Q3 2024 Tenon Medical Inc Earnings Call
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Speaker Change: Greetings and welcome to the Tannin Medical 3rd Quarter 2024 Financial Results and Corporate Update Conference Call.
and Kevin Williamson, Chief Financial Officer.
Speaker Change: Mr. Foster and Mr. Williamson will present results of operations for the third quarter ended September 30, 2024 and provide a corporate update.
Speaker Change: While these forward-looking statements represent our current judgment on what the future holds, they are subject to risk and uncertainties that could cause actual results to differ materially.
Speaker Change: You are cautioned not to place and do reliance on these forward-looking statements which reflect our opinions only as of the days of this presentation.
Speaker Change: Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision that is forward-looking statements in light of new information or future events.
Speaker Change: Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions.
Speaker Change: For a more complete discussion of these factors and other risks,
Speaker Change: At this time, I'll turn the call over to Tenant Medical's Chief Executive Officer Steven Foster. Please go ahead, sir.
Steven Foster: Thank you, Aubrey, and good afternoon to everyone. I'm pleased to welcome you to today's third quarter 2024 financial results and corporate update conference call for Tenon Medical.
Steven Foster: In the third quarter, we continue to focus on building market share for our proprietary Catamaran system, as well as securing capital to help fund our growth initiatives going forward.
Steven Foster: Since the beginning of 2024, we've delivered an 18% year-over-year increase in revenue, driven by a 5% rise in surgical procedures utilizing the Catamaran system.
Steven Foster: Gross margin improved 2,200 basis points to a solid 54% for the same nine months of 2024 as compared to 32% in the same year-ago period.
Steven Foster: During the third quarter, revenue declined 6% over the prior year quarter and 1.6% over the second quarter of 2024.
Steven Foster: The decrease was mainly due to unexpected reimbursement per authorization headwinds that we believe to be transient in nature.
Steven Foster: We expect future coding clarity combined with our recently published clinical data will positively impact these issues going forward.
Steven Foster: As we move forward to sustainable revenue growth, we believe our stable cost structure will maintain a gross margin performance at recent levels and improve with increases in revenue in the near term due to our planned growth initiatives.
Steven Foster: Across operations, we've made considerable commercialization and technical advances, including the Catamaran SE, a second generation and smaller version of our implant and access profile.
Steven Foster: as we introduce versatility and anticipate this to result in market share gains during our second year of commercialization.
Steven Foster: To maintain our momentum during the third quarter, we took the opportunity to strengthen our balance sheet, to fund our growth initiatives, and position the business on a sustainable growth trajectory.
Steven Foster: We intend to use these proceeds to expand our sales force, continue our post-market study with publication of the next tranche of analysis for Catamaran, and advance the launch of the new Catamaran SE-SI joint fusion system.
Steven Foster: We've initiated the pre-launch alpha clinical work of the new Catamaran SE which extends the line of implant offerings for physicians preferring a smaller Catamaran implant and access profile when performing SI joint fusion procedures.
Steven Foster: Additionally, in late October, we reported that a subset of partner physicians performed initial clinical procedures implanting catamaran FE.
Feedback from the physician advisors has been extremely positive.
Steven Foster: Full commercial launch of the Catamaran SE is planned in early 2025.
Steven Foster: As referenced during our earnings call in August, we completed our restructured sales operations in Q2.
Steven Foster: With the team in place, we saw building momentum into late Q3 and expect the trend to continue as they develop and grow. With a solid balance sheet, we plan to expand our efforts in 2025 to be positioned for future growth.
Steven Foster: A significant component of our growth strategy is an investment in clinical research to reinforce the safety and effectiveness of the catamaran system.
Significant progress has been made in this area.
Steven Foster: As a reminder, TENON's prospective, multi-center, single-arm, post-market study evaluates clinical outcomes of patients with sacroiliac joint disruptions or degenerative sacrolitis treated with the Catamaran SI Joint Fusion System.
Steven Foster: Patients will be evaluated for a period of up to 24 months, reviewing various patient reported outcomes, radiographic assessments, and adverse events.
Steven Foster: In short, this study that we call Mainsail aims to show the catamaran system delivers on its promises.
Steven Foster: As we near completion of enrollment in this study, during the quarter we announced the first peer-reviewed publication of our interim analysis.
Steven Foster: This interim analysis presents early experiences in the first 33 consecutive patients treated with the Catamaran SI Joint Fusion System across six U.S. clinical sites.
Steven Foster: with primary and secondary clinical endpoints analysis at six months and radiographic CT fusion assessment performed by an independent radiologist at 12 months.
Steven Foster: Notable outcomes from this interim analysis include statistically significant reduction in SI joint pain and disability, scoring at six months, a robust safety profile, and high patient satisfaction throughout all follow-up time points.
Steven Foster: Results provided definitive evidence of fusion response at 12 months and efficient surgical technique and procedural workflow.
Steven Foster: This peer-reviewed analysis reinforces that the catamaran system's minimally invasive inferior posterior approach is safe and effective in the objective of relieving pain and reducing disability in adult patients diagnosed with SIJ disruption or degenerative sacralitis that fail non-surgical treatment.
Steven Foster: Early results and evaluations solidify our thesis that the catamarans unique design and less invasive inferior posterior approach is functioning as intended to optimize patient outcomes.
Steven Foster: Of note, the interim data from our study, combined with the nearly 800 surgeries performed with the Catamaran system to date, is demonstrating an exceptional safety profile in benefiting patients and physicians in delivering on its clinical promises.
Steven Foster: The importance of this clinical research for the company cannot be overstated. It will be compelling for treating physicians and payers alike within a market segment that is lacking peer-reviewed data.
Steven Foster: Our ongoing workshop activities led by a network of valued physician faculty combined with the robust commercial infrastructure rebuild have prepared us for rapid expansion.
Steven Foster: Our sales targeting efforts focus on medical professionals with experience in SI surgical procedures and technologies And provide them with world-class workshop opportunities
Steven Foster: Importantly, this proven approach contains costs and provides higher return value to faculty, cohort physicians, and Tenon's business overall.
Steven Foster: We experienced an increase in our interactive training corresponding with our Restructured marketing and sales approach and hosted 21 positions and catamaran workshops during the third quarter of 2024
Steven Foster: Subsequent to the quarter end, the U.S. Patent Office issued to us three patents related to our enhanced catamaran prosthesis.
Steven Foster: that include unique drug delivery compositions, which enhance sealing of the prosthesis in SI joint bone structures and bone growth about and within the prosthesis when the prosthesis is implanted into the joint.
Steven Foster: Another patent is directed to SI joint prosthesis with unique structures and configurations to correct failed SI joint stabilization with alternative commercial SI joint implants without requiring removal of the failed implant.
Steven Foster: These are meaningful protection mechanisms of our technology platform and serve to strengthen our competitive position in the industry.
Steven Foster: Finally, during the quarter, we welcome Kevin Williamson as our Chief Financial Officer following the retirement of Mr. Steve Van Dick, who remains involved in a CFO advisory role to ensure a smooth transition.
Steven Foster: Kevin has an extensive track record of financial leadership in the spine related medical technology industry. Most recently he served as CFO of Excellus Incorporated, also a medical device company with a focus on developing expandable spinal implant technologies.
Steven Foster: Kevin's experience has proven valuable early on and he will be instrumental as we strategically advance Tenon into our next phase of growth.
Speaker Change: With that, I'll turn it over to Kevin to discuss our financials.
Speaker Change: Thank you, Steve. I'm excited to join today's Erdings call and be part of the 10-on-medical journey. First and foremost, I extend my appreciation to Steve Van Dick for his previous leadership in the role and guidance during the CFO transition period.
Kevin Williamson: Now, I'll give a succinct review of our financial results. A full breakdown is available on our press release that crossed the wire this afternoon.
Kevin Williamson: Our revenue was $887,000 in the third quarter of 2024, a decrease of 6% compared to $944,000 in the third quarter of 2023.
Kevin Williamson: Revenue for the nine months ended September 30, 2024, was $2.5 million, an increase of 18% compared to $2.1 million in the prior year period.
Kevin Williamson: The fluctuations in revenue growth for the three and nine months ended September 30, 2024.
Kevin Williamson: As compared to the same period in 2023, we're primarily due to a decrease of 15% and an increase of 5% respectively in the number of surgical procedures in which the catamaran system was used.
Kevin Williamson: We believe the reimbursement impacts and timing of our Salesforce operation restructure that we experienced in Q3 will become tailwinds for us moving forward in combination with our new SE platform and clinical data initiatives.
Kevin Williamson: Gross profit in the third quarter of 2024 was $418,000, or 47% of revenue, compared to $535,000, or 57% of revenue, in the third quarter of 2023.
Kevin Williamson: For the months ended September 30, 2024, gross profit was 1.4 million or 54% of revenue compared to a gross profit of 682,000 or 32% of revenue in the prior year period.
Kevin Williamson: Gross margin percentage improved due to the absorption of more production overhead costs into our standard costs. Operating leverage created due to lower fixed
Kevin Williamson: costs and higher revenue associated with the increase in number of surgical procedures.
Kevin Williamson: Operating expenses totaled $3.6 million for the third quarter of 2024, as compared to expenses of $3.9 million in the third quarter of 2023.
Kevin Williamson: For the nine months ended September 30, 2024, operating expenses totaled $12 million, compared to $13.3 million in the prior year period.
Kevin Williamson: Operating expenses decreased due to the restructuring of our sales operations that reduced sales and marketing expenses and a decline in research and development.
Kevin Williamson: With a continued investment in growth, expanding the sales force is a priority, and increases in sales and marketing expenses are expected in future quarters.
Kevin Williamson: Net loss was $3.2 million for the third quarter of 2024, an improvement from a net loss of $3.3 million in the same period in 2023.
Kevin Williamson: For the nine months ended September 30, 2024, net loss was $10.6 million, improving from $12.6 million in the previous year period.
Kevin Williamson: The company does expect to incur additional losses in the future.
Kevin Williamson: Now, turning to the balance sheet, as of September 30, 2024, cash and cash equivalents totaled $9.2 million, as compared to $2.4 million as of December 31, 2024.
2023.
Kevin Williamson: On September 17, 2024, as previously discussed by Steve, the company received an investment with gross proceeds of approximately $4.5 million.
Kevin Williamson: This supportive capital from a recognized healthcare space investor and combined with additional equity financings in September have provided aggregate net proceeds to Tenon of $9.6 million during the third quarter.
Kevin Williamson: Tenon's balance sheet is fortified with ample cash runway to accelerate investment in our growth initiatives.
Kevin Williamson: including further expansion in our sales force and market access efforts, continued focus on data and our main sales study.
and the commercial launch of Catamaran SE.
Kevin Williamson: Lastly, as of September 30, 2024, the company has no outstanding debt.
Speaker Change: I will now turn the call back to Steve for closing thoughts.
Thank you, Kevin.
Steve: We are strategically advancing our commercialization strategy into our next phase of growth with steady progress and year-over-year increases in our Catamaran procedures.
Steve: We ended the first nine months with year-over-year revenue growth and a notable increase in gross margin.
Steve: We believe we will continue this growth trajectory supported by our capital resources, expanding commercial infrastructure, and the introduction of the new SE platform.
Steve: We also believe the upcoming larger cohort of patient post-market data will be a catalyst to drive payer coverage, which will accelerate sales growth and market share gains into 2025.
Steve: With our strength and balance sheet, we have the resources to maintain our momentum and are excited to have line of sight to the next phase of growth for Tenon Medical.
Speaker Change: I thank you all for attending, and now I would like to hand the call back over to our operator to begin our question and answer session with covering analysts. Aubrey?
Aubrey: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, press the star followed by the number 2.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys.
One moment, please, for our first question.
Speaker Change: Our first question comes from Mr. Anthony Vendetti of Maxine Group. Please go ahead, sir.
Thank you H.D., Kevin, how are you?
Very good. Thank you, Anthony.
Speaker Change: So, you did say in your prepared remarks that, in the press release, you did experience
unexpected reimbursement, pre-authorization headwinds.
What what specifically
Speaker Change: Do you think caused that? Has that continued into the fourth quarter, or do you believe whatever issue that occurred has been resolved or was it a case-by-case basis?
Speaker Change: No, great. I appreciate the question, Anthony. So, as you know, reimbursement is very regional and so it's always hit and miss depending on where physicians are submitting pre-authorization to try and get procedures approved.
Speaker Change: What we've run into is there was a good bit of coding, I'll call it coding confusion, hey which codes belong with which procedure. It was a big topic of conversation at recent AMA meetings.
Speaker Change: and we anticipate a lot of good clarity coming down the pike.
and finalized from the meeting, so I think.
Coding clarity is going to help tremendously.
Speaker Change: And then the other part of that equation is our data, right? Being able to go out and interface with payers, show them peer-reviewed data that shows this technology delivers is exceptionally important to make sure that they recognize and cover.
Speaker Change: our technology. It goes without saying that there are competitors in the space that have been here a lot longer than we have, and so we've got catching up to do and work to do there, and now we have the tools to do so. So we do see it as transient, we do see it as improving, and it will continue to improve, we believe, right into 2025.
Speaker Change: Okay, in some recently published clinical data should clarify some of the coding and and not only that but but you think we'll
alleviate some of the pre-authorization headwinds.
Speaker Change: yeah I don't think that I don't think our data clarifies coding I want to make sure I'm clear yeah but the data does is reinforce that our technology does what it says it's supposed to do in a safe and effective manner right without undo adverse events and things of that nature
Speaker Change: The coding thing between AMA, CMS, etc. is just a different thing. There has been a lot of back-and-forth and frankly controversy on the issue. We believe that's clearing pretty quickly here and we anticipate the combination of those two things, coding clarity and
Speaker Change: In the big picture and our specific data will really help us with coverage issues going forward
Speaker Change: Okay, great. And then just in terms of some of the feedback from physicians on the system, recent feedback, you know, how would you describe that, and have you made...
Speaker Change: Yeah, we absolutely have. So I mentioned we mentioned in the prepared remarks the Catamaran Effie. Effie is really simply a smaller version...
Speaker Change: of all aspects of the system, a smaller implant, and therefore a smaller access portal to get down to the anatomy and do the work that needs to be done.
Speaker Change: And every physician looks at these things differently, right, as we've talked about before Anthony, we have a combination of spine surgeons and interventional and pain physicians using these technologies.
Speaker Change: And they were all trained differently. They all look at things differently. Some bigger is better. They want more graph, more size, more robustness in the fixation, etc. Our initial catamaran is going to be a better format for them.
Others are more sensitive to the size of the incision.
Speaker Change: believe in the miniaturization, etc., that that's positive for patients and, you know, Catamarin SE now fits that requirement and that desire for those physicians. I don't believe, frankly, that there's a big-time right or wrong answer. We just simply want the physician to be comfortable with the technology, be confident with the technology, and so this is our effort to respond to their needs and desires for a system that fits their, you know, fits what they like.
Okay, great. And then in terms of
Speaker Change: expanding the sales force is that something you're looking you're doing currently or is that something more for 2025?
Speaker Change: Yeah, that is something we're very active in currently. That'll be happening over the coming months and quarters as we expand into areas. Look, again,
very geographically focused.
Speaker Change: Where are the key opportunities, etc. Where do we need feet on the street to really be bird-dogging?
Speaker Change: of Target's compelling physicians into workshop settings so they can hear the 10 on.
Speaker Change: Katamaran story and learn about the technology, practice with the technology, etc. So that's really where our energy is going right now out on the street.
Okay, great. Thanks for all that color.
Speaker Change: There are no further questions at this time. I would now like to turn the call back over to Mr. Foster for his closing remarks.
Steven Foster: Well, thank you, Aubrey. I'd 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 and growth.
Steven Foster: If we were unable to answer any of your questions, please reach out to our IR firm, the MZ Group. We'll be more than happy to assist. With that, I wish you a good day.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.