future business, operations, and financial condition remains uncertain, with estimates subject to change[33](index=33&type=chunk) - No new accounting standards were adopted during the nine months ended September 30, 2022, and existing ASUs are expected to have minimal impact[35](index=35&type=chunk) [Note 3. Revenue](index=12&type=section&id=Note%203.%20Revenue) This note describes the company's revenue recognition policies and provides a breakdown of revenue by product - Revenue recognition follows ASC 606, with MACI biopsy kits recognized upon delivery and MACI implants upon delivery after prior authorization. Epicel revenue is recognized upon delivery to hospitals. NexoBrid revenue is based on a percentage of gross profits for sales to BARDA[36](index=36&type=chunk)[37](index=37&type=chunk)[39](index=39&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - Total revenue for the nine months ended September 30, 2022, was **$111,671 thousand**, up from **$108,593 thousand** in 2021[45](index=45&type=chunk) - MACI implants and kits revenue increased by **15.4%** to **$85,617 thousand** for the nine months ended September 30, 2022, while Epicel revenue decreased by **20.2%** to **$25,387 thousand**[45](index=45&type=chunk)[105](index=105&type=chunk) Revenue by Product (in thousands) | Revenue by product | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | MACI implants and kits | $31,009 | $23,881 | $85,617 | $74,203 | | Epicel | $7,317 | $9,837 | $25,387 | $31,822 | | NexoBrid revenue | $225 | $788 | $667 | $2,568 | | Total revenue | $38,551 | $34,506 | $111,671 | $108,593 | - No customer had a total revenue concentration greater than **10%** for the three and nine months ended September 30, 2022[50](index=50&type=chunk) [Note 4. Selected Balance Sheet Components](index=15&type=section&id=Note%204.%20Selected%20Balance%20Sheet%20Components) This note provides a detailed breakdown of key balance sheet components, including inventory, property and equipment, and accrued expenses - Total inventory increased to **$16,729 thousand** as of September 30, 2022, from **$13,381 thousand** at December 31, 2021, primarily due to higher raw materials[51](index=51&type=chunk) - Property and equipment, net, increased to **$15,918 thousand** as of September 30, 2022, from **$13,308 thousand** at December 31, 2021, with significant increases in leasehold improvements and construction in process[52](index=52&type=chunk) - Accrued expenses remained stable at **$13,948 thousand** as of September 30, 2022, compared to **$14,045 thousand** at December 31, 2021, with a decrease in bonus-related compensation offset by an increase in insurance reimbursement-related liabilities[53](index=53&type=chunk) Inventory (in thousands) | (In thousands) | September 30, 2022 | December 31, 2021 | | :--------------- | :----------------- | :----------------- | | Raw materials | $15,797 | $12,676 | | Work-in-process | $883 | $644 | | Finished goods | $49 | $61 | | Total inventory | $16,729 | $13,381 | Property and Equipment, net (in thousands) | (In thousands) | September 30, 2022 | December 31, 2021 | | :--------------------------------------- | :----------------- | :----------------- | | Total property and equipment, gross | $33,182 | $27,630 | | Less accumulated depreciation | $(17,264) | $(14,322) | | Total property and equipment, net | $15,918 | $13,308 | Accrued Expenses (in thousands) | (In thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------ | :----------------- | :----------------- | | Bonus related compensation | $5,472 | $6,305 | | Employee related accruals | $2,897 | $3,616 | | Insurance reimbursement-related liabilities | $5,417 | $3,973 | | Other accrued expenses | $162 | $151 | | Total accrued expenses | $13,948 | $14,045 | [Note 5. Leases](index=16&type=section&id=Note%205.%20Leases) This note outlines the company's lease agreements, including a new corporate headquarters and manufacturing facility lease - The Company entered into a new lease agreement in January 2022 for approximately **126,000 square feet** of manufacturing, laboratory, and office space in Burlington, Massachusetts, to serve as its new corporate headquarters and primary manufacturing facility, with the term expected to begin in 2023[55](index=55&type=chunk)[56](index=56&type=chunk) - Annual base rent for the Burlington Lease is initially **$57 per square foot**, subject to annual increases, and includes a tenant improvement allowance of approximately **$25.1 million**[57](index=57&type=chunk) - Operating lease expense for the nine months ended September 30, 2022, was **$5.2 million**, slightly down from **$5.5 million** in the same period of 2021[60](index=60&type=chunk) Leased Assets (in thousands) | (In thousands) | Classification | September 30, 2022 | December 31, 2021 | | :--------------- | :------------- | :----------------- | :----------------- | | Operating | Right-of-use assets | $42,628 | $45,720 | | Finance | Property and equipment, net | $46 | $73 | | Total leased assets | | $42,674 | $45,793 | [Note 6. Stock-Based Compensation](index=17&type=section&id=Note%206.%20Stock-Based%20Compensation) This note explains the company's stock-based compensation plans and the associated expenses recognized - The 2022 Omnibus Incentive Plan was approved, replacing prior plans and providing incentives through stock options, appreciation rights, and restricted stock[62](index=62&type=chunk) - Total non-cash stock-based compensation expense for the nine months ended September 30, 2022, increased to **$29,443 thousand** from **$26,481 thousand** in the prior year, primarily due to fluctuations in stock prices impacting fair value[63](index=63&type=chunk)[116](index=116&type=chunk) Stock-Based Compensation Expense (in thousands) | (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of product sales | $840 | $1,114 | $2,992 | $3,313 | | Research and development | $1,273 | $1,126 | $4,143 | $3,222 | | Selling, general and administrative | $6,991 | $6,356 | $22,308 | $19,946 | | Total non-cash stock-based compensation expense | $9,104 | $8,596 | $29,443 | $26,481 | [Note 7. Investments](index=17&type=section&id=Note%207.%20Investments) This note describes the company's marketable debt securities, their fair value, and unrealized gains or losses - Marketable debt securities are classified as available-for-sale and carried at fair value[66](index=66&type=chunk) - As of September 30, 2022, the estimated fair value of marketable securities was **$67,463 thousand**, with total unrealized losses of **$(1,146) thousand**[67](index=67&type=chunk) - All marketable securities had remaining contractual maturities of three years or less, and no impairments were recorded[67](index=67&type=chunk) Marketable Securities (in thousands) | (In thousands) | Amortized Cost (Sep 30, 2022) | Estimated Fair Value (Sep 30, 2022) | Gross Unrealized Losses (Sep 30, 2022) | | :--------------------------------- | :---------------------------- | :---------------------------------- | :------------------------------------- | | Commercial paper | $14,736 | $14,641 | $(95) | | Corporate notes | $50,893 | $49,845 | $(1,048) | | U.S. government agency bonds | $2,979 | $2,977 | $(3) | | Total | $68,608 | $67,463 | $(1,146) | [Note 8. Fair Value Measurements](index=18&type=section&id=Note%208.%20Fair%20Value%20Measurements) This note details the fair value hierarchy used for financial instruments, categorizing them into Level 1, 2, or 3 - Financial instruments measured at fair value are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs), or Level 3 (unobservable inputs)[68](index=68&type=chunk)[69](index=69&type=chunk) - As of September 30, 2022, the Company's money market funds were Level 1 (**$21,676 thousand**), while commercial paper, corporate notes, and U.S. government agency bonds were Level 2 (**$73,753 thousand**)[70](index=70&type=chunk) - No transfers into or out of Level 3 occurred between December 31, 2021, and September 30, 2022[68](index=68&type=chunk) [Note 9. Revolving Credit Agreement](index=20&type=section&id=Note%209.%20Revolving%20Credit%20Agreement) This note describes the company's $150.0 million senior secured revolving credit agreement, including terms and covenants - On July 29, 2022, the Company entered into a **$150.0 million** five-year senior secured revolving credit agreement, including a **$15.0 million** sub-facility for letters of credit[72](index=72&type=chunk) - Borrowings bear interest based on SOFR plus a spread (**1.25% to 2.50%**) or an alternative base rate plus a spread (**0.25% to 1.50%**), determined by the Total Net Leverage Ratio[73](index=73&type=chunk) - As of September 30, 2022, there were no outstanding borrowings under the agreement, but approximately **$6.2 million** was utilized for letters of credit[72](index=72&type=chunk)[74](index=74&type=chunk) - The agreement contains financial covenants, including a maximum Total Net Leverage Ratio of **3.50 to 1.00**, which can be increased to **4.00 to 1.00** for a period of four consecutive quarters in connection with a Permitted Acquisition[75](index=75&type=chunk) [Note 10. Net Loss Per Common Share](index=21&type=section&id=Note%2010.%20Net%20Loss%20Per%20Common%20Share) This note presents the calculation of basic and diluted net loss per common share and identifies anti-dilutive shares - Basic and diluted net loss per common share for the nine months ended September 30, 2022, was **$(0.48)**, compared to **$(0.26)** for the same period in 2021[79](index=79&type=chunk) - Anti-dilutive shares, including stock options (**6,536 thousand**) and restricted stock units (**633 thousand**), were excluded from diluted net loss per common share calculation for the nine months ended September 30, 2022[79](index=79&type=chunk) Net Loss Per Common Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(6,577) | $(4,931) | $(22,631) | $(12,006) | | Basic weighted-average common shares outstanding | 47,182 | 46,669 | 47,096 | 46,355 | | Basic loss per common share | $(0.14) | $(0.11) | $(0.48) | $(0.26) | | Diluted loss per common share | $(0.14) | $(0.11) | $(0.48) | $(0.26) | [Note 11. NexoBrid License and Supply Agreements](index=21&type=section&id=Note%2011.%20NexoBrid%20License%20and%20Supply%20Agreements) This note outlines the exclusive North American license and supply agreements for NexoBrid and its regulatory status - Vericel holds exclusive North American rights to NexoBrid through license and supply agreements with MediWound[80](index=80&type=chunk) - A BLA resubmission for NexoBrid was accepted by the FDA on July 1, 2022, with a Prescription Drug User Fee Act (PDUFA) date of January 1, 2023, after a previous Complete Response Letter (CRL) in June 2021[80](index=80&type=chunk) - Contingent payments include **$7.5 million** upon U.S. regulatory approval and up to **$125.0 million** for sales milestones, with the first **$7.5 million** triggered at annual net sales exceeding **$75.0 million**[82](index=82&type=chunk) - BARDA's quarterly procurement of NexoBrid completed in Q3 2022, but BARDA holds an option for future procurements[84](index=84&type=chunk) [Note 12. Commitments and Contingencies](index=22&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) This note addresses the company's legal proceedings, regulatory matters, and other material commitments - The Company is not currently a party to any material ongoing litigation, regulatory, or other proceedings that could have a material adverse effect on its business[87](index=87&type=chunk) - No material liabilities were recorded for probable losses as of September 30, 2022[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%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook, analyzing revenue drivers, expense trends, and liquidity. It also details the product portfolio, manufacturing capabilities, and the impact of external factors like COVID-19 and geopolitical events [Overview](index=23&type=section&id=Overview) This section provides a high-level summary of Vericel's business, product focus, and the current operating environment - Vericel is a commercial-stage biopharmaceutical company focused on sports medicine (MACI) and severe burn care (Epicel), with an exclusive license for NexoBrid in North America[89](index=89&type=chunk) - The FDA accepted the BLA resubmission for NexoBrid on July 1, 2022, setting a PDUFA date of January 1, 2023[89](index=89&type=chunk) - COVID-19 continues to cause volatility in MACI surgical procedures, staffing, and customer access, though the company has maintained operations[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The war in Ukraine creates global economic uncertainty, but Vericel has no direct operations or exposure in the affected regions[94](index=94&type=chunk) [Manufacturing](index=24&type=section&id=Manufacturing) This section details the company's manufacturing capabilities and facilities for its key products - The company operates a cell manufacturing facility in Cambridge, Massachusetts, for U.S. manufacturing and distribution of MACI and Epicel[95](index=95&type=chunk) [Product Portfolio](index=24&type=section&id=Product%20Portfolio) This section details Vericel's key products, MACI and Epicel, including their indications, target markets, and commercial strategies. It also provides an update on NexoBrid's regulatory status and commercialization plans [MACI](index=24&type=section&id=MACI) This section describes MACI, its indication, target market, and payer coverage - MACI is a third-generation autologous chondrocyte implantation product for full-thickness cartilage defects of the knee in adults[97](index=97&type=chunk) - The target audience includes approximately **5,000 orthopedic surgeons**, supported by **75 MACI sales representatives**[98](index=98&type=chunk) - Most private payers cover MACI, with case-by-case approvals for those without formal policies[98](index=98&type=chunk) [Epicel](index=24&type=section&id=Epicel) This section details Epicel, its FDA approval, and its market positioning for severe burn care - Epicel is an FDA-approved permanent skin replacement for deep-dermal or full-thickness burns covering **≥30% TBSA**, regulated as a Humanitarian Use Device (HUD)[99](index=99&type=chunk) - Following a label revision in 2016 to include pediatric patients, Epicel is no longer subject to HDE profit restrictions and has an Annual Distribution Number (ADN) of **360,400**[100](index=100&type=chunk) - The company has a fifteen-person burn field force for Epicel[100](index=100&type=chunk) [NexoBrid](index=24&type=section&id=NexoBrid) This section provides an update on NexoBrid's regulatory status, including its BLA resubmission and orphan biologic designation - NexoBrid is a registration-stage, topically-administered biological product for enzymatic debridement of severe thermal burns, licensed exclusively for North America[101](index=101&type=chunk) - A BLA resubmission was accepted by the FDA on July 1, 2022, with a PDUFA date of January 1, 2023, following a prior Complete Response Letter[102](index=102&type=chunk) - NexoBrid is approved in the European Union and other international markets and designated as an orphan biologic[103](index=103&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section analyzes the financial performance for the three and nine months ended September 30, 2022, compared to the prior year, highlighting changes in revenue, gross profit, operating expenses, and net loss, and identifying key drivers for these changes [Total Revenue](index=25&type=section&id=Total%20Revenue) This section analyzes total revenue performance, highlighting product-specific contributions and growth drivers - Total revenue increased by **11.7%** to **$38,551 thousand** for the three months ended September 30, 2022, and by **2.8%** to **$111,671 thousand** for the nine months, driven by MACI volume and price growth[105](index=105&type=chunk) - MACI revenue increased by **29.8%** (3 months) and **15.4%** (9 months), while Epicel revenue decreased by **25.6%** (3 months) and **20.2%** (9 months). NexoBrid revenue also decreased significantly[105](index=105&type=chunk) - MACI business seasonality, typically stronger in Q4, has been disrupted by COVID-19 but showed a return to more normal patterns in 2022[106](index=106&type=chunk)[107](index=107&type=chunk) Revenue by Product (in thousands) | Revenue by product | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | MACI | $31,009 | $23,881 | $7,128 | 29.8% | $85,617 | $74,203 | $11,414 | 15.4% | | Epicel | $7,317 | $9,837 | $(2,520) | (25.6)% | $25,387 | $31,822 | $(6,435) | (20.2)% | | NexoBrid | $225 | $788 | $(563) | (71.4)% | $667 | $2,568 | $(1,901) | (74.0)% | | Total Revenue | $38,551 | $34,506 | $4,045 | 11.7% | $111,671 | $108,593 | $3,078 | 2.8% | [Gross Profit](index=26&type=section&id=Gross%20Profit) This section examines gross profit trends and the factors influencing changes in profitability - Gross profit increased by **14.2%** to **$25,233 thousand** for the three months ended September 30, 2022, driven by higher MACI volume and price growth[108](index=108&type=chunk) - For the nine months, gross profit was similar at **$71,539 thousand** (vs. **$71,993 thousand** in 2021), as MACI gains were offset by lower Epicel labor utilization, raw material price increases, and higher external storage and manufacturing facility costs[109](index=109&type=chunk) Gross Profit (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Gross profit | $25,233 | $22,098 | $3,135 | 14.2% | $71,539 | $71,993 | $(454) | (0.6)% | [Research and Development Expenses](index=26&type=section&id=Research%20and%20Development%20Expenses) This section analyzes research and development expenses, detailing the drivers behind changes in spending - R&D expenses increased by **17.8%** to **$5,046 thousand** for the three months and by **18.9%** to **$14,698 thousand** for the nine months ended September 30, 2022[110](index=110&type=chunk) - The increase was primarily due to increased headcount, stock-based compensation expense, and additional spending on MACI arthroscopic delivery instrument design[110](index=110&type=chunk)[111](index=111&type=chunk) Research and Development Expenses (in thousands) | R&D Expenses | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | MACI | $3,000 | $2,572 | $428 | 16.6% | $8,961 | $6,993 | $1,968 | 28.1% | | Epicel | $1,166 | $992 | $174 | 17.5% | $3,624 | $3,157 | $467 | 14.8% | | NexoBrid | $880 | $720 | $160 | 22.2% | $2,113 | $2,213 | $(100) | (4.5)% | | Total R&D expenses | $5,046 | $4,284 | $762 | 17.8% | $14,698 | $12,363 | $2,335 | 18.9% | [Selling, General and Administrative Expenses](index=26&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) This section analyzes selling, general, and administrative expenses, identifying key factors contributing to changes - SG&A expenses increased by **18.4%** to **$26,975 thousand** for the three months and by **11.7%** to **$79,984 thousand** for the nine months ended September 30, 2022[112](index=112&type=chunk)[113](index=113&type=chunk) - The increase was mainly due to higher stock-based compensation, increased headcount, more travel and in-person events, physician engagement programs, and higher depreciation from new office space[112](index=112&type=chunk)[113](index=113&type=chunk) Selling, General and Administrative Expenses (in thousands) | SG&A Expenses | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Selling, general and administrative | $26,975 | $22,775 | $4,200 | 18.4% | $79,984 | $71,625 | $8,359 | 11.7% | [Total Other Income (Expense)](index=27&type=section&id=Total%20Other%20Income%20(Expense)) This section reviews total other income and expense, highlighting the impact of investment returns and interest - Total other income increased significantly to **$232 thousand** for the three months and **$533 thousand** for the nine months ended September 30, 2022, compared to the same periods in 2021[114](index=114&type=chunk) - This change was primarily due to fluctuations in rates of return on marketable debt securities and interest expense related to the Revolving Credit Agreement[114](index=114&type=chunk) Total Other Income (Expense) (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total other income | $232 | $30 | $202 | 673.3% | $533 | $204 | $329 | 161.3% | [Income Tax Expense](index=27&type=section&id=Income%20Tax%20Expense) This section details the company's income tax expense for the reporting periods - Income tax expense was less than **$0.02 million** for the three and nine months ended September 30, 2022, a decrease from **$0.2 million** for the nine months ended September 30, 2021[115](index=115&type=chunk) Income Tax Expense (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Income tax expense | $21 | — | $21 | 100.0% | $21 | $215 | $(194) | (90.2)% | [Stock-Based Compensation Expense](index=27&type=section&id=Stock-Based%20Compensation%20Expense) This section analyzes non-cash stock-based compensation expense and its drivers - Total non-cash stock-based compensation expense increased by **5.9%** to **$9,104 thousand** for the three months and by **11.2%** to **$29,443 thousand** for the nine months ended September 30, 2022[116](index=116&type=chunk) - The increase was primarily due to fluctuations in stock prices impacting the fair value of awarded options and restricted stock units[116](index=116&type=chunk) Stock-Based Compensation Expense (in thousands) | (In thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total non-cash stock-based compensation expense | $9,104 | $8,596 | $508 | 5.9% | $29,443 | $26,481 | $2,962 | 11.2% | [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flow generation, current liquidity position, and capital-raising activities, including the new revolving credit agreement. it also addresses the sufficiency of capital for future operations and potential impacts from external factors [Cash Flows](index=27&type=section&id=Cash%20Flows) This section analyzes the company's cash flows from operating, investing, and financing activities - Net cash provided by operating activities decreased to **$10.7 million** for the nine months ended September 30, 2022, from **$18.5 million** in the prior year, primarily due to higher net loss and increased inventory[118](index=118&type=chunk) - Net cash used in investing activities increased to **$14.5 million** for the nine months ended September 30, 2022, from **$5.4 million** in the prior year, driven by investment purchases and property/equipment expenditures[121](index=121&type=chunk) - Net cash provided by financing activities significantly decreased to **$0.4 million** for the nine months ended September 30, 2022, from **$7.8 million** in the prior year, mainly due to lower proceeds from common stock issuance and debt issuance costs[123](index=123&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $10,712 | $18,489 | | Net cash used in investing activities | $(14,477) | $(5,386) | | Net cash provided by financing activities | $440 | $7,830 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(3,325) | $20,933 | [Liquidity](index=28&type=section&id=Liquidity) This section assesses the company's ability to meet its short-term and long-term financial obligations - The Company believes current cash, cash equivalents, investments, and available borrowing capacity are sufficient to support operations for at least **12 months** from the issuance of the financial statements[126](index=126&type=chunk) - Future cash requirements depend on R&D efforts, clinical trials, patent costs, manufacturing capacity, market developments, and potential acquisitions[126](index=126&type=chunk) - No off-balance sheet arrangements were in place as of September 30, 2022[127](index=127&type=chunk) [Sources of Capital](index=28&type=section&id=Sources%20of%20Capital) This section identifies the company's available capital sources, including equity and credit facilities - The Company has an "at-the-market" (ATM) Sales Agreement to sell up to **$200.0 million** of common stock, but no shares were sold as of September 30, 2022[128](index=128&type=chunk) - A **$150.0 million** five-year senior secured revolving credit agreement was entered into on July 29, 2022, with no outstanding borrowings as of September 30, 2022[129](index=129&type=chunk)[130](index=130&type=chunk) [Contractual Obligations and Commitments](index=29&type=section&id=Contractual%20Obligations%20and%20Commitments) This section addresses any material changes to the company's contractual obligations and commitments - No material changes to contractual obligations and commitments since December 31, 2021, except for those discussed in Note 5 (Leases) and Note 9 (Revolving Credit Agreement)[131](index=131&type=chunk) [Critical Accounting Policies](index=29&type=section&id=Critical%20Accounting%20Policies) This section confirms the absence of material changes to critical accounting policies and estimates - No material changes to critical accounting policies and estimates in the nine months ended September 30, 2022[133](index=133&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) This section discusses the company's exposure to market risks, specifically interest rate risk, and notes that there have been no material changes since the last annual report, except for the impact of the new revolving credit agreement [Interest Rate Risk](index=31&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to interest rate fluctuations, particularly concerning its variable rate credit agreement - The Company is subject to interest rate risks due to its variable rate Revolving Credit Agreement[136](index=136&type=chunk) - As of September 30, 2022, there were no outstanding borrowings under the Revolving Credit Agreement, limiting immediate exposure[136](index=136&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=31&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, with CEO and CFO participation, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2022[137](index=137&type=chunk) [Changes in Internal Control over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section confirms whether any material changes occurred in internal control over financial reporting during the quarter - No material changes were made in internal control over financial reporting during the three months ended September 30, 2022[139](index=139&type=chunk) [PART II — OTHER INFORMATION](index=31&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) This section includes information on legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is not currently involved in any material legal proceedings or investigations that could significantly impact its business - The Company is not currently a party to any material legal proceedings or investigations by government or regulatory authorities[140](index=140&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) This section updates and reiterates key risk factors that could materially affect the company's financial condition and results of operations, including those related to its new revolving credit agreement, potential for substantial indebtedness, global economic uncertainty, and the regulatory approval process for NexoBrid [Revolving Credit Agreement Covenants](index=31&type=section&id=Revolving%20Credit%20Agreement%20Covenants) This section highlights the restrictive covenants within the revolving credit agreement and potential consequences of non-compliance - The Revolving Credit Agreement contains covenants that may limit the Company's ability to incur additional debt, create liens, dispose of assets, pay dividends, make investments, or engage in certain affiliate transactions[142](index=142&type=chunk) - Failure to comply with these covenants could result in a default and acceleration of debt repayment[144](index=144&type=chunk) [Substantial Indebtedness](index=33&type=section&id=Substantial%20Indebtedness) This section outlines the risks associated with incurring substantial additional debt under the revolving credit agreement - The Company may incur substantial additional debt under its **$150.0 million** Revolving Credit Agreement, which could intensify risks for investors[145](index=145&type=chunk) - Potential consequences include difficulty satisfying obligations, limited access to additional financing, dedication of cash flows to debt service, increased vulnerability to adverse economic conditions, and exposure to floating interest rate risks[148](index=148&type=chunk) [Economic Uncertainty and Geopolitical Instability](index=33&type=section&id=Economic%20Uncertainty%20and%20Geopolitical%20Instability) This section addresses the risks posed by global economic uncertainty, geopolitical tensions, and inflation - The ongoing war in Ukraine, geopolitical tensions, and record inflation contribute to global economic uncertainty and capital markets disruption[146](index=146&type=chunk) - While not materially impacted to date, the extent and duration of these disruptions are unpredictable and could adversely affect the Company's business, financial condition, and results of operations[147](index=147&type=chunk) [NexoBrid's approval in the U.S. for the treatment of severe burns may be further delayed, or it may not be approved by the FDA for use in the U.S. at all.](index=33&type=section&id=NexoBrid%27s%20approval%20in%20the%20U.S.%20for%20the%20treatment%20of%20severe%20burns%20may%20be%20further%20delayed,%20or%20it%20may%20not%20be%20approved%20by%20the%20FDA%20for%20use%20in%20the%20U.S.%20at%20all.) This section details the regulatory risks for NexoBrid, including potential delays or non-approval by the FDA - The FDA issued a Complete Response Letter (CRL) for NexoBrid's BLA in June 2021, citing issues with chemistry, manufacturing, and controls (CMC), required facility inspections, and questions regarding GCP inspections[148](index=148&type=chunk)[149](index=149&type=chunk) - A BLA resubmission was accepted on July 1, 2022, with a PDUFA date of January 1, 2023, but approval is not guaranteed and delays could materially impact business prospects[150](index=150&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&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[151](index=151&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period - Not applicable[152](index=152&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period - Not applicable[153](index=153&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) This item is not applicable for the reporting period - Not applicable[154](index=154&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of this Quarterly Report on Form 10-Q - The report includes various exhibits, such as Restated Articles of Incorporation, Bylaws, the Revolving Credit Agreement, and certifications from the CEO and CFO[156](index=156&type=chunk)[158](index=158&type=chunk) [Exhibit Index](index=35&type=section&id=Exhibit%20Index) This section provides a detailed index of all exhibits accompanying the Form 10-Q, including their descriptions and filing status - The Exhibit Index details documents like corporate governance filings, the Revolving Credit Agreement, and Sarbanes-Oxley Act certifications[158](index=158&type=chunk) [Signatures](index=36&type=section&id=Signatures) This section contains the official signatures of the registrant's President and Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Dominick C. Colangelo (President and CEO) and Joseph A. Mara (CFO) on November 9, 2022[161](index=161&type=chunk)[162](index=162&type=chunk)

▼ VERICEL VERICEL Q2 2022 RESULTS AUGUST 3, 2022 Safe Harbor 2 | --- | --- | --- | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...