Q1 2022 TELA Bio Inc Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the first quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode a question.
<unk> and answer session.
After the formal presentation.
This conference is being recorded.
Now I'd like to turn the conference over to Melissa Smith from the Gilmartin Group Ms. Smith the floor is yours.
Okay.
Thank you, Chris and good afternoon.
Okay.
Earlier today <unk> released financial results for the first quarter 2022.
A copy of the press release is available on the company's website.
Joining me on today's call co blush.
And Chief Executive Officer.
And Roberto <unk>, 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.
<unk> without limitation, the company's 2021 Form 10-K and Form 10-Q.
To 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 product potential the impact of COVID-19, the regulatory environment sales and marketing strategies capital resources or operating performance with that I'll now turn the call over to Tony.
Thank you Luisa.
Afternoon, everyone and thanks for joining us today I am pleased to report that <unk> had a strong finish to the quarter with March marking the highest monthly revenue in the company's history.
Revenue for the quarter was $8 2 million up 40% year over year.
Although the omicron variant caused a sluggish start to the year our momentum built as the quarter progressed elective surgery volumes were down in January and February across most of the med Tech sector, where we saw simple hernia surgery disproportionately as hospital systems tended to prioritize more urgent non elected surge.
Yes.
In contrast <unk>.
Vertex Prs showed resilience to the effects of COVID-19 with demand growing over the period, resulting in revenues up 111% year over year.
Our analysis of market data corroborate anecdotal reports of a backlog in delayable procedures, and we expect some of that backlog to be discharged in the coming quarters.
Further evidence in this regard as shown by our strong start to our second quarter.
We've noted that the clinical utility and value proposition of <unk> has generated a lot of traction and we are continuing to win over surgeons as evidenced by our significant rate of growth compared to competitive products.
<unk> the only hernia repair company to have continuously gained market share throughout the COVID-19 pandemic. We attribute this growth to our strong product profile and are highly effective in expanding sales force in comparison to our plastic mass competitors, who are facing questions about the long term safety of their products and our biologic mass <unk>.
<unk>, who offer a costlier product lacking the same level of <unk>.
Mechanical support.
Tell us overtax products offer the best of both worlds strength and safety at a good price point, our sales team has done an outstanding job of getting this message out even though the pandemic appears to have broadly favor you can combat med Tech products. We are very excited to see what they can do now that the headwinds.
From Colgate appear to be abating and.
And here's to hoping it stays that way.
<unk> provided a glimpse of the type of performance, we can achieve when the impact of Covid is low and hospital systems are able to address the demand and delayed elective procedures.
Our market share expansion is also driven by the compelling and growing body of clinical data on overtaxed as we've shared with you before recurrence rates for eventual hernia repaired with overtaxed in our Bravo study will only two 7% at 12 months and remain below 5% at 24 months, we aim to build upon this.
Clinical evidence and a Bravo to study, which will further evaluate the safety and efficacy of open tax during robotic repairs ventral and inguinal hernia is over a 24 month period.
Another strength of the <unk> portfolio of products is there flexibility as we're seeing in the market use of our products are growing percentage of hernia procedures. Today are performed robotically and almost 60% of <unk>. We're done we're done via laparoscopic or robotic surgeries last year over taxes, the only biologic.
Product that can be delivered to a hernia repair site via trocar for use in robotic procedures.
As minimally invasive procedures continue to grow in the hernia space, we expect to be able to leverage our superior utility to accelerate market penetration in this segment.
As you know even the best products don't sell themselves. So another factor in the Companys continuing performance as our strong growing sales force one of <unk> core competencies is our ability to quickly train and make newly hired sales professionals as productive as possible using the program we developed playbook 90.
Over a new reps first 90 days with the company. The program provides intensive training in the various resources available to assist in selling.
The program also measures they are performance and usage of these resources to help predict how quickly the rest will become self supporting playbook 90 was launched at the end of 2020 and help the 2021 class of reps reach profitability and well under six months. Despite the challenges created by COVID-19.
<unk>.
Just on a year to date data through April April 12 of our Rep sold at an annualized rate of over $1 million seven of those at over $1 5 million and two of those at over $2 million. This has obvious positive financial effects for the company, but also benefits tele by enabling us to attract and recruit additional.
High quality sales reps.
The potential to earn incentive compensation on these sorts of sales figures accelerated by the playbook 90 training is a huge draw for a highly effective and competent salesforce sales rep performance in the last year has given us confidence to materially grow our sales team with a target of 55 reps by mid year and 60 reps.
By year end up from just under 45 at the end of 2021.
Assuming we continue to see the results from our playbook 90 program, we expect it to increase in our sales force will have a positive impact on our topline without unduly burdening our bottom line.
This will be further amplified as we add products to our portfolio to provide a broad tissue restoration and preservation preservation offering site guard, which is in the initial stages of its launch is the first step in this expansion.
From the start our strategy for success has been to provide innovative solutions backed by clinical data addressing an unmet need and marketed by an exceptional sales team as we continue to execute on this strategy, we expect to see accelerated market penetration for our products.
And with that I'd like to turn the call over to Roberto <unk>, Our Chief operating officer and CFO for a more in depth review of our first quarter financial results.
Thanks, Tony.
Revenue for the first quarter of 2022 increased 40% year over year to $8 2 million.
Gross profit percentage increased to 61% for the first quarter of 2022 compared to 59% for the same period in 2021.
Cogs were impacted by investment in inventory for our European market ahead of the expiration of CE, Mark registration and the associated reserves.
Potential expired product, we are required to take under GAAP.
We are taking steps to reduce the likelihood of expired product going forward and expect to reduce these charges in the future.
Gross profit in the first quarter was $5 million as opposed to $3 $5 million in the first quarter of 2021 the.
The increase was due to a combination of sales growth and a decrease in the excess and obsolete inventory adjustments as a percentage of revenue.
Sales and marketing expenses were $9 $4 million in the first quarter of 2022 compared to $6 3 million in the same period in 2021.
This increase was mainly due to higher salaries benefits and commission costs as a result of an expansion of our commercialization activities higher travel and consulting expenses and additional employee related costs due to the increase in head count.
G&A expenses were $3 $5 million in the first quarter of 2022 compared to $2 8 million in the same period in 2021.
This increase was primarily due to higher salaries and benefits and increased professional and consulting and legal expenses.
R&D expenses were $2 million in the first quarter of 2022 compared to $1 7 million in the same period in 2021, the increase was primarily due to higher salaries and benefits.
Loss from operations was $9 8 million in the first quarter of 2022 compared to $7 3 million in the prior year period.
Net loss was $10 9 million in the first quarter of 2022 compared to $8 1 million in the same period in 2021.
We ended the first quarter of 2022 was $33 million in cash and cash equivalents.
For the full year 2022, we continue continue to expect revenues to be in the range of 40% to $45 million representing growth of 36% to 53% over 2021.
This takes into consideration the potential impact of COVID-19, and it seems that the overall effect of the virus will be no more disruptive than in 2021. However.
However, a significant increase in COVID-19 infections beyond our estimates could negatively affect this protection.
Ill now turn the call back to Tony for his closing remarks, Tony Thanks.
Thanks Robert.
As you've heard this afternoon, we have good reason to be excited about our business this year and beyond.
We have all the key attributes of <unk> successful Med Tech company Overtaxed addresses an important unmet need its market opportunity is large our clinical data is compelling our sales and marketing teams are executing we have established reimbursement in solid IP in place now that COVID-19 impact appears to be subsiding.
We expect to generate strong growth for the remainder of the year barring any COVID-19 resurgence or revenue growth far exceeds the market growth rate and we expect to continue increasing share we are well on the path towards becoming a market leader in soft tissue preservation and restoration with that said I'll now turn the call over to take your questions.
Thank you.
To ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key standby as we compile the Q&A roster.
And our first question comes from SaaS cleanup of Jefferies.
Your line is open.
Hey, everyone. Congrats on a great quarter and thanks for taking the question.
Tony I just wanted to hit on procedure trends, you talked about COVID-19 headwinds impacting volumes through January and February and really recovering in March.
Any color on how things are trending through April are we should we think of it at that March level or have things ease up a bit closer to eight to January and February .
No things are much better in March and April in comparison to January and February .
You look at the composition of our first quarter January and February were very light on the hernia side as we said in our comments.
Elective delayable, perhaps we started to see recovery in March still not up to where we expect them to be.
April seems a bit better so we expect that trend to continue to get stronger and stronger what's nice is that once we get the hernia procedure volumes back where they should be it is going to step theyre going to step up to meet with the very nice growth rate and traction percentage.
Starting to grab hold here for Prs as well so we look forward to having everything come together real soon.
That's helpful and then if I could just ask one more.
Backlog commentary, how long do you expect.
Yes.
Historically, you've said that backlog is more in tune with surgeon staying at 100% capacity for an extended period of time, how long do you expect that backlog to keep surging.
Schedules I guess fully busy.
<unk>.
Can you just give some color there.
Sure So it's Roberto here.
So the way we.
Confirmed our view that there was a backlog as we looked at the <unk> data on procedures and we could see that there was a clear dip from trends, but has not yet been fully replaced.
So we know that there is an existing backlog out there it's hard to tell from our vantage point, whether any individual surgery in a month or a quarter is a backlog surgery or a new surgery.
But what we do know is that the.
The amount of the backlog that we have identified hasnt completely depleted and we think it's likely to be.
In fact, our revenues for at least one or two quarters to come.
The real issue on how quickly that gets resolved as how hospitals prioritize their surgical suites.
For other potentially backlogs.
Seizures, including those that are potentially more remunerative to the hospital.
That's very helpful. Thanks, and then if I could just sneak one more in I know you hit on your prepared remarks, but just any update in hernia mesh litigation that's out there.
Yes so.
They're still working their way through some key bellwether cases, it looks like.
There was just a win.
That went against the manufacturer and resulted in a payout to the patient. So I think we're still feeling our way through that process.
No that that pace is going to pick up a bit and it certainly continues to be a factor thats on the minds of patients. We know that because we were doing lots of <unk> by <unk>.
I assume and we had a lot of surgeons starting to come back for in person Vips.
We're developing some nice tools to help surgeons to be able to more efficiently manage that dialogue with patients and I'll refer you to about hernia Dot com, which we think is a great resource for educating patients and taking the edge off of some of those conversations that surgeons have to have with patients about domestically.
Litigation, So I think it's progressing.
It's still doing its work in the market and we couldnt be better positioned.
To be the natural repair solution.
Two two.
To help patients out they don't want to have permanent plastic put into their bodies.
Thanks for taking my question and congrats on another great quarter guys.
Thanks Zack.
Yes.
Thank you.
As a reminder to ask a question. Please press star one on your telephone to withdraw your question. Please.
Thank you.
Our next question comes from D J.
Securities Your.
Your line is open.
Great. Thank you.
Tony Thanks for the color on the Rep productivity.
I was wondering would you possibly.
Give us a glimpse at sort of what the biggest LPR guys are doing now are these people, let's say the folks that are doing $2 million or over $1 million or they are strong in both or is it really just hernia, that's driving that today.
Yeah. So it's a mix right I mean some of the.
Older reps that have gotten super productive, they're probably still centered on hernia a bit more.
Trs is coming on strong.
We're encouraging our full sales process.
You look at the data if you have a rep selling both products in one hospital, it's not just a one plus one equals two with a one plus one equals 332 to be exact so there is some leverage and being active in a hospital. So we're still working our way through that Dave right now.
I would say.
We have more reps selling hernia, but the number of reps that are grabbing on to Prs is increasing as well and Dave. What you were asking about is the division of our procedures between open and laparoscopic and robotic surgeries.
That's been consistent in the last quarter with what we've seen before with about 60% of that being in the robotic and laparoscopic.
Thank you for that.
Misspoke, I said LPR, but I meant Prs I think Tony guidance. So thank you.
And then I think I know the answer to this but I guess any color around <unk>.
I think the way that deal is structured we shouldnt see any inflation costs or anything like that but I don't know exactly whats happening in New Zealand or if there's anything we need to think about.
It's certainly on the minds of lots of folks I think youre in a little bit of a unique situation, but any any thoughts there.
Yes, youre exactly right on that so the way our deal was structured with the ROA as we compensate them by paying them 27% of our.
Revenues.
Kind of a royalty we initially acquired the product from them at twice their Cogs. So the initial acquisition cost can be slightly affected by inflation, but that gets corrected via the true up for the loyalty.
Thank you very much.
Thanks, Dave.
Thank you.
Again to ask a question. Please press star one on your telephone.
Z compile the Q&A roster.
Okay.
The speakers.
No further questions in the queue.
I'll turn the conference back over to Tony accomplish.
Housing remarks.
Alright. Thank you for your interest in Tela bio. This afternoon, we look forward to updating you on our progress next quarter.
Have a good night everybody.
This concludes today's conference call. Thank you all for participating you may now disconnect.
Pleasant day.
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