Tenon Medical Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 8, 2023

There are 4 speakers on the call.

Operator

Greetings, and welcome to the Tenen Medical Second Quarter 2023 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. Your hosts today are Steve Foster, Chief Executive Officer and President and Steve Van Dyck, Chief Financial Officer. Mr. Foster and Mr.

Operator

Van Dyck will present results of operations for the Q2 ended June 30, 2023, and provide a corporate update. A press release detailing these results was released today is available on the Investor Relations section of our company's website, www.tenonmed.com. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates and other information that may be considered forward looking. While these forward looking statements represent our current judgment on what the future holds, They are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward Looking Statements, which reflect our opinions only as of the date of this presentation.

Operator

Please keep in mind that we are not obliging ourselves to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events. Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions. For a more complete discussion of these factors and other risks, you should review our prospectus dated April 26, 2022, particularly under the heading Risk Factors, which is on file with the Securities and Exchange Commission at www.sec.gov. At this time, I'll turn the call over to Tennant Medical's Chief Executive Officer, Steve Foster. Please go ahead, sir.

Speaker 1

Thank you, Madeleine, and good afternoon, everyone. I'm pleased to welcome you to today's Q2 2023 financial results corporate update conference call for Tennon Medical. Over the course of our record Q2, we achieved $743,000 in revenue, representing a triple digit growth of 4 50% year over year and 72% sequentially from the Q1. Our fully commercialized catamaran system Designed to deliver a refined surgical option for patients with chronic sacroiliac joint pain or degenerative sacroiliac The fatal conservative care is rapidly gaining momentum and increasing surgical procedures. We marked an important milestone in the 2nd quarter With gross profit and gross margin turning positive at $194,000 26%, respectively.

Speaker 1

Our positive second quarter reflects a focus on building our commercial infrastructure and sales management team. We continue to target physicians who have been trained on SI procedures or have significant experience with SI Surgical Technologies by facilitating an aggressive local workshop training program. We are showcasing our unique solution through a wide variety of channels, Conferences and hands on workshops, which include a combination of our local synthetic model and cataveric lab workshops All of these critical activities are designed to drive acceleration in the number of procedures completed with the catamaran system. Confirming our approach during the Q2, our surgical procedures increased 4 69% compared to the year ago quarter. To reach our sales goals, we continue to execute our go to market strategy during the Q2, hosting 43 physicians in catamaran workshops.

Speaker 1

These sessions are designed to highlight the effectiveness and ease of use of our product as well as how the inferior posterior approach to the optimized pathway into the anatomy. This distinct implant system addresses a significant unmet market opportunity and is designed to produce broad and demonstrable advantages over market competitors. Building on the momentum of the Q2, we expect the number of surgical procedures to In Q3, representing our continued commitment to ongoing innovation, Tanan will initiate a limited release of our newly refined system to deliver catamaran starting in September 2023. These enhanced tools promise to deliver upgraded and Imaging. With that, I'll turn it over to Mr.

Speaker 1

Van Dyck, our Chief Financial Officer, to discuss our financials.

Speaker 2

Thank you, Steve. I'll give us a sneak review of our financial results. A Full breakdown is available in our press release that crossed the wire this afternoon. Our 2nd quarter revenue was $743,000 an increase of 4.53 50 percent compared to $135,000 in the comparable year ago period. Revenue for the 1st 6 months of this year was $1,200,000 an increase of 4.71% compared to $206,000 in the same period last year.

Speaker 2

The increase in revenue for the 3 6 months of this year as compared to the same periods in 2022 was primarily due to increases of 4 69% and 4 76%, respectively, in the number of surgical procedures in which the catamaran system was used. Gross profit in the Q2 of this year was $194,000 or 26 percent of revenue, compared to a gross loss of $136,000 or a negative 101% of revenue in the comparable year ago period. For the 1st 6 months of this year, gross profit was $147,000 or 13% of revenue compared to a gross loss of $340,000 or a negative 165 percent of revenue for the 1st 6 months of 2022. Gross margin percent improved due to higher revenue associated with the increase in the number of surgical procedures. Operating losses totaled $4,300,000 for our Q2 compared to a loss of $5,500,000 in the Q2 of 2022.

Speaker 2

The decrease in operating expenses were a result of the arbitration settlement and other consulting expenses in Q2 of 2022, offset by an increase in stock based compensation, increases in sales and marketing and general expenses. For the 1st 6 months of this year, operating losses totaled $9,200,000 compared to $7,500,000 in the prior year period. The increase in operating expenses were a result of an increase in stock based compensation, increases in sales and marketing and general expenses as the company builds its sales function and infrastructure to support future growth. The net loss was $4,300,000 in our Q2 compared to a loss of $5,500,000 in the same period of 2022. For the 1st 6 months of this year, net loss was $9,100,000 compared to $7,800,000 in the previous year period.

Speaker 2

The company expects to incur additional losses in the future. As of June 30, 2023, cash and cash I'll now turn the call back to Steve for his closing thoughts.

Speaker 1

Thank you, Steve. With the accelerating pace of catamaran procedures, we're very optimistic for continued growth in the commercialization of our proprietary FDA Cleared Surgical Implant System. We marked the 2nd quarter with strong revenue gains and a positive gross margin and believe we can continue on this growth trajectory with our expanding commercial infrastructure and seasoned sales management team. Looking ahead, the revenue growth combined with our recent capital raise positions us appropriately to further accelerate our momentum in the second half of the year. We continue to reinforce our commitment to validating and differentiating patient outcomes and radiographic assessment with ongoing post market clinical studies and expect to expand the application of our distinct product offering to address SI revision surgery, We look forward to additional updates in the months to come as we continue to expand our sales infrastructure and execute on our growth objectives to deliver long term value to our shareholders.

Speaker 1

I thank everyone for attending. And I would like to hand the call over to the operator to begin our question and answer session.

Operator

With Covering You will be placed into the queue in the order received. Please be prepared to ask your question when prompted. Our first question comes from Bruce Jackson with The Benchmark Company. Bruce, you may now ask your question.

Speaker 3

Hi, good afternoon and thank you for taking my questions. First off, congrats on achieving gross profit Positivity, the number of doctors trained in the quarter is 43, it's up sequentially. Is that something that You can do can you continue to increase the number of doctors who are trained next quarter?

Speaker 1

Yes. Hi, Bruce. This is Steve. Thank you for the congrats and the question. I do believe we can continue to Expand that number.

Speaker 1

As our sales team gets comfortable, trained, up to speed, etcetera, and frankly, as they broaden their activities, All of this feeds on itself and I do anticipate that number to continue to expand and grow.

Speaker 3

Okay. And then are you still happy with the synthetic training model? Is that helping you out at all?

Speaker 1

Very much so. Look, the physicians are extraordinarily busy. The degree to which we can bring A workshop session to them, make it very convenient, do it in an evening or over a weekend or what have you, really pays dividends That keeps them from having to jump on a plane and go someplace, etcetera. So we are leveraging this Synthetic model to do local programs, to bring faculty in virtually to talk through with the physicians about Their experience with the technology and what have you and it seems to be extremely well received and quite honestly Bruce it lets us move more quickly. Getting a trip planned for position takes time with their tough schedules, bringing it to them lets us move very quickly When they're ready to be exposed to the system.

Speaker 3

Okay. That's great. Then in terms of the physicians that you Have trained in, who have performed procedure. How well Are they repeating the procedures? Is it something where they've been trained and then they get comfortable with it and then they start Performing the procedures in a routine fashion?

Speaker 1

Indeed, sure. In these early stage Of course, we're looking to see if our technology is sticky, that if people get trained and So used to the technology, do they adopt and do they stick with it and keep rolling and we're really happy With what we see on that front, the technology is proving to be reproducible over and over again. And that goes to this inferior posterior approach that we've talked a little bit about Bruce on several occasions. This I want to really stress, this is a unique way of getting at this anatomy, different from any other competitor that we have. We believe that approach will prove to be a more efficient, reproducible Pathway that stays away from neuro and vascular structures and gives a physician the comfort that they can get where they need to be and get the job done.

Speaker 1

And of course, we're early. We launched this technology just a couple of quarters ago. So we're early in the process, but what we're seeing is that is coming to fruition. And it makes us really encouraged as we expose physicians to the technology. We watch their reaction And we watch how quickly they come back and reproducibly use the technology to serve their patients.

Speaker 1

So Really encouraged in what we're seeing.

Speaker 3

Okay. Then last topic is the new delivery system. So maybe you could like Tell us a little bit about how much it differs from the current delivery system and are the doctors who are trained on the current

Speaker 1

We do believe that well, let me back up. 1st and foremost, Medical Device is about constant iteration And improvements, you hear from your physician customers, if you're smart enough to listen carefully, you can really improve the way The technology feels in their hands, the sequence of instrumentation, things of that nature, and we're exceptionally focused on that as a small organization. We want to respond very quickly to those kinds of feedback. And that's what we've done here. I talked about Graft handling, this is just when we drill the 2 holes, we harvest that the patient's own bone and pack our implant with that graft.

Speaker 1

Handling that graph can be a bit tedious, etcetera. We believe we've come up with some great ideas to make that process faster, more Frankly, more gratifying for the staff and the physician alike. The access profile, this is the access sleeve through which we Put the implant, is shrinking pretty dramatically approximately 40%. And of course, every physician wants to do as little Soft tissue disruption as humanly possible, but yet still get the job done effectively. And so that's what that's all about.

Speaker 1

And we believe through this alpha that we call it this sort of test period, We have proved out that we're reducing the size of that access requirement in the incision size pretty dramatically. And then 3rd, you always want the entire procedure to be satisfying for the physician. You want things to be stable, Intuitive, easy for the nurses to support, things of that nature. And so we've taken a number of steps to continue That refinement process. You asked about access, that's exactly right.

Speaker 1

We've been quite aggressive With how we put this alpha together, it will be somewhat limited in September, just to make sure everything we've done is delivering on its promises And that our physician advisors are satisfied and then we're in a position to make the technology available rather aggressively to our physician users and it just involves a small add on tray to our existing base tray In the procedure, so it's relatively straightforward for them to have access to the technology.

Speaker 3

Okay, great. Actually, I have one more question. Financial question, is the income statement profile in the Q3 going to look Like the Q1 or the Q2 of this year, you had a little bit of a downtick in the SG and A line. So is that going to come back up with the increased Activity or is that like the level this quarter, is that the level that you would expect going forward?

Speaker 2

Yes, Bruce, thanks for that. I think you're going to find it somewhere in between. I think the SG and A, of course, is going to go up with higher revenues The commission structure, but the R and D and general Administrative, the G and A costs should remain relatively flat Q2 to Q3, Except we may see some increase in the stock compensation, the Stock based compensation line.

Speaker 3

Okay, great. That's all I've got. Thank you very much.

Speaker 1

Thank you,

Operator

Bruce. At this time, it appears there are no further questions. I would now like to turn the call back over to Mr. Foster for his closing remarks.

Speaker 1

Thank you, Madeleine. So I'd like to thank each of you for joining our earnings conference call today and look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach out to our IR firm, MZ Group, We'll be more than happy to assist. With that, I wish everyone a good day.

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Key Takeaways

  • Q2 2023 revenue reached $743,000, marking a 450% year-over-year increase and 72% sequential growth.
  • The fully commercialized catamaran system delivered positive gross profit of $194,000 and a 26% gross margin for the quarter.
  • Surgical procedures using the system jumped 469% year-over-year as Tennon hosted 43 physicians in local synthetic model and cadaveric workshops.
  • A limited release of the refined catamaran delivery system begins in September 2023, featuring a 40% smaller access profile and enhanced graft handling and imaging tools.
  • Q2 operating losses narrowed to $4.3 million from $5.5 million a year ago, and a recent capital raise provides additional runway to support growth.
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Earnings Conference Call
Tenon Medical Q2 2023
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