Q3 2024 TELA Bio Inc Earnings Call
Speaker Change: A film by Gregory Chodaczek Written by Gregory Chodaczek Directed by Gregory Chodaczek Music by Gregory Chodaczek Thank you for watching!
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the TELA Bio 3rd Quarter 2024 Engineering Conference Call.
Speaker Change: At this time, all participants are in listen-only mode. A question-and-answer session will follow the preferred remarks. As a reminder, this conference call has been recorded. I would now like to turn the conference over to Louisa Smith from the Gilmartin Group. Please go ahead.
Speaker Change: Thank you, Leonardo. And good afternoon, everyone. Earlier today, Telebio released financial results for the third quarter of 2024. A copy of the press release is available on the company's website.
Speaker Change: Joining me on today's call are Tony Koblish, President and Chief Executive Officer, and Roberto Cuca, Chief Operating Officer and Chief Financial Officer.
Speaker Change: 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 Change: We encourage you to review the company's past and future filings with the SEC, including, without limitation,
Speaker Change: the company's annual report on Form 10-K and quarterly reports on Forms 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.
Speaker Change: These factors may include, without limitation, statements regarding product development and pipeline opportunities, product potential, changes in surgical procedure volumes due to various factors and conditions identified in our filings.
Tony Koblish: changes in the regulatory environment and in our sales and marketing strategies, our capital resources, and our operating performance. I'd now like to turn the call over to Tony.
Tony Koblish: Thanks, Louisa, and good afternoon, everyone. Thank you for joining Telebio's third quarter 2024 earnings call. Roberto and I will provide our respective updates on the quarter and review our financial results before we open the call up for your questions.
Tony Koblish: I am pleased to report that we delivered a very strong third quarter that marked a return to growth rates across the portfolio more consistent with what we've delivered historically. Recall last quarter we had to work through the impact of cyber security events that affected some of our hospital customers.
Tony Koblish: That effect appears confined to that period as evidenced by revenue for Q3 of $19 million, a 26% year-over-year increase.
Tony Koblish: Demand for our portfolio of products was high, with unit sales for Ovatex and Ovatex PRS growing 39% and 44% respectively, while our European business grew 67% from the prior year period.
Tony Koblish: Global average daily sales exceeded $300,000 per day and there are now more than 700 hospitals worldwide using our products across a steadily growing GPO contract base.
Tony Koblish: Additionally, we recently announced the closing of a public offering that added $43 million of cash to the balance sheet. As a result, we believe that we are amply funded to continue driving strong revenue growth and reach profitability.
Tony Koblish: With that overview, let me provide some additional details, starting with the dynamic international growth we generated this quarter.
Tony Koblish: Europe's performance has been particularly strong with significant market share gains in the UK, Germany, the Netherlands, Austria, and Switzerland, along with promising early results in Spain and Portugal. In Q3, we achieved our first million-dollar month in Europe.
Tony Koblish: with Ovatex firmly established as a market leader in the UK and the Netherlands, supported by encouraging clinical data presented in journals and at Congresses.
Tony Koblish: We are effectively adjusting to Europe's widely practiced and UK-mandated model of patient consent or shared decision-making to guide us in developing tools that better support surgeons worldwide in this essential practice.
Tony Koblish: These tools empower informed choices aligning with our commitment to patient-centered care globally.
Tony Koblish: The shift from polypropylene and synthetic mesh towards a more natural repair product like Ovatex is steadily gaining recognition for its safety profile and clinical benefits.
Tony Koblish: We have implemented multiple strategic initiatives to leverage recent shifts in the market to position Ovatex as the preferred choice for surgeons and their patients when deliberately opting out of plastic.
Tony Koblish: In hernia and abdominal wall reconstruction, we sold nearly 5,000 Ovatex units this quarter with 60% usage in minimally invasive procedures, reflecting strong adoption of Ovatex LPR and IHR products.
Tony Koblish: Our plastic and reconstruction portfolio also saw significant growth fueled by Ovatex PRS-LTR, topping $6.3 million in Q3.
Tony Koblish: I am also very pleased to report we are doing a very effective job gaining mind share among surgeons. Q3 was a standout period for telebio at key society meetings, exposing us to thousands of potential surgeon customers.
Tony Koblish: At the American Hernia Society meeting in Chicago, we generated significant awareness around TELA's brand and its products.
Tony Koblish: including by hosting a highly attended lunch symposium featuring global thought leader professor Maya Bormeister from Amsterdam speaking about her experience with Ovatex in complex hernia repairs.
Tony Koblish: We were also able to host a unique evening reception with AHS and a couple hundred surgeons where Professor Boermeister captivated everyone again with her talent, this time as DJMB.
Tony Koblish: We also continue to drive exposure in the PRS arena and sponsor the welcome reception at Plastic Surgery, the meeting.
Tony Koblish: where we were able to reinforce our commitment to innovation and partnership in plastic and reconstructive surgery to the nearly 2,000 surgeons in attendance at the conference.
Tony Koblish: Our meeting presence also included an expanded partnership with Intuitive Surgical at their 360 meeting for hospital and health system leadership, and a symposium at the American Forgot Society meeting where renowned former society president Reg Bell shared his insights on Ovatex.
commercially.
Tony Koblish: We are set to benefit from a growth strategy that is based on data-driven selling across the whole portfolio. We appointed Greg Firestone, Chief Commercial Officer, in May and he wasted no time making important changes to our commercial strategy that have already resulted in a more productive sales organization.
Tony Koblish: Most notably, the deep PRS training and skill assessment that began in the late fall of 2023 and extended through this year has involved our sales force's balanced selling across both PRS and hernia product lines.
Tony Koblish: These improvements across our training and development program have also enabled us to streamline our commercial organization with a focus on more productive, quota-carrying sales representatives and less on other auxiliary functions that have historically supported our sales organization in PRS and other highly specialized applications.
Tony Koblish: We are already seeing those benefits and believe the strength of performance in the third quarter is indicative of early success and sustainable growth moving forward as we continue to evaluate and evolve our teams to support a more efficient commercial organization.
Tony Koblish: with some of the savings expected in the fourth quarter and the full impact manifesting in 2025.
Tony Koblish: These changes, in conjunction with the recent public offering that added $43 million in cash to our balance sheet, should allow us to reach break-even while maintaining a solid growth trajectory. I look forward to speaking less about our balance sheet and more about operational performance in the coming quarters.
Speaker Change: I'll now turn the call over to Roberto to review our financial results in more detail.
Roberto Cuca: Thanks, Tony. As Tony mentioned, revenue for the third quarter of 2024 grew 26% year-over-year, or nearly $4 million to $19 million, with revenue from Ovatex growing 23% and Ovatex PRS growing 31%.
Roberto Cuca: Gross margin was 68% for the third quarter compared to 69% in the prior year period.
Roberto Cuca: The decrease is primarily due to a higher charge for excess and obsolete inventory as a percentage of revenue. Sales and marketing expense was $16.5 million in the third quarter of 2024 compared to $14.5 million in the same period in 2023.
Roberto Cuca: The increase was primarily due to increased compensation costs, including increased severance costs and additional consulting and travel expenses.
Roberto Cuca: General and administrative expense was 3.7 million dollars, effectively flat when compared to the same period in 2023.
Roberto Cuca: R&D expense was $2.1 million in the third quarter compared to $2.4 million in the prior year period. The decrease was primarily due to lower study and development costs, which offset higher compensation and benefits.
Roberto Cuca: Loss from operations was $9.4 million in the third quarter of 2024, compared to $10.2 million in the prior year period. Net loss was $10.4 million in the third quarter of 2024, compared to $11 million in the same period in 2023.
Roberto Cuca: As we've disclosed previously, we still expect operating loss and net loss to be less in 2024 than in 2023, even excluding the impact of the NIVS divestiture.
Roberto Cuca: We expect operating expenses will be lower sequentially in the fourth quarter, as cost-saving efforts expected to reduce 2025 OPEX by $5 million to $10 million from annualized first half of 2024 OPEX begin to kick in.
Roberto Cuca: We ended the third quarter with $17.3 million in cash and cash equivalents. After the end of the quarter, we conducted a public equity offering resulting in net proceeds of approximately $43 million.
Turning to the Outlook for 2024.
Roberto Cuca: With a strong return to growth in the third quarter, we remain on track to achieve our previously issued full-year revenue guidance from $74.5 million to $76.5 million, reflecting growth of 28% to 31% over 2023 across that range.
Roberto Cuca: This estimate does not include the potential effects of IV fluid shortages resulting from recent natural disasters.
Roberto Cuca: We are carefully monitoring elective procedure volumes for evidence of disruption and to enable potential remedial actions, but as of yet have been unable to detect a meaningful impact.
Tony Koblish: I'll now hand the call back to Tony for closing remarks.
Tony Koblish: Thanks, Roberto. In closing, Q3 has been an exceptional quarter for Telebio, both financially and operationally, as we continue to accelerate our momentum in HERNIA and PRS while reinforcing our leadership in innovation and surgeon education.
Tony Koblish: From achieving record-breaking average daily sales to crossing the milestone of our first million dollar month in Europe, we continue to drive growth across markets and deliver on our mission.
Tony Koblish: I have never been more confident in our prospects to establish Ovatex and Ovatex PRS as the leading technology in soft tissue preservation and restoration. What is most exciting is that we are just getting started, as most of the market remains up for the taking.
Tony Koblish: Lastly, I want to speak directly to Telebio's employees, both here in Malvern and in the field, our commercial team. I'd like to thank you and acknowledge your dedication, tenacity, unity, and resilience.
Tony Koblish: in overcoming the headwinds in prior quarter Q2 and delivering an exceptional Q3. We thank you very much, it was a great effort and we look forward to continuing the path for future success.
Tony Koblish: So with that, I'll now ask Leonardo to open the line for questions.
Please, go ahead. Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. At this time, I would like to remind everyone, in order to ask a question, press the star and then the number 1 on your telephone keypad.
Speaker Change: If you are called a fan to ask your question and are listening by a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Now we will pause for a moment to compile the question and answer roster.
Speaker Change: Your first question comes from the line of Caitlin Cronin of Canaccord. Please go ahead.
Hey guys, congrats on a great quarter.
Speaker Change: Can you provide a little more color on the $5 to $10 million in OPEX savings? Where are these coming from and are these savings just for Q4 and 2025 or sustainable beyond that?
Speaker Change: So thanks for the question, Caitlin. I'll start off and Tony can jump in. So the primary source of the savings are headcount reductions that we implemented in the first part of the third quarter.
Speaker Change: So we began more intensive training on CRS selling for our sales force about a year ago At the behest of our now chief commercial officer Greg Firestone
Speaker Change: As our sales force became more adept at selling across the portfolio, so both hernia products and PRS products,
Speaker Change: and relied less on clinical development specialists to assist them in the PRF sales in specific, we were able to redeploy some of those more expensive clinical development specialists and also reduce the total size of that force as well as some other supportive heads.
So, Greg talks about our...
Speaker Change: Sales and marketing organization being broken into doers and helpers where doers are the people who carry the quotas and everyone else is a helper So we were able to reduce our reliance on helpers while keeping the focus on quota carrying sales reps
Speaker Change: We believe that those reductions are such that we'll be able to carry them from 2025 into 2026 as well. And as Greg continues to take a look at his sales organization, there could be other places where we can become more efficient.
Speaker Change: Great. And then just, you know, turning to Revenant for the quarter, did you recover procedures from the cyber attack challenges in Q2 and how much of the revs in Q3 were related to the clearing of that backlog?
Speaker Change: Yeah, I mean, I think from our COVID experience, Caitlin, we just never see a backlog load up and then flow through the system.
Speaker Change: in hernia. It just seems like the procedures fade and then come back.
to more normal levels.
And I think that's what we saw here.
Speaker Change: There was really no that we could discern, you know, load up of patients that entered the system into Q3. I actually think that through the cyber hack problems at the one GPO, those patients might have actually been rerouted to other places, perhaps where we don't have customers or we don't have...
you know, a footprint.
Speaker Change: So, you know, I don't think all of those patients were reallocated, but I think...
Speaker Change: somewhere, and hernia just seems to be, you know, one of those quasi-elective procedures where watchful waiting is part of the treatment algorithm anyway.
Speaker Change: So plus or minus a quarter or two for most procedures is probably very much doable in the cycle of treatment. So I don't think we saw much of a load up from Q2.
Speaker Change: Yeah, and I'd add, Caitlin, you know, we don't think that Q3 would goose to buy a backlog from Q2, because in order for that to have happened,
Speaker Change: You would have had to see a higher rate of procedures at the affected hospitals in Q3 than you saw in Q1. And what we really saw was that the rate was returning to the pre-disruption level.
Got it. Makes sense. Thanks, guys.
Thank you.
Speaker Change: Your next questions come from the line of Takanin of Lake Street Capital Market. Please go ahead.
Speaker Change: Great, thanks for taking the questions. Congrats on the quarter. Maybe I was going to start with talking a little bit about 2025. I'm sure there's a little reluctance to speak to too much detail about it, but maybe initial thoughts as we enter the year into 2025, how we're thinking about growth. I think consensus right now is in the 25% range. Any reaction to that and any thoughts around that growth profile?
And many more. Thank you. Thank you.
Speaker Change: So, we haven't provided guidance for 2025 yet. We typically do that on our fourth quarter earnings call.
Speaker Change: We are guiding to 26% to 31% growth for this year.
Speaker Change: Twenty-five percent is a little below that. You do see that as a company matures, the growth rate can throttle back.
Speaker Change: Obviously, that's just below the lower end of the current range for this year, a year where we had the second quarter disruption.
Speaker Change: So, I don't think it's out of line in any direction, but as we complete our own budgeting process internally and then get into the fourth quarter earnings call, we'll provide an update on what our expectations are for next year.
Speaker Change: Got it. That's helpful. And then maybe swinging back to some of Tony's prepared remarks on the international front. Sounds like things are going really well there. What can you extrapolate from that market and apply to the U.S. market, especially in light of some of the synthetic settlements that are occurring and maybe the trend away from synthetics? Yeah, thanks for that. I think
Speaker Change: I think it's an interesting thought experiment. You know, if you look at the UK and the NHS,
Speaker Change: You know, they've put together a program called Get It Right the First Time. And, you know, there is this collaboration that the NHS is driving between surgeons and patients.
to have almost a consent process or a
Speaker Change: And certainly a mode of treatment for hernia repair is what type of mesh is the patient comfortable with and what kind of mesh is the surgeon comfortable with.
Speaker Change: And I think this shared decision-making model has been something we have used here in the U.S.
Speaker Change: quite a bit, and I think we've actually published a little bit of data on that that shows that, you know, if you show all the different samples of product out that are available, whether it's permanent plastic or temporary plastic or biologic or our reinforced tissue matrix,
Speaker Change: that well into the 90% time, the patient will have a conversation with the surgeon about our product.
Speaker Change: So, it seems to be an effective way to get everybody educated on natural repair with a reinforced tissue matrix.
Speaker Change: And I think we're seeing a little bit of that taking effect in the UK, which is a country that is the size of the UK. And so, you know, if we extrapolate that model becoming more popular and more...
you know, used.
Speaker Change: in the U.S. with 350 million people, you know, I think it shows that we are heading in the right, we are in the right place for where this market is heading.
I think it's on...
Speaker Change: implanted in the U.S. than it is today. I think it's probably 80 percent of all implants that go in today, believe it or not, even with, you know, some of the litigation and settlements that have played out of size, of considerable size.
Speaker Change: So that's going to change over time. I think it's just a natural force of innovation and evolution.
Speaker Change: And if a shared decision-making model similar that's coming out of the NHS and UK gains some traction here, it's going to be great for us. But certainly, you know, the shift towards natural repair is going to be great for us. We're sitting in a good spot over the next, I'd say, five years.
Thank you.
Got it. Okay, that's helpful. Thanks for
Thanks, Frank.
And many more. Thank you. Thank you.
Speaker Change: Again, if you would like to ask a question, press star and then the number 1 on your telephone keypad.
you're seeing so far for the fourth quarter to date.
Speaker Change: I was just curious what kind of trends you're seeing so far in the fourth quarter, and should we expect that Overtex IHR is going to continue to grow pretty rapidly and continue to see some of those mixed shifts drive ASP pressure?
Yes, so, you know, we talked about in our last...
Speaker Change: to call for the first month of the quarter to look like because there's some concern about weather disruptions lagging over into...
Speaker Change: We are seeing a similar progression in the fourth quarter, meaning that October is a record high first month of the quarter for us, suggesting that we're on track to hit the fourth quarter numbers that we need to hit to get to our guidance. And then the second part of your question was...
Speaker Change: IHR and price pressure yeah so yeah I think IHR is off to a good start we're only about a quarter in to that rollout
Speaker Change: I think, you know, as the volume goes up there, there's going to be some puts and takes, Michael, right?
Speaker Change: You know, IHR volume could bring ASP generally down, but our encouragement of balanced selling is going to mean that we want to go after, you know, all of the different hernias that are out there, including ventrals and complex ab walls, which is where we got our start quite successfully.
Speaker Change: So, you know, it stands to reason that, you know, as our ventral and complex users,
Hopefully, our ventral and complex products will grow.
Speaker Change: So there may be a little bit of a put and take on ASP, depending on the ratio of the bigger pieces in the complex and the IHR product. So I think in general, the ASP will come down as the IHR volume goes up, but there could be some offsets as well.
Got it. Thanks, Tony.
Speaker Change: That's helpful. And I guess, you know, you talked about the balance selling and you gave some color around sales rep training and productivity. Do you think you can elaborate?
a little more, you know.
Speaker Change: Are you basically through a lot of the initial training that you had planned or is this going to be kind of a continuous process to improve our productivity over time? Yeah, I think our motto, Michael, is perpetual training, right? This market is so dynamic.
Speaker Change: And it's changing so rapidly that we have to continue to stay on top of the training. So we've hired a purpose-built training team.
Speaker Change: that is going to focus on, you know, both first training, second training, field training.
basically Zoom update calls, so essentially perpetual training.
Speaker Change: You know, we deeply believe in, it gives us a competitive advantage, we have a lot of innovation and clinical data to talk about that's positive, so, you know, we are really going to up the ante on our training going forward.
Great, thank you. Thanks, Mike.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Please wait, the conference will begin shortly.
It's over, Giles. Thank you all for watching.