Sanara MedTech Q2 2024 Earnings Call Transcript

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August 13, 2024

There are 11 speakers on the call.

Operator

Greetings. Welcome to the SonaraMedTech Inc. 2nd Quarter Results and Business Update. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator

Please note this conference is being recorded. I will now turn the conference over to your host, Calin Nichols, Director of Investor Relations at CenaraMedTech. Calin, 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 June 30, 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 Form 10 Q for the quarter ended June 30, 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 Seth Yahn, our President of Commercial Jake Waldrip, our Chief Operating Officer and Sam Bopala, who leads Tissue Health Plus. Please note that certain statements in this conference call and our press release and 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 our 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 Nixon.

Speaker 2

Thank you, Kellen, and good morning, everyone. During the Q2 of 2024, the company generated $20,200,000 in revenue. This is our 11th consecutive record revenue quarter. I'd like to take a moment to recognize our entire team, including surgical sales, clinical, R and D, customer service, marketing and finance who continued to do an outstanding job contributing to our record growth strategy. In the 2nd quarter, scenario generated a net loss of $3,500,000 and positive adjusted EBITDA of $600,000 Adjusted EBITDA is net of expenses that we view as non core in our operations, including $900,000 of separation costs related to our former CEO as well as $400,000 in legal and diligence expenses for prospective acquisitions and partnerships.

Speaker 2

Prior period, have been recast in our earnings press release to reflect this change in how we calculate adjusted EBITDA. Mike will go into this in more detail, but in Q2, we began reporting additional financial performance metrics of our Surgical business and Tissue Health Plus segment as separate segments that we could account for. Following the recent change in our CEO position, this transition to segment reporting better in lines with how I view the business. Our Surgical segment generated a $2,200,000 net loss in the 2nd quarter and a $2,700,000 net loss in the first half of twenty twenty four. On a segmented EBITDA basis, the Surgical segment generated 1,400,000 dollars and $2,500,000 of segmented EBITDA during the second quarter and first half of twenty twenty four respectively.

Speaker 2

We continue to see strong growth opportunities for both segments, which Seth and Sam will continue and will discuss in further detail shortly. During the second half of twenty twenty four, we expect to invest an additional $4,000,000 to $5,000,000 to build out the THP strategy in anticipation of the commercial launch in the second half of twenty twenty five, which Sam will detail later in the presentation. I will now turn it over to Seth to discuss our Surgical business results and momentum in that segment. Thanks, Ron.

Speaker 3

As of the end of the second quarter, our products have been sold in over 1100 hospitals and ASCs across 34 states and the District of Columbia in the trailing 12 months and were approved to be sold in more than 4,000 facilities in total. We currently have selling agreements with over 300 distributors representing 2,500 plus potential sellers. Looking at the growth of the territories and facilities in which we sell, in Q2, our products were sold into over 800 facilities compared to over 600 facilities in the Q2 of 2023. Sales of our soft tissue products grew from $13,200,000 in the Q2 of 2023 to $17,600,000 in the Q2 of 2020 4. Sales of bone fusion products were flat at $2,500,000 for the same quarter over quarter period in 2023.

Speaker 3

I'd now like to discuss some of the key opportunities for growth that we believe will continue to drive our future performance. In the Q2, we signed a contract with a national GPO that added over 1,000 facilities where our products are contracted or approved to be sold. Our team is working to generate sales in those new facilities while also working to future or further penetrate the existing facilities where our products are sold. As we have discussed before, we are also focused on expanding usage outside of our traditional specialty focus in Ortho and Spine. We see a significant use case and value proposition in the trauma, vascular and general surgery markets and are working diligently to expand into our used products into those areas.

Speaker 3

In addition to our organic growth, we are regularly evaluating opportunities for surgical M and A and partnership opportunities. Our management team sees synergistic potential transactions as a key growth driver that complements our strong organic growth strategy. I'd now like to introduce Jake Walter, our new COO to give a brief overview of some of the key initiatives he's been working on since joining us in April.

Speaker 4

Thank you, Seth, and good

Speaker 5

morning, everyone. The key focus of our operations team has been to centralize ownership and accountability across all aspects of our customer support, product fulfillment and underlying IT system infrastructure. This strategy includes building out an IT roadmap focus on workflow automation and digital support for our next phase of growth. On the sales operations side, we're implementing plans to efficiently scale our customer service team and simplify the selling process for both internal and external sales representatives. With significant growth experienced by the company, Cinera is working to separate and streamline its shipping and fulfillment operations to allow customer service to focus on best of class sales support.

Speaker 5

Our supply chain is also a key part of the strategy and we have reorganized our supply chain function to facilitate smooth and consistent operations across each of our product lines. With that, I will now turn it over to Sam to discuss more on our plans with Tissue Health Plus.

Speaker 6

Thank you, Jake. Good morning, everybody. As we discussed before, non surgical wound care is ripe for disruption. By non surgical wound care, we are referring to the wound care spend outside of surgical settings. This expenditure of roughly $100,000,000 per year in the U.

Speaker 6

S. Includes treatment services, corresponding medtech products and enabling diagnostic tools. Despite this large spend, the wound healing rate is estimated to be only 40% to 66% and the 5 year mortality rate for a diabetic foot ulcer is 30%, roughly the same as cancer. Moreover, 15% of the population over the age of 65 has a chronic non healing wound. $69,000,000 of this expenditure occurs in hospital, hospital inpatient or hospital adjacent wound centers, which is the highest cost setting.

Speaker 6

Dollars 35,000,000,000 is estimated to be either preventable or overused. THP is targeting this under managed expenditure with the goal of generating hospital based savings for payers and other risk bearing entities. We plan to orchestrate the delivery of high touch, comprehensive wound care at home and in community settings such as physician offices and skilled nursing homes. Our program aligns payers, patients and providers to deliver compelling value. THP's value based program is built on a science driven, first of its kind care model that integrates prevention, treatment and maintenance of wounds.

Speaker 6

A THP patient's journey starts with a targeted outreach from an assigned care navigator from our virtual care coordination center, the Care Hub. From that point on, our Care Navigator will be a consistent guide for all their wound care needs. THP Care Navigators will leverage a unique mix of education, engagement and transparency to increase patients' care plan adherence. Our value proposition to patients is simple, prevent wounds at least 25%, detect them early and improve the healing rates to 90%. An open 3rd party network will largely be our boots on the ground implementing our care interventions.

Speaker 6

We expect that THP's state of the art wound assessment software as a service medical device along with the groundbreaking real time EMR integrated clinical decision support will enable our network partners to deliver transformative wound care. We plan to enable higher EBITDA patient encounter revenue for our network partners along with enabling new revenue streams such as patient monitoring. Lastly, we expect our payer customers will benefit from the accrual of THP generated savings in the range to 2x to 5x of THP fees, while alleviating a major quality of life issue for their members. We are currently focused on finishing the build phase and plan to launch a pilot in the Q1 of 2025. Based on comparable specialty VBC programs and the industry spend in wound care, the scope of THP's contract for one single citywide market is likely to be in multiple millions.

Speaker 6

We are also exploring selecting strategic supply partnerships to derisk execution. I would now like to turn over to Mike to discuss our financial results in more detail.

Speaker 4

Thank you, Sam. During the Q2, Senera generated net revenue of $20,200,000 compared to $15,800,000 during the Q2 of 2023, a 28% increase over the prior year period. The higher revenue in Q2 was primarily due to increased sales of soft tissue repair products, including CELRADERX as a result of our increased market penetration, geographic expansion and our continuing strategy to expand our distribution network in both new and existing U. S. Markets.

Speaker 4

SG and A expenses for the Q2 were $19,000,000 compared to $13,800,000 for the same period in 2023. SG and A expenses included $600,000 $500,000 attributable to our Tissue Health Plus segment for the quarters ended June 30, 20242023, respectively. The higher SG and A expenses in Q2 of 2024 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $3,400,000 of the increase compared to prior year. SG and A expenses during the Q2 of 2024 also included $900,000 executive separation costs and $400,000 of legal and diligence expenses related to prospective acquisitions and partnerships. R and D expenses for the 3 months ended June 30, 2024 were $1,000,000 compared to $1,200,000 during the same period in 2023.

Speaker 4

R and D expenses included $400,000 and $1,000,000 attributable to our Tissue Health Plus segment for the quarters ended June 30, 20 24, and 2023, respectively. The lower R and D expenses in 2024 were primarily due to lower costs associated with the Precision Healing diagnostic immature and LFA. Depreciation and amortization expenses for the quarter ended June 30, 2024 were $1,100,000 compared to $800,000 for the same period in 2023. The higher depreciation and amortization expenses in 2024 were due to amortization of the tangible assets acquired from Applied Nutritionals in August of 2023. Interest expense was $600,000 for the quarter ended June 30 compared to 0 in 2023.

Speaker 4

The higher interest

Speaker 3

expense in 2024 was primarily related to our

Speaker 4

new term loan with CRG. Senera had a net loss of 3,500,000 dollars for the Q2 of 2024 compared to a net loss of $1,900,000 for the same period in 2023. The net loss included 1,300,000 dollars $2,000,000 attributable to our Tissue Health Plus segment for the quarters ended June 30, 2024 and 2023 respectively. The higher net loss for the Q2 of 2024 was primarily due to higher SG and A costs, higher interest expense related to our new CRG term loan, lower change in fair value of earn out liabilities and higher amortization of our acquired intangible assets, partially offset by higher gross profit and R and D expenses. Our cash balance at the end of the quarter was $6,200,000 As Ron mentioned earlier, in order to better inform the investor community of our strategic rationale of the acute and post acute comprehensive strategy investments, we will be breaking out the financial results of our 2 operating segments, Cinerosurgical and Tissue Health Plus.

Speaker 4

Net of expenses we believe to be non core to our operations, we generated consolidated adjusted EBITDA of $600,000 $900,000 during the 3 6 months into June 30, respectively. Our Senera Surgical segment generated positive segment EBITDA of $1,400,000 during the Q2 of 2024 $2,500,000 during the 6 months ended June 30, 2024. Tissue Health Plus generated negative segment EBITDA of 0 point 8 Q2 and negative $1,600,000 during the 6 months ended June 30, 2024. All corporate and overhead expenses are included in the Cinera Surgical segment as substantially all these costs relate to supporting operations and activities of the Surgical segment. Sinera Surgical also includes our in house research and development team, Rochelle Technologies.

Speaker 4

As Ron mentioned earlier, we plan to invest another $4,000,000 to $5,000,000 to further the Tissue Health Plus strategy during the second half of twenty twenty four. As we discussed in our last call, we closed a new $55,000,000 debt facility with CRJ during the Q2. This transaction helped us strengthen our cash position provided access to capital in a way that was non dilutive to equity holders. The term loan is structured as a senior secured loan with a 5 year term. In addition to the $15,000,000 drawn at close, we may draw an additional $39,800,000 before June 30, 2025.

Speaker 4

This facility provides us access to capital for accretive transactions and general working capital purposes. I will now turn it over to Ron for closing comments.

Speaker 2

Thanks, Mike. We continue to execute on our strategy both in surgical and post acute wound care value based strategy. Our surgical team is generating positive adjusted EBITDA and we expect to see continued improvement in operating results while executing on the growth plan and market expansion. As discussed, we see a significant opportunity to disrupt the post acute wound care market with our value based strategy and anticipate a 2025 commercial launch. Operator, I'd now like to open the line for questions.

Operator

Thank you. At this time, we will be conducting a question and answer The first question today is coming from Ross Osborne from Fitzgerald. Ross, your line is live.

Speaker 7

Yes, congrats on another record quarter. Thanks for taking our questions. So starting off, there's been a lot of disruption in chronic wound space with regards to reimbursement causing some confusion. Any thoughts on the market broadly? And could you provide some more color on the diagnostic front of PHP, especially given that I believe you're targeting the home care space?

Speaker 2

Yes. Ross, this is Ron. And I'm assuming that you're talking about the disruption is around the CTPs and the use of CTPs and the fact that the number of those are not being reimbursed today. But for the broader question, I'm going to turn it over to Sam. And Sam, if you want to address that, that would be great.

Speaker 6

Thank you, Ron. In terms of the disruption in the chronic wound care space, especially the PTP, that is something we are factoring into our strategy. As we discussed before, our strategy is to generate savings and mostly hospital based savings. So this the direction CMS and the payers are moving in is very congruent with where we're going. In terms of the diagnostic device, one of the key things which we looked at when we were putting to the THP strategy was how do you make this diagnostic devices scalable in cost and also something which can be used across multiple setting and multiple levels of clinicians.

Speaker 6

So as we come out with that, we'll be you would see that that's the key aim we have actually achieved.

Speaker 7

Okay, got it. And then switching to your partnership with Tufts, any color you can provide on the corporation timeline of the peptides that decelerate our eggs?

Speaker 2

We've got several various activities going on right now with that with the 18 peptides that you're referring to. We're obviously not going to take on all to 18 at one time, but we are we have taken on and are selecting certain ones that you'll be hearing more about in the near term, Ross.

Speaker 7

Okay, great. And then lastly, could you walk through the game plan for targeting your new adjacent markets you called out such as trauma? Just the key steps there to driving adoption? Do you need to generate more data? Is it more such a factor of knocking on doors?

Speaker 7

Any color would be helpful. Thank you.

Speaker 2

Yes. Seth, would you mind taking that please?

Speaker 3

Sure. We'll continue to expand with the right distribution partners in those spaces as well, alongside of even looking at other partnership opportunities as well to expand into those unique specialties. So that will be a focus. In addition to that, we've also hired some specialists as well that are focused specifically into the bone space as well. We think that that can be a great complement to get into some of those additional specialties.

Speaker 7

Okay, great. Thanks for taking our questions. Congrats again another strong quarter.

Speaker 2

Yes. Thank you, Ross.

Operator

Thank you. The next question will be from Chris Plumb from Tall Pines Capital. Chris, your line is live.

Speaker 4

Good morning, guys. Good morning, Chris.

Speaker 8

Two questions. One with the new GPO deal, does that cause a shift in strategy to go after the 3,000 approved that aren't sold into? And then also if we can get a little more color update on BioServe's progress since launch?

Speaker 2

Yes. Seth, why don't you take both of those, if you would, please?

Speaker 3

Yes. We'll continue to look to expand both at a local level and at a national level to gain access into these facilities. So that progress won't change, that approach won't change for us as far as having access at both the local IDN level and also at a national GPO level. We've done that with great success, which obviously allows us a faster track to success, but also the attraction that it brings to great distribution partners. That's a wonderful thing for us as well.

Speaker 3

So that's one. The second question again was specific to what? Could you ask that again?

Speaker 8

To BioSurg, just how that's going?

Speaker 3

Sure, sure. We had a soft launch of BioSurg in the late Q4 of 2023. It's really started to pick up and carry some momentum, not only on a contracting side, but again as a sales organization, we're looking at that as a facility level conversation, not just a surgeon level conversation. But we're really happy with the progress being made specifically through the Q2 with the growth of that product as well. It's fit nicely into a top 6 product for us already in its overall performance.

Speaker 3

And again, really happy with the progress that's being made with that product.

Speaker 2

Seth, why don't you tell Chris a little bit about the feedback also from the surgeons that have used it?

Speaker 3

Yes, all the way around, we've reached a number of different specialties. And again, I think that's another piece that's complementary to us reaching into other specialties. Every single surgeon that's into the OR is using some type of wash and that allows us to expand into the trauma and the general and plastic spaces as such as well. But we've had wonderful feedback from everything from orthopedics into spine, vascular general in a very early window and really satisfied and happy with again the progress that's being made there in multiple

Operator

Thank you. The next question is coming from Ian Cassel from MicroCapClub. Ian, your line is live.

Speaker 9

Hey, thanks for bringing the whole team on. This is very beneficial. Maybe my first question maybe is kind of relating to what Seth answered, I mean, a few questions ago. I was curious if there's any color into why the bone fusion products specifically seemed that their growth has been stagnating in the last couple of quarters?

Speaker 3

Seth? Sure, I can answer that as well. So I would say this part of that is an approval process, 1, where maybe the access for products like Cellarates and Fortify and such have a little bit greater opportunity based upon the number of approvals. One of the ways that we're tackling not only that is at a national level and local, but we did just recently in the last 90 days, we've hired a few bone specialists as well that will be in different markets to help build that out in addition to the regional managers and distributors that we have today. We think that's a great complement to that space into those markets and should start to see a rise coming out of it as a result of people being hyper focused into that bone space, whereas you can see from our performance, the performance has really been focused into that soft tissue space.

Speaker 3

So we think this is a great one two punch for us in the second half of the year.

Speaker 9

Thanks. I appreciate that. My next question would be for Sam. What are the key areas you need to solidify to get ready for that Tissue Health Plus pilot in Q1 of 20 25?

Speaker 6

Thank you, Ian. In terms of the key areas, there are 3. The first is we are finishing the build out of our technology platform. The second is we are finishing off the build out of our economic model and on boarding assets for both preparing education and onboarding assets for both onboarding our staff as well as our network partners.

Speaker 9

Thank you. And maybe last one for you, Ron. I appreciate you breaking apart in the segment financials, so we can see what Tissue Health Plus is doing versus surgical. What is preventing you from being more profitable in surgical at your current run rate?

Speaker 2

Yes, that's a good question. So Ian, quite frankly, we set out from the very beginning with the launch of CELERATE and then beyond adding additional products, we want to be a complete portfolio of products to be able to support the surgeons for ancillary products that can help them in their surgery. So protect their work, make their work better. And we've done that successfully by adding our biosurge to that along with CELEARATE and our other products, both soft tissue and bone. But we're not stopping there.

Speaker 2

We're going to continue as Seth talked about the 3 new areas that we want to go after related to vascular and plastics in general. And they may have different needs for us and we're constantly looking for what else we can either acquire or partner with others. And because of doing that and knowing where we want to go and how we want to get there through either these partnerships or acquisition, we want to continue to build our infrastructure to support this organization. You heard so I wanted Jake on the call today. Jake came aboard and he's helping us to increase our efficiencies across everywhere, make sure that we can support a high growth organization and we're not interested in slowing down our growth to maximize profitability today.

Speaker 2

We believe we can maximize profitability as we move into the future just by getting fixed cost leverage as we continue to add more and more to what we're doing today. So, hope that answers your question, but that's a game plan and that's where we're headed and we've got a keen eye on a plan to profitability, increased profitability from where we are today.

Speaker 9

Maybe one last one to tag on to that. That. It does look like your growth rate really bounced back from late last year or middle last year, which is good to see. Was there anything kind of one time stocking order here in Q2 that made it more robust than it would have been under a normal sales cadence?

Speaker 2

I don't believe so. Mike?

Speaker 3

I can answer that as well. We had really steady incremental growth throughout the entire quarter. It wasn't a shot in the arm type of order or big stocking orders or things like that, that kind of inflated the number that did not occur in the Q2 and really happy from April and the growth inside of April to May and it just continued to climb. So I would say that the progress was really, really strong overall and it wasn't a result of just a one time order.

Speaker 2

Yes. Yes. And I think I misunderstood your question, Ian. Sorry about that.

Speaker 9

That's okay. Thanks. I appreciate it.

Operator

Thank you. And the next question will be from John Siedoff from Twin Oaks Equity LLC. John, your line is live.

Speaker 10

Thanks. Ron and Mike, congratulations guys on the continued growth. I mean that's to be an $80,000,000 run rate is fantastic. You guys have done a great job over

Speaker 4

the last 5 years. Congratulations. Thank you, John.

Speaker 2

Thanks, John.

Speaker 10

Thank you. You bet. Of course. Ian had a great question about the we all know how much it costs to grow a company and the cash that you need for that. And I see that you've gotten a new facility and I certainly like that because you can't run out of money.

Speaker 10

Ron, do you foresee when is there like a certain number that you're I know that you always have a focus on where you want to be in the growth. When do you see a breakeven or do you see that you're going to continue to burn some cash as you grow because it takes money to grow. Well, the

Speaker 2

separation of Tissue Health Plus ultimately, which we've talked about that we're going to that we've always wanted to seek other partners that can help us in the success of Tissue Health Plus. And as we continue to move to that and Tissue Health Plus crosses that profitability threshold, which we believe that they launches in 20 25, it will be very early. It'll have a very early success once the contracts are awarded. And so once that happens, then surgery by itself stands on its own and is going to be it is just fine from a profitability standpoint. We know we've got great margins.

Speaker 2

We've got great momentum in the sales effort. We continue to expand. We just build our infrastructure around it and then you'll start to see what I think will be significant leverage off of our SG and A.

Speaker 10

I certainly agree with you there. You've got to get to that you've got to get to enough force going forward. Do you see the negative this negative cash burn, the cash burn as a reason for our what I think is a depressed stock price?

Speaker 2

I don't actually the stock market always confuses me. I never understand my decision, so I really can't speak to that quite frankly. All I know is I've not sold a share of stock nor have most of our directors and we all believe in going and we believe that this is going to be a very successful company. So we are enjoying the ride and we're going to just continue to go forward, John.

Speaker 10

Well, neither have I. I just wanted to get you yours and Mike's take on that and see how we're doing for the investors and I appreciate the growth that you guys are continuing to show us out there in the market. Appreciate it guys. Thank you. Thank you, John.

Speaker 10

You bet.

Operator

Thank you. There were no other questions in queue at this time. I would now like to hand the call back to Ron Nixon for closing remarks.

Speaker 2

Just want to thank all our shareholders that attended the call today and all the ones that will read about it. And we just thank you for all your support. Thank you for hanging in there. We believe in our future. We're very excited about where we're going and how we're going to get there.

Speaker 2

And we continue to build a team that's I think best in class and I feel very, very, very proud of that. And so thank you all for attending today and we'll talk to you soon.

Operator

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

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Sanara MedTech Q2 2024
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