Q3 2022 Tenon Medical Inc Earnings Call

Thank you for standing by your currently on hold for the 10 on medical third quarter 2022 financial results and corporate update conference call. At this time, we are assembling today's audience and plan to be underway. Shortly we appreciate your patience. Please remain on the line.

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Thank you for standing by your currently on hold for the tend on medical third quarter 2022 financial results and corporate update conference call. At this time, we are assembling today's audience and we plan to be underway momentarily. We appreciate your patience. Please remain on the line.

[music].

Please standby.

Greetings and welcome to the 10 on medical third quarter 2022 financial results and corporate update conference call. As a reminder, this call is being recorded.

Your hosts today are Steve Foster Chief Executive Officer, and President and Stephen Van Dyk, Chief Financial Officer, Mr. Foster and Mr. Van deck, we'll present results of operations for the third quarter ended September 30th 2022, and provide a corporate update.

A press release detailing these results was released today and is available on the Investor Relations section of our web companies website Www dot to turn on bad Dot com.

Before we begin the formal presentation I would like to remind everyone that statements made on the call and webcast may include predictions estimates and other information that might be considered forward looking while these forward looking statements represent our current judgment on what the future holds they are subject to risks and uncertainties that could cause actual results to differ materially.

Thank you.

You are cautioned not to place undue reliance on these forward looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events throughout today's discussion we will attend.

To present, some important factors relating to our business that may affect our predictions you should also review our most recent prospectus for a more complete discussion of these factors and other risks, particularly under the heading risk factors at this time I'll turn the call over to Ted on Medical's, Chief Executive Officer, Steve Foster.

Please go ahead Sir.

Yes.

Thank you Cynthia.

Good afternoon to everyone I'm pleased to welcome you to todays third quarter 2022 financial results and corporate update conference call for 10 on medical.

2022 continues to be a milestone year for our organization transitioning to a public company and positioning us for commercialization of our catamaran Si joint fusion system.

Previously in the second quarter, we closed on a $16 million of IPO, providing the necessary funds to execute on our commercial plans and support our mission to deliver a refined surgical option for patients with chronic secret iliac joint pain, the fail conservative care.

Moving into the third quarter and beyond we have significantly ramped our commercialization efforts and the building of our sales team. This will continue for the remainder of 2022 and well into 2023.

Subsequent to quarter end and most recently, we completed our full national launch of the technology at the North American Spine Society meeting held in Chicago.

There, we introduced catamaran to over 3500 spinal specialists and other health care professionals.

Attendance at the meeting.

At the event, we had an interactive hands on technical exhibit where our health care professionals learn more about catamaran and its novel Transfixing approach hosted multiple hands on technical workshops for invited physicians and had outcomes from a single center experience with catamaran presented that the innovative tech.

<unk> session.

We continue to target physicians, who have been trained on ASI procedures or have significant experience with Si surgical technologies.

To date, we posted 71 physicians and catamaran workshops, we anticipate acceleration in the quantity of these workshops. This tenant has completed the design of the synthetic trainer model and will deliver an ability to train locally and to do so in a very efficient manner for the physician.

Taken together, we are highly focused on showcasing our unique story at conferences and hands on workshops, where we are receiving highly positive feedback from the clinician community.

This ongoing outreach is a critical step in building our commercial momentum for <unk> as we developed commercial infrastructure and our sales management team and transition control of all commercial distribution and sales activity to the company.

<unk> recently disclosed we restructured our national distribution agreement, which will allow accelerated commercial investment to support topline growth.

Turning to our clinical research timeline, we recently announced institutional review board approval from WCG IRB for two separate 10 on sponsored post market clinical studies of catamaran.

Approval by WCG represents a milestone for us which allows designated catamaran study centers to begin recruiting and enrolling patients into the respective studies.

The objective of our post market feasibility study is to report on the clinical outcomes in patients with sacroiliac joint disruptions or regenerative sacral itis treated with the catamaran system.

The study is designed to enroll up to 50 patients and up to 10 clinical sites across the United States.

Feasibility and <unk> studies will assess patient pain scores fusion as well as other patient reported outcomes out to 12 and 24 months.

We are currently in the process of identifying and qualifying clinical sites with plans to initiate enrollment in these trials in Q4 of 2022.

We continue to be encouraged by the catamaran system performance in the or and the increasing number of surgical procedures utilizing the system.

Early results show the system delivering on its promises and providing our physician customers with an enhanced option to treat their patients suffering from debilitating Si joint issues.

Looking ahead on our commercialization pathway and the addition of our synthetic training model option, we anticipate further acceleration of our outreach at conferences and workshop events.

With that I'll turn it over to Mr. Van Dyk, our chief financial officer to discuss our financials.

Thanks, Steve I will give us the sink review of our financial results a full breakdown is available in our regulatory filings and in the press release that crossed the wire. This afternoon.

Revenue was $208000 in the third quarter of 2022, an increase of 197% compared to the 70000 in the comparable year ago period.

Revenue was 414000.

In the nine months ending September 32022, an increase of 287000 compared to the 107000 in the nine months ended September 32021.

The increase in revenue for the three and nine months ended September 32022 was primarily due to increases of 200% and 345% respectively of the number of surgical procedures in which the catamaran system was used combined with lower revenue per procedure due to a national distribution agreement that.

Was in effect for the sales from the period July 2020 through April 2021.

Gross loss for the three months ended September 32022 was 94000 compared to a gross profit of 52000 in the comparable year ago quarter due.

Due to the increases in operations overhead spending and the number of surgical procedures.

Gross margin percentage decreased from 74% to a negative 45% again, driven by higher operations overhead spending and partially offset by higher revenue per procedure.

This resulted from an amended and restated national distribution agreement.

The operating losses totaled $3 3 million for the third quarter of 2022 compared to a loss of $22 1 million in the third quarter of 2021.

The increase in operating expenses was the result of the creation of an infrastructure to support revenue growth.

Stock based compensation expense and costs associated with being a public company.

Net loss of $3 2 million for the third quarter of 2022 compared to a loss of.

$2 3 million in the same period of 2021.

As of September 32022, cash cash equivalents and short term investments totaled $12 5 million.

The company believes existing cash cash equivalents and short term investments will enable turned on.

To fund the hiring additional personnel to create a commercial sales organization.

Sales and marketing activities, including clinician training and clinical study activities.

As well as product development.

I will now turn the call back to Steve for closing thoughts. Thank.

Thank you Steve.

In summary, we continue to believe we are well positioned to create long term value for our shareholders with the national launch of catamaran and ongoing positive feedback we are very optimistic for the commercialization of our proprietary FDA cleared surgical implant system, which is designed to optimize our Si joint fixation and fusion surgery.

And corresponding outcomes.

As we close 2022 and look into the new year. We are focused on the following one the buildout of our commercial infrastructure and our sales management team in order to ramp our commercial outreach.

<unk>, introducing and educating physicians to our optimized surgical approach for Si joint fusion and three delivering clinical research that reinforces the promise of this distinct technology.

I look forward to providing our shareholders with further updates in subsequent quarters as we scale commercialization and develop our clinical studies data I. Thank you all for attending and now I would like to hand, the call back over to the operator, So we can get into a question and answer session Cynthia.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow the signal to reach our equipment. Once again to ask a question. Please press star one.

We will take our first question from Bruce Jackson with the Benchmark Company. Please go ahead.

Hi, good afternoon, and thanks for taking the questions.

So.

Yeah.

Significant presence at NASS. This year I was wondering if you could just some cap for us.

Some of the activities that take place.

The presentations that were made by some of your.

Kols and then what the response to that was that physicians.

Thanks for the question Bruce I'd be happy to do so listen.

North American spine Society meetings.

Sort of a bellwether in a critical meeting for spine companies over the years.

<unk>.

They like all the others are emerging from post pandemic slowdowns and things of that nature of the meeting was very robust.

We had a booth presence on the floor with a lot of activity people visiting after the various didactic sessions et cetera. We also broad equipment in to have evening workshops full boat evening workshops with CRM fluoroscopy and our synthetic models that I mentioned earlier.

Where surgeons were able to spend time in a quiet setting going through the sequence of instrumentation. How this all works.

Really an excellent opportunity may.

Maybe before the dinner hour to review the review the technology ask questions of of experienced physicians and faculty.

Really a good engagement and then finally, Dr. Michael Shapiro from West Palm Beach, Florida presented is Alpha series of cases with Catamaran is 18 patient series in a single site.

So early data.

Our experiences but showed.

Really impressive pain scores as well as post op imaging that reinforces the promise of this important technology.

It is clear the.

<unk> can get the job done when it comes to Fixating and setting the joined up for an appropriate fusion.

And we really look forward to initiating the feasibility trial I mentioned earlier.

To bring a multi center experienced and report on those results going forward.

Okay, Great and then given that coincided with Nash was the announcement of a new agreement with spine surgery. So.

Maybe you could tell us about the transition.

How what's going to work in terms of the sales force.

What the new responsibilities are for spine.

Still plan on taking a special charge in the fourth quarter.

We will do.

So spine source so.

National distributor partner legacy agreement that we had we chose mutually to restructure the agreement as a public company of course, we want to be extremely aggressive with our investments in expansion.

All of our sales presence with.

With distributors and sales managers and clinical specialists out in the field. It was it was mutually agreed that it was better for us to restructure the way. This thing was put together we did so in an amicable manner and we will continue to work with spine <unk> personnel.

To move forward and to build on the momentum that we've created here to date.

And so their role will be across our commercialization activities everything from training curriculum.

Two building out sales teams of course right now we're transitioning distribution contracts from spine source agreements to turn on agreements things of that nature just to make sure everything is done in an efficient and effective manner there'll be there'll be a big part of our efforts going forward Bruce as.

As we expand as you can imagine we'll move from a relatively small number of independent distributors to a much larger group.

We build out the remainder of 2000 to 2022 and into 2023 and <unk>.

Spine source resources will be a very big part of that and an important part of that.

Alright.

Sure.

Oh go ahead.

Yes, Bruce in terms of the fourth quarter charge are still our redone.

Accounting for.

For the transaction.

Okay.

We feel that the one.

Upfront payment that we made to spine source to renegotiate disagreement will definitely be charged as well as the.

Future commissions that we've agreed to pay.

Generally accepted accounting principles being required that we accrue those upfront.

And <unk>.

Reduce the liability as the as.

Is the commissions or as the.

Commissions are earned so we do plan on taking a $4 6 million charge in the fourth quarter.

To recognize.

This restructuring of the agreement as well as then there'll be the charges for transition services and some of the consulting services that.

Steve outlined will be taking charges on those but those will be those will be expensed as the services are rendered.

And some of those are noncash charges right.

These will all be cash charges.

The original $3 $6 million will be noncash hit.

Because the commission doesn't get paid out until revenue is earned.

Paul.

Well, thank you very much and congratulations on all the progress during the quarter.

Thank you Bruce Thanks, Bruce.

And that will conclude today's question and answer session. Mr. Foster at this time I will turn the conference back to you for any additional or closing remarks.

I just want to express appreciation for everyone, who joined the call. This is a very exciting time for us at 10 on as you can imagine after restructuring our commercial format et cetera, launching our product really excited about the clinical research it's kicking off here.

In the short term and we'll be excited to bring results.

Everyone in future quarters.

Yeah.

With that I think we'll wrap it up Cynthia.

Thank you Sir this concludes today's call. Thank you for your participation and you may now disconnect.

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