Thank you for holding, ladies and gentlemen. The conference will begin momentarily. We thank you for your patience and ask that you please continue to hold. Ladies and gentlemen, please stand by. We are about to begin. Good day and welcome to the VeriCell Corporation third quarter 2026 earnings call. Today's conference is being recorded. If you would like to ask a question on today's call, please press star one on your telephone keypad. Now at this time, I would like to turn the conference over to Eric Burns, VeriCell VP of Finance and Investor Relations. Please go ahead, sir.

Thank you, operator. and good morning everyone. Joining me on today's call are Verasol's President and Chief Executive Officer Nick Colangelo and our Chief Client Officer Joe Mara. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to defer maturity and expectations are discussed more fully in the company's most recent filings with the SEC. The discussions today will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is included as an exhibit to VeriCell's current report on Form 8-K, filed today with the SEC. A short presentation with highlights from today's call is also available in the investor relations section of our website. I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. The company had an outstanding third quarter, which was the strongest quarter of the year on a number of measures for the company, Macy, and our burn care business as we generated top-tier revenue growth across the portfolio, an inflection in profitability, and significant free cash flow. We delivered record third quarter total revenue of more than $85 million, which increased 26% over last year and significantly exceeded our guidance for the quarter. Based on our third quarter outperformance and the strong momentum that has continued into the fourth quarter, we're raising our full year total revenue guidance to $344 to $346 million, which represents 25% revenue growth for the year at the midpoint and an increase in revenue guidance of nearly $25 million since the start of the year. We also had another excellent quarter from a profitability perspective as net income nearly tripled, Adjusted EBITDA grew nearly 50% to more than $25 million and adjusted EBITDA margin increased to 30%, which was significantly higher than our guidance for the quarter. Based on this outperformance on profitability measures, we're also raising our adjusted EBITDA margin guidance for the year. Macy had another great quarter with record third quarter revenue of more than $67 million, which exceeded our guidance for the quarter and increased 21% versus the prior year, marking the sixth consecutive quarter with Macy revenue growth of 20% or more, which was notable given the significant acceleration in Macy implant and revenue growth in the third quarter of last year. Beyond Macy's strong revenue performance, we continue to see significant momentum in the underlying business fundamentals that support sustained Macy growth. We achieved record third quarter Macy biopsies, implants, and biopsy and implanting surgeons. Importantly, Macy's biopsy growth rate has increased each quarter this year, and we started the fourth quarter with the strongest biopsy month since launch in October. reflecting the strong demand that is translating into the robust implant procedure volume that supports our increased fourth quarter revenue guidance. With continued momentum across our key growth indicators and a strong start to the fourth quarter, we believe that Macy's is exceptionally well positioned to deliver a strong finish to the year and sustain its growth trajectory in 2027 and beyond. Macy's strong performance has been driven by the consistent high level of execution of our expanded Macy sales force, as well as the impact of the Macy-Arthur launch and our commercial excellence initiatives. The primary objective of our sales force expansion and commercial initiatives is to drive deeper penetration within Macy surgeon practices. And during the third quarter, we saw continued strength in biopsies per surgeon. a clear indicator that this initiative is beginning to unlock another key growth driver for Macy. In addition, the cohort of expansion territories has the highest biopsy growth rate for the first three quarters of the year, which we expect will lead to accelerating implant growth in our new territories in the fourth quarter and into 2027. Macy Arthro adoption also continues to gain momentum. We completed a record number of Macy-Arthro procedures in the third quarter, which represented the highest percentage of total Macy procedures in any quarter since launch. We also had a record high number of surgeons perform a Macy-Arthro procedure in the quarter, and more than 25% of Macy procedures to treat condyle defects under four square centimeters were administered via Macy-Arthro, another strong indicator of increasing adoption. While the patella defect segment continues to be our highest volume and growth segment, we've also seen higher growth and activity in other defect locations, which we believe is a result of the focus Macy-Arthro has created for these other defect segments. We expect that expanding Macy-Arthro adoption and utilization will be further supported by a growing body of positive clinical evidence. A recent publication evaluating patients treated arthroscopically outside the United States reported durable clinical outcomes and a higher rate of patient satisfaction at a mean follow-up of 13.6 years, reinforcing the potential long-term clinical benefits with the arthroscopic delivery of MACI. In addition, The first Macy-Arthro publication, which was published in August, highlighted several surgical and early patient outcome advantages of the Macy-Arthro procedure, including minimal surgical disruption to the joint, the ability to treat multiple cartilage defects in different compartments of the knee, a more desirable cosmetic appearance, and improved early postoperative recovery. These initial results suggest positive patient outcomes that could also lead to shorter overall rehab and recovery timelines for Macy-Arthro patients. Looking ahead, we expect our Macy Clinical Outcomes Registry to expand to even more sites in 2027, leading to additional data for future publications that can further enhance Macy's strong clinical profile. Surgeon engagement with Macy also continues to significantly expand as the number of peer-to-peer programs and training labs through the third quarter have more than tripled compared to last year. As we move into 2027, we expect an even greater impact from the expanded Macy sales force, Macy-Arthur adoption, and our commercial excellence initiatives, which together with continued overall trends towards restorative cartilage repair procedures positions Macy for sustained strong growth in 2027 and beyond. In terms of our longer-term Macy growth drivers, we continue to activate sites and enroll patients in the Macy ankle mascot study. As a reminder, a potential Macy ankle indication represents a substantial commercial opportunity for the company, with an estimated annual addressable market of nearly 20,000 patients, representing more than a $1 billion market opportunity. We also remain on track for the potential launch of Macy in the UK in the second half of 2027, which represents another meaningful market opportunity. Based on procedural data available from the UK National Health Service, we estimate an addressable market of approximately 15,000 patients annually, representing a potential market opportunity of several hundred million dollars. As we noted on our last call, we submitted a MESI marketing authorization application to the UK in the second quarter. The MHRA completed its inspection of our new manufacturing facility in the third quarter. And earlier this month, NICE accepted MESI for a single technology appraisal, which will establish reimbursement and pricing, as well as a specific MESI funding guidance for the NHS. In parallel, we've begun initial market development work to assess additional Macy OUS expansion opportunities in Canada and Europe. Finally, we're continuing to develop the next generation of Macy Arthro instruments as we remain focused on continuous innovation to further simplify and reduce surgical time for the Macy Arthro procedure and providing greater access for all areas of the knee, including for patella defects, which we expect will support sustained increases in surgeon engagement and Macy utilization. The company also delivered an exceptional quarter for the burn care business as we built on the momentum from the first half of the year and generated the highest quarterly revenue to date for both EpiCell and Nexabrid with record quarterly burn care revenue of $18 million, representing more than 50% growth versus both the prior year and the prior quarter. EpiCell's record quarterly revenue is driven by continued strength in biopsies and new biopsying centers as the burn care commercial team's cross-selling efforts continue to expand EpiCell adoption and utilization. Nexibrid's record quarterly commercial revenue was driven by the highest number of ordering burn centers and hospital orders in any quarter to date. Notably, we've added more new Nexabrid ordering centers through the third quarter of this year than during all of last year and have continued to expand the number of consistent users, an important driver of further uptake. To date, more than 80 centers have placed Nexabrid orders, with approximately 70 centers having placed repeat orders as we continue to focus on driving more centers to become consistent users. Building on the success with Macy, we've also recently implemented several commercial and operational excellence initiatives across BurnCare that we believe are beginning to have a meaningful impact on performance. For EpiCell, we began the year with a full commercial rebranding that refreshed the product's positioning around the critical importance of achieving wound closure, significantly increased our peer-to-peer activity, and sharpened our focus on supporting our surging customers with a multidisciplinary approach to drive the best clinical outcomes for patients. For Nexibrid, we've implemented similar account planning as well as stakeholder mapping initiatives that are leading to broader standardization of treatment algorithms across burn centers in more consistent adoption and utilization of Nexibrid. As we move into 2027, We believe that these commercial initiatives and our enhanced execution can drive continued strong results for the BurnCare franchise. Overall, we're on track to deliver a strong close to the year and another great year for the company. Our recent financial results and increased guidance demonstrate the company's unique combination of sustained high revenue growth, profitability, and cash generation. We believe that the durable growth of our portfolio positions the company to sustain strong revenue and profit growth in 2027 and the years ahead as we remain on track to achieve our midterm revenue and profitability targets. I'll now turn the call over to Joe to discuss our third quarter results and updated 2026 guidance in more detail.

Thanks, Nick, and good morning, everyone. Total revenue in the third quarter increased 26% to 85.4 million, significantly above our guidance range, driven by strength across both commercial franchises. Macy Revenue with 67.4 million, representing 21% growth, and BurnCare Revenue with 18 million, representing 52% growth, with both franchises continuing to deliver top-tier revenue growth. Within BurnCare, EpiCell Revenue increased 23% to 12.7 million, its highest quarterly revenue since launch. Commercial Nexabrid revenue was 2.3 million, also a quarterly record, increasing 54% versus the prior year and 46% versus the prior quarter as utilization continues to increase. We also recognized 3 million of Nexabrid procurement revenue under our barter agreement. The company also delivered very strong profitability. with gross margin of more than 73% and adjusted EBITDA margin of 30%, both well above our guidance for the quarter. Gap net income increased 179% to 14.2 million or 27 cents per diluted share and adjusted EBITDA increased 48% to 25.2 million, expanding over 400 basis points versus the prior year. The company generated approximately $18 million of operating cash flow and $16 million of free cash flow, ending the quarter with $236 million in cash investments and no debt. We repurchased approximately 221,000 shares of common stock for $8.8 million in the third quarter, with $191 million remaining under our repurchase authorization as of the end of the quarter. Through the first nine months of the year, the company has generated exceptional financial results, with revenue growth of 26%, adjusted EBITDA growth of nearly 50% to $50 million, and more than $45 million of free cash flow, further demonstrating our top-tier financial profile. Turning to guidance. Based on the strong results to date, the clear momentum in the business, and a strong start to the fourth quarter for both franchises, and particularly for Macy, we are increasing full year total revenue guidance to 344 to 346 million from 330 to 340 million, an increase of 10 million at the midpoint of our guidance range. This is the third consecutive quarter that we have raised revenue guidance and our full year guidance is now 24 million above our starting point for the year. We are increasing full year Macy revenue guidance to 290 to 292 million from 284 to 290 million. Importantly, we are also raising fourth quarter MESI guidance and now expect 21% growth or approximately 102 million of revenue in the fourth quarter at the midpoint of our guidance. Our increased fourth quarter MESI guidance reflects the strong MESI procedure trends to start the quarter. And if these recent trends continue into December, This would result in upside to our fourth quarter MESI guidance. We are also raising full-year burn care revenue guidance to approximately $54 million from $46 to $50 million. This implies $12 million of total fourth quarter burn care revenue with $9 million of epi-cell and commercial Nexabrid revenue and $3 million of Nexabrid barter procurement revenue. Moving down the P&L, we continue to expect full-year gross margin of approximately 75%, and we are increasing full-year adjusted EBITDA margin guidance to approximately 28% from 27%, reflecting this higher revenue outlook and continued expense discipline. This concludes our prepared remarks. We will now open the call to your questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will go first to Josh Jennings with TD Cowen.

Hi, good morning. Thanks, Nick and Joe. Congratulations on the Strong third quarter results. Great to see the momentum continuing. Wanted to just talk about kind of the LRP targets that you have in play with the significant outperformance to date in 2026. You have to have even more confidence in the run there to achieve those and hit those marks. Maybe just talk about any thoughts on potential updates to LRP targets as we move into 2027. and get closer to the year where you set those, it seems to be not as ambitious targets after the first nine months of 26.

Yeah, good morning, Josh, and thanks for the questions. This is Joe. I'll take that one. So, yeah, I mean, I would say, you know, I appreciate the question in the sense that, you know, I'd say at this point, we're probably kind of outpacing our expectations to kind of hit those targets to kind of top line level. where it's kind of getting that half billion by the end of the decade you know obviously the updated guidance for this year you know kind of gets us into the mid 340s which is a you know pretty substantial number for the company so you know I think you know we feel like we're very much on track particularly from a top line perspective and then I would say if you look at you know kind of the bottom line metrics I think what really stands out is you know number one you know we're already performing well on the gross margin side. We talked about getting into the high 70s on a full year basis. We've kind of already been in the mid 70s, another strong quarter while we're adding our new manufacturing facility in Q3. And then from a bottom line perspective, I think it's certainly noteworthy. We've seen fourth quarters with 40% plus margins, and that gives you a sense of where the company is at scale. But to see a third quarter kind of reach that 30% level, I think is noteworthy. We've updated our full year guidance from an adjusted EBITDA perspective, and even with, I would say, the pretty substantive investments we're making across the business to continue to drive growth, not only in the near term, but in the mid and long term, whether that's kind of XUS, Salesforce expansion, et cetera. So there's a ton of investment in there, and we're still on track to expand our bottom line margins pretty significantly this year at that 20% level relative to last year. you know I think to answer your question you know we're not going to update it at this point you know we'll certainly be you know kind of prudent as we get into guidance for next year but I would say broadly from a kind of long-term perspective you know we feel like we're you know tracking very well to the targets we laid out from an LRP perspective.

Excellent thanks for that and then just maybe one follow-up you know at our visit to Burlington inter-quarter you know one of the I guess new learnings for me was was just for the Macy Salesforce. Historically, there have been meaningful productivity gains for reps as they go from their first year, second year, and even the second year to the third year. But I was hoping to just circle back on that, Nick and Joe, and just get a review on those precedents and just how this Salesforce expansion has a long tail. Thanks.

Yeah, thanks, Josh. I'll take that one. And we talked about it a little bit on our second quarter call as well that, you know, obviously, you know, a strong track record over the years of when we expand you know we've seen increases in rep productivity and you know we certainly expect that to be the case again so we talked about earlier in the year the new territories and new reps got off to a good start you know in the first quarter where you know we saw them pulling through cases that were and many, many, many, many, many, that happened again in the second quarter and really has continued throughout the year where they've sort of new territories have sort of led all the cohorts in terms of biopsy growth and you know obviously that sets up those new territories for strong growth in Q4 and into 2027 given the time frames for when those biopsies convert so We also mentioned that what we have typically seen as we look at sort of new rep ads post-COVID is that in their second and third years, they actually sort of lead on implant growth versus new territories or even the legacy territories that tend to be the higher volume territories. So that's why We're very confident that, you know, this is not just a 2026 play, obviously, in that, you know, in 2027 and beyond that these new reps will have an even greater impact on the overall Macy growth.

Appreciate that.

Once again, it was Star 1. If you had a question, we will go next to Caitlin Roberts with Canaccord Genuity.

Hi, great. Thanks so much for taking the questions and congrats on a great quarter. You know, just with the strong growth in Macy, curious how much of that is being driven by new surgeon engagement. So how far along in the surgeon penetration curve since you expanded, you know, your target surgeon base with Arthur are you guys now?

Yeah. Hey, Caitlin. Thanks. It's Nick. You know, I'd say that, you know, we've talked to over the years that sort of you know the primary driver from a surgeon perspective up until last year was really just adding new surgeons as you know Macy has become kind of standard of care over its first decade on the market. I'd say last year we made a note that we were starting to see sort of you know more biopsies per surgeon and that was contributing to the Macy growth as well and sort of a more balanced way so now When we look at sort of the growth in the business, whether it's biopsies, which are the leading indicator, or even implants, we see that we're continuing to add new surgeons, but we're also seeing, again, more biopsies per surgeon. So that overall biopsy growth, which leads to the implant growth, is really kind of a balanced growth between new surgeons' ads and deeper penetration within their practices.

Great. And then, you know, another cartilage technology has announced, you know, a recent launch in Europe, including the UK. I mean, how are you thinking about just the competitive landscape as you enter the UK and then, you know, more broadly other regions of the US?

Yeah, so obviously it's been a topic of conversation during the course of the year. And we kind of start from, I think it's been pretty well settled as these discussions have emerged that, first of all, Macy's the clear market leader in cartilage repair. And as you look at, it's obviously a very large, under-penetrated market with a lot of growth Macy's got this clear positioning of young active patients with small, moderate, and large defects, no bony involvement, and in addition to the trends of moving to restorative therapies, that's what's been fueling the growth. and so you know based on the work we've done and sort of you know we just completed a our annual ATU or awareness trial and usage market research that we do each year With 100 surgeons, half are Macy users, half are not. And those sort of product positionings that we've seen over the years, you know, were reinforced. And so, you know, I don't think anything has changed in terms of our perspective of the Macy growth opportunities and so on. You know, there are a lot of other cartilage repair products in the market already that are marketed by several of the largest med tech companies. in the United States and globally. And, you know, obviously Macy's become the market leader. That's been the case for the 10 years it's been on the market. So nothing, you know, from our perspective is changing in that regard. You know, in the UK, you know, same sort of dynamic where, you know, I think it's pretty well understood that autologous chondrocyte implants are sort of the gold standard for treating cartilage injuries. Other options have been around in Europe for a long time. You know, the UK in particular has designated, you know, as I've talked about before, approximately a dozen joint preservation centers to treat patients with cartilage injuries using ACI technologies. So it's seen as sort of a kind of obviously cutting edge technology in the UK and the patient demographics are going to be the same. Sort of the physician perspectives on appropriate patients to use Macy or any of these other products that have been around for a while are no different. and as I've mentioned you know Macy obviously was developed in Europe pivotal study was conducted there the UK surgeons came over and trained our US surgeons when we launched the product so really no kind of difference from our perspective in sort of Macy's positioning is as a leader in US and presumably soon global cartilage repair and so You know, I guess that's our perspective as we move forward.

Thanks so much for the color. We will go next to Richard Niewitter with Truist Securities.

Hi, thanks. Thanks for taking the questions. Congrats on the quarter. I just want to go back to 27. You know, thanks for some of the early color there. And it sounds like maybe just starting on the Macy side, you know, in the past during third quarters into the following year, you provided some just, you know, broad strokes to think about a placeholder for 20, you know, the year ahead. I guess on Macy, is it right to think about maybe a 20% starting point for next year and then... all those kind of incremental drivers, UK, you know, increasing productivity of Salesforce. Those are things that would bring you above that. Just trying to get a sense so that, you know, we keep, we can kind of get numbers more or less as a good starting point. So anything there, and then same question for Byrne. Is it reasonable to kind of think of the algorithm where you're back to your normal kind of run rate of, you know, Call it 10, 12 million per quarter. Is that a good way to think of the quarterly cadence as a placeholder to start off 27 things?

Yeah, so I'll start in that one, Rich. So good morning and thanks for the question. This is Joe. So, you know, I would say I guess the first thing I would kind of say is just, you know, per our prepared remarks, as Nick talked about, you know, we're seeing a ton of momentum in the business. And, you know, on both franchises, we think there are kind of multiple growth drivers that'll continue. Obviously the Salesforce expansion we've talked about, Macy Arthro, Momentum continues, a number of commercial excellence initiatives that we think are having a meaningful impact. So we certainly think that's not going to end at the end of 2026 and continue right into 2027. So I would say we are pretty bullish on kind of what next year could look like, particularly from an internal expectation perspective. you know I guess from a guidance perspective you know just kind of getting there you know I'd probably get to a couple of points so number one you know probably early you know in terms of kind of formal guidance you know and I know that's not the question but in terms of you know what that will look like we'll obviously refine that as we get into 27 but you know probably a couple of helpful areas and data points to look at and think about here so you know earlier the question was asked around kind of our midterm targets and you know again we feel like we're at this point, you know, likely outpacing that a bit, you know, which is great. But, you know, I would say we're not going to get ahead of ourselves, you know, in terms of how we start the year from a guidance perspective, you know, so we're certainly mindful of that trajectory. But I think that helps as you think about kind of the path from 27 and beyond. You know, the second thing I would just point to, which I think is, you know, really clear and helpful is if you really look at where consensus is, That's probably a pretty good starting point, whether you look at total revenue, Macy revenue, and probably burn care to a degree as well. And if you kind of go back to where we started this year, I think we were very clear and probably a bit prudent, I would say, in our guidance philosophy on both franchises, where for Macy, for example, we said, look, we have internal expectations higher, but we're going to start the year probably a bit conservative and point to something with similar year-over-year dollar growth. And so that's how we started this year. You know, that's actually where consensus is next year. If you kind of look at 26 to 27, that's probably a good starting point. Again, we'll refine that and our internal expectations are higher. But, you know, that's when we, you know, that's kind of where the direction we went this year. And I think obviously that's worked out well and we've beaten that. From a Macy perspective, you know, on the burn care side, you got to kind of think through the pieces there a little bit. Obviously, Nexabria, we expect to continue to ramp. EpiCell is performing, you know, much better. But, you know, I think we'll certainly kind of use a similar framework or thinking about kind of where is the business been and probably start a bit prudent there as well. So I think it's just a balance where we feel like 27 is set up for a really strong year. But I think the good news is when you look at consensus or you think about how that fits in the midterm targets, again, that's right in line with kind of how we've been guiding this year. And we think that's an appropriate starting point to start the year. Certainly as we move through the year, our expectations could change.

Okay. So if I'm hearing you right, there's probably no reason internally or just with all the momentum drivers you have out in front that there wouldn't be a 20% plus growth trajectory here, but you'll continue the philosophy of appropriately conservative at the start of the year and then seek to outperform that and kind of think of that around a 20% kind of base. Is that right?

Yeah, again, I think you kind of hit it, which is probably from a guidance framework perspective, we'll start a little bit more conservatively than that. From an internal kind of planning and progressions throughout the year. Obviously, we're going to continue to strive for, you know, high growth on both franchises, I would say, including Macy. But, you know, again, we just don't want to get ahead of ourselves, you know, as we're sitting here in November for next year.

Okay. Really helpful. And congrats to the quarter, guys. Thanks.

Thanks, Rich. We will take our next question from Ryan Zimmerman with U.S. Bancorp BTIG.

Hey, good morning, guys. Thanks for taking our questions. Appreciate all the questions before. I guess I want to spend a moment on two things. One, on MACEI, maybe Joe, you could talk about kind of the dynamics between one, price and volume, but also conversion from biopsy to procedure. I guess I'm interested in understanding, I mean, the biopsy numbers, the KPIs you're talking about, you know, sound very good. and I'm wondering kind of how you're seeing that translate, particularly from a conversion perspective, if there's been any acceleration or step up, pull forward and so forth with all the efforts on commercial excellence. Thank you.

Yeah, and I'll start on that one. Good morning, Ryan. So, you know, I'd say, you know, as we look at the third quarter, you know, in terms of the dynamics, you know, I think we're very pleased with the result, you know, another 20% plus quarter. ahead of our guidance, you know, I would add, you know, just kind of related to your question, if you actually look at Macy, kind of on a two year stack basis, it's actually our best quarter of the year from a revenue perspective. So I think that sort of, you know, helps get at the strength that kind of where the underlying strength that we're seeing. and maybe just to start with Q4 and I'll kind of work backwards but you know I'd say Q3 was strong you know kind of when we look at it from multiple dimensions but you know just to reiterate kind of the start we've gotten off to in Q4 so obviously October's behind us you know November you know with obviously into November now and our procedure volume has been very strong and you know December I would say you know our early indicators are very strong as well so you know we upped the guidance in Q4 and we kind of upped our framework instead of pointing to kind of the high teens you know we're pointing to 20 percent plus so you know I think you can imagine we're obviously talking about strong biopsy growth accelerating each quarter I would say you know particularly as we've gotten into Q4 you know we've seen that start to translate so you know I would say the strong biopsies that we're seeing are translating you know as we would anticipate particularly in Q4 from an implant perspective so you know I think conversion remains on track as we move toward year end.

Okay fair enough and then the second question you know we've had three quarters now with epiCell just really you know out kicking its expectations and so you know it's so variable I think we all know that we've lived through kind of the ups and downs with epiCell you know quarter quarter But at what point do you guys say, you know, as opposed to let's call it an $8 million run rate per quarter, you know, collectively it's 10 to 12 with Nexobred. I mean, at what point do you start to say, yeah, you know, $9 million is right or $10 million is right on EpiCell. What do you need to see to kind of get to that comfort level to kind of bump that a little higher from a quarterly run rate perspective?

Yeah, hey, thanks, Brian. This is Nick. You know, I think, as Joe mentioned earlier, just kind of whether it's on a company basis, Macy or BurnCare, we've kind of taken a pretty disciplined approach to how we guide. I'd say your point is absolutely accurate that EpiCell now for a really for a good number of quarters, five or six quarters has, you know, performed at a much higher level. And you know we talked a little bit about the reasons for that you know once we restructured the sales force had you know all 17 territories or reps promoting both products you know we've seen a lot of the benefits of having Nexabrid in the bag not only is it sort of hits a different point in terms of its momentum but also the cross-selling efforts for EpiCell You know, Joe, I mentioned earlier kind of the rebranding for EPICEL, peer-to-peer activity is up. You know, how we approach each biopsy we get from a kind of multidisciplinary functional approach and working with surgeons on sort of the best treatment plans for outcomes for those patients. I just think all of those execution initiatives has really sort of changed the performance level for EpiCell. Now, all of that being said, we can't control the number of catastrophic burns that occur or the number of patients that survive to be treated. But we have noted that for those that do, we're performing at a much higher level. So I'd say more to come on how we'll sort of guide for quarters going forward. you know as we get into next year obviously that continued performance you know we would expect you know just it doesn't end when the calendar flips on January 1st and you know we said there we've gotten off again to a strong start in burn care had the highest number of epicell biopsies of the year in October. So we think we're set up for sustained higher performance for the reasons I mentioned. But we'll get into, and Joe, you can comment if you want, sort of how we'll approach guiding to burn care as we get into 27.

Yeah, no, I mean, nothing to add. I mean, I think it's a fair question, Ryan, again. Obviously, the framework has worked quite well this year, and I think we'll kind of adjust as needed as we get into next year. But You know, again, I think that's where we want to just separate kind of our internal expectations and some of the better execution we're seeing from the team, particularly what we can control on burn care, you know, from our guidance framework that we just want to make sure is appropriate, both kind of, you know, on a full year basis and I would say quarter to quarter.

Okay, fair enough. Thanks, guys.

Thanks, Ryan.

We'll take our next question from Mike Kretke with LeeRank Partners.

Hey, everyone. This is Sam on for Mike. Some margins came in really strong this quarter, and with 2026 EBITDA margin now expected to reach 28%, you know, how should we be thinking about the next step up in margin, including contributions from manufacturing utilization, Salesforce leverage, and just incremental spending related to the UK launch, and then the potential trajectory moving into 27?

Yeah, so good morning. Thanks for the question. So this is Joe. I'll take that. Again, as we talked earlier, I think the margins in the third quarter, particularly on the EBITDA line, we were well ahead on both gross margin and EBITDA, but very strong in the third quarter to be at that 30% level. I think if you think about the multi-year trajectory here, you can see with our increase to 28%, last year was in the 25% to 26% EBITDA, Margin on a full year basis. So really some nice expansion this year, you know, during what was really our investment year, you know, probably a bit ahead of where we started the year, which is great. You know, I think as you move through the next few years, you know, to the question earlier, you know, I feel like we're on track certainly to kind of hit that high 30% range. You know, it's really the leverage, really the top line growth and then the leverage in the business. I mean, we are in an investment phase here with two facilities operating, of course, on the manufacturing side. you know we will have our sales force expansion in place so that'll kind of be in the run rate which will be helpful you know there are other areas we'll probably continue to ramp up in terms of XUS and as we get closer to closer to a potential UK launch and looking at other markets you know certainly from a you know from a kind of XUS perspective that'll continue and then you know Macy Ankle will continue to ramp so there's still spend certainly that you know we're going to continue to invest in again having said that I think we would still expect some expansion from a bottom-line perspective next year. Gross margin, again, we're kind of already in that mid-70% range, so that's probably kind of around where we're going to be this year and something similar next year. And again, I don't want to get too far ahead in terms of formal guidance, but I do think if you look at where consensus is on both gross margin and adjusted EBITDA, that's probably a good starting point to give you a sense of You know, things are continuing to tick toward our midterm targets, you know, pretty healthy this year and next year.

Got it. Very helpful. And then, you know, just on Macy, can you just kind of provide a little bit more color on where the strongest areas of incremental growth are coming from today? You know, specifically the contribution from larger versus smaller defects, the penetration across those segments. and, you know, just comment on Macy Arthur's ability to kind of continue penetrating those smaller defect segments, which historically were not a large part of the business.

Yeah, I'll start with that. You know, as I mentioned in my prepared remarks, obviously Macy's use in the patella has been our highest volume and highest growth area. You know, historically, the whole idea behind Macy Arthro is to be able to penetrate those smaller defects in the two to four square centimeter range. And as we mentioned, you know, everything with Macy kind of unfolds over quarters and years. And, you know, we were seeing some very nice momentum there where we had You know, record number of Macy-Arthro procedures, the highest percentage of total Macy procedures we've ever seen in a quarter, which is great. Highest number of surgeons and then, you know, more than a quarter of those smaller defects being treated via Macy-Arthro administration. So it's kind of all the things we would want to see. Obviously, you know, we've talked about the dynamics of when surgeons become Macy-Arthro Implanters and particularly when they reach a threshold you know you just see the overall sort of utilization by those surgeons increase across kind of defect size and location and so you know from that perspective that's why we expect Macy Arthro to continue to sort of contribute to the overall utilization for Macy so you know we're pleased with where it is and you know we expect as we said not only the sales force or commercial initiatives but the Macy Arthro adoption to contribute to the sustainable growth rate for Macy and of course you know having continuous innovation you know really helps keep surgeon engagement high which we also noted on our call so we're working on next generation Macy Arthro instruments that again will allow us to access make it even simpler and faster with the current sort of focus and then be a bit you know focus on the ability to access other parts of the knee as well like patella which could be another very important evolution for the brand.

Thanks guys. Thank you.

We'll move to our next question from Mason Carrico with Steven.

Hey, guys. Nick, maybe circling back to the prior question that you just answered, could you just update us, I guess, on the implant mix, what it looks like today by defect type and maybe how that compares to the mix pre-arthro? And then are you seeing similar conversion rates across defect types or are there any differences there?

Yeah. Hey, Mason. So, you know, I guess just as I mentioned, you know, we've always for the patella, which is, again, our biggest part of the business, you know, that's all that's at this point, especially greater than four square centimeters, which is a lot of the Macy patella business, you know, That's kind of going to be an open procedure just because of the size of the defect. And, you know, even when we develop BC arthro patella instruments, you know, that will allow you to treat two to four square centimeter defects using arthroscopic instrumentation. And so, you know, that will help, you know, in terms of kind of addressing even more patella defects, which are very, it's a very meaningful part of the market. You know, as we talked about, since we've introduced Macy Arthro, we've obviously grown in those smaller defects and not just on the condyles, right? We've mentioned that we've seen nice growth in biopsies and implants in the trochlea and so on. So, you know, it changes by quarter just depending on patients and where their defects are that happen to be treated in that quarter. But I would just say, obviously, overall growth has been strong. Patella continues to grow strongly. We're starting to see higher growth in those other smaller defects in various places of the knee.

Got it. And then in the past, I know you guys have talked about arthro-trained surgeons growing biopsies and implants faster than non-trained surgeons. It seems like that's obviously still the case given the growth metrics that you guys are calling out. But just to ask directly, does that trend continue to hold?

Yeah. And, you know, as I mentioned, we also sort of added a little bit, you know, A commentary to that by saying, you know, just like we did when we looked at conversion rates for Macy open surgeons and once they hit sort of a, you know, kind of critical mass of a few, three or more, a few implants per year, you see higher conversion rates for them. As I mentioned earlier, when you kind of have a Macy Arthrum implanter that's, you know, hit a critical mass of of Macy Arthro implants, you see not only those trends continue, but also sort of increased utilization across the board, whether it's Macy Open or Macy Arthro cases and kind of regardless of where the defect is in the knee. So exactly the kind of things that you would want to see. And again, I believe that the continuous innovation of those instruments will continue to sort of engage surgeons and just keep the brand fresh. And so I think that's a very important contributor to MACEI performance, not only now and in the near term, but over the longer term as we move forward.

Got it. Thank you.

We'll take our next question from Jeffrey Cohen with Ladenburg-Sellman.

Hi, Nick and Joe. Thanks for taking our questions. I wondered if you could talk about the burn franchise a little bit and talk about the wound market. I know that you had called out wounds. Maybe give us a sense of the commercial teams and their focus and awareness specific to wounds and what you're seeing.

Thank you. Yes. you know to be clear kind of on the burn care side we're not really sort of on the wound side of things but you know obviously we had the highest quarter ever for the burn care business highest quarter ever for epicell and and next spread on the commercial side as well so really pleased with what we're seeing there i think you know as i mentioned in my prepared remarks you know a lot of it has to do with sort of the cross-selling impacts If you look at my commentary there, EpiCell was driven by high biopsy levels and biopsying centers. Nexibrid was driven by the most orders from centers and hospital orders overall. You're seeing a larger footprint and the impact it has in driving both pieces of the business. You know, as I mentioned earlier, we think, you know, we're operating at a different level for both of those products. And, you know, we think that's going to continue going forward. Got it.

And then as follow up, could you talk about BART a little bit? And I know it's a bit early, but can you give us a sense of contribution going forward throughout 27? I know you've given us a sense already of back half of 26.

Yeah, you know, as we look at the two pieces, which is one, you know, procurement revenue that began in the third quarter. So 3 million of the next grid, five plus million dollars was related to the barter procurement. So that initiated, you know, sort of on time and as according to plan, we'd expect another 3 million in the fourth quarter and then about 4 million to start the year in the first quarter next year. with opportunities for further procurement later in the year. So that's kind of the first piece of it. Secondly, we're also working on, and that counts as revenue, as I mentioned, or is recognized as revenue. The second piece of it is sort of the development work we're doing on a blast indication and other things, and that sort of has a cost offset or other income. impact on the P&L that began as well in the second half of the year and that will carry through in 2027 as those activities continue to ramp up and potentially other ones on top of that you know we will that you know depends on sort of the activity level and timing and so on so we haven't really commented on what that will look like in 27 but that will be incorporated both in the revenue in our guidance at the appropriate time and then sort of in our margin guidance as well. Perfect thanks for taking our questions. Okay thank you.

We will take our final question from Charles Wallace with H.C. Wainwright.

Hi. Thanks for taking my question. This is Charles on for RK. So maybe just one more kind of on the BurnCare franchise and EPICEL. So, you know, obviously it's challenging to project and lumpy by nature. But for the third quarter, could you maybe split how much of the beat was Due to higher burn incidents versus the commercial initiatives and how much of the commercial piece, the initiatives that you put in place do you think will be repeatable in the future?

Thank you. Yeah, I'd say in sort of the burn market data that we're able to access, you know, it's it lags so you can't really see sort of any market dynamics but it's been pretty stable and you know I'd say really the growth we've seen in epiCell relates to sort of execution particularly through the first half of the year you know the top of the funnel was relatively consistent that improved a little bit in the third quarter but you know the outperformance was definitely driven on the execution side and you know again we've had multiple quarters in a row now since we've implemented these initiatives and actually more are sort of in the early stage so you know to the extent we for the things we can control it's absolutely repeatable and obviously has taken epiCell to a different level great that's a very clear and maybe one final question if I could sneak it in

So, you know, with your cash flow growing, how are you balancing potential BD against share buyback? And what does the right BD asset look like? Thank you.

Yeah, well, you know, obviously we're in a, you know, fortunate position to be generating, you know, hitting that cash inflection point, and I think you can see that absolutely as we move and some of the other people that sort of finished up the CapEx involved with our new facility. So, you know, we announced the authorization last quarter. We obviously started the repurchase program in the third quarter. You know, we have nearly a quarter billion in cash and that's growing pretty substantially. So, you know, we're not really at a point where we're thinking about it's one or the other. We can do both. And so I think that will be opportunistic in the share repurchases, but that doesn't impact sort of our desire or ability to do any business development transactions.

Great. Thanks for taking my questions and you're asking a great question. Thank you.

This concludes our question and answer session. I will now turn the call back over to CEO Nick Colangelo for closing remarks.

Okay. Well, I just wanted to say thanks to everyone who joined us this morning. You know, obviously we're very pleased in delivering outstanding third quarter and strong year-to-date performance, and we look forward to providing updates on our next call. So thanks again and have a great day.

Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation. You may disconnect at this time.