Sanara MedTech Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 14, 2024

There are 6 speakers on the call.

Operator

presentation.

Operator

Please note this conference is being recorded. I will now turn the conference over to your host, Calen Nichols, Director of Investor Relations at Cenaramedtech. Calen, you may begin.

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, 2024. We issued our earnings release yesterday morning, 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 the earnings release and the Form 10 Q for the quarter ended March 31, 2024 are also available on this page. We will reference this information in our remarks today.

Speaker 1

With us today are Ron Nixon, our Executive Chairman and CEO Mike McNeil, our Chief Financial Officer and Seth Dion, our President, Commercial. Please note that 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 differ materially from those projected or implied by forward looking statements, please see the risk factors set forth in our most recent annual report on Form 10 ks as supplemented by the risk factors in our most recent quarterly report on Form 10 Q. Also, this conference call, our earnings release and supplemental deck reference certain non GAAP measures. In that regard, I direct you to the reconciliation of these measures and the earnings materials that are available on our website.

Speaker 1

Now I'd like to turn the call over to Ron.

Speaker 2

Thank you, Callan, and good morning, everyone. As we mentioned in our press release yesterday, our former CEO, Zach Fleming, resigned on Friday. We're in the process of finalizing a separation agreement with Zach, and I've been appointed CEO by the company's Board of Directors. As a result of Zach's departure, the company will no longer be presenting the proposal for the election of a 9th Director on our Board of Directors at the Annual Meeting of Shareholders in June. As many of you know, I've been intimately involved with the leadership team in developing and executing Cinera's strategic vision since the inception of Cinera Medtech.

Speaker 2

And I'm looking forward to working with the Cinera's leadership team now on a daily basis to continue that execution. Turning to our Q1 results. Q1 of 2024 was the company's 10th consecutive record quarter. The company generated $18,500,000 in revenue in Q1. Over the course of 2023, we made significant advancements in data analytics, sales force optimization and sales processes.

Speaker 2

As I've told many of you before, when you're in a high growth business, you need to be able to build infrastructure, data analytics and details around these processes in order to be able to improve to continue that growth. We believe that that's been implemented and that will pay dividends going forward. These improvements and the momentum we've achieved in the Q4 helped us to exceed our forecast for the Q1 and we believe position us to continue to build upon the success the teams achieved in previous periods. For the 3 months ended March 31, 2024, coming at a net loss of $1,800,000 while we generated positive adjusted EBITDA of $300,000 over the same period. I'd like to provide a brief update on our partnership with InfuSystem.

Speaker 2

We continue to invest in this partnership and are focused on 3 potential areas of opportunity. The first initiative for the partnership is to distribute Cinera's advanced wound care products, including Bicos and HyCall as well as negative pressure wound therapy products into long term care, skilled nursing facilities and wound centers. Building upon the strategic objectives, we're also exploring emerging opportunities for Emterasystem to distribute our advanced wound care products outside of this channel. We also believe that this that our partnership will play a key role in Tissue Health Plus, our value based care strategy that you've heard about many times before, which is planned to include standardized wound prevention and treatment plans that utilize Cinera's wound care products. As these opportunities continue to develop, we will provide additional updates.

Speaker 2

And as I mentioned in our last call, we're having discussions with potential partners participating in the execution of the Tissue Health Plus strategy. During the process, we're continuing to invest in the technology, capabilities and infrastructure that we believe are required to commercialize this very well designed strategy. But we do not anticipate that this will continue spending by us alone in 2024, and we hope to have partnerships in place so that we can execute. And these partners we're looking for are not just financial partners, they are strategic partners. We're also continuing focusing expansion of the existing surgical product offering.

Speaker 2

Lastly, we made significant progress in the area of intellectual property and manufacturing processes for Accelerate product line itself. We think that this has been something we've talked about for many times and we believe that it's got a significant ability for us to be able to get more IP around the product as we continue to advance this through many of the different specialties. I'd like to now introduce you to Seth Yahn, our President of Commercial. Seth has been with the company since 2018 and over the years has been promoted multiple times to roles of increasing responsibility. In his current position as President of Commercial, he leads our national sales team and multiple internal teams, including marketing, customer support, national accounts and business operations.

Speaker 2

He's been instrumental in building out our sales team and infrastructure at Cinera, and I look forward to working closely with him on the execution of our strategy. Seth, I'll now turn it over to you to discuss our surgical sales results in

Speaker 3

more detail. Thanks, Ron. In the Q1 of 2024, our products were sold in over 10 80 facilities across 34 states and the District of Columbia. We continue to focus on increasing the use of our products in new and existing territories, expanding usage into new specialties and increasing our current facility sales. Our products were approved to be sold in more than 3,000 facilities as of March 31, 2024.

Speaker 3

Subsequent to the end of the quarter, a new contract with a large GPO went into effect, which has had a significant impact on the number of facilities in which our products are approved to be sold. Sales of our soft tissue products grew from $12,900,000 in the Q1 of 2023 to $16,100,000 in the Q1 of 2024. Sales of bone fusion products decreased slightly from $2,600,000 in 2023 to $2,500,000,000 in 2024. This was due to a slower than expected adoption of AlloCyte Plus as well as a larger than normal order from a facility in Q1 of 2023 of BioPharm, which subsequently returned to previous levels in subsequent quarters. I will now turn it over to Mike McNeil to discuss the details of our recent loan agreement with CRG as well as our most recent financial results.

Speaker 3

Mike?

Speaker 4

Thank you, Seth. I'd like to discuss the new debt facility we recently announced with CRG. This transaction helped us strengthen our cash position and provided access to growth and acquisition capital in a way that was non dilutive to equity holders. The facility allows for flexibility in the event of a transaction we believe would be accretive given the fact the company has the ability to draw additional capital beyond the initial $15,000,000 at our option. We are currently in discussions with the commercial bank for an additional $10,000,000 revolver as permitted under the CRG facility, which could give us access to what we expect will be lower cost capital for any immediate needs.

Speaker 4

The term loan is structured as a senior secured loan with a 5 year term and up to $55,000,000 in aggregate potential proceeds. In addition to the $15,000,000 drawn at close, we can draw up to an additional $40,000,000 before June 30, 2025. I'll now go into more detail about our most recent financial results for the 3 months ended March 31, 2024, Scenera generated net revenue of $18,500,000 compared to $15,500,000 for the Q1 of 2023, a 19% increase over the prior year period. Higher revenue in 2024 was due to increased sales of our soft tissue repair products, including Accelerate Rx as a result of increased market penetration, geographic expansion our continuing strategy to expand independent distribution network in both new and existing U. S.

Speaker 4

Markets. SG and A expenses for the Q1 of 2024 were $16,200,000 compared to $13,000,000 for the same period in 2023. The higher SG and A expenses in the Q1 of 2024 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $2,200,000 or 69% of the increase compared to the prior year period. Higher direct sales and marketing expenses were primarily attributable to an increase in sales commissions of $1,600,000 as a result of higher product sales and $600,000 of increased costs as a result of sales force expansion and operational support. R and D expenses for the 3 months ended March 31 were $900,000 compared to $1,300,000 for the same period in 2023.

Speaker 4

The lower R and D expenses in 2024 were primarily due to lower costs associated with the precision healing diagnostic imager and LFA. Cinera had a 1st quarter net loss of 1,800,000 dollars compared to a net loss of $1,200,000 during the same period in 2023. The higher net loss in 2024 was due to higher SG and A costs and higher amortization of our acquired intangible assets, partially offset by higher gross profit and lower R and D expenses. Our cash on hand at the end of the quarter was $2,800,000 With that, I'll turn it back to Ron for some closing remarks.

Speaker 2

Thanks, Mike. We're pleased with our progress in the Q1, continued growth and results that we had in that Q1. We obviously are striving to seek profitability. This is not a revenue play. This is a play to build a business and build it for the long term, and we plan to do so.

Speaker 2

Related to our surgical business, we've had multiple opportunities that continue to that we continue to review that complement our existing product offering. We continue to expand our products into other areas of specialty as well as other hospitals. We know you know that how many hospitals we're in today and we want to continue to advance that across the U. S. This concludes our remarks and we look forward to answering any questions you may have.

Speaker 2

Operator, we're ready to open the calls for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer

Speaker 5

Yes, Ron, I've just had one question and I can jump back in the queue. My question was the recent CEO transition, has that transition disrupted the sales momentum you've shown through Q1?

Speaker 2

Not at all. I would tell you, Ian, that the team is stronger than it's ever been. Seth Jan has been driving this for a long period of time and the sales team is we're sorry to see him go, but quite frankly, there's 0 disruption.

Speaker 5

Okay. Maybe a follow-up question maybe for Seth. I noticed that the bone infusion products, they've been kind of flat year over year. I was wondering if you could maybe speak to that since I believe the supply disruption kind of became abated in Q4?

Speaker 1

Sure. As I mentioned earlier, we did have

Speaker 3

a little bit of softening as we returned with AlloCyte Plus. And I do believe a lot of that is related to timing. As you can imagine, when you have an issue with inventory, then inventory then becomes an issue and it's replaced at a facility level with something else. And so, we had to start that cycle, that process again to get that product back in and get reengaged with our distributors as well. And that cycle, that process has taken a little bit longer than we had expected.

Operator

Thank you. There were no other questions from the lines at this time. Okay. We did have Ian Cassell come in with a follow-up. Ian, your line is live.

Speaker 5

When we think about the Tissue Health Plus and partnering on that, is that and I was trying to remember what you said in your prepared remarks, but is that something you expect hopefully to happen by the end of 2024 being able to have some partnerships for that?

Speaker 2

Yes, it is what we anticipate. So Ian, what we have done is we have designed a really thoroughly thought out strategy for how you approach value based in wound care. And actually no one has ever actually done this. So it is complicated because you've got payers, you've got providers, you've got products, you've got patients traveling through the continuum, you have so there's the issue of where do you take care of these patients because they're in the home setting, they're in home care, they're in SNPs, they're in LTACs. And because of all the discussions we've had historically about how episodic care does not fit well with the wound from just from a timing standpoint, You have typically the focus is on the primary comorbidity that gave rise to that wound.

Speaker 2

And so you really have to think through how do we catch this in its journey, how do we build a platform that it will allow for us to have continuous monitoring of that patient, but also have care coordination and navigation to be able to work through this. So when you think of all those steps, those are ideal partners

Speaker 5

Okay Okay. And maybe a follow-up, you're now CEO of the company. Do you view this as a temporary thing or do you see yourself staying in here permanently?

Speaker 2

It was a temporary thing when I started and spent 2.5 years in the seat. I'm actually in the seat every day and there's not a day go by that I'm not talking to somebody from Cinera. So really from my perspective, it's just a better line of communication for me to everyone. And, we're going to just onward and upward. And I'm looking forward to the journey.

Speaker 2

And I have no plans to change out of this position anytime soon unless something unforeseeable happens. And so I'm trying to dodge as many cars as I can, etcetera. So something doesn't happen, but I'm looking forward to it. This is my passion. This was originally my concept of what we wanted to go do and build this business.

Speaker 2

And I think we've done a remarkable job and it's only from one thing. It's not me. It's because we have people that are highly competent, that are passionate about what we do and they're in our company. And I don't see anybody that doesn't have that passion continuing and going forward for the execution of our strategy.

Speaker 5

And maybe to that, you recently announced adding 2 more folks to the management team. Can you talk about why you brought them on board and your experience working with them?

Speaker 2

Yes. Absolutely. We have a great team to begin with. But what you have to do is you're going through these growths and we're anticipating higher growth. So when you anticipate higher growth, you have to have more people in the seat and we look at a lot of opportunities.

Speaker 2

So we felt like we needed a dedicated corporate development person that also has got a strategic background. And so that's Tyler Palmer that joined us. He's got a long standing experience in wound care. And then we also need that operational focus with somebody that's also got financial strengths to complement what we do. And that's Jake Waldrop.

Speaker 2

And Jake and I have worked together for many years, and he came out of the ortho business and the lower extremity, ortho space and he understands it really well. And he is a former Chief Financial Officer that adapted real well to being a Chief Operating Officer. So we are delighted to have both of those in our camp. But what we also don't talk about is just all the other new people that come on to support all of this in our sales effort, the new trainees that come on board from the sales side that all are just remarkable and we're excited about coming on because we just keep getting more laser focused on what our needs are. And with those needs, we go identify the right kind of people.

Speaker 2

And if you've got a good strategy and a growth company, people that are high performers seek you out. And so I'm very positive about where we're going and I feel very good about the depth of the team. And this is not stopping. We'll continue to advance the depth of the team in order to keep up always with the infrastructure. As I've always said, companies go up, they've got to go sideways to build infrastructure and support so that they don't collapse, then they go back up again.

Speaker 2

It's a journey and it just continues to happen and that's how you can build greatness.

Speaker 5

Okay. Thanks, Ron.

Speaker 2

Thank you,

Operator

Ian. Thank you. And while we wait for any other questions, we did have a couple come in from the web. And can you speak to the profitability in relation to the revenue increasing, R and D decreasing, but the profitability taking a step back? And then also can you share some color around the SG and A increase and how it appears to be increasing as fast or faster than the revenue quarter over quarter?

Speaker 2

Yes. So, I will start by speaking to the lumpiness of how costs come in. And that is depending on how we're hiring, depending on how we are advancing sales. As you know, on our SG and A, a big variable in the SG and A is commissions paid. That goes that correlates very well with more sales coming in.

Speaker 2

And Mike, I'll let you talk about in just a second. But as you think about the business, we are striving for profitability. We've achieved profitability, although in a minor way, that's not where we want our levels to be. But what we also have to balance is that when we see opportunities that we think are a really good opportunity for our shareholders long term and building value, we don't want to we want to be prudent and make sure that we've got adequate capital that if we're going to take a bet on something that we believe will add significant value to us, we just need to make sure that we have a level of cash available to us to be able to do that, which means that we might forego some period of time for profitability if we know it's going to be a multiple of that from the investment that we made. But operational efficiency, sales efficiency and profitability are all top of mind.

Speaker 2

Mike, is there anything else you'd like to add

Speaker 5

to that?

Speaker 4

Yes. Thanks, Ron. I would just like to add, 2023 included a couple of benefits to the P and L such as change in fair value of earn out liabilities. We had a big credit last year we didn't have this year. And then also the amortization of our intangibles went up significantly and that really accounts for the higher net loss in 2024.

Speaker 2

Thank you, Mike.

Operator

Okay. There were no other questions in queue at this time. Would now like to hand the call back to Ron Nixon for closing remarks.

Speaker 2

Okay. Thank you very much. We thank all our shareholders for being on the call today. It is besides the people in our firm, the shareholders matter a lot. We love the continued support that you've given us.

Speaker 2

And thank you very much for the support through this transition. As we said, we do not believe it will be disruptive at all, But many of you have called to talk about your confidence with our firm, and we thank you for that and greatly appreciate it. So thank you very much, and we look forward to talking to our shareholders in the near term. Take care.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Former CEO Zach Fleming resigned and Executive Chairman Ron Nixon was appointed CEO, with management stating there has been no disruption to sales momentum.
  • Q1 revenue rose 19% year-over-year to $18.5 million and the company generated positive adjusted EBITDA of $0.3 million despite a net loss of $1.8 million.
  • A new debt facility with CRG provided a $15 million draw at close and up to $55 million in potential proceeds, offering non-dilutive growth and acquisition capital.
  • Sales of soft tissue repair products grew from $12.9 million in Q1 2023 to $16.1 million in Q1 2024, driven by market penetration and geographic expansion.
  • SG&A expenses increased to $16.2 million from $13 million, primarily due to higher sales commissions and costs associated with sales force expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Sanara MedTech Q1 2024
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