Sanara MedTech Q1 2023 Earnings Call Transcript

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May 16, 2023

Key Takeaways

  • CineraMedTech generated $15.5 M in net revenue in 1Q23, a 99% increase year-over-year, marking its highest sales month ever in March.
  • Net loss narrowed to $1.2 M in 1Q23 from $3.2 M a year earlier, driven by higher sales and a fair-value adjustment, while cash on hand stood at $7.3 M.
  • Sales were impacted by a stock-out of the AlloCyte product due to donor-screening delays, with full resolution not expected until H2 2023.
  • CineraMedTech submitted a 510(k) premarket notification for its Precision Healing Multispectral Imager and received FDA clearance for the BioSurg Advanced Surgical Solution, both slated for launch in 2023.
  • Completed an at-the-market equity offering via Cantor Fitzgerald, raising ~$1 M in Q1 to fund acquisitions, product development, clinical studies, and sales expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Sanara MedTech Q1 2023
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good morning, and welcome to the Cenaramedech Inc. 1st Quarter 2023 Results and Business Update Conference Call. At this time, all participants are on a listen only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to Callan Nichols.

Operator

Please go ahead.

Speaker 1

Thank you, and good morning, everyone. I'd like to welcome you to CineraMedTech's earnings conference call for the quarter ended March 31, 2023. We issued our earnings release yesterday afternoon, and I would like to highlight that we have posted today's deck on the Investor Relations page of our website. This supplemental deck as well as a copy of our earnings release and the Form 10 Q for the quarter ended March 31, 2023, are available on this page. We will reference this information in our remarks today.

Speaker 1

We expect today's prepared comments from Ron Nixon, Executive Chairman Zach Fleming, Chief Executive Officer and Mike McNeil, Chief Financial Officer, to last approximately 15 minutes to allow time for Q and A. Certain statements in this conference call, in our press release and in our supplemental deck include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For more information about the risks and uncertainties Involving forward looking statements and factors that could cause actual results to vary materially from those projected or implied by forward looking statements, Please see our most recent annual report on Form 10 ks. Now, I'd like to turn the call over to Ron.

Speaker 2

Thank you, Callan, and good morning. In Q1 2023, Cinera generated $15,500,000 in net revenue, Representing a 99% increase from the prior year period, the Q1 of 2023 was another record quarter For Cinera, March was the highest sales month in the company's history. We continue to see strong growth in CELARATE sales as well as increased sales from the products We licensed from Cote Biotech. Sales at Senvio were flat from Q4 to Q1 due to a stock out of AlloCyte product, which we'll discuss in greater detail later. The company had a net loss of $1,200,000 compared to a net loss of $3,200,000 for the prior year period.

Speaker 2

The lower loss was driven by higher sales and a change in the fair value of our earn out liabilities. On March 16, 2023, we submitted to FDA and 510 premarket notification for our Precision Healing Multispectral Imager. Zach will go into more detail on the imager's capabilities, We believe that it's a critical component of our value based strategy. Subject to the end of the quarter, the company received 510 clearance for BioServe's Advanced Surgical Solution, this product, which was developed by our team at Rocheau, is expected to commercially launch in 2023. As we mentioned on our previous call, in the Q1, we entered into a sales agreement with Cantor Fitzgerald for an ATM offering of our capital stock.

Speaker 2

We entered into this agreement for two purposes. The first was to raise capital for opportunistic partnerships and acquisitions and the second was to increase the liquidity of our common stock. We currently intend to use the net proceeds we received from this offering to potentially fund acquisitions, further development of our products and technology pipeline as well as clinical studies, sales force expansion and for general corporate purposes. During the quarter, we chose to utilize our ATM And over the course of 17 trading days, we received approximately $1,000,000 in net proceeds. Sales were paused at the end of Q1.

Speaker 2

We could potentially reactivate the ATM if and when the management and Board determine it's appropriate. Now I'd like To ask Sudhak Fleming to discuss our business in more detail. Thank you.

Speaker 3

Thanks, Ron. Our Surgical sales team continues to generate strong sales growth, penetrating further into our existing customer base and also expanding into new geographic areas. During the trailing 12 months ended March 31, 2023, our products were sold in over 800 hospitals and ambulatory surgery centers Across 30 states and as of March 31, 2023, our products were contracted or approved to be sold in over 1800 facilities. In the Q1, we continued to experience supply issues with the AlloCyte product line. The amount of qualifying eligible donor tissue was significantly impacted due to donor Screening requirements.

Speaker 3

During the Q1 of 2023, we were unable to fill certain orders for this product, which negatively impacted our sales. We do not anticipate a full resolution of the supply issues until the second half of twenty twenty three, though we are continually looking at options that would shorten this timeline. As Ron mentioned, subsequent to the end of the quarter, we received FDA clearance for BioSurg, our surgical cleanser. We plan to launch this product in late 2023. The exact timing of the launch has been impacted by supply issues related to sterile bags.

Speaker 3

We are currently scheduling manufacturing runs and developing our marketing plan. Turning to our multi spectral imager. As we have said before, this is a key part of our strategy targeting value based care. The imager allows clinicians to view and digitally record Multispectral and white light images of a wound, measure and digitally record the size of a wound, view and digitally record images of With these pieces of data, clinicians can begin to understand what is taking place in a wound and start to develop an appropriate care plan. Additionally, over time as more and more data is collected, the company expects it will be able to use predictive analytics to suggest appropriate treatment plans.

Speaker 3

In summary, we are on plan through the Q1. We are continuing to expand distribution. We are adding focus including 2 new specialties into our call patterns and we are always evaluating the performance of our team and upskilling and training. We are continually gaining more approvals and we are continuing to add additional studies that will separate us from competition And we believe that clinical evidence will help us achieve our goals for 2023. With that, I'll turn it over to Mike McNeil to review our financials.

Speaker 4

Thank you, Zach. For the quarter ended March 31, 2023, Cinera generated net revenues of $15,500,000 Compared to net revenues of $7,800,000 for the quarter ended March 31, 2022, a 99% increase from the prior year period, Net revenues for the Q1 of 2023 included $3,000,000 of Senvia sales. SG and A expenses for the quarter ended March 30 1, 2023 were $13,000,000 compared to $9,400,000 for the same period in 2022. Our first quarter SG and A expenses included $1,400,000 of costs related to Sendya operations. The higher SG and A expenses in 2023 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $3,400,000 or 95 percent of the increase compared to Q1 of 2022.

Speaker 4

The higher direct sales and marketing expenses were primarily attributable to an increase in sales commissions of $2,900,000 as a result of higher product sales And $500,000 of increased costs related to sales force expansion and operational support, we expect our SG and A expenses to continue to decline as a percentage of net revenues as our sales growth outpaces cost of sales force expansion and corporate overhead. R and D expenses for the quarter ended March 31, 2023 were $1,300,000 compared to $200,000 for the same period in 2022. The higher R and D expenses in 2023 were primarily due to costs related to the Precision Healing multispectral imager and LFA for assessing patient wound and skin conditions. A change in the fair value of our earn out liabilities resulted in a benefit of $500,000 for the quarter ended March 31, 2023. The decrease in the fair value is due to change in the discount factor utilized in our valuation models, a decrease in the projected amounts to be paid as well as adjustments to the projected timing of the payments to be made.

Speaker 4

For the 3 months ended March 31, 2023, we had a net loss of $1,200,000 compared to a net loss of $3,200,000 for the of 2022. Our cash on hand at March 31, 2023 was $7,300,000 With that, I'll turn it back to Ron for closing remarks.

Speaker 2

Thank you, Mike. As we've discussed, we continue to advance the growth of our Accelerate product line as well as the addition of our non Accelerate surgical products that we market through our distribution network. So far in 2023, we have continued advancement in the area of innovation with 5 10 submission for Imager and the 510 clearance for BioSurg. That concludes our remarks and we look forward to answering any questions you may have. Operator, we're ready to open the call for questions.

Operator

Certainly. The floor is now open for questions. Please hold just a moment while we poll for questions. Your first question is coming from Ross Osborne with Cantor Fitzgerald. Please

Speaker 5

Hi, guys. Congrats on the quarter. And I apologize, I've been juggling a couple of calls, and cases have been addressed. But starting off, could you just walk through the commercialization plan for BioSurg and level of inventory you have in order to meet demand upon launch?

Speaker 3

Sure Zach. Yes, I can take that question. Of course, we're having meetings on that daily. Our current plan is we do have some product that is not available for sale. We'll do some we're doing trials with doctors so they can get A preview of the product and give us feedback.

Speaker 3

We are going to optimize the plan, but essentially when the product becomes available late this year, We will launch to our team with a training and then the team will kind of attack it very similar to Celerate in the respect that they'll need to go gain approvals. We do have contracts out there that we believe will be able to tack on this product to those approvals essentially because we're approved vendor. You can add products to that vendor relationship with the hospital. That isn't always the case, but it is oftentimes. And then from there, it will be a training And gaining doctors approval to start to use very similar to what you probably guys know about CELLARATE.

Speaker 3

And then products, We should have no problem with supply at the point where we have these bags. So we just need to as I mentioned in the call, we just are waiting on these bags that the Product resides in.

Speaker 5

Okay, great. And then I guess as far as market awareness, Is this something you're going to have to go out and educate physicians on? Or do you think it will be adopted pretty quickly after what I imagine is not a too difficult

Speaker 3

Our market research shows that the doctors are familiar with this category. And I think they're very open to using this type of product. In a historical sense, there's been sort of a doctor's cocktail created that the doctor created out of antibiotics and Saline or something of the similar nature. And then over the years, a few products have entered the market to start to normalize and Make it more consistent and I think they look for a consistent result with scientific backing. Our product of course has that.

Speaker 3

It is the sister product to our wound product which is known as BioCos. FICO has a lot of data as well. So we're coming to the market with data and I think that's going to help sell it. And as you mentioned, it's not a high curve. It's a standard practice to irrigate the wound on surgery, both on the way in to the surgical site and also on the way out of the surgical site.

Speaker 5

Great. Great. And then lastly, can you provide some more color on your ability to drive higher sales per facility? Is this a function of higher utilization of accelerate at existing facilities? Or have you seen more facilities adopt more than one product?

Speaker 3

I think it's all the above. So we mentioned right there in the summary comments I had, which were driving more doctor usage of different So we're finding additional specialties within a facility that find utility out of CELERATE and or our other products. We do have a nice suite of products that solve a lot of problems that for multiple specialties, the FortiBuilt thigh line as well as the bone biologics line And bone synthetic. So all those products really lend themselves to a bunch of different specialties, a bunch of different surgeries. So you have both Occurring that you mentioned, which is more products used by an individual surgeon and more surgeons using.

Speaker 3

So that's kind of the combination that we're seeing out there and why we're seeing more per facility.

Speaker 2

Yes. And Ross, I would add to that. There's one other thing is that as we go get a foothold into a new market for us, as you can see, we continue to expand our market state by state. As we get that foothold and we start to get the approvals and we get a vast number of approvals when the geographic region that we're going after, Then we can go with the territorial manager to have much more penetration daily in that site. And that's why You're never going to see this as just a pure linear.

Speaker 2

It happens to be linear at this moment. But as we continue to expand to be in all 50 states As we want to be, you're going to continue to have these deals where you get your foothold, you get your territorial managers that are going in there daily to penetrate And then the movement to these new specialties, as Zach said, is going to be paramount and we see numerous Specialties that will benefit from our products.

Speaker 5

Perfect. Thanks for taking my questions and congrats again on the quarter.

Speaker 3

Thank you.

Operator

Your next question is coming from Michael Lu with IFCM. Please post your question. Your line is live.

Speaker 6

Hi, everyone. Thanks for taking my questions. So maybe my first question is, it seemed like in the quarter you made a lot of progress towards getting to Profitability, I think you were close to cash flow neutral before working capital. I'm curious if you think that this the business as it continues to grow is Profitable and cash flow positive as you guided to in the past going forward or if it will continue to oscillate based on when you do hires and R and D and stuff like that?

Speaker 2

Yes. Michael, I'll take that. As Mike McNeil pointed out earlier, we continue to get Leverage on our fixed costs and leverage on our G and A. So our goal is to absolutely be profitable Even in the existing way we are with our structure having the post acute strategy as well.

Speaker 6

Great. Thanks. And maybe just about revenue in Q1, it seems like there wasn't Too much sequential growth over Q4. And then I know you talked about in the past Focusing more on penetrating existing hospitals rather than getting new approvals. I'm curious if you're just shifting a little bit now towards Focusing on profitability like you're talking about versus growing as fast as before or if it's just normal seasonality and you think you can continue to grow at past rates going forward?

Speaker 2

Yes. Zach, you want to take that because Michael, you just hit the There is in all surgery seasonality, especially in that Q1 when you have when you've got People that have not paid their deductible yet. And so you see that, but Zach, I'll let you take that question.

Speaker 3

Yes, we were happy with the Q1, very happy with it. To exceed your Q4 even just by a little bit, is really kind of unusual in the surgical space to Ron's Point. Yes. And so we're right on plan as I mentioned on that. And it does have to do with the Q4.

Speaker 3

There's a lot of Use of deductibles as the year closes, doctors are trying to jam in every case that they can at the end of the year In order to gain get their patient load relieved that they've been waiting to do surgeries on. And then you start the New Year and I think it's just a really good performance, a good sign that the business is healthy and we're headed in the right direction. And I think to your point, Did that create any slowdown that we're focused on profitability? No, I don't think that's what created. I think we are focused on it, But that isn't why and it wasn't a slowdown for that matter.

Speaker 3

In fact, like I said, it accelerated. But it sounds like maybe you have an expectation of growing more, but I would say we're really happy with where we are. Yes.

Speaker 6

No, that's great to hear. And then maybe my next question on the ATM. So it seems like I know how to open for a short period of time as you mentioned and raised $1,000,000 I'm curious just the thought process on that like it seems Like a lot of hassle to raise only $1,000,000 I'm curious, how we should think about that going forward and sort of what

Speaker 1

the purpose of that was?

Speaker 2

It's the first that we utilized it and it was not out there for that long, Michael, and actually we were very pleased with it because Very efficient way for us to get capital into the company, at a low cost, relatively speaking, when you've got a volatile market. We think it's a really good tool and we'll decide in the future if we need it or not. But it served purpose for us improved out to us that it is a good strategy.

Speaker 6

Great, thanks. And maybe my last question on Sendia, so it sounds like that's continued to be impacted by the AlloCyte stockouts, but I'm curious if you could comment, I know the strategy is to sort of Upsell Senvia products to your seller base and vice versa, do you think that and Senvia sales have been flat for the last couple of quarters. How long do you think is the lead time before we start to see material impact from that upselling process take place?

Speaker 2

Zach?

Speaker 3

I think, Ken. Yes. So no problem. So We are real happy with that. So the AlloCyte product is a material product in that bag.

Speaker 3

So had that been available, we would have seen growth. So I think that's something to remember when you're looking at that number. That's really since basically Q4 of last year, we started to see that stock out problem due to donor screening. Yes. And as a result, that business has looked flat.

Speaker 3

But in actuality, it hasn't been flat. Yes, for everything but analysis, just to be clear.

Speaker 6

Yes. No, that makes sense. Okay, great. Yes, thanks for taking my questions.

Speaker 1

You're welcome.

Speaker 2

Yes, thanks Michael.

Operator

We do have some questions coming from the webcast. Your first webcast question is from Juan Alonso. On Slide 4, Mike mentioned that you continued strong sales growth, The QoQ sales have grown about 2%, right? Previous Qs had 4%, 4% and 11% sequential growth. Could you add some color as to why sales are decelerating despite an increase of hospitals and ASCs?

Operator

Roughly how much do you expect BioSurg to grow sales over next year? Any color on TAM would also be appreciated.

Speaker 3

What was that last part? Any color on what?

Operator

On TAM, TAM?

Speaker 1

Total addressable market. Okay.

Speaker 5

Got you.

Speaker 3

Yes, yes. No, I know what that is. So if you looked at our Q4 2022 Excuse me, 2021. And then you said, well, we grew by 11% in Q1 of 2022. That would be true.

Speaker 3

However, That was that Q4 in 2021 was affected by COVID, if you recall. Like right at the start of that quarter, There's a real depression in terms of cases available. So not a great comparison that 11% growth. So I would tell you that this has been a very linear growth Today and then into the Q1 of this year, we're really happy with where we are. It's a new record quarter month after month records Each of the months of the quarter and so really pleased with where we are.

Speaker 3

I don't believe there's a slowdown. I think we do have hiring waves In the business. So we hire, those people get up and running. I think most of you have seen our map of penetration in the marketplace. Yes.

Speaker 3

And as you might have seen, we're around 30 states where we're at 50,000 or more in sales annually. And what our goal has been is to expand into the additional 20 states and grow those to a sizable amount. So we've focused a lot on that. Somebody mentioned a moment ago that we also are focused within the buildings Yes. And those are things that we're working on and are in process, but I think they've done well.

Speaker 3

We're obviously a bigger company, so that one A couple percent that we grew is a sizable amount in the $1. So we're pleased with where we are. And then I think it may have been something else, but go ahead. If there's if Mike or Ron would like to add anything.

Speaker 2

No. I think you covered it great, Zach. Thanks.

Operator

We have an additional webcast question coming from Sean Kim. Would you be able to provide some color how we should view the growth for CelerateRx in the current quarter Q2 2023?

Speaker 2

No, we have not provided anything On a forward looking basis. And so we just let the quarters roll out until we can get good predictability. When we can get really good predictability, then we will start doing

Operator

We do have a question from Ian Cassel with IFCM. Please pose your question. Your line is live.

Speaker 7

Yes. I was wondering if you could provide some color or some update on the InfuSystems partnership.

Speaker 2

Yes, the InfuSystems partnership is continuing to advance. There's a lot of just what I would call Technical review and really operational review to make sure that we get this right. So it may look like it's It's not moving forward, but it is clearly moving forward and we're getting a lot around that and we've brought in some additional People on our side to really focus on it. And so it's just going to take time for that one and we want to do it right. And I think it's going to be a very good partnership long term.

Speaker 7

And then maybe your next question about Precision Healing. Do you see that product being kind of sold individually or is that strictly part of your comprehensive wound care strategy?

Speaker 2

Yes. From my perspective, Ian, I think it is part of the system. And so I think that, that device is just one component of the overall strategy Because I have seen out there devices that are in the market, I have seen one offs on being able to analyze certain aspects. None of that have I seen have impact on value based arrangements. I think you have to have the entire strategy and that's why we focused on the entire strategy.

Speaker 7

Okay. And is it still your goal to hopefully have a partnership on that side by year end?

Speaker 2

Yes. What we are doing is we have brought in Another manager that has experience in wound care to help drive that strategy. And so that is our goal is to still implement and find partners By the end

Speaker 3

of the year. And when

Speaker 2

I say partners, I'm talking about people that can actually impact Having a value based strategy and being able to actually start to execute in the field where we are

Operator

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Ron Nixon for any closing remarks.

Speaker 2

Thank you everyone for joining our call this morning. We really appreciate our shareholders and we thank you for all that you do to support us. So thank you and look forward to speaking soon. Take care.

Speaker 3

Thanks everyone.

Operator

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

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