Q2 2021 TELA Bio Inc Earnings Call
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Good day, and thank you for standing by.
So our second quarter earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero I would now.
I'd like to hand, the conference over to your Speaker today, Mr. Gods Tilda Zach. Please go ahead.
Thank you Anne and good afternoon, everyone earlier today Tela Bio released financial results for the second quarter 2021 copy of the press release is available on the company's website.
Joining me on today's call is Tony Coalition, President and CEO, and Meghan <unk>, Vice President and corporate controller 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. We encourage you to review the company's past and future filings with the SEC, including.
Without limitation, the Companys 2021 or excuse me 2020 Form 10-K, and subsequent 10, Qs, which identify specific with 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 product potential the regulatory environment sales and marketing capital resources and operating performance with that I'll turn the call over to Tony.
Thanks, Greg and good afternoon, everyone. Thanks for joining us today.
During our earnings call last quarter I spoke of the exit velocity of over taxes, we experienced sales in the back half of the first quarter I am happy to report that the sales with the strong sales momentum continued as revenue in the second quarter was $7.6 million representing growth of 116% compared to the second quarter of 2012.
And more importantly, 29% sequential growth over the first quarter of 2021 in the second quarter demand for our <unk> product line increased broadly driven by the rebound in hernia procedures and a solid sequential increase in the number of customers.
2020, we spoke at length about our <unk> program and the unique solutions, we develop to cultivate a strong surgeon pipeline. These programs, which we are continuing to use are comprised of virtual sales solutions designed to educate surgeons about our product portfolio and clinical data.
Since its inception over 200 surgeons have attended our virtual VIP tours.
Or are Kols, webinars, and we have seen over a 150% increase in average monthly revenue amongst surgeons, who have participated in a <unk> program.
Over the past several months we.
We are seeing the benefits at the time and effort. Our team has dedicated to these programs as a reminder, during the previous several quarters. We were successful in signing up new accounts and having continued to grow these accounts.
In the second quarter, we recognized revenue from 38, new customers and the total number of customers ordering products in a quarter hit an all time high.
These record setting numbers occur when every territory is producing in the second quarter approximately 25% of our revenue came from account managers hired within the past 12 months and we are on track to have approximately half of our U S. Based sales force to be on a $1 million run rate or better by the end of this year 2000.
'twenty one.
Hernia related revenue grew sequentially by over $1 million in the second quarter as every type of hernia procedure demonstrated growth as with the ongoing trend we have been experiencing for the last 18 months laparoscopic and robotic hernia procedures continue to represent slightly half slightly more than half of all hernia.
Procedures in the quarter Interestingly, we are noticing surgeons are slowly migrating towards the robot for more complex hernia repair cases, leading to utilization of larger size Overtax. We believe this trend will continue and is one of the primary reasons. We designed our Bravo to study to evaluate overtaxed for the robotic repair ventral.
Hernias.
Moving to our Prs product sales were up over 200% quarter over quarter and up approximately 50% sequentially over the first quarter of 2021. This strong sequential growth follows the previous quarter, where prs was slightly down compared to the fourth quarter of 2020, the cycle of Trialling and evaluating during <unk>.
Six three to six months post op for plastic surgeons, new two prs is becoming more evident that being said as more plastic surgeons become comfortable using prs. We believe this trialing cycle will.
We'll become less prominent overtime.
On the commercial side surgeon access has improved in 2021, while some areas in the United States had limited access our sales team to find creative ways to meet with Surgeons. We are currently targeting 48 sales territories, which align with healthtrust accounts with regards to our GPO accounts the sequential growth in healthtrust accounts in the quarter.
<unk> was higher than our overall growth and overall accounts and now comprises over a third of all of our accounts.
Based on the number of Reengagement meetings, we are attending we believe this trend will continue.
Moving to Bravo too.
In May we announced the initiation of our second post market study Bravo to this study is designed to evaluate the clinical performance of <unk> reinforced tissue matrices in the robotic repair eventual hernias with the continued success of our original Bravo study and the ongoing evolution and robotic procedures for more complex ventral hernia repair we are.
We're excited to demonstrate the efficacy and durability of our <unk> portfolio and robotic hernia repair.
As with the original Bravo study, we expect to enroll up to 100 subjects with patient follow ups at 90 days 12 months 24 months.
<unk> will be monitored for early postoperative surgical site occurrences wound related events and other complications within three months of surgery. In addition, researchers will also monitor the incidence of true hernia recurrence surgical site occurrences and other complications occurring after three months post surgery.
Regarding our search for a new Chief financial officer of the process is well underway and we hope to announce the hiring of a new CFO in the near future I will now turn the call over to Megan to discuss the financials.
Thank you Tony moving on to the second quarter financials. Please refer to our press release issued earlier today for a summary of our financial results for the second quarter of 2021 after commenting on our financial results I will also provide an update to our financial guidance for the remainder of 2021.
Revenue for the second quarter of 2021 increased by 116% year over year to seven 6 million. Our second quarter revenue grew approximately 29% on a sequential basis due to a rebound in procedures and continued demand for our innovative portfolio of soft tissue solutions within both new and existing.
This increase in demand throughout the quarter.
Gross margin was 67% for the second quarter, an increase of approximately 800 basis points compared with the second quarter of 2020. The increase was primarily due to a decrease in the charge recognized for inventory adjustments as a percentage of revenue.
Sales and marketing expenses were $7.5 million in the second quarter of 2021 compared to $4.1 million in the same period. In 2020. This increase was mainly due to higher compensation and commissions from additional sales personnel and increased travel. The prior year period also included cost containment actions taken.
In response to the COVID-19, pandemic, which were not repeated in 2021.
G&A expenses were $3 million in the second quarter of 2021 compared to $2.1 million in the same period in 2020. This.
This increase was mainly due to higher compensation increased professional fees and higher stock based compensation in the prior year period also included cost containment actions that were not repeated in 2021.
R&D expenses were $1.9 million in the second quarter of 2021 compared to $1 million in the same period. In 2020. This increase was primarily due to a onetime noncash stock based compensation expense of $700000 related to amendments to certain equity agreements following the death of our cofounder and.
<unk>, our chief Medical officer, as well as well as higher personnel costs and increased development costs. The prior year period also included cost containment actions that were not repeated in 2021.
Loss from operations was $7.3 million in the second quarter of 2021 compared to $5.2 million in the prior year period.
Net loss was $8.3 million in the second quarter of 2021 compared to $6.1 million in the same period in 2020.
We ended the second quarter of 2021 with $63 million in cash and cash equivalents.
Now turning to the outlook for 2021, we are updating our revenue guidance to be in the range of $28 million to $30 million representing growth of 54% to 65% over the prior year period.
We will continue to assess the current environment and provide updates on our quarterly calls as continued uncertainty related to the dynamic environment with the Covid pandemic and the development of new variants of COVID-19 could impact this protection.
With that operator, please open the call up for questions.
As a reminder, everyone. If you would like to ask a question you will need to press star one on the telephone keypad.
Thats Star one on your telephone keypad.
We will pause for just a moment to compile the Q&A roster.
Okay.
Our first question comes from the line of Matt O'brien. Your line is open.
Hi, Good afternoon, guys. This is.
Drew on for Matt and thank you for taking the questions and congrats on the very nice quarter here.
Thanks, Dan I appreciate it.
I wanted to start out on.
Guidance, a little bit here, obviously, a really strong Q2.
But your guidance does not imply quite as much outperformance in the second half of the year. So I appreciate there's probably some conservative conservatism baked in there.
But maybe you could just kind of tease out what are some of the factors influencing that.
What you're assuming as far as COVID-19, and then.
What we should be thinking about as far as quarterly cadence from a revenue perspective.
Yes, thank you for that.
I think look.
I think Q2 is the first quarter, where we got a glimpse I mean, just a glimpse of what we've been building what it can do and a relatively clean environment right.
<unk>.
No.
The potential that exists sort of in a normal state.
We're seeing some.
Hotspots perk up here and there, particularly in parts of Florida parts of Texas et cetera.
So we want to just make sure that we get to the point, where we have the opportunity to function in a clean environment before we get ahead of ourselves.
We're very very optimistic about where we're heading this year, but we also want to be realistic in case, there are any governors out there that sort of parked their heads up.
I think it's also a good practice for us as a new public company.
We've only really ever been public in this COVID-19 period, but as a new public company to get our legs under us and demonstrate not yet won excellent quarter, but several excellent quarters back to back to back and that will give us confidence on two fronts. One IPO I think like I said, we're very optimistic about what we've built.
<unk> and how we're operating and I think youll see the glimpse of that in a clean market environment in Q2, but it also allows us to sort of work through any of the uncertainties around procedure volumes et cetera. So that's kind of what our mindset is I think we want to.
We want to walk before we run.
Ever other cliched, we can throw at it we just wanted to make sure that this is a reproducible due to external factors.
Et cetera, but we're very very very bullish on our ability to drive this business I think the systems and processes that we're putting in place.
The assets that we're developing.
At both healthtrust and other <unk>.
The clinical data the growth of our robotic.
Procedures, it's all it's all working for us and we like where we are.
Okay, great great to hear.
And then just on the Rep side of things.
Called out Salesforce expansion deeper penetration into accounts.
You spoke a little bit about rep productivity.
Productivity can you just remind us.
What level of reps, you're expecting to end the year at and really I guess I'm trying to get.
Idea of as you know.
If that number is 60 account managers thats, what we have.
Youre, assuming 50% of them generate $1 billion alone.
$30 million of revenue from passenger rep. So am I thinking about that.
Correctly. Thank you, yes. So so right now we're actually and this is a good demonstration of what we think is the leverage that we can generate.
We've got 45 sales territories identified right now, but we only have about 38 reps right. So.
We've been pruning sort of the bottom performers. So we're getting more production out of less reps. We like that so you are correct. We're thinking approximately 50 reps by the end of this year.
If you look at the metrics right now as I said earlier, 25% of our revenue.
Has come from reps that have been on board for less than 12 months, which also means theyre starting up faster.
Got it.
Excellent access at developing good data to work with and some new products in robotic procedures broadening out the hernia play so that's working well that's up from about 17%.
A couple of quarters ago, right. So thats heading in the right direction I think that indicates really good.
Chart up.
<unk> on in terms of the sales force right now about 40% of our sales force is operating at a 500 K two $1 million plus annualized run rate. So that's about 20 reps lets call it rate could be for round numbers and so that is the group that is certainly within.
<unk> defense to be on a $1 million run rate or better by the end of this year, so somewhere in that 20%, maybe a little more maybe a little less range is what we expect by the end of the year again, a lot of that is going to be impacted by.
The next couple of quarters, we feel really good about where we are.
Especially even in the start of Q3.
But we wanted to just make sure that we understand exactly all the dynamics that are going on out there in the hotspots.
Very helpful. Thank you.
Again, everyone. If you would like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Anthony Petrone from Jefferies. Your line is open.
Hi, This is zach on for Anthony Congrats on another great quarter.
I just wanted to focus on gross margin here.
Pretty big step up in Q2 is that mostly due to the product being shelf stable for longer and how should we think about gross margin.
For the rest of this year.
Yes, so as we've discussed in the past the number one driver of our gross margin is really that shelf life shelf stability and basically the amount of time that we've been able to put on the label that at shelf stable right. So some of our resorbable PGA reinforced products.
Have been saddled with some fairly short shelf life.
Over the last 12.18 months that is slowly getting better.
Our goal is to have three year shelf life on all of our products by roughly mid next year. So we are heading in the right direction, we're gaining month.
Every month as we.
As we as we move forward in time, we can't accelerate time. Unfortunately.
So as we've said in the past the margins will bounce up and down a bit.
Based on specific skus selling within the window, we're not selling within the window, there's a little bit of complication.
In that.
We've got a lot of new products, we've got a lot of new customers. So there are skus that.
Get hot and get cold. So we still have to balance out which skus are the drivers, but I think we've made great progress in figuring out what our skus are coupled with an improving shelf life I think youre going to see the trend overall get better and better between now and mid next year, but there could be some bouncing around.
Up and down hopefully not wild swings.
But as things stabilize and get smoother.
Could bounce around a bit, but we like what happened with the margins I think there is plenty of room for them to get better.
As as.
As we work through and get a better shelf life on the product, which is not far away.
Got it that's helpful. And then one on the hernia mesh litigation I guess are your reps hearing any comment on the litigation is is that helping drive growth for <unk> products.
Yeah.
Don't know about our reps I can tell you that it is on the minds of the patients right. I mean, we talk to our surgeons and they definitely are experienced an uptick in patients who are asking questions like I don't want that match that I saw on television.
I don't want any mesh at all I want a mesh lists repair.
And that fits beautifully with our positioning of natural hernia repair natural repair using what we're calling the rebar approach, so rebar, which stand for reinforced biologic augmented repair and that's going to be the brand name that we hang on our procedure.
This rebar approach I think is going to lend itself quite well to patient education, social media driven education.
Websites et cetera, and youre going to start to see some of that stuff rollout and.
We want to be the company that steps up to meet this demand.
For minimal polypropylene or know polypropylene mesh being used in the future.
With this natural Libra repair and we liked.
Being involved in that space, and we like being a part of the robot.
As part of that repair process. So that's why we've staked our ground high degree of compatibility with the robot one of our fastest growing products as the LPR product.
In the hernia portfolio.
Most of those are being done minimally invasive Lee robotically.
And that's going to dovetail quite nicely with some really really good presentations that will be coming up at stages.
New clinical data and new.
New robotic compatibility data.
And.
Yeah, and that's all designed to work with this sort of fear of mash that I think is manifesting itself, mostly with patients. So that's that I think is there going to be the mechanism that helps push this forward and surgeons are going to listen to patients. If they are afraid of mesh and I think with rebar.
We offer the ability to still use quote unquote a reinforcement agents.
Without potentially the downside complications in the future of pure polypropylene mesh.
And it means they don't really have to change their technique. They can use the same techniques they've been trained on.
But with a softer more biological regenerative repair.
A natural repair.
Thanks.
Sneak one more in can you just comment on the <unk>.
Mix of procedures in terms of robotics versus open and minimally invasive or web stomach.
Yeah, So our hernia portfolio was 48% open and 52% Mis robotic for Q2 those are rough approximations.
We get data back from the field on specific usage, and we usually get between 50 and 60% of our usage back and data cards and Thats. What the data cards showed in Q2, so $48.50 to 52 on the EMEA robotic very similar to where we were in Q1, so that trend is.
<unk>.
Simple procedures, good high volume and good compatibility, obviously with mist technology, including the robot.
Got it thank you.
Congrats on the quarter.
Excellent.
And there are no further questions at this time, let me turn the call back to Mr. Tony <unk>, President and CEO for closing remarks.
Thanks Ann.
So we experienced strong sales growth in the second quarter and the momentum has continued through July.
We are optimistic about our future the sales programs that we implemented last year are leading to great opportunities in our sales territories for our commercial team.
Like many of our med tech peers, we're constantly thinking about worrying about and interacting with our customers and monitoring.
<unk> at 19 situation and the variance.
We think we have a pretty good feel for hotspot next spring up it seems like they spring up quickly and then and then fade quickly as well so hopefully it's not going to be a long and drawn out process that like the old days, it would be sort of hotspots here and there and then.
Wrap ups and then ramp downs and I think if that's the case, then and we feel great.
About this year Vic.
Vectoring towards the high end of our guidance.
And we look forward to the future I think Q2 was a glimpse.
What's possible with the clean market and I feel like this is the beginning of <unk> run.
And stay tuned thanks for your interest in the company and stay safe and have a great evening.
Thank you. This concludes today's conference call. Thank you all for participating you may now disconnect.
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