Vcel q4: a Yo-Yo response

Short Summary
VCEL capped out a very successful 2018 with a very strong q4. At one point the stock was up 13% and is now down 10% due to the conference call. Details below.

Business and Financial Highlights
Salesforce increased 20% from 40 - 48
Very positive data from epicel study
Retired all debt
900+ surgeons trained, 500 in 2017, 400 in 2019
EBITA positive for 2018 of 4.7 million
25 million in MACI vs 16.1 in Q4 2017 55% growth
6.2 million Epicel vs 6.1.
41% product revenue growth or 34% total revenue growth
5.2 million or 11 cents per share of profit for q4, up vs 0.3 million or 1 cent per share. For q4.

Revenue and Margin
2017 9.4, 17, 14.3, 23.4 Annual 64.1
2018 18.3 19, 22.5, 31.34 Annual 90.86
108-112 for 2019

2018 57, 59, 64, 72
80% for 2019

Revenue Seasonality
Seasonality 20%, 21%, 25%, 34%

Guiding 50% of increase of revenue over 2018 will fall to EBITA

CEO said can’t expect the same percentage growth 2019 vs 2018 and 2020 vs 2019

epicel - recell up to 50% TBSA, 10% of epicel is used in <50% TBSA, not a big overlap. They expect to occupy different parts of the market.

Pediatric trial ongoing - no word on when results.
A number of investigator initiated studies this year.

Formalizing minor increases in indication with insurance companies. This will allow easier reimbursement instead of a case by case approval process.
MACI growth 27-30% implied for 2019.

High volume centers vs low volume centers - 50% growth from centers that comes from centers that have never used MACI or Carticel, 50% from centers that had experience with MACI or Carticel.

OK, q4 was a great great quarter. A quick note, they had some licensing revenue in 2017 that they don’t have in 2018 hence they are reporting, “net product” revenue. This just allows them to show apples to apples YOY% growth numbers.

So now let’s dive into the guidance which was…muted to say the least. They only gave full year 2019 guidance. Which was 108-112, lets model the most optimistic scenario they gave us with the revenue seasonality they expect which would give us the following revenue in sequential order starting at q1. 22.4, 23.52, 28, 38.08 for a total of 112 million. That implies about 24% growth in revenue and about 30% growth in MACI which are pretty huge slow downs from the 45% total revenue growth and 50+% growth in MACI. Hence the stock went from being up 13% to down 10%.

If they meet their guidance they should have an additional 10-11 million in EBITA for a total of ~15 million and be profitable for next year. Hard to guess tax rates and such but I’d expect something like 10 million in net income and around 50 million shares for an EPS of 20 cents. Their EV/S is now around 7.5 and would be 6.1 in a year. Lets model one optimistic scenario, 40% revenue growth. That would mean about 21 million in EBITA, maybe 15 million in net income for an eps of 30 cents per share. EV/S would be 5.4 in a year.

Here is the thing, most of the analysts seemed pretty incredulous about the guidance. I felt like management was doing a little bit of a song and dance, on one hand they said things like, “business is very strong, we are excited about the future, blah blah blah” but on the other hand they really stuck to their guidance. Q1 should give us a pretty strong idea if management is sandbagging guidance. If they are, well then a lot of money falls to EPS. If they aren’t…then I’d say VCEL is over valued right now. If their TAM is anywhere close to as big as they say it is and with no competition…then they are either sandbagging or need to so something very different. So far they they have seriously sandbagged and have destroyed their full year guidances. I’m holding and if I didn’t have a position would be happy to buy some especially if it falls a little more.


Thanks Ethan. I have a VCEL position, this is useful. I had added some recently.

Not sure though I understand what you mean by sandbagging. English is second language.

Dictionary says, “barricade using sandbags.” :slight_smile:

Would you mind explaning?

Thanks again.

Sandbagging refers to the practice of issuing guidance lower than actual expectations, allowing for a) any potential mistake(s) which might lower actual revenue or earnings or b) a pleasant earnings surprise if everything goes right and (hopefully) a price rise after the earnings announcement.