Tenon Medical Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 13, 2024

There are 5 speakers on the call.

Operator

Greetings, and welcome to Tenon Medical's Second Quarter 2024 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. Your hosts today are Steve Foster, President and Chief Executive Officer and Steve Van Dyck, CFO Advisor. Mr. Foster and Mr.

Operator

Van Dyck will present results of operations for the Q2 ended June 30, 2024 and provide a corporate update. A press release detailing these results was released today and is available on the Investor Relations section of our company website at www.tenonmed.com. Before we begin the formal presentation, I would like to remind everyone that statements made on call and webcast may include predictions, estimates and other information that might 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 would 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 obligating 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 projections. For a more complete discussion of these factors and other risks, you should review our annual report on 10 ks dated March 29, 2024, particularly under the heading Risk Factors, which is on file with the Securities and Exchange Commission at www.sec dotgov. At this time, I'll turn the call over to Tennant's Medical Chief Executive Officer, Steve Foster. Please go ahead, sir.

Speaker 1

Thank you, Maria, and good afternoon to everyone. I'm pleased to welcome you to today's Q2 2024 Financial Results and Corporate Update Conference Call for Tennon Medical. In the Q2, we continued to focus on building market share for our proprietary catarabrand system, supported by our recently restructured operational sales and marketing strategy. We are pleased with the sustained revenue growth and full year milestone of generating positive gross profit as we successfully resourced all of our U. S.

Speaker 1

Sales regions. We delivered a 21% year over year increase in revenue, driven by a 7% rise in surgical procedures utilizing the catamaran system. Gross profit of $470,000 expanded 142% as compared to the prior year quarter and generated solid gross margin of 52%. With sustainable revenue growth, we believe our stable cost structure will maintain a gross margin performance at recent levels and improve with increases in revenue. Across operations, we've made considerable commercialization and technical advances and remain on the right path during our 2nd year of commercialization.

Speaker 1

To provide an update on our restructured sales organization, during Q2, we have reached our 2024 full year target of sales operations in 5 geographic regions. With additional operational team members assigned across our now full geographic reach, we are poised for future growth. A significant component of our growth strategy is the investment in clinical research to reinforce the safety and effectiveness of the catamaran system. Significant progress has been made in this area. For those new to Tenon, this prospective multicenter single arm post market study evaluates the clinical outcomes of patients with sacroiliac joint disruptions or degenerative sacroiliitis treated with the catamaran SI joint fusion system.

Speaker 1

Patients will be evaluated for a period of up to 24 months, reviewing various patient reported outcomes, radiographic assessments and adverse events. In short, this study aims to show the catamaran system delivers on its promises. As we near completion of enrollment in this study, we have been notified that publication of our interim analysis is now imminent. This peer reviewed analysis reinforces that the catamaran system, utilizing a minimally invasive inferior posterior approach, is safe and effective in relieving pain and reducing disability in adult patients diagnosed with SIJ disruption or degenerative sacroiliitis with failed non surgical treatment. We look forward to sharing specific details when publication is complete in the very near future.

Speaker 1

This early validation provides conviction that the catamaran transfixing design and less invasive inferior posterior approach is functioning as intended to optimize patient outcomes through short term stabilization of the joint and long term fusion. Of note, the interim data from our study combined with the over 600 surgeries performed with the catamaran system today is demonstrating an exceptional safety profile, benefiting patients and their physicians alike and delivering on its clinical promises. Our ongoing workshop activities led by a network of valued physician faculty combined with the robust commercial infrastructure we've built have us prepared for rapid expansion. Our goal is to ensure we are precise in the selection of medical professionals with experience in SI Surgical Technologies and to provide them with world class workshop opportunities. Importantly, this is a prudent approach that contains cost and provides higher return value to patients, the cohort of physicians and Tennon's business overall.

Speaker 1

We experienced an increase in our interactive training corresponding with our restructured marketing and sales approach and hosted 36 physicians in catamaran workshops during the Q2 of 2024. As clinical data builds from our post market study validating the effectiveness of our SI implant approach, our sales and marketing activities will become more robust and drive our ongoing targeted physician workshop activities. With that, I'll turn it over to Mr. Van Vyck, our CFO advisor to discuss our financials.

Speaker 2

Thanks, Steve. I'll give us a sneak preview of our financial results. A full breakdown is available in our press release crossed the wire this afternoon. Our revenue was $901,000 in the Q2 of 2024, an increase of 21% compared to $743,000 in a comparable year ago period. Revenue for the 6 months ended June 30, 2024 was $1,600,000 an increase of 38% compared to $1,200,000 in the 6 months ended June 30, 2023.

Speaker 2

The increase in revenue for the 3 6 months ended June 30, 2024 as compared to the same periods in 2023 was primarily due to increases of 7% 19%, respectively, in the number of surgical procedures in which the catamaran system was used. Gross profit in the Q2 of 2024 was $470,000 or 52 percent of revenues compared to $194,000 or 26 percent of revenues in the comparable year ago quarter. For the 6 months ended June 30, gross profit was $940,000 or 58 percent of revenues compared to the gross profit of $147,000 or 13% of revenue for the previous year's period. Importantly, we have seen gross margins steadily improve due to the revenue growth associated with an increase in the number of surgical procedures, which resulted in a sustainable operating leverage due to lower relative fixed costs and the absorption of more overhead into our standard cost. Operating expenses totaled $4,300,000 in the Q2 of 2024, largely in line with the expenses of $4,500,000 in the Q2 of 2023.

Speaker 2

For the 6 months ended June 30, 'twenty four, operating expenses totaled $8,300,000 compared to $9,400,000 in the prior period. Decreases in operating expenses were primarily result of a decline in research and development expenses and sales and marketing expenses, offset by increase in general and administrative expenses. Net loss of $3,800,000 for the Q2 of 2024 compared to a loss of $4,300,000 in the same period in 2023. For the 6 months ended June 30, 2024, net loss was $7,400,000 compared to $9,100,000 in the previous year period. The company expects to incur additional losses in the future.

Speaker 2

As of June 30, 'twenty four, cash and cash equivalents totaled $2,000,000 as compared to $2,400,000 as of December 31, 2023. As of June 30, 2024, the company had no outstanding debt. Lastly, beginning with our Q3 in 2024 earnings call in November, Jay Hansen, our Interim Principal Accounting Officer, will join Steve to deliver the finance will join me to deliver the financial results during the earnings call. Additionally, Jay will join today's question and answer session following Steve's closing remarks. I will now turn the call back to Steve.

Speaker 1

Thank you, Steve. As we continue to drive momentum in the market represented by year over year increases in our catamaran procedures, we are regionally prioritizing the scale of the commercialization strategy of our proprietary FDA cleared surgical implant system. While the commercialization strategy was reorganized during the first half of twenty twenty four, we ended the second quarter with year over year revenue growth and an attractive gross margin. We believe the upcoming larger cohort of patient post market data will be a catalyst to drive growth and adoption in the second half of twenty twenty four, supported by the expanded penetration of our commercial infrastructure and seasoned sales management team. Lastly, on behalf of our Board of Directors and the entire Tenon Medical team, we wish Steve VanDyck the best in his retirement.

Speaker 1

Steve's financial expertise and leadership has set Tenon up for long term strategic growth and expansion. Mr. Van Dyck will remain with Tenon as a CFO advisor, while we continue our executive search process for a permanent CFO. In short, Steve will be missed. I thank you all for attending.

Speaker 1

And now I'd like to hand the call back over to our operator to begin the question and answer session with our covering analysts. Maria?

Operator

Thank you. We will now be conducting a question and answer Our first question comes from Bruce Jackson with The Benchmark Company. Please proceed with your question.

Speaker 3

Hi, good afternoon and thanks for taking my questions. I wanted to ask about the publication of the study results. Is this going to be the same 6 patients that we saw the early data on previously or will this be a slightly larger group of patients?

Speaker 1

Yes. Thanks Bruce and good to hear from you. So this will be a larger group of patients. This is an interim analysis to the degree that we've cleared 33 enrolled patients. Of course, those patients are all at different time points.

Speaker 1

Some were very recent, some have been 12 months or more post op. And so what this interim analysis will do is document the progress that we've made on all the things that we're measuring, everything from adverse events to patient outcomes and feedback and things of that nature, Not to mention everything that happens in the operating room, how long the procedure took, blood loss, all the details of a study like this. So this interim analysis will cover those 33 patients. And just to remind, this is a up to 50 patient trial. So it's a significant portion of the full enrollment.

Speaker 3

Okay. And then, is the study fully enrolled yet? And is this the type of study where we're going to keep getting a larger and larger patient base and we're going to be getting a stream of publications over the next couple of years?

Speaker 1

Yes, that's exactly right. This is the first formal publication from the study, Bruce, and it's in every way an interim analysis. As we proceed and as we get to bigger and bigger numbers that are hitting 6 months, 12 months, these critical milestones and we follow patients up to 24 months in the study and its protocol, we'll continue to provide updates and publications to support. For obvious reasons, we're trying to drive a statistical and clear message about the capabilities of this technology. So that's what we're doing here.

Speaker 1

So the answer is yes. You'll see a cadence, if you will, of publications and updates from as the data is gathered and tabulated, etcetera, as part of the study. You asked about enrollment. Enrollment is virtually finished. We have maybe a couple of 3 more patients to go here and we'll be closing enrollment officially.

Speaker 1

So very close to wrapping up the front end and the enrollment.

Speaker 3

Okay, great. And then just a clarification question on the definition of normalized surgical procedures. Is this like a same store sales type of measure or is it like a, just tell me what's, how that's defined?

Speaker 1

Yes. That's exactly right. What we're doing is assessing total surgical procedures and of course everything with revenue fluctuates based on average selling price and things of that nature. So that's what we're referring to there is the number of procedures that have actually been done.

Speaker 3

Okay, great. Congratulations on all of the progress.

Speaker 1

Thank you, Bruce. I appreciate it.

Operator

Our next question comes from Anthony Vendetti with the Maxim Group. Please proceed with your question.

Speaker 4

Thank you. Steve, I was wondering if you could just talk about the physician workshops, how many were hosted this past quarter? What's the expectation for the rest of this year? Just a little color on that would be great.

Speaker 1

You bet. Thanks, Anthony. Appreciate the question. So we hosted 36 sessions in Q2 and that was a significant increase over Q1. As mentioned in the prepared statements, we did restructure our selling organization, some of the positions in our organization in Q1.

Speaker 1

And so we had a slower Q1. We expanded that pretty dramatically in Q2, almost to an all time high. And we expect that to continue as we onboard these professionals. They go through their training and they're ready to go out and get after it in their assigned geographies. So that will continue to grow.

Speaker 1

And as we've talked about before, this is our mechanism to fill a proverbial funnel, if you will, with opportunities to show the technology, to train, put the physicians in a great shop environment with faculty, so they can get their questions answered, get comfortable with the technology. And of course, we hope that a large percentage of them will adopt the technology and begin using it in their clinical practice. So critical, critical, critical for us to train effectively and to execute these workshops effectively. And we think that's not only happening, but expanding very quickly now with our new team.

Speaker 4

That's great to hear. Maybe just a little more color. So once they obviously complete these workshops, the hope is that they adopt the catamaran system and the technology going forward. Do most of them or some of them act as references for other physicians? Are they willing to act as, let's say, KOLs or how can you best utilize their experience once they attend the workshop?

Speaker 1

Yes, indeed. Of course, after the workshop, there's some work to do usually, but their facilities and things like that to get approvals and facilities and get things squared away so they can begin using the technology. And yes, absolutely, once they get experienced with catamaran, many, not all, but many of the physicians love to teach. They love to pass the word on if they're satisfied with what they're And they can become faculty either in live training events, virtual training events, all different kinds of pathways to get that job done. Because quick candidly, there's nothing more powerful in our world than peer to peer work in education.

Speaker 1

They'll listen to us company guys for a while, but they like to hear from their colleagues. And so absolutely, Anthony, once they get comfortable with the technology, we're always in conversations about their willingness to represent, if you will, the technology in training environments and informational environments.

Speaker 4

Okay. And then lastly, you were mentioning about the sales force. Do you have a target for the end of the year in terms of the number of salespeople or is it you're going to be selective and grow when you get the right people in place?

Speaker 1

Well, we were very selective. So we've fully filled now all 5 of our sales regions around the country. These area sales managers are assigned to building that geography through independent distribution networks, right? As things get too big for them to manage, certainly, we'll contemplate expanding to more regions and things that. But right now, we feel like those 5 regions, properly focused, etcetera, are going to be able to deliver the kind of results that we're looking for going forward.

Speaker 1

These guys are very experienced, very professional people, and we're really encouraged by some of the new team members that we brought on here in the last 4 to 6 months.

Speaker 4

Okay. And then lastly on and then I'll hop back in the queue on the follow-up to that. So you have the 5 territoryregional managers and you have the independent distributors. How many independent distributors are there that report or work with your 5 regionalterritory managers?

Speaker 1

Yes, indeed. So of course, they don't report to them. They're independent by their definition. But our area sales managers partner with these independent distributors and frankly, our company across the board, internally and externally partners with these guys out in the field who are present in the operating room, who have relationships with physicians and what have you. We have over 90 of those contracts in place now, and that's growing every single day.

Speaker 1

And of course, when they come on board, there's some work to do to train and prepare them to represent the technology well and what have you. So all of that work is ongoing, but it starts with these new area sales managers, their network with independent distributors within their geography to get that number growing and building and to get that work done.

Speaker 4

Okay, great. Thanks so much. I appreciate the color. I'll hop back in the queue.

Speaker 2

Indeed. Thank you.

Operator

I would now like to turn the floor back over to Mr. Foster for his closing remarks.

Speaker 1

Thank you, Maria. So I'd like to thank everyone for joining us on 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, BMC Group, who would be more than happy to assist. And with that, I wish everyone a good day.

Powered by Quartr

Key Takeaways

  • 21% revenue growth in Q2 to $901,000 was driven by a 7% rise in surgical procedures using the Catamaran system.
  • Gross profit expanded 142% year-over-year to $470,000, achieving a 52% margin as higher volumes absorb fixed costs.
  • Tenon has fully staffed five U.S. sales regions and partnered with over 90 independent distributors to support future market expansion.
  • An interim analysis of a 50-patient post-market study on 33 enrolled patients is imminently publishing, confirming safety and effectiveness.
  • 36 physician workshops were hosted in Q2 to train and onboard new users of the Catamaran system, bolstering adoption through peer-to-peer education.
AI Generated. May Contain Errors.
Earnings Conference Call
Tenon Medical Q2 2024
00:00 / 00:00