Q3 2023 TELA Bio Inc Earnings Call

November 9, 2023

[music].

Good day, and thank you for standing by and welcome to Tela Bio third quarter earnings Conference call. At this time, all participants on a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you then here in the <unk>.

I made a message advising your hand is raised.

Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to introduce your host for today's call Greg.

You may begin.

Thank you Justin and good afternoon, everyone earlier today Tela bio released financial results for the third quarter 2023.

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

Joining me today on today's call are Tony <unk>, President and Chief Executive Officer, and Roberta Cooker, Chief operating officer, and Chief Financial Officer.

Before we begin I would 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 annual report on Form 10-K, and quarterly reports on form 10, Qs, which 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 and pipeline opportunities product potential the impact of various macroeconomic conditions, including the COVID-19 pandemic.

Cessionary concerns banking stability and inflammatory inflationary pressures the regulatory environment, the introduction of new products or product enhancements by us or others, including those which may be perceived negatively impact the demand of our products now or in the future sales and marketing strategies capital.

Resources or operating performance with that I will now turn the call over to Tony.

Thank you Greg.

Good afternoon, everyone and thanks for joining us today for our third quarter 2023 earnings call.

We are pleased to report another quarter of strong financial results and operational execution revenue in the third quarter was $15 1 million growing 35% year over year, notably this was the 11th successive quarter of 35% growth or greater driven by continued market share gains and increased surgeon adoption of that.

<unk> Overtax product portfolio Prs growth was especially strong up 46% year over year, notably driven by the launch of the long term resorbable version, although the tax Prs, which includes specific design features aimed at enhancing the clinical utility of Overtax Prs for surgeons and patients in class.

Pick and reconstructive surgery. In addition, our hernia portfolio portfolio continues to perform with Overtax recently, becoming the most implanted biologic hernia repair mesh in the United States, reflecting the growth recognition of the clinical utility of the product for this application.

I'll review with you the progress we've made on the five factors that combined to drive our growth Roberto will provide a more detailed review of our financial results and then I'll make closing remarks before opening the line for your questions.

I'll start by discussing sales force size and individual sales representative productivity together as they had a joint impact on our Q3 Q3 revenue.

As of today, we have 79 commission sales reps with our goal being to end the year with 75% to 80 filled positions.

The 70 955 had been in their roles for at least six months.

During our second quarter earnings call, we had 75 reps of which 50 had at least six months tenure.

The newness of a third of our reps at our last call was the result of turnover in the second quarter affected by new regional managers, who we've hired at the end of last year, and who identified opportunities for upgrading talent in certain territories.

While 35% organic growth is outstanding we believe it would have been even higher but for the transition of territory responsibilities in the second quarter that said I am pleased to report that the newer reps are quickly progressing along the learning curve and their productivity ramp is consistent with our standard six months to breakeven profitability.

Metric therefore, we anticipate the impact of rep turnover to be meaningfully lower in Q4. Additionally, we have taken the following steps to accelerate the productivity of our newer reps and our sales performance in general.

First we rolled out intensive prs sales training to ensure that all our reps are comfortable selling the product compliant Lee and effectively this additional training added to the availability of the <unk> Prs long term resorbable should help all of our reps, particularly those with less than six months experience on the job.

Second we've implemented two supplemental incentive programs in the fourth quarter further to drive increased performance through the remainder of this year and into next the first incentivize as those reps already on track to achieve their quarters to further outperform.

The second provides a boost to those reps who might be short of quota, but who have the potential to contribute incrementally more.

These steps are already helping us to properly returned to over 35% growth as anticipated and should set us up for a strong 2020 for performance.

Moving onto the third factor driving revenue growth GPO access expansion within existing GPO contract is on track and efforts to add additional GPO and <unk> are going well Keller has contract with three national group purchasing organizations that enable enhanced and more efficient access to hospitals and surgeons throughout.

The country.

These GPO contracts are critical to tell us commercial strategy and provide the opportunity for surgeons to use the alphatec product right off the hospital store room shelf without requiring approval from hospital administrations.

The first of our three GPO contract as our long standing relationship with Healthtrust, with whom we re signed a four year renewal a second contract with Premier with whom we've now had a full year of implementation as it became effective on October one 2022 Premier has the second largest GPO in the country, giving us access to.

Over 4400 hospitals within its extended network lastly, our most recent GPO relationship offers us a dual source contract and the biosynthetic category. There is tremendous upside opportunity for <unk> within these three contracts as well as from new contract opportunities and we look forward to providing updates as our app.

Access further expands.

First factor is the range of complementary products in our portfolio that enables us to leverage the existing sales force and call points across the soft tissue reconstructive space. We have launched four products. So far in 2023, the first to the large size <unk> LPR for use in minimally invasive surgery and inhibits fibula collagen.

<unk> are gaining market share with different levels of surgeons familiarity to leveraged by our sales force the third <unk> Prs long term resorbable launched in the third quarter and it's taken off quickly given surgeons prior knowledge of the product line and interest in the new performance characteristics.

Finally, and most recently we are in the process of launching the liquid fixed hernia mesh fixation devices liquid fixed eight and liquid fixed precision these products, which are indicated to fixed mesh to tissue inside the body and to close the <unk> NIM the membrane surrounding the abdominal cavity have been marketed in Europe under the brand.

Liquid band 58, and represent the first product of its kind to be approved for sale in the U S. We believe that this product line allows our sales force to call on surgeons in a technology space, where they are comfortable and will increase access to additional surgeons eventually opening opportunities to also discuss the benefits of <unk> and other areas.

<unk> of their hernia practice.

Regarding our fifth factor clinical data, we continue to collect data both prospectively and retrospectively.

For our hernia and Prs products, respectively. We're proud of the performance of our products and we will expand our data sets through for example, our Bravo to study, which measures the effectiveness of <unk> products when implanted robotically.

I'd like to now address the question that had been top of mind with investors that is what is the potential negative impact of <unk>, one agonist drugs on the market that <unk> serves.

Specifically if patients lose weight on these medicines, how might that affect the rate of hernia repair and plastic and reconstructive surgeries with regards to the latter much Prs is used in plastic and reconstructive procedures that we believe are both unrelated to weight loss and on account of weight loss.

With regards to hernia, we have consulted with general surgeons in this space, who collectively have identified for potential ways in which <unk> may in their opinion actually increase the need for hernia repairs first and important contra indication for surgery in general and hernia repair specifically is morbid obesity.

Patients, who lose weight could become newly eligible for repairs that a surgeon might previously have advised against.

Second a risk factor for hernia, its physical activity and to that extent it would be reasonable to expect more need for hernia repairs with weight loss.

Third obesity can conceal existing hernia in particular umbilical hernias and weight loss can reveal the need for these repairs. Finally, DLP ones are apparently associated with acid reflux conditions, which could necessitate hiatal hernia repairs in response, although these examples indicate the potential.

For GP DLP wants to increase the need for hernia repair the real takeaway is that we do not expect <unk> to meaningfully reduce hernia repair rates in any reasonable scenario.

With that I'll now turn the call over to Roberto to review, our financial results and outlook.

Thanks, Tony.

Third quarter revenues grew 35% year over year to $15 $1 million with <unk>, and <unk>, Prs growing 30% and 46% respectively.

These increases are attributable to the ongoing expansion of our commercial organization that leading to new customers increased existing customer penetration and a growing international sales presence.

Tony mentioned that revenues and growth would have been even higher absent the disruption of second quarter sales rep turnover and describe the steps we are taking to quickly regain previously planned performance levels.

Worth noting.

Those territories that were continuously films that as those not affected by turnover performance was consistent with the higher level of revenue growth. We had expected this validates that our underlying forecast assumptions other than turnover robust and reliable.

Gross margin for the quarter was 69% compared to 66% in the same period of 2020 to.

The margin improvement was driven primarily by more efficient inventory management practices, which resulted in a decrease of obsolete and excessive inventory as a percentage of revenue year over year we.

We expect our gross margins to continue at or around this level as we operate using more rigorous inventory practices.

Operating expenses were $26 million in the third quarter compared to $16 8 million in the prior year period.

This increase was a result of additional head count as we continue to expand our organization consequent higher compensation and employee related expenses increased increased travel expense as well as an increase in consulting fees and higher study costs.

Loss from operations was $10 2 million in the third quarter of 2023 compared to $9 5 million in the prior year period.

Turning to our outlook for full year 2023, we now expect revenues to range from $57 million to $60 million, reflecting reflecting growth of 38% to 45% over the full year 2022, and implying revenue for the fourth quarter, ranging from $15 5 million to $18 5 million compared to $11 6 million.

In the fourth quarter of 2022.

Although both in both the third and fourth quarters have come down from our prior expert expectations, we anticipate that the steps Tony outlined that we're taking to address the salesforce turnover disruption will allow us to return to subsequent growth excuse me sequential growth more similar to that reflected in our prior guidance or said another way we believe the sales.

Rep disruption is largely behind us and that our sales growth rate from Q3 to Q4 is on track with our prior expectations, but from a lower base due to the impact of the turnover in the second quarter.

We ended the third quarter with $58 million in cash and cash equivalents compared to $65 million at the end of the second quarter, meaning that we used $7 million in the quarter as.

As our revenues continue to grow and as Opex is held to a much lower growth rate, we expect cash cash usage to decline, we'll have more to say about this on our fourth quarter earnings call. When we announced revenue guidance for 2024, but for the moment that we remain confident in our cash position and continue to believe it will be sufficient to fund us to profitability.

I'll now turn the call back to Tony for closing remarks.

Excellent. Thank you Alberto I would like to reiterate my excitement for the success <unk> achieved to date.

On September 30th we completed our 11th consecutive quarter of 35% or more year on year growth. This was driven by our continued focus on developing expanding each of the five factors in parallel to achieve consistent share capture.

Notwithstanding our exceptional performance so far Taylor represents only a small part of the hernia market on a unit basis with plenty more room to expand and the possibility of a material growth inflection in the future. We are focused on taking full advantage of this opportunity to improve patients' lives with our products I want to thank the <unk> team for their.

<unk> this quarter, especially those who helped us efficiently expedite the impact.

Of the sales transition as a result, we remain on track for continued strong growth. We are confident about our future prospects as we believe we have the key pieces in place to continue to take share, including extensive GPO coverage broad sales coverage in high volume markets industry, leading product performance data, our robust R&D pipeline that.

<unk> deliver new products and experienced managed team management team and our path to profitability with our current balance sheet.

And even though we keep growing our market share each quarter. Most of the market is still there for the taken and we plan to do just that.

With that I'll now ask Justin to open the line for your questions.

Thanks.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced so withdraw your question. Please press star one again please standby.

While the Q&A roster and one moment by first question.

And our first question comes from Frank <unk> from Lake Street Capital Markets. Your line is now open.

Great. Thanks for taking the question Hey, Tony Roberto I, just wanted to follow up on some of the sales force commentary I was hoping you could take us a little bit deeper into maybe the reasoning behind some of that turnover and why it was higher than expected I don't know if there was a certain background or characteristic associated with those.

Less effective in the sales force or essentially getting at.

What are you doing differently now to ensure a more stable sales organization that can grow per rep productivity more effectively and consistently.

Sure. Thanks for the question Frank I'll start and Tom you can jump in so as we've discussed before.

We revitalized our R&M.

Team. So that's the regional managers, who sit above the territory managers, which is what we call sales reps in.

In the fourth quarter of last year.

To the tune of about 12, new RMS and those RMS came in in the first quarter and evaluated their teams of approximately seven reps the keys.

And over the course of the first quarter roughly one of each of those RMS identified a territory manager that they felt.

Could be upgraded the territory.

Might be at above breakeven levels of revenue, but the growth was not where we wanted it to be getting to $200 million in the short term that we're hoping to get.

So over the course of the second quarter those RMS independently proposed and then.

Followed through on replacing those Tms.

The territory managers.

No.

That happened starting at the end of the first quarter extended through the second quarter and was complete by the second quarter such that as Tony mentioned.

On our second quarter earnings call. We mentioned that we had 75 reps of which 50 had been with us for six months or more suggesting or indicating that 25 have been with us for six months or less. So those were the turned over reps roughly 13, and then the remainder of our new hires to expand our sales force.

So essentially what we're doing is reaching higher up into the organization from the perspective of lower performers.

And replacing reps that might be hitting greater than breakeven numbers, but whose growth had become a bit slower.

The RM had determined that that could be upgraded.

That all took place in the second quarter, we entered the third quarter and the first month, believing that we are on track to hit numbers notwithstanding.

But you saw some of that Peter off in the latter part of the third quarter and so what we're doing to answer the second part of your question, which is what are we doing to make sure that we get back on track and that we have the right reps in place and that they are growing at the rate.

Growth rates.

We have a couple of programs in place for the fourth quarter to both address the fourth quarter and the longer term. So the first is we have two new training sessions in place. So our new sales reps are going through a longer introductory training session and then all reps are going through deeper Prs training.

The things we found is that new reps tend to be a little slower on the uptake of Prs sales and.

And Thats.

Greater potential source of sales and.

Growth.

And then second we put in place two incremental IC plans one for those reps that are on track to exceed their quotas for the fourth quarter.

To incentivize them to further.

And then they already are.

Well beyond their quotas and then for those reps that might be short of their coders.

Currently forecast to be short of their quotas.

An additional incentive plan too.

Give them additional motivation to sell and not just wait for the reset of our quarters in the next quarter.

Yes, Frank I think philosophically right.

We run the business with an eye towards long term durable sustainable growth and quality right. So we did a massive upgrade in talent with our regional manager team and.

And we gave them the task of figuring out where we had some stagnation or slower growers and they did just that and we made the decision and I'd do it again to have the strongest team in place.

At the end of this year. This year is going to be what this year is going to be but we're already thinking about next year and if you just look at the key metric, which is we drove this type of growth with only about 50% or 55 reps that were even on board for six months, we've got a bolus of 25 to 25 plus reps.

That are right now getting trained seasoned and matured and we want them to be passing through that six month point of productivity higher talent by the way.

Right as we start next year. So we're thinking ahead not just.

To triage, what Roberto mentioned for the rest of this year, but really the focus of that 12 months after that and the 12 months after that our goal remains $200 million company as efficiently and effectively as possible.

Okay. That's good color and then maybe just for my second one can you just talk to some of the factors between the low end and high end of guidance.

So just.

The rate at which we're able to get our reps up to speed.

Okay.

And predictable things in the economy.

We expect to see as we normally do that the fourth quarter is the strongest of the year, we tend to see a strong push in December as the physicians and our sales reps pushed to hit their numbers.

But exactly how that all comes together is really something that's a little bit variable and so the range just accounts for that variability.

We tend to have a big run up.

Frank.

Frank Thanks things coming together at the end of the quarters right. So.

We want to make sure that we have this thing maturing and peaking at the right moment not just in a year, but during each quarter as well so.

Timing.

Got it that's good color thanks for the questions.

And thank you.

And one moment our next question.

And our next question comes from Caitlin <unk> from Canaccord Genuity. Your line is now open.

Hey, thanks for taking the questions.

Thanks, Dave.

Hey, guys.

I know you talked a little bit in the last question about how you saw all of the weakness kind of coming.

Out of the Q3, where do you see.

And till October and November.

For Q4 in terms of the business environment, and just kind of rep productivity.

Sure. So one of the ways, we analyze the quarters as we.

Measure the ratio of the first month of the quarter to the actual fully achieved quarter.

So we have historical data on that obviously ever since post COVID-19.

Even pre COVID-19, but useful post COVID-19.

And what we see is that the ratio of our actually achieved October sales to what we forecast for the fourth quarter is right in line with our historical data of what actually occurs so we feel pretty comfortable based on that and then based on the activities. The tactics that we put in place to get our reps back up to speed that we are on track.

We're hitting the quarter yes.

And to back up what Roberto said Caitlin.

You look at July right in Q3 that metric that Roberto mentioned as a percent of the first month was not was not in line right. So there was a difference.

Got it makes sense, Okay, and then just for my second question any thoughts on 2024 gross or at least maybe comment on thoughts of where the street is right now for 2024.

Over $80 million.

So.

We're still in process of putting together our budget right now and that includes the revenue budget.

I think that off of the prior street numbers the growth rate.

Probably.

On the lower end of a reasonable range.

But given the new numbers that we could be coming out of the year with.

That number might be on track, we think a bit more about the growth rate than the actual.

The single number.

But we're digging into that and as Tony said one of the things about what we've just done is we've put in place.

Our sales force that as of today, we have 79 sales reps in place of whom 55.

I have been with us for six months or more and then by the first quarter of next year that should be much closer to the full complement of 79 being at that six month, Mark with some additional hires between now and then yes, I mean to give you give you a feel caitlin.

We're running a week long sales school right now and I think we have 35 attendees five or six new regional managers and the rest are all reps and.

It's by far the strongest.

Best pad agreed.

Group that I've ever seen right. So things are just getting better and better and better which reduces your tolerance for decent performance mediocre performance a.

Coupled with stagnation as Roberto said this is about growth right and next year will be about efficient growth.

Holding our infrastructure at.

As solid as possible.

Absent the sales force and customer facing but we're going to we.

We basically have the infrastructure to drive that growth in it.

Track that talent pool, and we were going to take.

Vantage of it so.

That.

Awesome, Thanks for taking the questions.

Thanks Caitlin.

And thank you.

And one moment our next question.

And our next question comes from Matthew O'brien from Piper Sandler Your line is now open.

Afternoon, Thanks for taking the questions.

Sorry to harp.

Sorry to harp, so much on Q4, but two months ago, you guys were talking about a midpoint at $62 five and now we're about 58 class, it's down about 4 million box.

In the back half of the year alone.

Over the last two months so.

It just seems pretty significant as far as is that debt.

<unk> goes and.

I'd, just love to hear a little bit more about that specifically I mean, I don't know if there was like 10 or 15 people that were doing tons in terms of revenue.

The loss, even down from or how that works and then.

The bump from Q3 to Q4 in absolute dollars was the biggest bump.

As far as the midpoint of the range goes that the company has seen actually much more than the company has ever seen so just again the comfort level on that bridges, you to get that extra revenue.

And in Q4 as you have.

<unk>.

A third of the reps that are still pretty junior.

Sure. So let me start with the bump question first so.

As I mentioned on a prior question one of the ways we analyze.

Our thinking about the quarters in the year as we take a look at what we've achieved in the quarter to date.

The rough way to do that is the first month of the quarter and then how that measures up against what we are hoping to do for the full quarter and then how that ratio compares to historical achieve.

Achievements in prior quarters and in the prior year's quarter, so the seasonal last quarters.

So based on what we've seen.

October revenues.

And comparing that to what we expect to see at the midpoint of the range for the quarter. That's right in line with what the historical average is for achievement.

First month to full quarter.

On that data point, and then on the initiatives that we've put in place to incentivize the reps to close the gap.

From the performance we had in the third quarter, we feel comfortable about hitting those numbers.

And again, that's a series of training and then some incremental incentive plans.

As far as Q4, and the reduction of approximately $4 million from the midpoint of the prior year's guidance range to the current.

And that $4 million impact on the second half of the year.

The <unk>.

Turnover in the sales reps that occurred largely in the second quarter is what drove that so as Tony mentioned on.

On the last earnings call, we had 75 reps of those a third less than six months tenure.

So that was a bit more turnover than we had initially budgeted we thought it was the right thing to do based on the analysis of the RMS We believe it puts us in the best place for continued significant growth our goal being to grow the best company, we can as quickly as possible.

And we've put in place some steps to make sure that we get back to the growth rates that we previously planned for as quickly as possible.

Yes, Matt also something to consider is given where we are in our development stage in our growth.

A lot of the usage of our product is based on Rep presence right. So if we were bigger more established bigger market share player.

Might just have natural momentum more of it we had some of that certainly but it's the presence thing right. So when you do that transition you tend to dip so even though we had stagnation or mediocre performance in some of these territories likely those went down but now they are filled with stronger talent and we should start to see that.

Move the other factor to consider is the Prs LTR product right. We did a soft launch of that around August or so and it's well over $2 million, two and a half or so probably 50% of that is new business. So that is going to be a superb driver for us over the next 24 months and it's just.

Warm it up its <unk>.

Not even in everyone's and yet.

From a timing perspective, we feel very good about where we are over the next six months and again like I said, focusing really hard on the start of next year and continuing to drive that stronger growth rate next year.

Yes.

Got it and then maybe just as a kind of a follow up to that Tony how much did it cost do you think this transition of these I think it sounds like.

I don't know 15, or 20 reps Nokia adolescent that 88 to 10 reps how much did it cost you in Q3 do you estimate and then how far the revenue of those from a revenue perspective.

Productivity.

Sorry, just real quick how productive where those remaining reps. It seems like the remaining reps did an unbelievable job in Q3 well.

Robert I was going to jump into the meat of your question, but I'm glad you brought that up that's a superb observation that.

I think you've got to focus on the fact that we drove the revenue bulk and growth with 55 reps with a chunk of those six months right certainly there's longer tenured rep, but that's a pretty powerful impact right. So we've got 25, new ones idling.

And we lost probably 13, or so 2014 or so.

In the upgrade process.

So.

I think you can just see that this thing is set up right to have the full complement of 79% or 80 reps now being at the level of the previous 55 again as we start next year right. So.

And Matt So I realize it didn't hit the first part of your first question squarely, which was did we lose a lot of high performing reps.

So we've retained all of our highest performing reps you have.

Think about it as us reaching up higher from the lowest performing reps and taking out reps that one.

Im not obvious underperformance cases.

We're maybe at higher than breakeven revenues, but we're not on the growth trajectory that we need it and to your question about the cost of making these changes so of the 25 reps that we're within.

With us for less than six months about 13 of those were turnover reps and the remainder were new hires to fulfill our growth goals for the year.

The in the turnover category, we typically provide severance of about three months.

And so the cost the incremental cost would be how much overlap. There is when we get the new reps in and given that we did end the second quarter with 75 reps there is probably some overlap but.

That based pay amount of overlap is not going to be a huge amount affecting our P&L, yes, one more comment Matt.

Strong heavy topic here is.

Of those 55 tenured reps.

They did an excellent job of attaining forecast right and if you look at the the underserved or turnover territories right.

Most of that shortfall with due to the vacancies or the transition and we had a target that was higher than consensus. So the loss was probably estimate is higher than consensus right. So there is.

There is a powerful productive sales force thats coming together here.

I'd say this is a timing dislocation our growing pain.

Okay, and I'm, sorry, Tony to keep harping on this and monopolize everything Youre doing it we lost productivity.

Well, it's the productivity of this group that 55 up double digits from Q2 to Q3, because that's what I'm getting in the model.

In a seasonally soft quarter.

We will have to think about that.

So we had very strong performance in the existing reps.

One thing to note is in the turnover territories, the new reps were coming into territories that previously had revenues. So it's not like they achieved.

Zero energy reconstituted yet so there was continuity in some of those territories.

Yes, so our existing reps that had very high performance levels.

Sure.

Okay. Thank you.

Thanks for that Matt.

Thank you.

And one moment our next question.

And our next question comes from Michael Zaccone from Jefferies. Your line is now open.

Good afternoon, and thanks for taking the questions.

Thanks, Michael.

Just a follow up on that question about the sales reps that you just mentioned internal targets were maybe a little higher than consensus which was at a little over $16 million. So I guess, that's around a $1 million shortfall in <unk> and you took guide down by $4 million at the midpoint does that mean.

<unk>.

The original expectation for <unk> is just kind of midpoint of the <unk> guide plus that $3 million is that a is that a fair way to think about it.

No. So I think kind of you didn't specify exactly what our internal expectations were.

Yes.

Hi.

So yes, so we.

Yes.

We had very high performing reps as I said, we had some turnover that we didnt expect at the beginning of the year.

Did it for the right reasons.

Reset the Salesforce, we have reasons to believe that the newly.

Accrued at RMS, who come in and who are very high quality had good enough is to bring in new reps, who are going to perform even better than the reps that we already have the reps that were on board continuously in our in our.

Territories.

As was pointed out in the prior question did perform at a very high level to achieve what was achieved in the third quarter and.

I think it's worth reiterating at least one more time that we had 35% growth in the third quarter. Yeah. So yes, we had high expectations. There was a disruption to them. We believe we fixed that and we continue to have high expectations, we set a high bar we push ourselves.

And we're constantly focused on analyzing.

Continuous improvement and doing the right thing, but Michael I want to point out some qualitative thoughts right. The qualitative positive indicators for the company right now are through the roof, they've never been better right I already talked about the LTR and its uptake.

But we just came out of the American Hernia Society meeting.

Sponsored a lunch and learn which are really usually pretty sparsely attended we had well over 200 surgeons pack every seat was filled they were standing room only against the back wall.

That to me is a massive signal of interest in the company interest in the product.

That's been our biggest challenge is getting the visibility and the validation.

We are running a super aggressive and sophisticated medical education program, our target was to train and educate a thousand HCP. This year, we're already over 1100 right. So that's both on the plastic side in the hernia side, so the exposure and interest in what we're doing is huge.

And the message is being promulgated.

In a big way.

It just came out of the <unk> meeting in Austin, and again, we had a huge showing there.

We had.

Hundreds upon hundreds of docks and participants and some of our sponsored events. Our booth traffic was Super High we ran two AD boards I think we had something like 30 different surgeons through those ad boards.

So.

Again, the validation and.

Getting to know us huge but I'm really excited about the fact that.

We are accelerating our penetration and relationships with robotic surgeons that are kols trainers and proctors.

For the major robotics company so.

We're starting to setup case observation sites now every time one of these educators.

Mentors that surgeon theyre going to be exposed to our products. So I kind of think that if we can get into that robotic platform from the from the grassroots ground up.

Through surgeons that.

That's.

Thats, a huge footprint and opportunity and we're just starting that out but we've made a tremendous amount of progress in the last quarter.

So I offer that up.

Add some ancillary qualitative assessment they are through the roof all of those metrics have never been higher.

Got it. Thank you for that is really helpful and.

Forgive me on this one because I know.

Roberto did give us a little teaser and said.

Hold on for the questions, but I'm just curious because as we get.

I get a lot of inbounds on the consensus right now models continued cash burn and a $25 million to $30 million range for the next few years I was wondering if you could give us any incremental color or tidbits on your ability to to.

To drive leverage in the model.

Absolutely. So I'm glad you asked that question.

The one thing that I think we do feel comfortable with talking about next year versus this year is we expect growth in opex to go down considerably.

And our goal is to constrain it to single digits.

We burned $7 million of cash in.

In the third quarter.

That cash burn can be a little seasonal we ended the quarter was $58 million of cash if you divide that by 700 by that by something higher you can see that.

Even straight lines, we have a pretty long pathway, but that doesn't factor in the improvement to cash burn as our revenues grow at considerably higher rates than our opex dose.

And there is still room to for gross margins to improve even from the levels that we've currently been achieving.

We understand where we are we understand the job for next year and we are on track.

As Roberto said to constrain that opex at a lower level and to start to drive leverage we have the infrastructure in place to make the growth happen.

Okay. Thank you.

Thanks, Michael.

And thank you.

And one moment our next question.

And our next question comes from Dave <unk> from JMP Securities. Your line is now open.

Hey, good evening guys.

I just want to clarify one point.

Trying to beat a dead horse here, but the 12, new regional managers that you hired in <unk> with those replacement or you did not have them before.

We had seven regional managers.

And we basically upgraded each one of those and added to get to 12, one of them was promoted to become an area. That's right that's right and the remainder were.

<unk> upgraded and that was in the fourth quarter, Yes, I mean this is a massive.

Push for for continuous improvement and upgrade right to set ourselves up from the $50 million to $60 million business. We are now to have the talent in place to go beyond $100 million to $200 million.

Got it and then.

<unk>.

The incremental programs.

I'd love to get color if you would.

Could give it to us how.

How many of your folks you're above quota and how many are not broad percentage stroke. If you can give it to us.

So the quota is not by months provide quarter. So its projections of likelihood of hitting quota and the majority of them would be above quota. So.

Tony mentioned that as of today, we have 79 reps and 55% of them have been with us for at least six months it.

It would be very unlikely for any of the 55 to be expected to be below quota gap and of the <unk>.

Short tenured reps.

Some of them are going to be in their first quarter in which the quota is essentially nominal.

But the remainder should be on track or being helped considerably.

So I.

I'd say the large majority of our reps are on track for at least hitting quota.

Great. Thank you for that.

Thanks, Dave.

And thank you and I'm showing no further questions I would now like to turn the call back over to Tony published.

Call out.

Alright, Thanks, Justin and thank you everyone for joining us.

We appreciate your continued interest in tela bio.

Have a great rest of the evening and we look forward to talking to you again next time. Thank you.

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

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Good day, and thank you for standing by and welcome to Tela Bio third quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question.

Jim Please press Star one again, please be advised that today's conference is being recorded I would now like to introduce your host for today's call Greg had ASIC.

You may begin.

Thank you Justin and good afternoon, everyone earlier today Tela Bio released financial results for the third quarter 2023, a copy of the press release is available on the company's website.

Joining me today on today's call are Tony <unk>, President and Chief Executive Officer, and Roberta Cooker, Chief operating officer, and Chief Financial Officer.

Before we begin I would 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 annual report on Form 10-K, and quarterly reports on Form 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements.

Recessionary concerns banking stability and inflammatory inflationary pressures the regulatory environment, the introduction of new products or product enhancements by us or others, including those which may be perceived to negatively impact the demand of our products now or in the future sales and marketing strategies capital.

Resources or operating performance with that I will now turn the call over to Tony.

Thank you Greg good afternoon, everyone and thanks for joining us today for our third quarter 2023 earnings call.

<unk> <unk> product portfolio Prs growth was especially strong up 46% year over year, notably driven by the launch of the long term resorbable version of <unk> Prs, which include specific design features aimed at enhancing the clinical utility of overtaxed Prs for surgeons and patients and <unk>.

Stick in reconstructive surgery. In addition, our hernia portfolio portfolio continues to perform with Overtax recently, becoming the most implanted biologic hernia repair mesh in the United States, reflecting the growth recognition of the clinical utility of the product for this application.

Today I'll review with you the progress we've made on the five factors that combined to drive our growth Roberto will provide a more detailed review of our financial results and then I will make closing remarks before opening the line for your questions.

I'll start by discussing sales force size and individual sales representative productivity together as they had a joint impact on our Q3 Q3 revenue as of today. We have 79 commission sales reps with our goal being to end the year with 75% to 80 filled positions.

Of these 70 955 had been in their roles for at least six months.

During our second quarter earnings call, we had 75 reps of which 50 had at least six months tenure.

The metric therefore, we anticipate the impact of rep turnover to be meaningfully lower in Q4. Additionally, we have taken the following steps to accelerate the productivity of our newer reps and our sales performance in general.

First we rolled out intensive prs sales training to ensure that all our reps are comfortable selling the product compliant Lee and effectively this additional training added to the availability of the overtaxed Prs long term resorbable should help all of our reps are particularly those with less than six months experience on the job.

The second provides a boost to those reps who might be short of quota, but who have the potential to contribute incrementally more.

These steps are already helping us to properly returned to over 35% growth as anticipated and should set us up for a strong 2020 for performance.

Moving on to the third factor driving revenue growth GPO access expansion within existing GPO contracts is on track and efforts to add additional GPO and <unk> are going well Callahan contract with three national group purchasing organizations that enable enhanced and more efficient access to hospitals and surgeons through.

The country.

These GPO contracts are critical to tell us commercial strategy and provide the opportunity for surgeons to use the <unk> product right off the hospital store room shelf without requiring approval from hospital administrations.

The first of our three GPO contracts is our longstanding relationship with healthtrust with whom we signed a four year renewal the second contract with Premier with whom we've now had a full year of implementation as it became effective on October one 2022 Premier has the second largest GPO in the country, giving us access to.

Access further expands.

Our first factor is the range of complementary products in our portfolio that enables us to leverage the existing sales force and call points across the soft tissue reconstructive space. We have launched four products. So far in 2023, the first to the large size overtax LPR for use in minimally invasive surgery and inhibits fibula collagen.

<unk> are gaining market share with different levels of surgeons familiarity to leveraged by our sales force the third <unk> Prs longterm resorbable launched in the third quarter and it's taken off quickly given surgeons prior knowledge of the product line and interest in the new performance characteristics.

Liquid band six eight and represent the first product of its kind to be approved for sale in the U S. We believe that this product line allows our sales force to call on surgeons in a technology space, where they are comfortable and we will increase access to additional surgeons eventually opening opportunities to also discuss the benefits of <unk> and other areas.

<unk> of their hernia practice.

Regarding our fifth factor clinical data, we continue to collect data both prospectively and retrospectively.

I'd like to now address the question that had been top of mind with investors that is what is the potential negative impact of <unk>, one agonist drugs on the market that <unk> serves.

Patients, who lose weight could become newly eligible for repairs that a surgeon might previously have advised against.

Second a risk factor for hernia, its physical activity and to that extent it would be reasonable to expect more need for hernia repairs with weight loss.

Third obesity can conceal existing hernias in particular umbilical hernias and weight loss can reveal the need for these repairs. Finally, DLP ones are apparently associated with acid reflux conditions, which could necessitate hiatal hernia repairs in response, although these examples indicate the potential.

So for GP at <unk> to increase the need for hernia repair the real takeaway is that we do not expect <unk> to meaningfully reduce hernia repair rates in any reasonable scenario.

With that I'll now turn the call over to Roberto to review, our financial results and outlook.

Thanks, Tony.

Third quarter revenues grew 35% year over year to $15 $1 million with <unk>, and <unk>, Prs growing 30% and 46% respectively.

Worth noting.

Those turnarounds that were continuously films that as those not affected by turnover performance was consistent with the higher level of revenue growth. We had expected this validates that our underlying forecast assumptions other than turnover robust and reliable.

Gross margin for the quarter was 69% compared to 66% in the same period of 2020 to the.

The margin improvement was driven primarily by more efficient inventory management practices, which resulted in a decrease of obsolete and excess inventory as a percentage of revenue year over year we.

We expect our gross margins to continue at or around this level as we operate using more rigorous inventory practices.

Operating expenses were $26 million in the third quarter compared to $16 8 million in the prior year period.

Loss from operations was $10 2 million in the third quarter of 2023 compared to $9 5 million in the prior year period.

Turning to our outlook for full year 2023, we now expect revenues to range from $57 million to $60 million, reflecting growth of 38% to 45% over the full year 2022, and implying revenue for the fourth quarter, ranging from $15 5 million to $18 5 million compared to $11 6 million.

In the fourth quarter of 2022.

Although growth in both the third and fourth quarters have come down from our prior expert expectations, we anticipate that the steps Tony outlined that we're taking to address the salesforce turnover disruption will allow us to return to subsequent growth excuse me sequential growth more similar to that reflected in our prior guidance or said another way we believe the sale.

We ended the third quarter with $58 million in cash and cash equivalents compared to $65 million at the end of the second quarter, meaning that we used $7 million in the quarter as our revenues continue to grow and as Opex is held to a much lower growth rate. We expect cash cash usage to decline we will have more to say about this on our fourth quarter earnings.

Call when we announced revenue guidance for 2024, but for the moment no that we remain confident in our cash position and continue to believe it will be sufficient to fund us to profitability.

I'll now turn the call back to Tony for closing remarks.

Excellent. Thank you Alberto I would like to reiterate my excitement for the success <unk> achieved to date on.

Notwithstanding our exceptional performance so far tailor represents only a small part of the hernia market on a unit basis with plenty more room to expand and the possibility of a material growth inflection in the future. We are focused on taking full advantage of this opportunity to improve patients' lives with our products I would like to thank the <unk> team for their <unk>.

<unk> this quarter, especially those who helps us efficiently expedite the impact.

The sales transition as a result, we remain on track for continued strong growth. We are confident about our future prospects as we believe we have the key pieces in place to continue to take share, including extensive GPO coverage broad sales coverage in high volume markets industry, leading product performance data, our robust R&D pipeline that <unk>.

<unk> to deliver new products and experienced managed team management team and a path to profitability with our current balance sheet.

And even though we keep growing our market share each quarter. Most of the market is still there for the taken and we plan to do just that.

With that I'll now ask Justin to open the line for your questions.

Thanks.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster and one moment for our first question.

And our first question comes from Frank <unk> from Lake Street Capital Markets. Your line is now open.

So are essentially getting out.

What are you doing differently now to ensure a more stable sales organization that can grow per rep productivity more effectively and consistently.

Sure. Thanks for the question, Frank I'll start and Tony can jump in.

So as we've discussed before.

We revitalized our RM team.

<unk> team. So that's the regional managers, who sit above the territory managers, which is what we call sales reps.

In the fourth quarter of last year.

To the tune of about 12, new RMS and those RMS came in in the first quarter and evaluated their teams of approximately seven reps apiece.

And over the course of the first.

Roughly one of each of those RMS identified a territory manager that they felt.

Could be upgraded the territory.

Might be at above breakeven levels of revenue, but the growth was not where we wanted it to be getting to $200 million in the short term that we're hoping to get.

So over the course of the second quarter those RMS independently proposed and then.

Followed through on replacing those Tms.

The territory managers so.

That happened starting at the end of the first quarter extended through the second quarter and was complete by the second quarter such that as Tony mentioned on our second quarter earnings call. We mentioned that we had 75 reps.

Which 50 had been with us for six months or more suggesting or indicating this 25 had been with us for six months or less so those were the turnover reps roughly 13, and then the remainder of our new hires to expand our sales force.

So essentially what we're doing is reaching higher up into the organization from the perspective of lower performers.

And replacing reps that might be hitting greater than breakeven numbers, but whose growth had become a bit slower.

The RM had determined that that could be upgraded.

So that all took place in the second quarter, we entered the third quarter and the first month, believing that we are on track to hit numbers notwithstanding.

We saw some of that Peter off in the latter part of the third quarter and so what we're doing to answer the second part of your question, which is what are we doing to make sure that we get back on track and that we have the right reps in place and that they are growing at the rate.

The growth rates that we have.

A couple of programs in place for the fourth quarter to both address the fourth quarter and the longer term. So the first is we have two new training sessions in place. So our new sales reps are going through a longer introductory training session and then all reps are going through deeper Prs training one of the things. We found is that new reps tend to be.

A little slower on the uptake of Prs sales.

As a greater potential source of sales and.

Growth.

And then second we put in place two incremental IC plans one for those reps that are on track to exceed their quotas for the fourth quarter.

To incentivize them to further.

Than they already are.

Well beyond their quotas and then for those reps that might be short of their quarters that is targeting.

Forecast to be short of their quotas and.

An additional incentive plan too.

Give them additional motivation to sell and not just wait for the reset of the quarters in the next quarter.

Yes, Frank I think philosophically right.

We run the business with an eye towards long term durable sustainable growth and quality right. So we get a massive upgrade in talent with our regional manager team and.

And we gave them the task of figuring out where we had some stagnation or slower growers and they did just that.

And we.

We made the decision and I'd do it again to have the strongest team in place.

That are right now getting trained seasoned and matured and we want them to be passing through that six month point of productivity higher talent by the way.

Right as we start next year. So we're thinking ahead not just.

To triage, what Roberto mentioned for the rest of this year, but really the focus is that 12 months after that and the 12 months after that our goal remains $200 million company as efficiently and effectively as possible.

Okay.

Okay. That's good color and then maybe just for my second one can you just talk to some of the factors between the low end and high end of guidance.

So just.

The rate at which we're able to get our reps up to speed.

Okay.

On predictable things in the economy.

We expect to see as we normally do that the fourth quarter is the strongest of the year, we tend to see a strong push in December as both physicians and our sales reps push to hit their numbers.

But exactly how that all comes together is really something thats, a little bit variable and so the range just accounts for that variability.

We tend to have a big run up.

Right.

Thanks, Tom things coming together at the end of quarters right. So.

Want to make sure that we have this thing maturing and peaking at the right moment not just in a year, but during each quarter as well so.

Timing.

Got it that's good color thanks for the questions.

And thank you.

And one moment our next question.

And our next question comes from Caitlin <unk> from Canaccord Genuity. Your line is now open.

Hey, thanks for taking the questions.

Thanks, Steve.

Hey, guys.

I know you talked a little bit in the last question about how you saw little bit of weakness kind of coming.

Out of the Q3, where do you see.

And till October and November.

For Q4 in terms of the business environment, and just kind of rep productivity.

Sure. So one of the ways, we analyze the quarters as we measure the ratio of the first month of the quarter to the actual fully achieved quarter.

So we have historical data on that obviously ever since post Covid era.

Even pre COVID-19, but.

Useful post COVID-19.

We're hitting the quarter and to backup what Roberto said Caitlin.

You look at July right in Q3 that metric that Roberto mentioned as a percent in the first month was not was not in line right. So there was a difference.

Got it makes sense, Okay, and then just for my second question any thoughts on 2024 gross or at least maybe comment on thoughts of where the street is right now for 2024.

Over $80 million.

So.

We're still in process of putting together our budget right now and that includes the revenue budget.

I think that off of the prior street numbers the growth rate.

Probably.

On the lower end of a reasonable range.

But given the new numbers that we could be coming out of the year with.

That number might be on track, we think a bit more about the growth rate than the actual.

A single number.

But we're digging into that and as Tony said one of the things about what we've just done is we've put in place.

Our sales force that as of today, we have 79 sales reps in place of whom 55.

I have been with us for six months to months or more and then by the first quarter of next year that should be much closer to the full complement of 79 being at that six month, Mark with some additional hires between now and then yes, I mean to give you give you a feel caitland, we're running a week long sales school right now and I think we have 35 attendees five or six new.

Regional managers and the rest are all reps and <unk>.

It's by far the strongest.

Best Pedigreed.

Group that I've ever seen right. So things are just getting better and better and better which reduces your tolerance for decent performance mediocre performance couple.

Coupled with stagnation as Roberto said this is about growth right and next year it'll be about efficient growth.

Holding our infrastructure at.

As solid as possible.

Absent the sales force and customer facing but we're going to.

We basically have the infrastructure to drive that growth in <unk> and <unk>.

Track that talent pool and we.

We're going to take advantage of it so.

Fit.

Yes.

Awesome, Thanks for taking the questions. Thanks.

Thanks Caitlin.

And thank you.

Sure.

And one moment our next question.

And our next question comes from Matthew O'brien from Piper Sandler Your line is now open.

Afternoon, Thanks for taking the questions and sorry to harp.

Sorry to harp, so much on Q4, but two months ago, you guys were talking about a midpoint at 62, five and now we're about 58 class, it's down about 4 million Bucks for.

For the back half of the year alone.

Over the last two months so it just seems pretty significant as far as that debt.

<unk> goes and.

I'd, just love to hear a little bit more about that specifically I mean, I don't know if there was like 10 or 15 people that were doing.

In terms of revenue.

The loss, even down from or how that works and then.

The bump from Q3 to Q4 in absolute dollars was the biggest bump.

Far as the midpoint of the range goes that the company has seen much more than the company has ever seen so.

Again, the comfort level on that.

Bridges, you to get that extra revenue.

In Q4 as you have.

A third of the reps that are still pretty junior.

Sure. So let me start with the bump question first so as.

As I mentioned on a prior question one of the ways we analyze.

Our thinking about the quarters in the year as we take a look at.

What we've achieved in the quarter to date.

The rough way to do that is the first month of the quarter and then how that measures up against what we are hoping to do for the full quarter and then how that ratio compares to historical.

Achievements in prior quarters and in the prior year's quarter, so the seasonal last quarters.

So based on what we've seen.

In October revenues.

And comparing that to what we expect to see at the midpoint of the range for the quarter.

Right in line with what the historical average is for achievement.

First month to full quarter. So on that data point and then on the initiatives that we've put in place to incentivize the reps to close the gap.

From the performance we had in the third quarter, we feel comfortable about hitting those numbers.

And again Thats a series of training and then some incremental incentive plans.

As far as Q4, and the reduction of approximately $4 million from the midpoint of the prior year's guidance range to the current.

And that $4 million impact on the second half of the year.

The <unk>.

Turnover in the sales reps that occurred largely in the second quarter is what drove that so as Tony mentioned on.

On the last earnings call, we had 75 reps of those a third less than six months tenure.

And we've put in place some steps to make sure that we get back to the growth rates that we had previously planned for as quickly as possible.

Yes, Matt also something to consider is given where we are in our development stage in our growth.

A lot of the usage of our product is based on Rep presence right. So if we were bigger more established bigger market share player.

Warm it up it's not even in everyone's and yet.

Yes.

Got it and then maybe just as a kind of a follow up to that Tony how much did it cost do you think this transition of these I think it sounds like.

I don't know, if 15 or 20 reps Nokia adolescent entered into eight to 10 reps how much did it cost you in Q3 do you estimate and then how far the revenue of those.

On a revenue perspective, yes productivity.

Sorry, just real quick how productive where those remaining reps. It seems like the remaining reps did an unbelievable job in Q3, well Robert I was going to jump into the meat of your question, but I am glad you brought that up that's a superb.

<unk> that.

I think you've got to focus on the fact that we drove the revenue bulk and growth with 55 reps with a chunk of those six months right certainly there's longer tenured reps, but that's a pretty powerful impact right. So we got 25, new ones idling.

And we lost probably 13, or so 2014 or so.

In the upgrade process.

So.

I think you can just see that this thing is set up right to have the full complement of 79% or 80 reps now being at the level of the previous 55 again as we start next year right. So.

And Matt So I realize it didn't hit the first part of your first question squarely, which was did we lose a lot of high performing reps.

So we've retained all of our highest performing reps you might think about it as us reaching up higher from the lowest performing reps and taking out reps that while not obvious underperformance cases.

We're maybe at higher than breakeven revenues, but we're not.

On the growth trajectory that we need it and to your question about the cost of making these changes so of the 25 reps that we're within.

With us for less than six months about 13 of those were turnover reps and the remainder were new hires to fulfill our growth goals for the year.

The in the turnover category, we typically provide severance of about three months.

And so the cost the incremental cost would be how much overlap. There is when we get the new reps in and given that we did end. The second quarter was 75 reps there is probably some overlap but.

Based pay amount of overlap is not going to be huge amount affecting our P&L, yes, one more comment Matt since this is the.

Strong heavy topic here is.

Of those 55 tenured reps.

They did an excellent job of attaining forecast right and if you look at the the underserved or turnover of territories right.

Most of that shortfall was due to the vacancies or the transition and we had a target that was higher than consensus. So the loss was probably estimates higher than consensus right. So there is there is a powerful productive sales force thats coming together here I'd say this is the timing dislocation our growing pain.

Okay, I'm, sorry, Tony to keep harping on this and monopolized everything youre doing it.

The activity.

It was the productivity of this group that 55 up double digits from Q2 to Q3, because that's what I am getting in the model.

In a seasonally soft quarter.

I will have to think about that.

So we had very strong performance in the existing reps.

One thing to note is in the turnover territories, the new reps were coming into territories that previously had revenues. So it's not like they achieved.

Zero energy reconstituted yet so there was continuity in some of those territories.

But yes, our existing reps had very high performance levels.

Yes.

Okay. Thank you.

Thanks for that Matt.

And thank you.

And one moment our next question.

And our next question comes from Michael <unk> from Jefferies. Your line is now open.

Good afternoon, and thanks for taking the questions.

Thanks, Michael.

Just a follow up on that question about the sales reps that you just mentioned your internal targets were maybe a little higher than consensus which was at a little over $16 million. So I guess, that's around a $1 million shortfall in <unk> and you took guide down by $4 million at the midpoint does that mean.

<unk>.

The original expectation for <unk> is just kind of midpoint of the <unk> you guys thought that $3 million is that a is that a fair way to think about it.

No. So I think kind of didn't specify exactly what our internal expectations were.

Yeah.

So yes, so we.

Yes.

We had very high performing reps as I said, we had some turnover that we didnt expect at the beginning of the year.

Did it for the right reasons.

We set the sales force, we have reasons to believe that the newly.

Territories.

As was pointed out in the prior question did perform at a very high level to achieve what was achieved in the third quarter and.

And we're constantly focused on analyzing.

Continuous improvement and doing the right thing.

Michael I want to point out some qualitative thoughts right. The qualitative positive indicators for the company right now are through the roof, they've never been better right I already talked about the LTR and its uptake.

But we just came out of the American Hernia Society meeting.

Sponsored a lunch and learn which are really usually pretty sparsely attended we had well over 200 surgeons pack every seat with failed they were standing room only against the back wall.

That to me is a massive signal of interest in the company interest in the product.

And that's been our biggest challenge is getting the visibility and the validation.

And the message is being promulgated.

In a big way.

We just came out of the STS meeting in Austin, and again, we had a huge showing there.

We had.

Again, the validation and.

And getting to know essence huge but I'm really excited about the fact that.

We are accelerating our penetration and relationships with robotic surgeons that are kols trainers and proctors.

For the major robotics company so.

We're starting to set up case observation sites now every time one of these educators.

Mentors that surgeon theyre going to be exposed to our products. So I kind of think that if we can get into that robotic platform from the from the grass roots ground up.

Through surgeons that.

That's.

That's a huge footprint and opportunity and we're just starting that out but we've made a tremendous amount of progress in the last quarter.

So I offer that up.

Add some ancillary qualitative assessment they are through the roof all of those metrics have never been higher.

Got it. Thank you for that is really helpful and.

Forgive me on this one because I know.

Roberto did give us a little teaser and said.

Hold on for the questions, but I'm just curious because as you get.

To drive leverage in the model.

Absolutely. So I'm glad you asked that question.

The one thing that I think we do feel comfortable with talking about next year versus this year as we expect growth in opex to go down considerably.

And our goal is to constrain it to single digits.

We burned $7 million of cash in.

In the third quarter.

That cash burden can be a little seasonal we ended the quarter was $58 million of cash if you divide that by 700 buyers that buy something higher you can see that even straight lines, we have a pretty long pathway, but that doesn't factor in the improvement to cash burn as our revenues grow at considerably higher rates than our APA.

Experts.

And there is still room to for gross margin to improve even from the levels that we've currently been achieving yes, we understand where we are we understand the job for next year and we are on track.

As Roberto said to constrain that opex at a lower level and to start to drive leverage we have the infrastructure in place to make the growth happen.

Okay. Thank you.

Thanks, Michael.

Thank you.

And one moment our next question.

And our next question comes from Dave <unk> from JMP Securities. Your line is now open.

Hey, good evening guys.

I just wanted to clarify one point.

Trying to beat a dead horse here, but the 12, new regional managers that you hired in <unk>, where those replacements that you did not have them before.

We had seven regional managers.

And we basically upgraded each one of those and added to get to 12, one of them was promoted to become an area. That's right that's right and the remainder were.

Upgraded and that was in the fourth quarter, Yes, I mean this is a massive.

Push for for continuous improvement and upgrade right to set ourselves up from the $50 million to $60 million business. We are now to have the talent in place to go beyond the $100 million to $200 million.

Got it and then your comments about the.

The incremental programs.

I'd love to just get color if you would.

If you could give it to us how.

How many of your folks who are above quota and how many are not broad percentage stroke. If you can give it to us.

So the quota is not by month, but by quarter. So its projections of likelihood of hitting quota and the majority of them would be above quota. So.

You mentioned that as of today, we have 79 reps and 55% of them have been with us for at least six months it.

It would be very unlikely for any of the 55 to be expected to be below quota.

And of the.

Shorter tenured reps.

Some of them are going to be in their first quarter in which the quota is essentially nominal.

But the remainder should be on track or being helped considerably.

So I'd say the large majority of our reps are on track for at least hitting quota.

Great. Thank you for that.

Thanks, Dave.

And thank you and I'm showing no further questions I would now like to turn the call back over to Tony accomplished.

Close to call out.

Alright, Thanks, Justin and thank you everyone for joining US. We appreciate your continued interest in tela bio.

Have a great rest of the evening and we look forward to talking to you again next time. Thank you.

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

Q3 2023 TELA Bio Inc Earnings Call

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