Q3 2021 TELA Bio Inc Earnings Call

November 10, 2021

Good afternoon, ladies and gentlemen, and welcome to the caller by your third quarter 2021 earnings conference call.

At this time all participants are in listen only mode question, a question and answer session would be follow the formal presentation. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Hanna Jeffrey from the Gilmartin group.

Thank you Suzanne and good afternoon, everyone earlier today Tela bio released financial results for the third quarter 2021.

A copy of the press release is available on the company's website.

Joining me on today's call are Tony accomplish President and Chief Executive Officer, and Roberto Cuco, 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.

We encourage you to review the company's past and future filings with the SEC, including without limitation. The company's 2020 Form 10-K, and subsequent form 10 Qs, which.

Which identify the specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.

These factors may include without limitation statements regarding product development product potential regulatory environment sales and marketing strategies capital resources or operating performance.

With that I'll now turn the call over to Tony.

Thanks, Hannah and good afternoon, everyone. Thanks for joining us today.

Throughout the third quarter, our main focus was on gaining market share with our <unk> product line in hernia procedures and tissue reconstruction.

Over the last 24 months, we have built a stable foundation through diversified strategies and pathways that drive our topline growth as the market remains unpredictable and continues to experience periodic slowdown we believe the structure. We have put in place provides stability and positions our company for future success.

Turning to our results for the quarter I would like to give a brief overview of the market.

While we are encouraged by the strength we experienced in the first two months of the quarter. The market underwent a slight decline in September as the Delta variant began to rise.

At the quarter, there were very micro searches across the globe, which caused fluctuations in surgical volumes and increased pressure on hospitals from labor shortages and supply chain constraints. As a result, we began to see an impact on elective procedures. We believe these trends will be relatively short term in nature and expect the market to.

A return to normalcy.

With that in mind, our third quarter results represent an increased focus on fundamentals and building a foundation to cultivate growth.

Strategy designed to position <unk> to continue to grow regardless of underlying market trends.

Driven by a continued increase in our <unk> and Prs product lines and strong organic growth outside the U S revenue was $7 7 million in the third quarter, representing growth of 44% compared to the third quarter of 2020 and up sequentially. In addition, we saw increased demand for Alphatec Prs product line in the third quarter.

Internal strategies, including increased brand awareness and commercial execution execution, continuing to cultivate new business and customers.

We believe increasing brand awareness of our overtaxed in Overtax Prs product lines is essential to achieving broader adoption, we think about brand awareness as having two key components clinical data and education first starting with clinical data physician adoption of any new medical technology is contingent upon the strength of supporting clinical data.

Therefore, having a current library of industry, leading robust and abundant clinical data is critical.

Currently we have a clinical development team of 11 working to support all stages of product development with a focus on clinical data for example.

Yesterday, we announced the publication of 12 months of the 12 month analysis from our ongoing Bravo study in moderate to complex ventral hernia patients 12 month follow up data in 75 patients treated with overtaxed demonstrated an overall hernia recurrence rate of two 7%.

24 month follow up has also been completed with overall hernia recurrence rates.

Mailing below 5%.

Additionally, positive clinical research on Overtaxed was presented at the recent society of American gastrointestinal and endoscopic Surgeons meeting.

These data included the following.

Study titled Robotic assist rebar of 111, inguinal hernias prevented by Dr. <unk> presented by Dr. <unk> and Dr. Paul does check the authors concluded that robotic trans abdominal peritoneal inguinal hernia repair with overtaxed represents a viable and more natural repair alternative and minimally invasive surgery.

Dream and approached typically typically reserved for permanent synthetic meshes. Another study from the same authors was recently published in the journal of clinical and medical research.

Prospective study of 619 implant using the rebar technique for a variety of open and minimally invasive, England and abdominal hernia repairs reported an overall recurrence rate of just one 3%.

And also at sages, Dr. Georgia to know, though the director of General surgery at St. Francis Hospital in New York published use of ovine reinforced tissue matrix in bridged into digital hernia repair in which he analyzed recurrence rates in the treatment of abdominal hernias that require a reinforcement in the absence of a primary.

Repair. This is the most complicated hernia repair abdominal wall reconstruction possible.

In this series patients with bridge repairs using Overtax had a 14% recurrence rate, which is approximately half of the recurrence rate typically seen when repaired with porcine mesh products in a similar patient population.

Over the past few quarters, we have produced and captured valuable clinical data that we believe demonstrates the benefits of natural mesh solution, which brings me to the next step of the process physician education.

In efforts to continue educating surgeons, we have succeeded by employing virtual sales and marketing programs. These programs have allowed us to reach both new and current surgeons, regardless of the market slowdown these initiatives, including tell alive will remain a priority as we continue using them to educate surgeons about our product portfolio.

And clinical data, we held over 20 events during the third quarter engaged over 250 surgeons, including events held in areas experiencing delta related micro surges.

Each touch point with a surgeon.

Medical education events.

Opens the potential for the use of overtaxed and more applications and an opportunity for new business. We have seen an excellent correlation between educating surgeons about our products and surgeon adoption, combining our virtual sales and marketing initiatives and increased clinical data efforts had been vital as we invest in brand strength brand stretch.

As the foundation needed to grow sales and serves as the basis of our second initiative commercial execution.

Armed with multiple sales avenues and robust supporting data commercial execution means scaling our direct sales force driving account manager productivity and securing additional utilization in contracts.

We continue to sign new accounts, while growing our existing accounts and building a cohesive sales funnel. We now have 40 sales reps producing in 45 sales territories promoting geographic diversity and enabling the business to withstand localized COVID-19 hotspots that limit surgeries in those areas.

Currently although our sales team is not a capacity our sales reps are generally exceeding expectations. We continue to build our sales team to our desired goal and expect these additions to accelerate our topline growth further.

To further our strategic initiatives.

We recently entered into a distribution agreement with NEC Science. This agreement gives us exclusive rights to sell and market next sciences proprietary antimicrobial surgical wash with X biotechnology across the U S. Plastic reconstructive market. We also have the first right in negotiation for the EU market upon.

Successful CE approval.

<unk> Sciences proprietary X biotechnology controls potential surgical infection by addressing the bio films that make bacteria more resistant to traditional antimicrobial agents.

And second and most immune defenses also it's no rinse delivery allows it to provide over five hours of ongoing protection against bacterial bio films.

We are thrilled to offer this novel infection control solution to customers in the United States, combining our best in class <unk> Prs portfolio reinforced tissue matrix with NEC Sciences advanced anti biofilm milligram surgical was not only diversifies our supplier base, but also transitions our company to one that offers.

Innovative soft tissue reconstruction and preservation portfolio.

In addition to our strategic initiatives in September we announced the appointment of Roberto <unk> as the company's new Chief operating officer, and Chief Financial Officer, as COO and CFO Roberto will lead the execution of the company's business plan and manage the company's finances, Roberto joined to tell the team with over 25 years of experience and relevant <unk>.

Operational and finance positions within the health care industry.

Although he has only been with tele.

Just over a month Alberto is already contributing.

So the company has quickly become an integral part of the team with that I will now turn the call over to Roberto to discuss our financials.

Thanks, Tony.

After commenting on our third quarter financial results I will review, our financial guidance for the full year 2021.

As Tony mentioned revenue for the third quarter of 2021 increased 44% year over year to $7 7 million due.

Due to the continued performance of our commercial organization increased penetration within existing customer accounts and stronger than anticipated international sales, our third quarter revenue grew slightly on a sequential basis.

Gross margin was 60% for the third quarter, a decrease of approximately 170 basis points compared to the third quarter of 2020.

The decrease was primarily due to an increase in the reserve for excess and obsolete inventory as a percentage of revenue as a result of growth in the company's product inventory over the course of the third quarter.

Sales and marketing expenses were $6 $9 million in the third quarter of 2021 compared to $6 $3 million in the same period in 2020.

This increase was mainly due to higher travel and consulting expenses.

G&A expenses were $3 $5 million in the third quarter of 2021 compared to $2 $6 million in the same period in 2020.

This increase was mainly due to greater professional consulting and legal expenses increased insurance expense and higher recruiting fees.

R&D expenses were $1 $4 million in the third quarter of 2021 compared to $1 $2 million from the same period in 2020.

This increase was primarily due to increased testing and development expenses.

Loss from operations was $7 $2 million in the third quarter of 2021 compared to $6 $9 million in the prior year period.

Net loss was $8 $3 million in the third quarter of 2021 compared to $7 $7 million from the same period in 2020.

We ended the third quarter of 2021 with $53 $6 million in cash and cash equivalents.

Now turning to the outlook for 2021, we are maintaining our guidance for revenues to be in the range of $28 million to $30 million representing growth of 54% to 65% over the prior year period.

This.

Most recent assessment of the current environment and continuing uncertainty relating to the evolving impact of the COVID-19 pandemic.

With that Suzanne please open up the call for questions.

As a reminder to ask a question. Please press star one on your telephone keypad and you enjoy a question. Please press the pound key.

Our first question comes from the line of Matthew O'brien from Piper Sandler.

Hey, good afternoon. This is <unk>.

<unk> on for Matt. Thanks for taking my questions and congrats on a nice quarter here and congrats on the new role as well.

Thanks drew.

I wanted to start off a little bit on Prs, because that was really the area of the business that stood out to me it looks like it grew sequentially. Despite what was a more difficult environment.

So maybe you could just talk through kind of what youre seeing there from a penetration perspective, and just any thoughts on how quickly it can ramp in.

Alas Covid impacted environment that we're trying to push me too.

Yes, it's interesting.

We did a lot of work last quarter meeting with plastic surgeons.

For various planning activities.

And I think some of the surgeons and indicated they definitely saw an impact due to COVID-19.

With cases being delayed or pushed out and then others really saw no impact.

I was a little <unk>.

In that you know.

These would be a little bit more immune but I do think there was a bit of an impact.

So prs right now for us it's still in the early phase of the release, where we're finding.

The heavy users.

They're evaluating how the product is working and then they continue forward. So it's still a little bit up and down in terms of starting weight SaaS and then continue.

But for the most part we're progressing quite well with Prs.

And we're figuring out.

What our value proposition is slowly but surely.

And we're figuring out the algorithm of how and when to use it.

The different versions of our product and one of the things that.

It's working quite well for us is to have different products within the portfolio that can serve different needs different technique preferences different patient needs.

Different degrees of difficulty and I think that process is going to yield a tremendous product portfolio.

But right now we are still in the process of working through and figuring out where each piece of the puzzle fifth but yeah. I mean, so far it's looking good and I think it's going to continue to be an important piece of our business. We're probably running about 80, 515% in terms of ratio on units and maybe more like <unk>.

20% or so.

So so definitely keep an eye out for Prs.

It's coming along nicely we're pleased.

Okay, perfect and good to hear.

And then on the corporate <unk> hernia side.

If my numbers are correct and please correct me, if they're not but it looks like it was down a little bit sequentially compared to last quarter I assume that's largely related to COVID-19.

And I know you provided some helpful commentary on the marketplace in the past, but maybe just an update on recent trends anything you've been.

October would be helpful as well sure.

Sure drew and just before county stuff.

And to give some color on the market just to clarify so overtax was up sequentially from the second quarter and Prs was actually down slightly sequentially from the second quarter.

Yeah, Yeah. So there is a.

Hernia is our foundation and we're getting used more and more broadly for sure.

We're up to about 60% estimate of hernia units being done either robotically or minimally invasive Lee, which is up from $50, 52% last couple of quarters.

So the hernia business is really feeling strong bolstered by that clinical data.

I think we were chugging, along quite well with both hernia and Prs through.

Up to September most of you know certainly we were losing some cases here and there in the first two months of the quarter, but really for US. It was a concentration of effect in September and to give you a little bit of color of that we usually do about 40% of our.

Revenue in the last month of the quarter, which is a.

Really probably centered mostly around incentive compensation being quarterly based NPL collection schedules et cetera, we only did about 30% of the quarter's revenue in September. So we were rocking and rolling and then we fell into a bit of a hole in September and then I would say okta.

<unk> was improved from September, but I'm going to I'm going to classify it as sort of a taper climbing out of the September hole, we're tapering up in.

Now Im quite happy where we are again, so it's interesting we've had a a more concentrated effect here that hopefully.

It remains to be short lived.

Okay perfect that's very helpful.

Thanks for the correction there.

And then just last one from me on the Rep side of things I think you mentioned about 40 reps.

I remember correctly, you had been targeting around that 50 number by the year end so.

If I got the numbers correctly, there I mean that seems like a sizable step up here in Q4.

So maybe you could just help us understand how that's trending relative to what you guys were discussing last quarter and just how the productivity metrics are trying to as well would be great. Thank you.

Yes, I mean, we're our rep productivity is really looking good.

The improvements are stark.

We have two thirds of our sales force is either at a million or higher or on track to get to a million I'll say in that 500000 to 750 K range and then the last third is been onboard for less than a year, but even their productivity is starting to come up with.

Curve quite nicely.

So we've never been stronger in terms of depth and penetration into accounts and rep productivity is looking quite good now part of that program has been to Peru.

Ruin the low performers we have really exacting.

Metrics that we're measuring now that.

Our chief commercial officer has put in place in the whole commercial team really has put in place for the last 12 months or so.

And it's really allows us to be prescriptive on here's what here, though here are the activities that we know will work based on history and if youre not doing them. Then maybe this isn't the right place for you. So I classify and say that as we implemented this rigorous process.

We were down a bit on the rep count and now we're starting to build up we're hiring a little more slowly interviewing more thoroughly more thoughtfully and we're using the algorithm and process as a guidepost to make sure that we get reps in the future that can follow this tried and true proven recipe for success.

Yes.

I would expect our rep hiring to start to tick up at a better pace.

Or a higher pace I would say not better not worse, but a higher pace by the end of this year early next year and.

I think we may be a little short of that 50 goal by the end of the year, but we should make up for it in the first half of next year, but the good news is we're doing more with less.

Very helpful. Thank you.

Thanks drew.

Our next question comes from the line of Anthony Petrone from Jefferies.

Hey, guys. This is <unk> on for Anthony just.

Just two quick ones I guess first one on AR on robotics I'm just wondering if you can you.

You can sort of choice out.

How the penetration works out over the next year or two just sort of looking at at da Vinci Robotics procedures I think they cross the 250 K Mark last year, just I was just wondering how youre thinking about that for me.

<unk> slash penetration standpoint.

And then just as a follow up question just wondering what youre seeing in terms of hospital access and staffing impacts and how long you think that.

That could persist.

Yeah. So on the robotic front you know I've said this before and I guess I'll say, it again robots going to eat hernia.

Maybe all except the most complicated AB wall reconstruction or special circumstance cases so.

If you just look at the England market at 752000 to a million procedures roughly.

The robot, 25% penetrated so.

Our strategy our goal and what we are accomplishing is to be in lock step with the robot through maniacal focus on compatibility right. So the LPR product line sooner a little more reinforcement a little more polymer.

Works extremely well with the robot.

And that's really what I would consider to be a second generation version of our product our entire product portfolio was robot compatible but LPR more robot compatible we're working on a next generation product in the next couple of years, we'll have a third generation product that's even more robot compatible so we're going to go.

<unk> lock step with the robot for robots and as they scale. We scale. So this has been a very conscious deliberate choice from the beginning.

And it's working we spent two quarters hovering at about $50, 52% and now we're at 60% or roughly thereabouts and I expect us to just continue.

To invest in the rebar technique.

Which.

It is enabled by our technology and our products.

And robot Compatibilities, a key key feature of that.

In terms of the Covid situation.

Feel like if this is the third impact point that we've seen since it all started the character here is different than previously right. I think previously it was protect the hospitals in ICU or the ICU fills up and then depletes fills up and then deplete this time it feels a little bit different it feel.

As more like after shock where.

We're seeing nursing slash labor shortages or just supply chain issues I think these elements are.

Harder to predict when they're going to come and go I think theyre going to continue to be patchy.

Persist longer.

But the impact is different right a rep can still get into the or they can do the selling activities and servicing activities that is much improved its just case volume I think that's going to be the factor and there are some things that we can do to make ourselves grow through that just like our plan initially was to.

Growth through the first phase of the pandemic through the tell alive. So certainly tell alive is going to be a big piece of that program going forward.

Next pieces investment in inventory right. We've got to have enough inventory. So that in case, there are supply chain issues for little commodities.

That we're ahead of the game and we've done that we're in good shape on inventory.

Next thing is increased the consignment volumes.

Covid always favors the incumbent and as a new player we're not the incumbent so so if we can get on the shelf through consignment and we're in good shape and then the last phase is more reps and account managers and diversified territories, which means that we can survive.

Any micro areas that go up or down for whatever reason and continue to grow through all of this and for reference we've doubled the size of our business since Covid started and we really started commercializing right before COVID-19 started so.

I think we've got a formula here that is well thought out.

Theres a little acronym here that I was just playing with <unk> living.

Live.

Inventory consignment and new reps right. So that's that's kind of what we're thinking and I think we've proven the model out because of the rep productivity is there. So now is the time to go.

Great. Thank you I appreciate it.

Thanks Frank.

Okay.

Our next question comes from the line of Kyle Rose from Canaccord.

Great. Thank you for taking the question. So I just wanted to see if we could get a little more color on the next sciences partnership here and maybe what we should expect from a medium term.

With respect to the business model and then just longer term from a product development perspective, I know you guys have been pretty prolific from your R&D perspective, as far as you're bringing new products to market and maybe what we can what can we expect over the course of the next 12 to 18 months.

Thanks for that question, Kyle I'm going to frame it as a 24 months.

Time horizon, basically because we have some stuff that's shorter term, but most of it is.

Is a little out there so what we're doing is we're suddenly repositioning our company to be.

To have a bigger play in soft tissue right, so soft tissue reinforcement and reconstruction or soft tissue reconstruction is what we have been traditionally with all of the products in our <unk> range. We're now thinking about a bigger opportunity around the concept of.

Soft tissue.

Reconstitution and.

Maintenance maintenance support yes.

So.

There's two sort of sub components. There one is the reinforcement, which is our current product line and the other is what we're calling soft tissue management.

And the next science product is a great example of soft tissue management things like.

Anti infection or anti microbial database management and fluid management and stuff like that right. There's a whole range of technologies that we can take a look at that if we invest in we will make the reinforcement products work very well and create almost a whole solution around.

The soft tissue.

Reconstitution.

We should start to see revenue maybe in the second or third quarter of next year, but we will be doing plenty of cases to learn between now and then and we'll keep you posted.

As we learn.

Yeah.

Great. Thank you and then maybe just could you give us an update you may have given it but I.

I missed it was just your core accounts.

I think you've talked on sales rep productivity, but maybe core accounts and then maybe where you stand with and Health Trust.

Yes, I mean health Trust has taken up right as we work our way through.

Supply chain issues, I think we're up to about 37% of our.

Business is coming from health trusts.

We're probably getting up to about a $10 million run rate or so.

Up from about $1 billion run rate when we started so I think that's going well, but we're also doing quite well and outside I'd again, which bodes very well for future contracting activities around premier.

Perhaps suspension and maybe eventually longer term vision. So we have a strategy and we have a play across all of those GPO.

And.

We're doing quite well at the individual IBM level and many of those ideas do roll up to the GPO. So I think our our strategic accounts team is doing a great job as the <unk>.

Data and value proposition continued to solidify and look strong.

As we get better known from a branding perspective, all of that works to our advantage in these contracting schemes and we're very.

Very excited and think we have a great opportunity to move forward with.

Some of those are all of those.

Great. Thank you very much.

Thank you Carl.

Our next question comes from the line of steeped or Kelly from GB JMP Securities.

Tony I like the sound of that live in the program. So thanks for that.

I guess.

And here for Bravo.

The two year.

A follow up.

How many patients similar to the 75 and the one year and when do you think that will be published.

Well, we just got the one year published we just locked the database and.

Did the analysis on the two year. So the manuscript is going to have to be developed and then all of that could be six months I guess, you know before we get that in publication.

But the data remains strong solid patient count is roughly similar I mean, there might have been some lost due to COVID-19 between the one year and two year, but.

But we will have more to say, we don't want to we can't reveal the whole thing before we get it published but we definitely wanted to go on the record to say that the two year results.

Not dissimilar from the one year results, so things have held quite well.

That study we're pleased with it.

And we're also pleased with all the ancillary data, which we took the time to go through today.

Because I think the signal across all these different types of procedures and techniques.

All pointing to a pretty darn low recurrence rate, which we're very happy with.

Got it and I know Bravo to is much longer.

It's supposed to take more time, but given that you are sort of the only option that can be used with the robot.

I imagine, it's not quite as important as the original Bravo, but I guess, just any update there or any thoughts yes.

Bravo, one actually has roughly 20 patients that were done robotically in it so there.

There is a subset already and then certainly the rebar stuff that was presented at sages is mostly robotics, so our robotic dataset.

Is looking fairly good before even bravo to so bravo to is going to be.

Be nothing but additive.

To what we already have in hand. So those are also good signals that our results are looking good.

All of these different technique.

Techniques.

Procedure types.

Thanks.

Thanks, Dave.

At this time I would now like to hand, the conference back to Mr. Tony Conference.

Alright, Thank you Susanne.

So we're excited about the progress that we made this quarter.

And remain optimistic that we'll continue to generate growth from all of these strategic initiatives. We believe the foundation, we have in place will allow us to generate growth through any through many market conditions like I said.

If the reverberations theyre going to be with us for a while.

Manifesting in labor shortages et cetera, our goal is to grow through it and I outlined how we're going to do that.

So.

We think we have a great set up here and we want to thank everyone for your time. This afternoon and your interest in Tela bio stay tuned the best is still to come and stay safe and have a great evening. Thank you.

This does conclude today's conference call. Thank you for participating you may now disconnect.

Okay.

Yes.

[music].

Okay.

Yeah.

Okay.

[music].

Okay.

[music].

Good afternoon, ladies and gentlemen, and welcome to tell us by your third quarter 2021 earnings conference call.

At this time all participants are in listen only mode question, a question and answer session would be follow the formal presentation. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Hanna Jaffe from the Gilmartin group.

Thank you Suzanne and good afternoon, everyone earlier today Tela bio released financial results for the third quarter 2021.

A copy of the press release is available on the company's website.

Joining me on today's call are Tony accomplish President and Chief Executive Officer, and Roberto Cuco, 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.

We encourage you to review the company's past and future filings with the SEC, including without limitation, the company's Twenty-twenty Form 10-K, and subsequent form 10 Qs, which.

Which identify the specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.

With that I'll now turn the call over to Tony.

Thanks, Hannah and good afternoon, everyone. Thanks for joining us today.

Throughout the third quarter, our main focus was on gaining market share with our <unk> product line in hernia procedures and tissue reconstruction.

Turning to our results for the quarter I would like to give a brief overview of the market.

While we are encouraged by the strength we experienced in the first two months of the quarter. The market underwent a slight decline in September as the Delta variant began to rise.

At the quarter, there were varying micro searches across the globe, which caused fluctuations in surgical volumes and increased pressure on hospitals from labor shortages and supply chain constraints. As a result, we began to see an impact on elective procedures. We believe these trends will be relatively short term in nature and expect the market to.

A return to normalcy.

With that in mind, our third quarter results, representing an increased focus on fundamentals and building a foundation to cultivate growth.

Strategy designed to position <unk> to continue to grow regardless of underlying market trends.

Internal strategies, including increased brand awareness and commercial execution execution, continuing to cultivate new business and customers.

We believe increasing brand awareness of our overtaxed in other texts Prs product lines is essential to achieving broader adoption, we think about brand awareness as having two key components clinical data and education first starting with clinical data physician adoption of any new medical technology is contingent upon the strength of supporting clinical data.

Therefore, having a current library of industry, leading robust and abundant clinical data is critical.

Currently we have a clinical development team of 11 working to support all stages of product development with a focus on clinical data for example.

Yesterday, we announced the publication of 12 months of a 12 month analysis from our ongoing Bravo study in moderate to complex ventral hernia patients 12 month follow up data in 75 patients treated with <unk> demonstrated an overall hernia recurrence rate of two 7%.

24 months follow up has also been completed with overall hernia recurrence rates.

<unk> below 5%.

Additionally, positive clinical research on Overtaxed was presented at the recent society of American gastrointestinal and endoscopic Surgeons meeting.

These data included the following.

The study titled robotic assist rebar of 111 inguinal hernias prevented by Dr. <unk> presented by Dr. <unk> and Dr. Paul Deltak. The authors concluded that robotic trends Abdominoperineal, England, all hernia repair with overtaxed represents a viable and more natural repair alternative and minimally invasive surgery.

Gary and approached typically typically reserved for permanent synthetic matches.

Another study from the same authors was recently published in the journal of clinical and medical research.

This prospective study of 619 implants, using the rebar technique for a variety of open and minimally invasive, England and abdominal hernia repairs reported an overall recurrence rate of just one 3%.

And also at sages, Dr. George <unk>, the director of General surgery at St. Francis Hospital in New York published use of ovine reinforced tissue matrix and bridged institutional hernia repair in which he analyzed recurrence rates in the treatment of abdominal hernias that require reinforcement in the absence of a primary.

Repair. This is the most complicated hernia repair abdominal wall reconstruction possible.

And this series patients with bridge repairs using Overtax had a 14% recurrence rate, which is approximately half of the recurrence rate typically seen when repaired with porcine mesh products in a similar patient population.

Over the past few quarters, we have produced and captured valuable clinical data that we believe demonstrates the benefits of natural mesh solutions, which brings me to the next step of the process physician education in.

And efforts to continue educating surgeons, we have succeeded by employing virtual sales and marketing programs. These programs have allowed us to reach both new and current surgeons, regardless of the market slowdown these initiatives, including tell alive will remain a priority as we continue using them to educate surgeons about our product portfolio.

And clinical data, we held over 20 events during the third quarter engaged over 250 surgeons, including events held in areas experiencing delta related micro surges.

Each touch point with a surgeon does the medical education events.

<unk> strength is the foundation needed to grow sales and serves as the basis of our second initiative commercial execution armed with multiple sales avenues and robust supporting data and commercial execution and scaling our direct sales force driving account manager productivity and securing additional utilization in contracts.

We continue to sign new accounts, while growing our existing accounts and building a cohesive sales funnel. We now have 40 sales reps producing 45 sales territories promoting geographic diversity and enabling the business to withstand localized COVID-19 hotspots that limit surgeries in those areas.

To further our strategic initiatives.

Successful CE approval next sciences proprietary X biotechnology controls potential surgical infection by addressing the bio films that make bacteria more resistant to traditional antimicrobial agents.

And second and most immune defenses also it's no rinse delivery allows it to provide over five hours of ongoing protection against bacterial biofilm.

We are thrilled to offer this novel infection control solution to customers in the United States, combining our best in class <unk> Prs portfolio of reinforced tissue matrix with NEC Sciences advanced anti biofilm no rent surgical was not only diversifies our supplier base, but also transitions our company to one that offers that.

Innovative soft tissue reconstruction and preservation portfolio.

In addition to our strategic initiatives in September we announced the appointment of Roberto <unk> as the company's new Chief operating officer, and Chief Financial Officer, as COO and CFO Roberto will lead the execution of the company's business plan and manage the company's finances Rivera joined the <unk> team has over 25 years of experience and relevant.

<unk> and finance positions within the health care industry.

Although he has only bandwidth Taylor.

Just over a month of Roberto has already contributing to.

So the company has quickly become an integral part of the team.

With that I will now turn the call over to Roberto to discuss our financials.

Thanks, Tony.

After commenting on our third quarter financial results I will review, our financial guidance for the full year 2021.

As Tony mentioned revenue for the third quarter of 2021 increased 44% year over year to $7 $7 million.

Gross margin was 60% for the third quarter, a decrease of approximately 170 basis points compared to the third quarter of 2020.

The decrease was primarily due to an increase in the reserve for excess and obsolete inventory as a percentage of revenue as a result of growth in the companys product inventory over the course of the third quarter.

Sales and marketing expenses were $6 $9 million in the third quarter of 2021 compared to $6 3 million in the same period in 2020.

This increase was mainly due to higher travel and consulting expenses.

G&A expenses were $3 $5 million in the third quarter of 2021 compared to $2 $6 million in the same period in 2020.

This increase was mainly due to greater professional consulting and legal expenses increased insurance expense and higher recruiting fees.

R&D expenses were $1 $4 million in the third quarter of 2021 compared to $1 $2 million from the same period in 2020.

This increase was primarily due to increased testing and development expenses.

Loss from operations was $7 2 million in the third quarter of 2021 compared to $6 9 million in the prior year period.

Net loss was $8 $3 million in the third quarter of 2021 compared to $7 $7 million from the same period. In 2020, we ended the third quarter of 2021 with $53 6 million in cash and cash equivalents.

Now turning to the outlook for 2021, we are maintaining our guidance for revenues to be in the range of $28 million to $30 million representing growth of 54% to 65% over the prior year period.

This.

Most recent assessment of the current environment and continuing uncertainty relating to the evolving impact of the COVID-19 pandemic.

With that Suzanne please open up the call for questions.

As a reminder to ask a question. Please press star one on your telephone keypad and you withdraw your question. Please press the pound key.

Our first question comes from the line of Matthew O'brien from Piper Sandler.

Hey, Good afternoon. This is drew on for Matt. Thanks for taking the questions and congrats on a nice quarter here and congrats on the new role as well.

Thanks drew.

I wanted to start off a little bit on Prs, because that was really the area of the business that stood out to me it looks like it grew sequentially. Despite what was a more difficult environment.

So maybe you could just talk through kind of what youre seeing there from a penetration perspective, and just any thoughts on how quickly it can ramp in.

Unless COVID-19 impacted environment that we're transitioning to.

Yes, it's interesting.

We did a lot of work last quarter meeting with plastic surgeons.

For various planning activities.

And I think some of the surgeons and indicated they definitely saw an impact due to COVID-19.

With cases being delayed or pushed out and then others really saw no impact. So I was a little interested in that.

These would be a little bit more immune but I do think there was a bit of an impact.

So prs right now for us it's still in that early phase of the release, where we're finding.

The heavy users.

They're evaluating how the product is working and then they continue forward. So it's still a little bit up and down in terms of starting weight SaaS and then continue.

But for the most part we're progressing quite well with Prs.

And we're figuring out.

What our value proposition is slowly but surely.

And we're figuring out the algorithm of how and when to use.

The different versions of our product one of the things that's working quite well for us is to have different products within the portfolio that can serve different needs different technique preferences different patient needs different degrees of difficulty and I think that process is going to ease.

A tremendous product portfolio.

But right now we are still in the process of working through and figuring out where each piece of the puzzle fifth but yeah I think so far it's looking good.

And I think it is going to continue to be an important piece of our business. We're probably running about 80, 515% in terms of ratio on units and maybe more like 80, 20% or so.

So so definitely keep an eye out for Prs.

Coming along nicely we're pleased.

Okay, perfect and good to hear.

And then on the corporate <unk> hernia side if.

If my numbers are correct and please correct me, if they're not but it looks like it was down a little bit sequentially compared to last quarter I assume that's largely related to COVID-19.

And I know you provided some helpful commentary on the marketplace in the past, but maybe just an update on recent trends anything you've been.

October would be helpful as well.

Sure drew and just before Tony.

And to give some color on the market.

To clarify so.

<unk> was up sequentially from the second quarter, and Prs was actually down slightly sequentially from the second quarter.

So Tony if you want to yeah, yeah. So.

Hernia is our foundation.

We're getting used more and more broadly for sure we're up to about 60% estimate hernia units being done either robotically or a minimally invasive way, which is up from $50, 52% last couple of quarters.

So the hernia business is really feeling strong bolstered by that clinical data.

I think we were chugging, along quite well with both hernia and Prs through.

Revenue in the last month of the quarter, which is.

<unk> was improved from September, but I'm going to I'm going to classify it as sort of a taper climbing out of the September hole, we're tapering up in.

Now Im quite happy where we are again, so it's interesting we've had a more concentrated effect here that hopefully.

It remains to be short lived.

Okay perfect that's very helpful.

Thanks for the correction there.

And then just last one from me on the Rep side of things I think you mentioned about 40 reps.

I remember correctly, you had been targeting around that 50 number by year end.

If I got the numbers correctly, there I mean that seems like a sizable step up here in Q4.

So maybe you could just help us understand how that's trending relative to what you guys are discussing last quarter and just how the productivity metrics are trying to as well would be great. Thank you.

Yeah, I mean, we're our rep productivity is really looking good.

The improvements are stark.

Curve quite nicely.

So we've never been stronger in terms of depth and penetration into accounts and rep productivity is looking quite good now part of that program has been to Peru.

Ruin the low performers we have really exacting.

<unk> that we are measuring now that.

Our chief commercial officer has put in place in the whole commercial team really has put in place for the last 12 months or so.

We were down a bit on the rep count and now we're starting to build up we're hiring a little more slowly interviewing more thoroughly more thoughtfully and we're using the algorithm in process.

As a guidepost to make sure that we get reps in the future that can follow this tried and true proven recipe for success. So I would expect our rep hiring to start to tick up at a better pace.

Or a higher pace I would say not better not worse, but at a higher pace.

By the end of this year early next year.

I think we may be a little short of that 50 goal by the end of the year, but we should make up for it in the first half of next year, but the good news is we're doing more with less.

Very helpful. Thank you.

Sure.

Our next question comes from the line of Anthony Petrone from Jefferies.

Hey, guys. This is frankly now on for Anthony just just.

Just two quick ones I guess first one on robotics I'm just wondering if you can.

If you can sort of choice out.

On the penetration works out over the next year or two just sort of looking at at da Vinci Robotics procedures I think they cross the 250 K Mark last year, just I was just wondering how youre thinking about that for me.

Pam slash penetration standpoint.

And then just as a follow up question just wondering what youre seeing in terms of hospital access and staffing impacts and how long you think that.

That could persist.

Yeah. So on the robotic front you know I've said this before and I guess I'll say, it again robots going to eat hernia.

Maybe all except the most complicated AB wall reconstruction or special circumstance cases so.

If you just look at the England on market at 752000 to a million procedures roughly.

The robot, 25% penetrated so.

Our strategy our goal and what we are accomplishing is to be in lock step with the robot through maniacal focus on compatibility right. So the LPR product line.

Or a little more reinforcement a little more polymer.

Works extremely well with the robot.

And that's really what I would consider to be a second generation version of our product our entire product portfolio is robot compatible but LPR more robot compatible we're working on a next generation product in the next couple of years, we'll have a third generation product is even more robot compatible so we're going to go.

Lock step with the robot.

Robots and as they scale we scale. So this has been a very conscious deliberate choice from the beginning.

And it's working we spent two quarters hovering at about $50, 52% and now we're at 60% or roughly thereabouts and I expect us to just continue to.

To invest in the rebar technique.

Which.

It is enabled by our technology and our products.

And robot compatibility is a key key feature of that.

In terms of the Covid situation.

This time, it feels a little bit different it feels more like after shock where we are.

Seeing nursing slash labor shortages or just supply chain issues I think these elements are.

Harder to predict when they're going to come and go I think theyre going to continue to be patchy.

May persist longer.

But the impact is different right our reps can still get into the or they can do the selling activities and servicing activities that is much improved its just case volume I think that's going to be the factor and there are some things that we can do to make ourselves grow through that just like our plan initially was to.

Growth through the first phase of the pandemic through the tell alive. So certainly kept alive is going to be a big piece of that program going forward.

The next piece is investment in inventory right. We've got to have enough inventory. So that in case, there are supply chain issues for little commodities.

We're ahead of the game and we've done that we're in good shape on inventory. The next thing is increased the consignment volumes right.

Covid always favors the incumbent and as a new player we're not the incumbent so so if we can get on the shelf through consignment. Then we're in good shape and then the last phase is more reps and account managers and diversified territories, which means that we can survive.

Any micro areas that go up or down for whatever reason and continue to grow through all of this and for reference we doubled the size of our business.

Since Covid started and we really started commercializing right before Covid started so.

I think we've got a formula here that is well thought out.

Theres a little acronym here that I was just playing with ally VN living.

Live.

Inventory consignment and new reps right. So that's that's kind of what we're thinking and I think we've proven the model out because of the rep productivity is there. So now is the time to go.

Great. Thank you I appreciate it.

Thanks Frank.

Okay.

Our next question comes from the line of Kyle Rose from Canaccord.

Great. Thank you for taking the question. So I just wanted to see if we could get a little more color on the next sciences partnership here and maybe what we should expect from a medium term.

With respect to the business model and then just longer term from a product development perspective, I know you guys have been pretty prolific from your R&D perspective.

Any new products to market and maybe what we can what can we expect over the course of the next 12 to 18 months. Thanks.

Thanks for that question, Kyle I'm going to frame it as a 24 months.

Time horizon, basically because we have some stuff that's shorter term, but most of it is.

Is a little out there so what we're doing is we're suddenly repositioning our company to be.

To have a bigger play in soft tissue right, so soft tissue reinforcement and reconstruction or soft tissue reconstruction is what we have been traditionally.

With all of the products in our <unk> range, we're now thinking about a bigger opportunity around the concept of soft tissue.

Reconstitution.

<unk>.

Maintenance maintenance support yes.

So.

These two sort of sub components. There one is the reinforcement, which is our current product line and the other is what we're calling soft tissue management.

And the next science product is a great example of soft tissue management things like.

Anti infection or anti microbial database management and fluid management and stuff like that right. There is a whole range of technologies that we can take a look at that if we invest in we will make the reinforcement products work very well and create almost a a whole solution around.

The soft tissue.

Reconstitution.

So that's where we're focused so youre going to see a range of new reinforcement products that rollout in that time horizon and youre going to see hopefully.

A range of different types of soft tissue management products that rollout in that time horizon. Our goal is to be the expert.

In in how to make the soft tissue heal.

And become a reconstructed and a better way and I think that we've hit on a on a bundled sort of solution.

Debt.

That is the direction that we're going to be taking the company from a strategic perspective, we will have more to say about it as things get closer but for now we're pretty darn pleased with with the next science deal, we really like the concept of an anti biofilm technology and we're going to do a phased released the first phase will start.

Hopefully very soon.

And so we should start generating revenue once we once we test out the alpha launch and make sure we understand the nuances of how to position the product and how to price the product and all that good stuff. We should start to see revenue maybe in the second or third quarter of next year, but we will be doing plenty of cases to learn between now and then.

And we will keep you posted.

As we learn.

Great. Thank you and then maybe just could you give us an update you may have given it but.

I missed it was just your core accounts.

I think you've talked on sales rep productivity, but maybe core accounts and then maybe where you stand within health Trust.

Yes, I mean health Trust has taken up right as we work our way through.

Supply chain issues, I think we're up to about 37%.

Our business is coming from Health Trust.

We're probably getting up to about a $10 million run rate or so.

Up from about $1 billion run rate when we started so I think that's going well, but we're also doing quite well in outside I'd, again, which bodes very well for future contracting activities around premier.

Perhaps extension and maybe eventually longer term vision. So we have a strategy and we have a play across all of those GPO.

We're doing quite well at the individual IBM level and many of those ideas do roll up to those GPO. So I think our our strategic accounts team is doing a great job as the.

Data and value proposition continued to solidify and look strong.

As we get better known from a branding perspective, all of that works to our advantage in these contracting schemes and we're very.

So very excited and think we have a great opportunity to move forward with.

Some of those are all of those.

Great. Thank you very much.

Thank you Kyle.

Our next question comes from the line of Dave Kelly from GB JMP Securities.

Tony I like the sound of that live in the program. So thanks for that.

Hi, guys.

And here for Bravo.

The two year.

A follow up.

How many patients similar to the 75% in one year and when do you think that will be published.

Well, we just got the one year published we just locked the database and.

Did the analysis on the two year. So the manuscript is going to have to be developed and then all of that it could be six months I guess, you know before we get that in publication.

But the data remains strong solid patient count is roughly similar I mean, there may have been some loss due to COVID-19 between the one year and two year, but.

But we will have more to say, we don't want to we can't reveal the whole thing before we get it published but we definitely wanted to go on the record to say that the two year results.

Not dissimilar from the one year results, so things have held quite well.

That study we're pleased with it.

And we're also pleased with all the ancillary data, which we took the time to go through today.

Because I think the signal across all these different types of procedures and techniques.

All pointing to a pretty darn low recurrence rate, which we're very happy with.

Got it and I know Bravo to is much longer.

It's supposed to take more time, but given that you are sort of the only option that can be used with the robot.

I imagine, it's not quite as important as the original Bravo, but I guess, just any update there or any thoughts yes.

Bravo, one actually has roughly 20 patients that were done robotically in it. So there is a subset already and then certainly the rebar stuff that was presented at sages is mostly robotics, so our robotic dataset.

Is looking fairly good before even bravo to so bravo to is going to be.

Be nothing but additive to what we already have in hand. So those are also good signals that our results are looking good across all these different <unk>.

Techniques.

Procedure types.

Thanks.

Thanks, Dave.

At this time I would now like to hand, the conference back to Mr. Tony conflicts.

Alright, Thank you Susanne.

So we're excited about the progress that we made this quarter.

No.

If the reverberations theyre going to be with us for a while.

Manifesting in labor shortages et cetera, our goal is to grow through it and I outlined how we're going to do that.

So.

This does conclude today's conference call. Thank you for participating you may now disconnect.

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