TELA Bio Q4 2024 Earnings Report

TELA Bio EPS Results

• Actual EPS: -$0.23
• Consensus EPS: -$0.24
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

TELA Bio Revenue Results

• Actual Revenue: $17.65 million
• Expected Revenue: $23.17 million
• Beat/Miss: Missed by -$5.52 million
• YoY Revenue Growth: N/A

TELA Bio Announcement Details

• Quarter: Q4 2024
• Date: 3/20/2025
• Time: After Market Closes
• Conference Call Date: Thursday, March 20, 2025
• Conference Call Time: 4:30PM ET

TELA Bio (NASDAQ:TELA), a commercial-stage medical technology company, focuses on providing soft-tissue reconstruction solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient's anatomy. The company provides a portfolio of OviTex Reinforced Tissue Matrix (OviTex) products for hernia repair and abdominal wall reconstruction; and OviTex PRS Reinforced Tissue Matrix products to address the unmet needs in plastic and reconstructive surgery, as well as OviTex for Laparoscopic and Robotic Procedures, a sterile reinforced tissue matrix derived from ovine rumen with polypropylene fiber intended to be used in laparoscopic and robotic-assisted hernia surgical repairs. It markets its products through a single direct sales force, principally in the United States. The company was incorporated in 2012 and is headquartered in Malvern, Pennsylvania.

TELA Bio Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the TeleBio Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the prepared remarks. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Greg Hundacek from The Gilmartin Group.

[Operator]

Please go ahead.

[Greg Chodaczek, Managing Director at Gilmartin Group]

Thank you, Latif, and good afternoon, everyone. Earlier today, TeleBio released financial results for the fourth quarter and full year 2024. A copy of the press release is available on the company's website. Joining me on today's call are Tony Kovlich, President and Chief Executive Officer and Roberta Cuca, Chief Operating Officer and Chief Financial Officer. Before we begin, I'd like to remind you that during this conference call, the company will make projections and forward looking statements regarding future events.

[Greg Chodaczek, Managing Director at Gilmartin Group]

We encourage you to review the company's past and future filings with the SEC, including without limitation, the company's annual report on Form 10 K and quarterly reports on Forms 10 Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements. These factors may include, without limitation, statements regarding product development and pipeline opportunities, product potential, the impact of various macroeconomic conditions identified in our filings, like changes in surgical procedure volumes, the regulatory environment, sales and marketing strategies, capital resources or operating performance. With that, I will now turn the call over to Tony.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Thank you, Greg, and good afternoon, everyone. Thank you for joining Telebio's fourth quarter twenty twenty four earnings call. I'll begin by reviewing the quarter and factors that affected performance, then I'll turn the meeting over to Roberto for a review of the financials and in our outlook before opening it up for your questions. We generated $17,600,000 in revenue in the fourth quarter, growing 3.8% versus the fourth quarter of twenty twenty three. This was lower than our expectations and marks the first instance of single digit revenue growth at TELA since the start of the COVID-nineteen pandemic.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Despite, as we noted in our Q3 call, October marking the strongest first month of any quarter in TELUS history and trending towards a strong finish in 2024. So what happened? There were several minor or hard to quantify external factors impacting performance, but ultimately the primary driver of this underperformance was lower than planned headcount in our U. S. Sales force in the fourth quarter exacerbated further by a number of departures, including unplanned productive losses in late November and into December.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

In August 2024, we made some fundamental but necessary changes in our commercial organization to realign our sales force around a new strategic commercial direction. This realignment included a focus reduction in headcount related to managerial, administrative and support roles, but also included the departure of approximately 10 to 15 underperforming sales reps to address gaps in productivity and efficiency, partially offset by the conversion of certain support personnel into quota carrying roles. Although our top reps continue to drive performance in line with expectations throughout Q4, we also for the first time in our history experienced a number of departures from the sales force of productive reps. These additional losses included some key reps who were lured away by large financial incentives from companies in the wound care space as well as a few newer entrants building out their sales force within the plastic and reconstructive space. When combined with the prior realignment, these losses created a situation where we simply didn't have the headcount to make up the difference so late in the quarter.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Turning to some of the external headwinds that contributed to fourth quarter results. First, in late September, Hurricane Helane made landfall on the Gulf Coast Of Florida and continued north through Georgia, South Carolina and most notably in North Carolina, where the storm caused significant damage to a plant responsible for manufacturing 60% of the IV fluids used in The U. S. Elective Surgeries in our two strongest sales regions slowed down as a direct result of the storm, while the ensuing shortage of IV fluids appears to have affected surgical volumes throughout The U. S.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

As we had anticipated, feedback from the field indicates that these shortages manifested more in November and December as hospitals depleted their existing stocks earlier in the quarter. And finally, although it's difficult to measure Christmas and New Year's Day fell on the Wednesdays of their respective weeks, potentially reducing the number of days in those weeks that surgeons operated or that patients scheduled procedures. While there is no clear signal of an impact in our sales, it's possible it had an effect and was cited by at least one other market participant as a cause for softness in Q4 elective procedure volumes. Despite this disappointing fourth quarter performance, we have already implemented necessary measures to address the challenges we experienced in the quarter. We believe these actions, when coupled with a few substantial tailwinds, will position Tele for strong performance in 2025.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

The primary adjustment comes from the full implementation of our full revised commercial strategy, including those short term adjustments we made as part of our August or Q3 realignment. This is led by an evolution of our field based sales organization strategy, where we have redefined our approach to the division of responsibilities between our territory managers or TMs and our account specialists or ASs. The AS position represents a vital direct field level auxiliary sales role with each AS brought on board to provide procedural case coverage within the territory of one or more of our top TMs. This team based sales strategy allows our TMs to pursue new customer accounts or drive deeper penetration into existing customer accounts, while simultaneously helping newer ASs more rapidly integrate into our organization, receiving significant on the ground experience under the tutelage of our top TMs with the potential to transition into a TM role more quickly and efficiently. Where successful, this should set up the promoted AS for long term success in their new territory.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

We have seen success with this program so far through 2024, prompting us to allocate additional resources toward recruiting and retaining more ASs. This strategy aims to enhance the reach and productivity of our TMs, strengthen our relationship with customer accounts and establish greater stability with existing customers irrespective of future changes with the TMs or other ASs serving on these selling teams. At the end of Q3, we had 76 field based representatives, 60 nine territory managers, TMs and seven account specialists, ASs. However, if we look at the end of Q4, we had 71 total representatives with 63 TMs and eight ASs. The intra quarter churn and unexpected departures of several TMs ultimately drove volatility and top line performance.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

As we look ahead this year, we expect by the end of this month, we will have 88 total reps with nearly 70 TMs and close to 20 ASs, well on our way to reaching our year end target of 97 reps, consisting of approximately 76 TMs and 21 ASs. We believe this model positions us well for the future as it allows us to identify and foster top talent while providing a roadmap for developing additional high performing TMs. The value of a high performing TM cannot be overstated as seen even in our Q4 results where our top reps continue to perform well with the top 44 reps achieving over 90% of their quotas in the quarter or virtually 100% of their allocated budget targets even despite some of the external tailwinds we discussed earlier. Although we won't have full data to report until after the quarter, revenues year to date have been strong and are signaling that the crucial Q4 rebuild decisions inherent in this strategy will be important drivers for growth moving forward. Our commercial leadership team, including our CCO, have now completed a full six months in their respective roles.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

This period was marked by a strong third quarter and was followed by a more difficult period that included strategic shifts, implementation of a new market approach and the recalibrated sales structure. With continued stability, we believe this should return TELA to sustained and normalized growth rates for 2025 and beyond. In addition to these meaningful sales force adjustments, several other factors drive our optimism in our 2025 outlook: an expanding product portfolio, our broadening reach to surgeon customers and our continued development of clinical data in support of our products. From a broader perspective, there is a substantial portion of the market share that remains available for us to capture in both hernia and PRS. In hernia repair, eighty percent of all procedures still utilize permanent synthetics.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

And as at least one major competitor is publicly announcing shifts toward their costlier resorbable product lines, Tele has the opportunity to highlight OVATEX's consistent clinical performance and value proposition to drive adoption. In the PRS market, where we launched our first products in 2019, we are only beginning to address the $800,000,000 U. S. Opportunity and we have significant runway to generate substantial growth with our expanding portfolio of PRS solutions. In 2024, we launched among other products the Liquifix and Ovetex IHR product families.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Both quickly gained traction after launch with Liquifix obtaining contract access with two GPOs as an innovative breakthrough technology and both have afforded us access to customer groups with whom we may previously have had less interaction. Because LiquiFix is indicated for use only with synthetic mesh, we've been able to discuss that product and introduce TeleBio to surgeons who may not have been active OVERTEX users. The IHR product line was also quickly adopted by surgeons using minimally invasive techniques to repair inguinal hernias, leading to more than $1,000,000 in sales since its April 2024 launch. Total Liquifix sales are also nearing $1,000,000 We expect both product lines to continue to grow robustly in 2025, further expanding TeleBio's profile in the hernia repair space and increasing awareness of all of our products. In 2025, we expect to launch larger sized versions of our existing OVATEX PRS products and a new long term resorbable alternative for our hernia products.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

The PRS offerings in particular are highly anticipated by surgeons since certain techniques within that space require or benefit from access to larger units. We expect both sets of innovations to represent incremental revenues as they are not merely replacing smaller pieces that were already being used. In support of our expanded product offerings, we also continue to invest in medical education and broader surgeon outreach. Several initiatives are already thriving and helping us set the stage for the year, including a live robotic hernia symposium featuring Forgut specialists faculty doctors, Philip Woodworth and Reginald Bell, both highly respected leaders in this space. A national webinar with renowned surgeon, Mr.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Alastair Windsor from London, a leading advocate for shared decision making. Mr. Windsor's participation elevates our commitment to furthering U. S. Adoption of this current best practice in Europe.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Our third annual Plastic Reconstructive Summit, an invitation only event spotlighting emerging technologies designed to enhance outcomes in soft tissue reconstruction and attended by more than 30 surgeon specialists in this space. Beyond education, we've already made significant strides in regional and national society meetings in '25 with planned sponsorship of 16 key industry events, providing exposure to nearly 5,000 surgeons. In addition, we hosted a standing room only lunch symposium at SAGES, where experts Doctor. Reg Bell, Doctor. Tripp Buckley III and Doctor.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Steven Demeester led an engaging discussion on PARIS Esophageal Hernia Repairs. Our long term ventral and inguinal data were also presented at this meeting, showcasing their lower current rates across hundreds of patients with five years of follow-up further validating the clinical benefits of OVATEX. We remain committed to the collection of clinical data showcasing the value of our products. And in the fourth quarter of twenty twenty four, we achieved the significant regulatory milestone of obtaining IDE approval for a PRS long term resorbable breast reconstruction investigational study. This approval underscores our continued investment in clinical research and to the future of our PRS business.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

In addition, we continue to enroll our OPERA study, a retrospective prospective trial evaluating the safety trial safety profile of OVATEX PRS in previous prepectoral and subpectoral implant based breast reconstructions. We are aware of two newer surgeon publications based on surgeon derived studies involving the use of PRS in these applications with the understanding that several similar publications may be in progress. By the end of twenty twenty five, we expect to have 300 to 400 patients under study using our various PRS offerings. Since TELA's inception, we have sold over 65,000 OVATEX and nearly 15,000 OVATEX PRS units. Our next goal is to reach $100,000,000 in revenue and shortly thereafter to achieve profitability.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

We foresee reaching these milestones in the not too distant future and in continuing to establish our products as the gold standard for soft tissue preservation and restoration. With that, I'll turn the call over to Roberto to provide more specifics on our financial results.

[Roberto Cuca, CFO & COO at TELA Bio]

Thanks, Tony. As Tony mentioned, revenue for the fourth quarter of twenty twenty four increased 4% year over year to $17,600,000 and grew 19% for the full year to $69,300,000 with revenue from OVATEX growing 17% and OVATEX PRS revenue growing 21% for the year. The growth was primarily due to an increase in unit sales of our products resulting from the addition of new customers and growing international sales. OVERTEX unit sales grew 28% for the quarter and 33% for the year, while PRS unit sales grew 11% for the quarter and 31% for the year. Gross margin was 64% for the fourth quarter and 67% for the full year compared to 6869% for the prior year periods respectively.

[Roberto Cuca, CFO & COO at TELA Bio]

The decrease was primarily due to higher expense recognized for excess and obsolete inventory adjustments as a percentage of revenue, which resulted from the introduction of newer generation products. Sales and marketing expense was $14,000,000 in the fourth quarter and $64,600,000 for the full year compared to $17,200,000 and $59,700,000 for the prior year periods respectively. This increase was mainly due to higher compensation costs, primarily from increased commissions and severance costs, increased travel and consulting and additional selling related expenses, which offset decreases in marketing expenses. General and administrative expense was $3,600,000 for the fourth quarter and $14,700,000 for the full year compared to $4,100,000 and $14,900,000 for the prior year periods respectively. R and D expense for the fourth quarter was $2,000,000 and for the full year was $8,800,000 compared to $2,700,000 and $9,600,000 for the prior year periods.

[Roberto Cuca, CFO & COO at TELA Bio]

Loss from operations was $8,400,000 in the fourth quarter of twenty twenty four and $34,100,000 for the full year compared to $12,300,000 and $44,100,000 in the prior year periods. Net loss was $9,200,000 in the fourth quarter and $37,800,000 for the full year compared to $12,900,000 and $46,700,000 for the prior year period. We ended 2024 with $52,700,000 in cash and cash equivalents. For 2025, we anticipate revenues to be in the range of $85,000,000 to $88,000,000 representing growth of 23% to 27% over the full year 2024. We expect that operating loss and net loss will continue to decrease coming in lower in 2025 than in 2024.

[Roberto Cuca, CFO & COO at TELA Bio]

Reiterating what we said last year, we expect that the operating efficiency improvements that we made in the second quarter of twenty twenty four will provide a reduction from the first half of twenty twenty four's run rate. As a result, we expect OpEx in 2025 to be flat compared to full year 2024. For the first quarter of twenty twenty five, we expect revenues to be in the range of $17,000,000 to $18,000,000 based in large part on our visibility into performance to date. With that, I'll hand the call back to Tony for closing remarks. Thank you, Roberto.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

As we reflect on 2024 and look ahead, our progress is undeniable. We strengthened our global footprint, expanded our educational impact and continue to differentiate our solutions through clinical validation and portfolio expansion. Most importantly we have entered 2025 with unwavering momentum and a motivated team and a clear vision for growth. The market's expected shift away from synthetic mesh represents a significant opportunity for us and our strong commercial strategy positions us to capitalize on this evolving landscape. Coupled with our disciplined operating expenses and a strong cash position, we are well equipped to execute our plan and drive sustained success.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

We are motivated by the early successes of this year from an energized national sales meeting to robust surgeon engagement at key industry events. With a focus on execution, innovation and collaboration, we are confident in our ability to deliver meaningful value to our stakeholders as we head toward our next milestone of $100,000,000 in revenue. I want to thank our dedicated team for their relentless commitment, and we look forward to a transformative year ahead together. We will snap back. With that, I'll now ask Latif to open the line for your questions.

[Operator]

Thank you. Our first question comes from Frank Tikhonnen of Lake Street Capital Markets. Your question please, Frank.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Great. Thank you for taking the questions. Hey, Tony here, Roberto. Wanted to start with one follow-up around the Territory Manager departures. I think the net number you gave was down six Territory Managers from Q3 to Q4.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

And can you talk about gross numbers? How many reps did you lose? And then how many did you hire in the quarter? And then I know you mentioned compensation as one factor. Any other reasons for some of the rep departures?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Yes. I mean, look, there were ins and outs in Q4. But if you look at it in November and December roughly, we lost 11 TMs due to unplanned departures, right? So they never tell you, you don't see it coming. And I guess they come in clusters.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

This hasn't really happened to me before. So it certainly got our attention. And I guess, our reps are coveted, they're sought after, they're good. And that was a big number and difficult to recover from late in the quarter. Basically, like I said, some of these wound care companies that are smaller and and have these interesting reimbursement positions definitely through some serious amounts of guarantees and cash around to lure these folks out.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

And I think in 2024, we also had some meaningful players that were building PRS organizations. And for lack of a better word, I think we got poached at the very end of the year. So that's kind of where we are. Even with those ins and outs, I I think I mentioned where we were with the end of Q4. Well, I'll tell you where we are now.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Where we are now is about 88 territory managers, Frank, with a mix of about 20 account specialists and the rest being TMs. So we've snapped back pretty well. The talent that we've been able to lure in and replace, I think in some cases were even upgrades from some of those 11 that departed. I would consider those 11 that departed to be kind of in the middle to upper middle class range. Our top performers were not impacted by that, but some pretty good reps went.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

So we feel good about the energy and momentum we have in the first quarter. And I think the growth and application of the account specialists is going to blunt that risk, which we started to set up in Q3 of last year, right? Not only do these account specialists allow our reps to extend their reach. So good for offense, but also good for defense, right? They can have a deeper presence in the accounts with this team selling approach, which should be able to alert us to competitive activity.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

And then if we ever do take a loss on the TM side and are depleted in that way, we have very strong account specialists in place as backup. And I'll just say a little bit about the account specialist. So we used to have a program known as associate reps and we've really elevated that. So we're hiring more experienced folks in the account specialist role. They have in most cases, some type of selling experience or in all cases, a very good clinical understanding and background.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

So these folks will be able to contribute. Our top reps, the $2,000,000 and $3,000,000 plus reps have all made excellent use of account specialists and it's a very well proven model for us that it extends the growth and performance of our top reps. So I think we're in very good shape around the sales force recovery and reconstruction with about 88 total field based folks on the ground right now. Our plan for the year, Frank, is to be at around 97, maybe we get to 100, but 97 with a mix of mid-70s or higher on the PM side and 20 or higher on the account specialist side.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Okay, that's helpful. Thank you. And then maybe on the outlook for 2025, I'm most curious about kind of unit versus ASP expectations. I think if you back into the ASP, it was down in the teen percent range for OVA text and then still maybe close to double digits for PRS from an ASP perspective. How should we be thinking about your assumptions for volume versus ASP to get to the 2025 guidance?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Yes. So I think to a certain extent, the advent of the IHR and our collaboration and compatibility with the robot, it's a good thing, so that we can be a full service hernia provider. But obviously the IHR, the inguinal procedures, the hiatal procedures, they're going to be a little bit of a lower ASP, which can affect things. And as we're transitioning from a company that was more focused on ventral and complex, which tends to be higher ASP, bigger pieces, we have to get a more fulsome approach to selling the full bag across from Inglenow on up. And perhaps we were a little bit in no man's land where the growth of the IHR and the LiquiFix products, although great, are coming on and we think that they should be able to fill that gap.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

So if you look at Q1, Frank, we did probably, I don't know, half or more, maybe even two thirds

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

of some

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

case, so far in Q1 of IHR and Liquefix that we did from April to December. So we may have had a little bit of no man's land as we transition to a more full service provider at the end of twenty twenty four. We're just going to have to make it up on the volume. And I think that seems to be playing out right now thus far in Q1. On the PRS side, I think we're going to see possible ASP expansion.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

The two new large LTR pieces will be the largest tissue based matrices ever developed. And we had 30 plastic surgeons in town for a summit meeting last weekend. And I can tell you there's a lot of interest in that product as well, given the shift to pre pack and DTI type procedures. So I do think that the PRS ASP will be highly stable to growing. On the hernia side, we have to transition to a full service provider and then we'll find a new kind of stable watermark and then grow from there.

[Roberto Cuca, CFO & COO at TELA Bio]

Okay. Yes. I mean, I think Tony said it all. The theme is in hernia, we added some smaller pieces that have lower ASPs. In PRS, we've added some larger pieces that have higher ASPs.

[Roberto Cuca, CFO & COO at TELA Bio]

In both cases, they're non cannibalistic, so they're incremental to pre existing revenues, but they'll have dilutive effects in opposite directions.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Got it. Okay, that's helpful. And then if I could just sneak one more in. I was curious if you could comment on your confidence to get to breakeven with the existing liquidity. Obviously, it's maybe a little bit further out now with the guidance being a little lower than expected, but just how should we think about when that could come and your confidence around getting there with existing liquidity?

[Roberto Cuca, CFO & COO at TELA Bio]

So we remain very confident. One of the things that we've done that we began at the end of last year and that is extending into this year is to take a harder look at our expenses. Obviously, we're signaling that OpEx this year should be flat to last year. My guess is that that was not an expectation that was baked in by a lot of external observers. So that's a positive versus what people may have been thinking.

[Roberto Cuca, CFO & COO at TELA Bio]

But we believe that even

[Roberto Cuca, CFO & COO at TELA Bio]

with the growth of the revenues where it

[Roberto Cuca, CFO & COO at TELA Bio]

is on top of the flat OpEx with the potential for further potential decreases as needed in future years, we'll have no trouble hitting profitability.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Okay. That's helpful. Thank you.

[Roberto Cuca, CFO & COO at TELA Bio]

Thanks, Mike.

[Roberto Cuca, CFO & COO at TELA Bio]

Thank you.

[Operator]

Our next question comes from Caitlin Cronin of Canaccord Genuity. Please go ahead, Caitlin.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Hey, thanks for taking the questions. I guess just to start with the revenue guidance and maybe talk through the cadence of revenue for this year, starting with the Q1 and your assumptions there and going forward, I mean, is that kind of building in the sales ramp and the sales reps getting up to productivity throughout the year?

[Roberto Cuca, CFO & COO at TELA Bio]

Sure. So, we so in certain prior years, we had sales forces growing across the year. In 2024, we started the year with the target number of sales reps. We're pretty close to the target number of sales reps right now for this year. So we're not going to see the sort of extended growth that we saw in say 2023, but that historical cadence, and so I wouldn't point to 2024 since we had two disruptions in the year.

[Roberto Cuca, CFO & COO at TELA Bio]

That historical cadence of a good step up from the first to the second quarter, a smaller step up from the second to third quarter because of the summer holidays in North America that slightly dampened growth. And then another bigger step up from the third to the fourth quarter is what we expect to see over the course of

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

the year. With the exception that I think Q1 of this year will be as usual or better given our momentum that we see thus far.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Got it. And then just with the reps being lured away in Q4, how can you kind of ensure that that won't happen going forward? Any kind of new incentive programs put in place?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Yes. I think the account specialist is one of the best backups that we have to blunt that factor, right? I think a team selling approach is one that frankly I think is used by a lot by many of our larger competitors. And there will be relationships I think with the account specialists working on a team approach with the TM such that if we do get a TM poached, we should be able to backfill that much more quickly. It's already kind of baked already.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Our account our specialists, they go through the exact same training process, pre training, sales school and then follow-up after training as our TMs do. They come into the company with the expectation that they have an opportunity in an efficient timely manner to become TMs themselves, given that they're starting from a higher vantage point from the old associate program. And we like the concept of having our account specialists work in that team approach and chasing a target and a quota. I'll give you a little bit of an anecdotal example to show how we can combat that. So at the start of this year and look, we were very cognizant that if we were going to have continued exodus from the company, it would happen by the January based on when bonuses were paid out.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

That's just I think common or traditional. And we had one exceptional player

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

take one

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

of these guarantees and we were able to stop him cold in his tracks and stay with us once he saw our enhanced commission plan and the upside opportunity that we're affording this year. So this year, what we've done is we've adjusted our comp plan such that we pay more if you get close to your quota, right. So if it's a near miss, you have an opportunity to keep working and make more money. Whereas in the past, we had a little bit more of a cliff, where if you missed your quota, the step down in commission dollars available was marked. Now that might have worked for us earlier, but I think if we have reps that are in that 90% range, they can still get their payout and that should still drive them to go forward.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

The other thing that we've done is we've put some significant upside opportunity for stretch goals. In fact, we've put the whole commercial team on a national year end stretch goal. We have quarterly stretch goals for each one of the regions. And there's extra compensation that actually sits outside of the traditional comp plan. So they can win two ways.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

They can win within the comp plan by getting at quota or close to it and they can really win if they exceed and get beyond quota. And there's going to be a lot of competition and that's going to foster teamwork across the regions and across the whole national organization for this year. We debuted this at our national sales meeting, which we did on purpose earlier this year at the January. And I think we stunned them with how awesome the comp plan is. So, I think we've got a very strong morale, work ethic.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

I think it dovetails beautifully with the new go to market strategy, which is rolling out, was really rolled out in earnest at the NSM. I think the beginnings of that worked excellent in Q3 and then Q4 is what it is. But I think we're back to that feeling of where we were in Q3 and maybe even much better given these enhancements to the comp plan and everyone's just feeling great right now.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Awesome. And maybe just another quick one, if I can sneak it in. I mean, maybe just give a little more color on the composition of the miss in the Q4. I mean, how much was that really due to kind of the sales rep disruption versus the IV shortages and the other items? Yes.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

I know it's

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

hard to quantify the IV shortages. I think more than anything, we're pretty dependent on the Southeast. We've got two regions in the Southeast, which are two of our strongest regions. And just the hurricane itself, probably not, I don't know, maybe 0.5 millimeters or more off the top. It's hard to quantify.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

I don't think we're hanging our hat on that. If you look at where we were at the October when we reaffirmed guidance, if you just do percentages and just straight mathematics, the amount of sales that we generated in Q4, so that's to say we had three strong months in Q3 and then a fourth strong month before we hit the air pocket. If you just extrapolated what November and December should have been in traditionally a strong seasonality finish quarter four to the year, we were well within guidance range just based on how October finished. So those departures have a very negative effect, right? So you don't know when it's coming, right?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

So you wind up with perhaps some of those reps taking their foot off the gas before they go while they're looking, while they're contemplating their next move. And then certainly, our products, no matter how good they are, still required care and feeding and servicing and selling. And we had significant losses from those regions in November and December. There's just no two ways around it. So I think the bulk of it was right there.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Got it. Thanks.

[Roberto Cuca, CFO & COO at TELA Bio]

Thanks, Caitlin.

[Operator]

Thank you. Our next question comes from David Turkaly of Citizens. Please go ahead, David.

[David Turkaly, Research Analyst at Citizen JMP]

Hey, good evening. Tony, maybe I think you said smaller wound care companies that might have opposed you, but I guess I I just wanted to follow-up with sort of like why do you think that's now? I mean, are they looking to go public? Is there something like what happened that it all came to a head in the fourth quarter?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Yes. I mean, I've heard these stories from, let's call it the more established wound care companies about these organizations and the amount of reimbursement they're driving and the amount of guarantees and poaching that they're doing, I think it was our turn, right? I think it's happened to some of the other players from what I understand talking to the CEOs there in the past. And I think it was our turn. And for whatever reason they were receptive this time around.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

It could be that the new go to market strategy, the accountability and discipline and reporting structure that we're driving, sort of collaborated together to make that happen. When I say small companies, some of these companies are driving just outrageous revenue. I don't know if you're familiar with this. So there are companies in some cases that you don't hear much about, but you're pretty dang shocked when you see what they're up to. I understand that they're trying to get a handle on this reimbursement gap that seems to be exploited there.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

It seems like they've been talking about this for years. Eventually, they got to catch up with it. I mean, the numbers from what I'm hearing in actual reimbursement by the government on a monthly basis are just shooting up. And so there's a geyser of money there. Hopefully, it's temporary.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

And we had a bunch of folks go. There's nothing really to say about it. Incentive and motivation by income to start.

[David Turkaly, Research Analyst at Citizen JMP]

I get it. I think you threw out a lot of numbers with the TMs, AS and everything. I just want to make sure I caught this right. So 11 TMs and how many was that the big thing or was there also reps that left as part of it as well?

[Roberto Cuca, CFO & COO at TELA Bio]

The TMs. We had

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

a plastic surgery directors and a regional manager. Like I said, we've been able to backfill very effectively and in a lot of cases, I think we've upgraded. I'm really happy with the talent in certain areas that we've already brought in. And one again, another anecdote is we had two TMs go in a certain state, in a certain place, I won't tell you where. And we brought in a real, real strong guy and we gave him a couple of account specialists.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

One now, we'll get him another one. And he's just spending his time reinvigorating 11 consignment accounts that we're not producing or under producing in comparison. And this new guy is already rising up the STACK rankings and is probably third or fourth in the company. He's been on board for, I don't know, since January. So this can be resurrected and rehabilitated very effectively.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

We are a very attractive place to come work. We pay superb compensation and now it's even better given the enhancement of the near quota and the over performance bonuses that we're laying out there. And it's rare that you can have that type of compensation structure with a product that is so differentiated, so good in terms of clinical performance. And it's not every day that you get the chance to change the practice of medicine for one of the most common surgical procedures done on the planet, hernia repair, right? I mean, it's not just us, big competitor, CEO of that big organization is out there at investor conferences talking about we got to get permanent plastic, polypropylene out of people's bellies.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

I think that's a quote from one of the conferences we saw somewhere. That's beautiful thing for me to hear. It's what I say. So, I'm rooting that on. I think if we can dislocate 80% of the market and we're certainly in line to benefit from that, I would say.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

So there's a lot of upside to being here.

[David Turkaly, Research Analyst at Citizen JMP]

Thank you for that.

[Operator]

Thank you. Our next question comes from Matt O'Brien of Piper Sandler. Please go ahead, Matt.

[Matt O'Brien, Analyst at Piper Sandler Companies]

Thanks for the questions here, gents. Maybe just starting to unpack Q4 a little bit more. Tony, you said that things were trending well in October, kind of fell off a cliff in November and December. As I'm looking at my model, it's like $5,000,000 light of what I was expecting, $500,000,000 of that is hurricane related. So it just seems like even with the losing 11 folks, we still may have come up a little bit short.

[Matt O'Brien, Analyst at Piper Sandler Companies]

Is that the right math or not? And why is that? And then what in other geographies where you didn't see dislocation, what kind of growth did you see in those territories? And then I do have

[Matt O'Brien, Analyst at Piper Sandler Companies]

a follow-up.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Yes. So Roberto can speak to that. But like I said in the script, our 44 top reps were 90% or better to their target quota plan. So where we had tenure and stability, this thing works great.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

And where we didn't, it stopped. And we are not at the scale yet where these products sell themselves, not by a long shot. I wish that was the case. You've got to be present, making sure that the usage is being done. So it's both November and December were just lights out on those departures.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

It was like I said, plastic surgery directors, really good ones that were contributing greatly. One regional manager who is fairly strong and then the rest were all TMs who were 1,500,000 or more, right? So their growth probably even though we had four good months in a row, their growth probably started winding down unbeknownst to us. They don't tell us when they're going to go well before that. So I don't think it's just what they would have done in November, December.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

I think that whole group was sort of took their foot off the gas a little bit and then really the procedure volume in those territories was fairly low.

[Roberto Cuca, CFO & COO at TELA Bio]

And so Matt, I think you're thinking about it the right way. So if you back up to the first quarter of last year, we disclosed that we had 86 TMs and six what we then called associate reps at the time. So we entered the fourth quarter with 69 TMs and seven associates or seven account specialists now and exited with 63. So a net decrease of six, but 11 gross turnover. So we were already light.

[Roberto Cuca, CFO & COO at TELA Bio]

And so notwithstanding that, we had a strong October, but had we had more heads, we might have been in an even stronger position coming out of October and been better able to withstand the disruption of November and December. So what I'd say is that, it was a headcount story in the fourth quarter, going into the quarter later than we had planned to and then losing unexpectedly many more than we would have expected. And those two things together accounted for the $4,500,000 or so million dollars of missed revenue.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Yes. I by no means want to place the blame on the hurricane, right. We lost some revenue there, but our two Southeastern regions still did fairly well because they were two of the more stable regions, but they did lose business for sure, but it was all headcount related.

[Matt O'Brien, Analyst at Piper Sandler Companies]

Okay. And then as I look at the guide for 2025, it's with the Q1 commentary and we're pretty much done with Q1 here. It's a pretty steep ramp in the back half and these sales force transitions are never a one or two quarter phenomena, it takes longer than that

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

to get up to productivity. So I guess,

[Matt O'Brien, Analyst at Piper Sandler Companies]

we're having a tough print here, but why are we not afraid of continued shortfalls Q2 through Q of this year just given the ramp that you're required to hit the full year guide?

[Roberto Cuca, CFO & COO at TELA Bio]

So I'm going to start with your first comment about the time it takes to get up to speed. So we have continued to do that analytic in new territories. We are continuing to get up to speed in six months or under. When you backfill a territory though, so somebody departs and you're able to get them in quickly, get someone in quickly. And as you saw in the fourth quarter, if we had 11 gross departures, but only six reductions, we're already in the process of backfilling from previous quarters.

[Roberto Cuca, CFO & COO at TELA Bio]

If you can get somebody in quickly, they're not starting from a zero quota in their territory. They're starting from something that's not quite what the departing rep would have achieved had they stayed on board. But it means that you can get up the slope faster. So what you're seeing is that we as we near the target of 76 TMs and 21 account specialists starting from where we are today, just under seventy and twenty, we should be able to get to that sort of productivity fairly quickly. And we feel good about maintaining that standard seasonality across the year.

[Roberto Cuca, CFO & COO at TELA Bio]

So we typically do see a good step up from the first to the second quarter, just because of seasonality and the way surgeons and patients schedule their surgeries.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

And Matt, if I could add, '24 was obviously a tough year up and down, right? We had a mix of exogenous factors and internal factors. Q2 was impacted pretty heavy last year with cyber hacking and one of our major GPOs slowing down greatly. With that and with the departures in November and December, we still pulled out about 19% growth. So with all the elements that I mentioned, enhanced compensation, great morale, great go to market strategy and new stability and these account specialists working in a team structure, it should blunt any impact and 23% to 27% growth is seems very doable based on how we laid out the quotas on a quarter by quarter basis.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

I think by the end of Q1, we'll have the ability to see where we fall, where we land. And then the way the rest of the year shakes out will be probably a much better, tighter conversation, Matt.

[Matt O'Brien, Analyst at Piper Sandler Companies]

Got

[Matt O'Brien, Analyst at Piper Sandler Companies]

it. Thank you.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Thanks.

[Operator]

Thank you. Our next question comes from Mike Sarcone of Jefferies. Please go ahead, Mike.

[Michael Sarcone, Analyst at Jefferies]

Hey, good afternoon and thanks for taking the questions. I'll try to keep it quick here. Just follow-up on the rep attrition and the compensation. I understand having the account specialists in place mitigates some of that lost sales risk. I guess, what's the appetite to compete with any of these guarantees should they continue to manifest, right?

[Michael Sarcone, Analyst at Jefferies]

Like let's just say you have a rock star territory manager. And also in the context of trying to keep OpEx flat, what kind of appetite do you have there to maintain some of your highest performers?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Well, I think within reason, and look, our employees are listening to this. But we're going to do what we need to do to retain our best players. Just the fact that the top 44 came in at 90% or above and just the fact that the old associate rep program was so successful for our top five performers, I think we've got a lot of proof there that it's worthwhile keeping our folks in place. Right now, we feel very good about morale and direction. So we're So we don't want this to happen again.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

I don't think in my career, I've been doing this for thirty years. I don't think I've seen this kind of sort of poaching so concentrated before. So hopefully, it's a one time. We've put great steps in place to mitigate or blunt it going forward and we'll do what we need to do to keep the best, most stable organization on the ground. We made significant changes to our leadership and go to market strategy in May or June, right?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

So we liked a lot what we saw a lot in Q3, last two months actually for the first four months there and then the last two months were what they were. And we like what we're seeing now in Q1. So although the results don't look great for those last two months, there's plenty of positive signals wrapped around those two months.

[Michael Sarcone, Analyst at Jefferies]

Got it. Thanks, Tony. I'll leave it there.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

Appreciate it. Thanks. Thanks, Mike.

[Operator]

Thank you. I would now like to turn the conference back to Tony Kovlish for closing remarks. Sir?

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

All right. Thank you, everybody. Stay tuned for Q1. We look forward to 2025. We appreciate your interest in the company.

[Antony Koblish, Co-Founder, CEO & President at TELA Bio]

What we're trying to do is important and meaningful, and we will succeed. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Antony Koblish, Co-Founder, CEO & President
• Roberto Cuca, CFO & COO

Analysts

• Greg Chodaczek, Managing Director at Gilmartin Group
• Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC
• Caitlin Cronin, Director at Canaccord Genuity Inc
• David Turkaly, Research Analyst at Citizen JMP
• Matt O'Brien, Analyst at Piper Sandler Companies
• Michael Sarcone, Analyst at Jefferies