Good day ladies and gentlemen, and welcome to the Vericel Second Quarter 2016 Earnings Conference. At this time, all participants are in a listen-only mode. Later we'll have a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder this conference is being recorded. I will now like to introduce your host for today's conference, Chief Financial Officer, Gerard Michel. Sir, you may begin.

Thank you, operator, and good morning everyone. Welcome to Vericel’s second quarter 2016 conference call to discuss our second quarter 2016 financial results, as well as the progress of our commercial business and development program. Before we begin, let me remind you that on today’s call, we will be making forward-looking statements represent our judgement as of today. These statements may involve risks and uncertainties that are described more fully in our filings with the SEC, which are also available on our website. In addition, any forward-looking statement represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. With us on today’s call are Nick Colangelo, Vericel’s President and Chief Executive Officer; Dan Orlando, Vericel’s Chief Operating Officer; Dr. David Recker, our Chief Medical Officer and Dr. Ross Tubo, Vericel’s Chief Scientific Officer. I will now turn the call over to Nick.

Thank you, Gerard, and good morning everyone. I'm pleased to review the results of another productive quarter for Vericel. Before we discuss our second quarter and year-to-date financial results, I'd like to take a few moments to discuss two important initiatives that we completed in the second quarter which we believe will increase the profitability of the business and ensure that we can reliably meet the needs of our customers. First, during the second quarter, we initiated our collaboration with Dohmen Life Science Services, a leading provider of patient and reimbursement services for rare disease and specialty biologics products. Under this arrangement Dohmen will provide patient support services as well as payer contracting and product reimbursement services for Carticel and MACI if approved, under a fee per service payment structure. We're moving from the previous exclusive distributor structure that we inherited as part of the acquisition of the business, where in the distributor took legal title of the Carticel, negotiated reimbursement rates directly with payers and thereby captured the spread between our transfer price and payer reimbursement rates. We will now control pricing strategy and capture the full negotiated reimbursement from the pairs and pay Dohmen a fee for their services. We expect that this arrangement with Dohmen will allow us to increase the profitability of these products by capturing the distribution profit margin. We also believe this patient centric arrangement will be better for our customers and payers as we can now implement consistent pricing and we expect improved service levels for our customers. We believe that this new arrangement will meaningfully enhance the customer experience as well as the profitability of the business. The second important initiative that we completed during the quarter was the previously announced project to replace a 30-year-old rooftop air handler for the Carticel…

Thanks Nick. Total net revenues for the quarter ended June 30th, 2016 were approximately $12.8 million and included $9 million of Carticel and net revenues and $3.8 million of Epicel revenues. As Nick previously mentioned, due to the two week downtime for the Carticel and Epicel cleanrooms which resulted in a 16% reduction in final product shipment dates for both products, total Carticel and Epicel net revenues decreased 3.9% compared to the second quarter of 2015, with Carticel net revenues decreasing less than a $100,000 and Epicel revenues decreasing approximately $400,000 respectively compared to the second quarter of 2015. Total net revenues for the first half of 2016 were $26.9 million and included $17.8 million of Carticel net revenues and $9.1 million of Epicel net revenues. Total Carticel and Epicel net revenues for the first half of 2016 increased 12% compared to the first half of 2015 with Carticel revenues increasing 10% and Epicel revenues increasing 15%, compared to the same period in 2015. Gross profit for the quarter end in June 30th, 2016, was $5.5 million or 43% of net product revenues compared to $6.7 million or 49% of net product revenues for the second quarter of 2015. The reduction in gross profit was primarily due to the reduced volume resulting from the cleanroom downtime, gross profit for the first half of 2016 was $13.1 million or 49% of net product revenue, compared to $12 million or 49% of net product revenues for the first half of 2015. R&D expenses for the quarter end at June 30th, 2016 were $4.1 million compared to $3.4 million in the second quarter of 2015. The increase in second quarter R&D expenses if primarily due to an increase in expenses associated with the completion of the ixCELL-DCM clinical trial and preparing to treat…

Thanks Gerard. Our second quarter financial results were solid in light of the manufacturing downtime and we generated strong growth in our core commercial business during the first half of the year. In initiating the Dohmen collaboration, we completed a major step in controlling the pricing, contracting and reimbursement aspects of our business which we believe will significantly enhance the customer experience as well as the profitability of the business. We've worked productively with the FDA during the ongoing MACI and BLA review process as we prepare for the potential launch of MACI in the first quarter of 2017. And finally, we continue to carefully manage our investment in the ixmyelocel-T program as we attempt to monetize this valuable asset in the near to medium term timeframe. That concludes our prepared remarks. Now, I'd like the operator to open the call to your question.

Thank you. [Operator Instructions] And our first question comes from the line of Kevin DeGeeter of Ladenburg. Your line is open, sir.

Hi guys, this is Jake Colby on the line for Kevin. How are you?

Good, Jake.

So, I guess my first question is regarding the crossover control patients. How are you thinking about their timing of this sort of cost getting ready to treat them and how do you expect these cost to build over the life of the crossover portion?

Yes. I think what you'll see is R&D expenses remaining relatively flat over the next few quarters. We'll have a mix of expenses as we continue to work with the FDA, is another big component of it getting for MACI because there is always a certain amount of Q&A going on with the agency. But I think, over about three quarters, you'll see that a consistent level and then it should drop off really significantly.

Okay, great, that's helpful. And then I believe was on the last call, you mentioned you guys recently wrote out new Epicel marking material which included the updated label. Could you comment on how this material has impacted the discussions with sales reps to existing and new clients and what this sort of done per volume?

Yes. So, I think Nick highlighted in his comments on Epicel that we were able to generate 10 orders in the first half of the year that came from accounts that had not ordered since prior of the 2015. In fact, six of those accounts, it was a total of seven accounts, six of those accounts hadn’t ordered since 2011. So, we take that it's hard to just attribute all of that to a single improvement in our label but certainly it contributes to their renewed interest in the product. So, we feel great about it.

Okay, great, that’s it from me. Thank you.

Our next question comes from the line of Ted Tenthoff of Piper Jaffray. Ted, your line is open. [Operator Instructions] And we have a question from Ted Tenthoff of Piper Jaffray. Your line is open, sir. And sir, I'm showing no further questions in the queue at this time. One moment. Our next question comes from the line of Nicholas Zocchi of Brill Securities.

Well, good afternoon, gentlemen. Given that the cash balance is down to a $9.8 million. Do you anticipate having the chart done to the revolver on the term loan, are you achieving profitability.

Yes. As a matter of fact we have passed into the revolver. We brought in $2.3 million in the last quarter from the revolver. We have approximately up to $12 million left in the company to that term and revolver depending on a variety of factors.

Do you anticipate achieving profitability in the next couple of quarters, I mean, third quarter is typically seasonably light, things are getting a little tight.

Yes. We think we have adequate liquidity with the relationships we have currently with Silicon Valley banks operative business.

Great. Thank you, very much.

And I'm showing no further questions in the queue. I'd like to turn the call back to Mr. Nick Colangelo.

Okay, well. Thank you very much. And thanks everyone for your question and continued interest in Vericel. We're excited about the opportunities that lie ahead for us and we look forward to reporting on our progress on our next call. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the call. You may all disconnect. Everyone have a wonderful day.