TELA Bio Inc. Q1 2023 Earnings Call

Speaker 1: Good afternoon, ladies and gentlemen, and welcome to the tele bio 1st, quarter of 2023 earnings conference call at this time or participants on a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded.

Speaker 1: And I would now like to turn the conference over to Louisa Smith from the Gilmarching Group. Miss Smith, please go ahead.

Speaker 2: Earlier today, telebio release financial results for the first quarter of 2023. A copy of the press release is available on the company's website. Joining me on today's call are Tony Kobles, President and Chief Executive Officer and Roberto Cooca, Chief Operating Officer and Chief Financial Officer.

Speaker 2: Before we begin, I'd like to remind you that during this conference call, the company may make projections and forward-looking statements regarding future events.

Speaker 2: We encourage you to review the company's past and future filings with the SEC, including without limitation, the company's annual report on form 10K and quarterly reports on form 10Qs, which identify the specific factors that may cause actual results or events to differ materially from those described in these four-of-the-cance statements.

Speaker 2: These factors may include, without limitation, statements regarding product development and pipeline opportunities, products potential, the impact of various macroeconomic conditions, including the ongoing response to the COVID-19 pandemic, for a stationary concern, banking instability,

Speaker 2: and inflationary pressures. The regulatory environment fails in marketing strategies, capital resources, or operating performance.

Speaker 2: With that, I'll now turn the call over to Tammy.

Speaker 3: quarter with revenue of $11.9 million growing 45% year over year.

Speaker 3: Our hernia and PRS products both posted impressive gains, even though elective procedure volumes have still not returned to 2019, pre-pandemic levels. However, we are seeing evidence of procedures trending.

Speaker 3: in the right direction. As I've been doing in our recent earnings calls, I'll take a few minutes to update you on our progress on the five factors that drive our revenue growth. I'll start with GPO access.

Speaker 3: Tele currently has contracts with three national group purchasing organizations, Health Trust, Premier, and a third whose name we are permitted to share. Combined, EGPO provides tele with access to more than 50% of the hospitals in the United States.

Speaker 3: House Trust was the first GPO to onboard over tax in 2020, but this unfortunately coincided with the outbreak of the COVID-19 pandemic. Although this slowed uptake, the GPO was sufficiently impressed with our performance, but they have now renewed our contract for a four-year term, expanded from the initial three-year term.

Speaker 3: The premier agreement, our second GPO win, became effective in October of 2022 and contribute incremental new volume in the first quarter which offsets the cost of discounts to existing customers that adversely impacted revenue in the fourth quarter of 2022.

Speaker 3: Finally, the third GPO with whom we entered into an agreement in mid-February provides a dual source contract in the biosynthetic category that places us in competition with only a single other vendor. Although we've been able to achieve significant growth even without extensive GPO access, these agreements should greatly streamline the process for a surge into a dose of...

Speaker 3: and leveraging our continued track record of recruiting and training sales reps to become productive contributors within six months. We are targeting ending this year with 75 to 80 total reps.

Speaker 3: This is from a base of 61 at December 31, 2022. And as of today, we have 72 reps on board. We remain confident that we will be able to achieve and potentially exceed this goal with strategic hiring of additional experienced sales reps.

Speaker 3: We expect one of the primary uses of the proceeds from our recent capital raise will help us further accelerate this growth in our commercial organization more generally.

Speaker 3: Third, we remain committed to expanding our portfolio of complementary soft tissue restoration and preservation solutions as evidenced by the addition of three new product lines in the first quarter.

Speaker 3: In January , we launched NIVA Tribular Collegiate TAC. NIVA is an absorbent matrix of type 1 and 3 bovine collagen designed to manage exidating wounds and control minor bleeding. These collagen types have been shown to stimulate cellular activity and contribute to new tissue development.

Speaker 3: In February , we announced the launch of two larger configurations of the Overtex LPR device that are designed specifically for use in minimally invasive procedures, repairing ventral and incisional hernias. We've previously noted that surgeon preference is shifting with more doctors treating hernias using minimally invasive techniques.

Speaker 3: In the first quarter, 43% of over-text uses were in robotic procedures in 20% who were implanted laparoscopically.

Speaker 3: It also complements the existing OVTX PRS portfolio with a third product configuration that expands its punital utility. We expect another significant use of the proceeds from our recent capital rates will facilitate these R&D efforts, leading to additional complimentary soft tissue restoration and preservation products channeled through our growing sales organization to the ultimate benefit of our customers and their patients. Our R&D pipeline is robust and we will continue to invest in developing innovative technologies and design advancements to our current product portfolio.

Speaker 3: The fourth factor driving growth is our portfolio of clinical data. One of the reasons we've been able to convert physicians to the use of OVTEX.

Speaker 3: is the extensive set of clinical data that we and the incand investigators have generated examining the performance of our products in a wide variety of hernia and abdominal wall procedures.

Speaker 3: We remain focused on expanding this clinical data, including through our active enrollment of patients into both our Bravo 2 study, measuring the efficacy and durability of over-tax when used in robotic hernia repair. And our PRS Reservoirs Spectative Clinical Study, assessing outcomes of our over-tax PRSfind our patients.

Speaker 3: who had previously undergone breast reconstruction.

Speaker 3: And finally, the fifth growth factor we focused on is sales reps productivity. As I mentioned above, our newest cohort of reps continue to reach profitability in under six months.

Speaker 3: A more recent driver of this productivity is our focus on training rafts to sell both overtex and overtex PRS products into their accounts.

Speaker 3: As I've described before, those customers that buy both categories of products from us buy more on average than the sum of separate accounts that buy only one or the other products. That is the sum of one and one is not just two, but something more like three or four.

Speaker 3: The faster we can get our reps comfortable and selling across the product lines, the more productive and profitable our growing sales force can be. Finally, as I referenced earlier, a couple of weeks ago, we went to the equity capital market and raised over $46 million in net proceeds.

Speaker 3: We expect to invest these resources in the five factors to drive our growth and most immediately into the continued expansion of our sales force.

Speaker 3: We grew revenue 45% year over year in the first quarter, and we aim to maintain at least this level of growth over the remainder of the year. I'm pleased to say that these new resources position us well for continued achievement this year and beyond.

Speaker 3: With that, I'll ask Roberto to review our financial results for the first quarter. Thanks, Tony.

Speaker 3: Tony mentioned earlier, revenue for the first quarter of 2023 increased 45% year-over-year to 11.9 million dollars during which over-text revenue grew 42% year-over-year and over-text PRS grew 52%.

Speaker 3: Close margin was 66% for the first quarter and was driven by the cost of goods of product actually sold within the quarter, as well as amounts reserved for expected expiration of inventory purchased within the quarter, whether or not sold within the quarter.

Speaker 3: As we described in our previous earnings call, we expected Rose Farm to step down from the fourth quarter as a result of the timing of our inventory purchases, but that Rose margins for full year 2023 will show improvement from 2022.

Speaker 3: This increased with mainly due to higher compensation costs as a result of the expansion of our commercial organization, higher travel and consulting expenses, and additional employee related costs due to the increased head count of particularity in our customer-facing rules. General and administrative expenses of $3.6 million in the first quarter of 2023 compared to $3.5 million in the same period in 2022. Our D expense of $2.1 million in the first quarter of 2023 compared to $2 million in the same period in last year. Lost from operations with $11.3 million in the first quarter of 2023.

Speaker 3: compared to $9.8 million in the prior year period. Net loss was $12 million in the first quarter of 2023 compared to $10.9 million in the same period in 2022.

Speaker 3: We ended the first quarter with $30.1 million in cash and cash equivalents.

Speaker 3: In mid-April, we conducted a public offering which raised $46.4 million after commissions and expenses. As Tony said, the use of proceeds will be primarily for Salesforce expansion and next to fund our R&D pipeline and clinical data collection efforts.

Speaker 3: Turning to the outlook for 2023, we are reiterating our full-year guidance of revenues to be in the range of $60 to $65 million, representing those of 45 to 57% over the full-year 2022.

Speaker 3: I'll now turn the call back to Tony for closing remarks. Tony, thanks a very much.

Speaker 3: As you just heard, we have great reason to be very excited about 2023 and beyond. We started the year strong and expect that momentum to continue over the course of the year. Our growing sales force can leverage our expanding GPO access, exceptional clinical data, and new product offerings to continue capturing market share. We estimate our total addressable market at $2 billion across our product offerings.

Speaker 3: of which we are just beginning to scratch the surface.

Speaker 3: We are confident that we have the leadership team in place to advance our five factors of growth and we look forward to demonstrating that at the year unfolds.

Speaker 3: With that, I'll now ask Chris to open the line up for your questions. Chris, please proceed. Thank you.

Speaker 1: To ask a question, please press star 11 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. And by as we compile the Q&A roster.

Speaker 1: One moment please for the first question.

Speaker 1: The first question will come from Frank Tekkenen of Lake Street Capital Market. Your line is open.

Speaker 4: Thanks for taking the questions. I was hoping I could start with one on the premier GPO. I know last quarter there was some commentary out there about some challenges related to new accounting onboarding. It sounds like that has since subsided, but maybe just touch on that concept specifically. And then while on that topic maybe talk about how the initial onboarding of new accounts within GPO.

Speaker 3: So the immediate effect of that was that they began to get discounts that they previously hadn't gotten. We'd initially expected that the increased volume from new customers would make that up, but because of some administrative challenges within the contracting process, it took longer for new customers to get their contracts.

Speaker 3: that effect of that was that they began to get discounts that they previously hadn't gotten. We'd initially expected that the increased volume from new customers would make that up, but because of some administrative challenges within the contracting process, it took longer for new customers to get up the speed than we expected.

Speaker 3: And what we said at the NAFTA was that we expected that would turn around in the first quarter, which in fact are the current. So the first quarter revenues are now where we expected them to be making up for the discount that we're offering to older customers via new volume.

Speaker 3: And as far as the onboarding of the third contract, that doesn't take effect until April 1st. So we are doing preparations for it, but we don't expect to see any sort of challenges with that contract of the sort that we saw in the premier in large part because it's a very compliant contract.

Speaker 3: GPOs that are being implemented right now. Don't forget that health trust has just renewed as of April or so for a new four-year term. And the first implementation was really encumbered by COVID. So within health trust, we really only implemented in one, maybe one and a half of their sticks or so shareholders. So there's a lot of new fresh opportunity within all of the shareholder base within health trust that's coming online right now. Coincident and in parallel with ascension. So I think the way we're looking at this is we're doing three implementations.

Speaker 3: There's going to be various timelines associated with each of the three with health trust and GPO number three, you know, being more compliant and faster to start. So I think the way to think about this is everything is going to phase in over the year. And so to me it's just nothing but opportunity.

Speaker 3: you know, for the rest of the year and into next year as we phase in all these new three contracts.

Speaker 4: Okay, that's good color. And then maybe for my second one on related to the guide that's out there, I was hoping you could help us think about the sequential cadence of revenues throughout the year. Clearly a significant growth profile right now, but that still does imply a good sequential cadence through.

Speaker 3: the fourth quarter call, you can think about it as there being three layered sources of growth. So the first is any territories that existed at the end of the fourth quarter, we built in growth for those territories by increasing the quotas for the cell's reps in those territories. So there's that base rate of growth.

Speaker 3: created territories, that will be a source of denotiable growth. And then third will be growth from the three products that we're launching over the course of this year. So that when you put those all together you get some steep growth from quarter to quarter. So we would expect a reasonable step up in the second quarter.

Speaker 3: and healthy steps up in the third and fourth quarters. So last year, the second to third quarter was a small step, but we're expecting that to be a bigger step this year because of that three layers growth. Okay, that's good color. I'll stop there. Thanks for taking the questions and congrats on all the progress.

Speaker 1: Thanks, Frank. Thank you. And one moment, please, for our next question.

Speaker 3: Great. Good afternoon, everyone. Thank you for taking the question. Just wanted to ask a couple of questions about the GPO side of things. When you look at your business now, obviously you've got the three GPOs. I realize Premier and the Mystery GPO are relatively new, but can you just kind of help us understand what percentage of your revenues now are with those three GPOs and kind of how we should think about that trending, I guess, over the remainder of this year? Yeah, Kyle, thanks for the question. You know, if you look at Health Trust and then a couple of quarters of Premier.

Speaker 3: And really nothing yet through the end of Q1 of ascension, we're really in the mid-50s right now in terms of percent of revenue. And our thoughts are that's certainly going to exceed 60 percent as we marched through the year. But right now it's...

Speaker 3: It's about 56, 57 percent of total revenues in Q1. And the one bit of color I'll add Kyle is that even though premier our second contract was not under contract until the fourth quarter of last year, we were selling amounts

Speaker 3: to their members that were almost equal to or in some cases exceeded what we sold to a house trust. And so that pre-existing customer base was what led to the challenge we had in the fourth quarter with those customers getting the rebates that they hadn't gone for.

Speaker 3: That is not true of the third GPO. We sell virtually nothing into that group of contracting hospitals because they are such a strictly compliant contract. Yeah, so if you think about it, Kyle, health trust is a continuous implementation from the last contract to the current. So there's nothing but upside-there.

Speaker 3: We had a hole to fill, do the administration fees, that's been filled as of the end of Q1. So we're back to par there and then mystery GPO number three is really starting from scratch in Q2. So like I said, it's going to be a layer in effect.

Speaker 4: I'll ask the last two questions just together here. Any pricing trends to considering obviously volumes are going up, but we try to monitor pricing trends just as far as large sizes versus small sizes being used and just kind of the type of procedures they're being used in. And then secondarily, I know you break out PRS and OVATX. Any thoughts or direction that we should be considering for the new product, the college and product that doesn't necessarily fit in either one of those categories from a reporting perspective in the contribution we should see there. Yeah, so let me start with that one. So I think you're talking about NIVIS.

Speaker 3: You know, we believe that over the course of this year, we will get some real contribution from that product. It is a cheaper product, but it can be used outside of the 2 surgery types that we primarily sell our tissues into. And so, as surgeons get used to using that product, see that it has greater utilities and some of its competitive products.

Speaker 3: And as hospital purchasers notice that it's cheaper than those competitive products, we expect it to contribute in a meaningful way over the course of the year.

Speaker 3: As far as pricing, so we haven't changed the list pricing of any of our products over the past couple quarters. So the changes in ASP have to do with mix.

You know, we did see a little bit of a step up in the PRS ASP, and that may be just due to the mix of techniques being used. Some surgeons will fully wrap an implant in the tissue and so consequently use a bigger piece. But there haven't been any significant trends in a material direction.

administration fees would probably be subordinated to just the mix of the sizes as you said, Kyle, but so far the ASPs have been pretty stable.

Okay, thank you for taking the questions. Thanks Kyle.

Thank you for taking the questions. Thanks, Kyle. Thank you.

And one moment please for our next question. Our next question will come from Michael Sarkone of Jeffries. Your line is open.

Hey, good afternoon, and thanks for taking my question.

Just to start, can you talk about what's baked into guidance around your assumptions from a macro standpoint, like procedure recovery and staffing challenges?

Yes, so we assumed that the procedure volumes and availability of surgery times in 2023 would be at least as good as it was in 2022. We didn't make any major assumptions about significant improvement, but even though we seen some positive trends in the first quarter, it's unclear just how much improved that will get.

Okay, great. Thank you. And as it relates to the capital raise, you talked about kind of the main priority for SPEND would be accelerating the commercial organization, but you're still sticking to your 75 to 80 reps by the end of the year. Are there other areas of SPEND within the commercial organization?

That you are accelerating related to the capital raise. So, when we budgeted for this year, we budgeted at a size of Salesforce and investment and commercialization efforts that assumed that we would do a capital raise. So, it wasn't like there was there was investment that was contingent on the raise that we just.

expected to be able to do it and invest, which is why we're holding the guidance of 60 to 65 million because we based that on the growth of the salesforce to 75 to 80 reps by the end of the year.

Yeah Michael, we're also taking a look at some GPO implementation strategies which I think this capital raised for you this up to think a little bit more aggressively about things like SWAT teams and things like that to go take a look at these various implementation strategies. So that's early in its development but it's all part of the commercial plan.

Great, thank you. And if I could speak one more. And do you think you could talk a little bit or elaborate on what's in the R&D pipeline and what timing can be for additional products? Yeah, so just taking a look at this year, NIVIS and large LPRs were really first quarter

fastest growing products tied to robotic surgery. So that's already contributing and it's going to contribute nicely. Our new PRS product, our third PRS product, has been cleared, but will launch at the start of the third quarter. So that product, I think, could be the biggest of the three for this year.

And we expect that to do some nice things for us in the second half of this year. So there's a nice cadence through this year with those three products sort of layering in, as Roberto said, in contributing. For next year, we anticipate launching products, again, next year. We're not ready to lay those out yet, given the fact that we're still working through timing.

issues, but you can expect at least one nice new product next year and hopefully more than that.

but you can expect at least one nice new product next year and hopefully more than that. Okay, thank you.

you know at least one nice new product next year and hopefully more than that. Okay thank you. Thanks Mike.

Thank you. One moment, please, for our next question. And our next question will come from Dave Turcally of JMP. Your line is open.

Thank you. One moment please for our next question. And our next question will come from Dave Turkali of JMP. Your line is open. Great. Thank you. Thank you.

Tony, I just wanted to hit one on the volumes. We mentioned that not back to 2019, but trending in the right direction. Obviously, you have two pretty different product surgeons that you're selling into, and I was just curious. A lot of our other companies, sort of on the ortho side, they saw sort of a...

a big uptick, I imagine a tourney that's still lagging a bit, but any color you could give us there. Yeah, I think that's probably, you know, it's been consistent for us for a while now that hernia is going to be a little bit of a slower recovery procedure volume story. The PRS side, I think likely is pretty close to normal or back to normal. You know, but that said, you know, as the previous question is, what Roberto said, we baked that all into our Boston.

share than if we were the market leader, right? You could see that having more of an impact if we, you know, had exposure to 50, 50 plus percent of the market. But, you know, where we are now, there's plenty of headroom for us. Got it. May I follow up for Roberto, the inventory levels?

I know you guys are still grown in a rapid pace, but any thoughts on turns are like where that should sort of normalize or you know what we should be looking for there kind of as we move through the year. Sure. So as we described on the fourth quarter call, typically we've ordered the least inventory in the fourth quarter because our manufacturer in New Zealand chefs on over the holidays and you know we just worked through inventory towards the end of the year.

to supply that level of revenue.

supply that level of revenue. Thank you.

Thank you.

Thank you. And one moment please for our next question. Our next question will come from the line of Matt O'Brien of Piper Sandler. Your line is open. Hi, thanks. This is Sam on for Matt. Thanks for taking our question.

I guess you had previously spoken about the hernia related backlog and you know we fully appreciate that that's gonna take some more time to Come back those theater volumes. Ain't more time to come back. I guess could you just give us kind of where that stands today?

Yeah, I think our assumption and the way we're operating the business again, from a low market share high ceiling, high growth potential is that it's going to be a rolling a rolling sort of recovery. Right? I think the backlog. Uh, it's gonna roll as we go forward. You'll see.

You'll see patients come out of the backlog, patients go into the backlog, and it should be a slow tapered recovery. It may take the rest of this year into next year, but I think it's going to be a tapered, rolling backlog recovery is the way I would describe it. Thank you.

Great, thank you. Thank you. Thank you. I am seeing no further questions in the queue. I would now like to turn the conference back to CEO Tony Koblisch for closing remarks. Thank you, Chris, and thank you to everyone for joining us this evening, and thank you for your interest in tele-bio. We look forward to seeing you next quarter.

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.

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