Q3 2023 Tenon Medical Inc Earnings Call

Greetings and welcome to the 10 on medical third quarter 2023 financial results and corporate update conference call.

As a reminder, this call is being recorded.

Your hosts today are Steve Foster Chief Executive Officer, and President and Steven <unk>, Chief Financial Officer Ms.

Mr Foster and Mr. Van de Wille presented results of operations for the third quarter ended September 30th 2023, and provide a corporate update.

Press release detailing these results was released today and is available on the Investor Relations section of the company's web site Www Dot 10 on med dotcom.

Before we begin the formal presentation I would like to remind everyone that statements made on the call and webcast may include predictions estimates and other information that might be considered forward looking.

While these forward looking statements represent our current judgment on what the future holds they are subject to risks and uncertainties that could cause actual results to differ materially.

Are cautioned not to replace undue reliance on these forward looking statements, which reflect our opinions only as of the date of this presentation.

Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward looking statements in light of new information or future events.

Throughout today's discussion we will attempt to present some important factors relating to our business that may affect our predictions.

For a more complete discussion of these factors and other risks you should review our prospectus dated April 26, 2022, particularly under the heading risk factors, which is on file with the Securities and Exchange Commission.

Www SEC Gov.

At this time I'll turn the call over to tell on Medical's, Chief Executive Officer, Steve Foster. Please go ahead Sir.

Thank you Devin and good afternoon to everyone I'm pleased to welcome you to todays third quarter 2023 financial results corporate update conference call for tender on medical.

During the third quarter, we expanded the adoption of our fully commercialized catamaran system and experienced an increase in the number of surgical procedures in which the system is used driven largely by our multifaceted marketing strategy, including ongoing educational programs informational materials and interactive workshops.

During the third quarter procedure supported strong revenue growth with an increase of 354% year over year.

27% sequentially from the second quarter.

In the previous quarter, we marked an important milestone with gross profit and gross profit margin turning positive.

Now in the third quarter gross profit was up 176% sequentially from the second quarter of 2023 to 535000.

And gross profit margin improved to 57% in third quarter from 26% in the second quarter of 2023.

The third quarter marked an important milestone for <unk> as we launch the surgical use of our June instrument kit for the catamaran Si joint fusion system for initial patient treatment by two leading physicians in the ortho and neuro spine fields.

We are encouraged by the overall positive feedback we've received from our physician customers utilizing the system as well as the encouraging early post op results.

We've developed enhanced tools with a promise to deliver upgraded graft handling smaller access profile and enhanced excess stabilization.

These upgrades will assist our expansion of application into Sci revision surgery.

<unk> multi level fusion MSI procedures utilizing navigation software imaging.

Continued strong growth and increasing surgical procedures in the third quarter was fueled by our valued physician customers with support from our commercial infrastructure rebuilt.

Our mission to deliver refined surgical options for patients with chronic sacroiliac joint pain or degenerative secret lightest failed conservative care is continuing to gain traction with targeted physicians.

As a reminder, we leverage our relationships with national and local sales managers clinical managers and independent distributors and we conduct frequent local workshop training programs to reach physicians, who had been trained on ESI procedures or have significant experience with Si surgical technologies.

We continue to focus on a combination of our local synthetic marble head of Eric lab workshops to introduce the catamaran system, creating a timely and efficient process for our physician customers.

We supplement these efforts with intensive clinical support and service.

Bind these critical.

Critical advantages and activities are designed to drive acceleration in the number of procedures completed with the catamaran system.

During the third quarter, our surgical procedures increased 329% compared to the year ago quarter.

<unk> a solid return on investment our strategic approach.

Our programs hosted 28 physicians in catamaran workshops to learn more about how the implant trends fixes and stabilizes DSI joined as well as why the inferior poster approach is the optimized approach to the anatomy.

During the workshops, we highlight how this distinct implant system addresses a significant unmet market opportunity and designed to produce broad and demonstrable advantages over market competitors.

Building on the momentum of the third quarter, we expect the number of surgical procedures to continue to grow as our sales team broadens, our strategic marketing promotion and workshops, featuring the catamaran system.

With that I'll turn it over to Mr. Glenn <unk>, our chief financial officer to discuss our financials.

Thank you, Steve I'll give us the sink review of our financial results for a full breakdown is available in our press release that crossed the wire. This afternoon.

Yeah.

Our revenue was 944000 in the third quarter 2023, an increase of 354% compared to the 208000 in the comparable year ago period.

Revenue for the nine months ended September 32023 was $2 1 million, an increase of 412% compared to the 414000 comparable year ago period.

The increase in revenue for the three and nine months ended September 32023, as compared to the same periods in 2022.

It was primarily due to increases of 329% and 404%, respectively and the number of surgical procedures in which the catamaran system is used.

Gross profit in the third quarter of 2023 was 535000 or 57% of revenues compared to the gross loss.

74000, or a negative 45% of revenues in the comparable year ago quarter.

For the nine months ended September 32023, gross profit was 682000 or 32% of revenues compared to a gross loss of 434000 or a negative 105% of revenue in the comparable year ago period.

Gross margin continued to improve due to higher revenues as a result of increase in the number of surgical procedures during the quarter.

Operating losses totaled $3 4 million third quarter of 2023 compared to a loss of $3 3 million in the third quarter of 2022.

For the nine months ended September 32023.

Trading losses totaled $12 6 million compared to a loss of $10 8 million in the comparable prior year period.

The increase in operating expenses was largely due to higher sales and marketing expenses as the company further developed sales function.

Kris as the frequency of marketing initiatives and continues to enhance infrastructure to support future growth.

Net loss was $3 3 million for the third quarter of 2023 compared to a loss of $3 2 million in the same period of 2022.

For the nine months ended September 32023.

Loss was $12 4 million compared to a net loss of 11 million.

In the comparable previous year period.

We continue to expect to incur additional losses in the future.

As of September 30th 23, cash and cash equivalents and short term investments totaled $3 4 million as compared to $6 3 million as of June 32023.

As of September 30th 2023, the company has no outstanding debt.

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

Thank you Steve with.

With the accelerating pace the catamaran procedures and continued expansion of our sales and marketing efforts. We are very optimistic for continued growth and the commercialization of our proprietary FDA cleared surgical implant system.

Mark the third quarter with strong revenue gains and a positive gross margin.

And believe we can continue this growth trajectory with our expanding commercial infrastructure in season sales management team.

We continue to reinforce our commitment to validating and differentiate and patient outcomes and radiographic assessment with ongoing post market clinical studies and expect to expand the application of our distinct product offerings to address aside revision surgery adjunct to multi level fusion MSI procedures utilizing navigation soft.

Where in imaging.

We look forward to additional updates in the months to come as we continue to expand our sales infrastructure and execute on our growth objectives to improve the quality of life patients suffering from Si joint pain, and bring long term value to our shareholders.

I. Thank all of you for attending and I would like to hand, the call over to our operator to begin our question and answer session with our covering analysts Devin.

Thank you we will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad.

Tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Our first question comes from the line of Bruce Jackson with the Benchmark Company. Please proceed with your question.

Hi, good afternoon, and congratulations on all the progress.

Couple of questions about the JIT instrument kit is this something that's being prototypes right now and what are your plans in terms of getting it to and to a full commercial availability and are there any regulatory considerations.

Yeah, Hello, Bruce This is Stephen Thanks for thanks for your question So our Gen kit.

He is an enhancement of our instrumentation system, we're well past the prototype phase. We've now built these technologies and put them in the hands of select physicians.

To make sure that we haven't missed anything that it's satisfactory to them and that it's delivering on its promises.

Technology has been through all regulatory review and it's clear to go and we are now.

Expanding the use of gib into virtually all of our procedures from day to day. We spent the month of October really making sure. We liked what we saw we've done over 30 procedures with the technology.

Very encouraged about feedback and what we're seeing there so we're off and running now with this chip technology.

Okay Super.

And then in 2020 three you had.

A fairly favorable reimbursement climate are there any changes for 2020 for anticipated.

Yes indeed.

Always a very dynamic space in the world.

<unk> has completed their processes throughout 2023 and of course, we wait anxiously to see the final Ama's CPT book you usually comes out in the early December timeframe, what we understand from their recommendations and from prior immediate recommendations is that there.

Will it be a new cat one code intra.

Introduced into the ESI World is coming in 2020 for that New Cat, one code will be focused on facilitating reimbursement and professional fees for intra articulate devices.

Which there are many on this market.

That will establish reimbursement rates et cetera, and a 7.8 RV you range.

That's a process they've been going through to establish the quote code and to establish values for that code. We anticipate very little change for catamaran and that will continue to have access to the use of 27 $2 79 in 2017 80 per the physicians.

Our preference in the various situations.

Situations that they see with patients.

We we draw that conclusion, because 90 plus percent of our implant once it's implanted Bruce 90 plus percent of the implant is anchored.

In the alien and then again in the sacrum. So we decidedly by every definition are not an intra articulate device so that pretty much leaves 2007 to 79 in 2017.

As the options. So it's a very dynamic spot, we don't know everything yet, but we think we have a pretty good feel for where all of this is going to shake out for the coming year.

Okay, Great and then last question for me he had a post approval study underway just wanted to know if there's any update on that.

Yes, it's moving along very nicely as a matter of fact, we had two patients enrolled today.

At site.

We're bringing online and quite excited about I anticipate resistance. This is targeted this post market trial is targeted for 50 patients could be anywhere between 40 and 50 somewhere in that range. When all is said and done.

And we anticipate that enrollment for that trial and here probably by the end of Q1.

That would be my target at this point at that point, we'll be seeing some immediate.

Reporting on how old the patients did both pre op in the O R and immediately Postop and then we look forward of course to ongoing reports as they come in for their follow up for pain scores and ultimately upset of scans to to prove.

Radio graphically, but they've appropriately healed and fused so really looking forward to that data as it rolls.

Okay Super Thank you very much for taking my questions.

Thank you Bruce.

Thank you. Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Thank you Steve Yes, so just to follow up on the on the post market study.

40 to 50 patients and expect to conclude you said by end of <unk> 'twenty four two signed up today, what's the total number you have signed up so far.

Yeah, we're in the low twenties right now.

Anthony and Hello by the way thanks.

Thanks for joining us we're in the low twenty's and enrollment.

<unk> got several patients now that are teed up for the November and December months coming up so we really do anticipate that.

We'll get into that 40, 40 to 50 range by the end of Q1 in 2024.

Yeah.

Okay, great and how many sites does that just remind me again.

We now have seven active sites surrounding the country that are actively recruiting and enrolling patients.

Okay.

And then I know you're doing physician training.

Obviously, you have some some great numbers here and procedures up 329%.

In the third quarter.

Are you ramping up to physician training, how is that going and what are you doing to get more and more physicians enrolled in innerwear.

The catamaran system.

Yes, that's a great question. So of course, we're like any other company.

Company, we're trying to fill the funnel with opportunities right and the only way we know how to do that is to tell our story and compile.

And then make the ability to take a look at the technology.

And do a workshop with the technology is efficient and convenient frankly for the physicians as possible. We've got a lot of work on a synthetic bottle that allows us to bring the technology to them locally. So they don't have to wait and travel on a saturday or something like that to a lab and you know in a city, where they'd have to fly and things.

That nature. So, we're we're accelerating by making a convenient and efficient.

And of course, it's a it's the engine that.

Sort of just fills our funnel and gets us moving towards adoption.

Eventual use of the technology.

We're encouraged by what we see look like.

Stress, we target very very carefully.

And so our objective isn't to see how many people. We can train our objective is to target really well so that when we train someone it's worth their time minutes worth our time and investment.

And that's how we choose to go about our business separate teams.

Oh, that's great and just in terms of vetting them and figuring out which was which.

Orthopedic surgeons you work with.

Maybe just a little more color on how that process goes is it is it referrals from kols.

How do you how do you vet the orthopedic surgeons to make sure that they are the right ones to train and work with.

Yeah, certainly what you say are our key opinion leaders have a lot to do with sort.

But even if you will who in bike and training sessions.

What we look at Anthony is the experience they've had with Soi technologies.

Hello, This is <unk>.

Kristina environment to image if it did.

The decision has experienced imaging, the pelvis, and placing implants, there et cetera, they're way ahead of the game as it relates to being comfortable in their learning curve and what have you to adopt a technology like this so their experience with us <unk> technologies in the past our training sessions, they've been involved in et cetera.

For us the story about how things would go for us and a training session and so we we we do we target folks who have been down through that pathway. We're comfortable with the imaging who have these experiences in their background and frankly have developed it.

Hurdle networks and what have you to have <unk> as part of their practice when we establish those things just becomes a target that's meaningful for us and gives us gives us energy on that specific targets.

Great and then maybe just one financial question. So gross margin came in significantly better than than I was expecting.

A 56, 7% anything that you would attribute to that to that strong gross margin for this quarter and is that sustainable or it'll fluctuate a little bit here in the near term. Thanks.

Okay.

Anthony This is Steve Yeah, I think we do believe that the gross margin is sustainable I mean, it is it's tied to our growth in revenue.

Like we.

We mentioned earlier, having mentioned earlier, but what I what I normally.

Refer people to Izzy.

A portion of our cost of goods sold is either fixed or semi fixed.

And so the incremental increase in revenue.

We have good leverage to.

To increase that margin percent as revenue grows.

Because the you know.

The amount of incremental costs associated with another extra procedure.

Additional procedures is right now a small piece of the.

Our cost of goods sold versus the overhead and the facility costs.

We currently have so.

We're really happy with where the margins came in and we do expect that they will be able to continue to grow as revenue grows.

Yeah.

Okay, great excellent. Thanks, guys I appreciate it I'll hop back in the queue.

Thank you there are no further questions at this time I'd like to turn the floor back over to Mr. Foster for closing comments.

Well, thank you Devin.

Like to thank each of you for joining our earnings conference call today, and look forward to continuing to update you on our ongoing progress in growth. If we were unable to answer any of your questions. Please reach out to our IR firm MZ group, who would be more than happy to assist with that wish everybody a good evening.

This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Thank you David.

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Great.

Yeah.

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Okay.

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