Q3 2024 Sanara MedTech Inc Earnings Call
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Speaker Change: Good morning and welcome to the Sonara MedTech third quarter 2024 earnings conference call.
Speaker Change: The company issued its earnings release yesterday and will post today's Supplemental deck on the investor relations page on the company's website
Speaker Change: With us today are Ron Nixon, Executive Chairman and CEO, Mike McNeil, Chief Financial Officer, Seth Yon, President
Speaker Change: Commercial, and Sam Mopala who leads Tissue Health Plus. Please note that certain statements in this conference call, in our press release, and in our supplemental deck include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: For more information about the risks and uncertainties involving forward-looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements,
Speaker Change: Please see the risk factors set forth in the company's most recent annual report on form 10k
Speaker Change: as supplemented by the risk factors in the company's most recent quarterly report on Form 10-Q. Also, this conference call, the earnings release, and supplemental deck reference certain non-GAAP measures.
Speaker Change: In that regard, please refer to the reconciliation of these measures in the earnings materials that are available on our website. Now I'd like to turn the call over to Ron Nixon.
Unknown Executive, Callon Nichols, Seth Yon
Ron Nixon: Thank you, operator and good morning, everyone. During the third quarter of 2024, the company generated 21.7 million in net revenue. This was an increase of 35% year over year and represented our 12th consecutive record revenue quarter.
Ron Nixon: We remain focused on continuing our growth and delivering exceptional value to both our customers and shareholders.
Ron Nixon: Third quarter also achieved improved adjusted EBITDA results. Scenario generated adjusted EBITDA of $800,000 during the third quarter of 2024 compared to adjusted EBITDA of $300,000 for the same period in 2023.
Ron Nixon: In Q2, we began reporting additional financial performance metrics of our Surgical Division and Tissue Health Plus as separate business segments.
Ron Nixon: This transition to segment reporting better aligns with how our leadership team views the business.
Ron Nixon: Our surgical segment generated a $200,000 net loss in the third quarter and a net loss of $2.9 million year-to-date through September 30th of 2024.
Ron Nixon: On a segmented EBITDA basis, the surgical segment generated $2.6 million and $5.1 million of segmented EBITDA during the third quarter and year-to-date through September 30, 2024, respectively.
Ron Nixon: We continue to see strong growth opportunities for both segments, which Sam and
Ron Nixon: and Seth will discuss in further detail. We plan to continue investing in THP technology platform and related infrastructure through the expected commercial launch in mid-2025. And as a reminder, we are pursuing like-minded financial partners that will bring value to the strategy, including capital.
Ron Nixon: In September, we invested $5 million in exchange for an ownership percentage of approximately 6.6 in ChemoMouthpiece, LLC, which owns and manufactures a 5GK-cleared cryotherapy device designed to reduce
The Incidence and Severity of Chemotherapy-Induced Oral Mucositis.
Ron Nixon: In connection with the investment, we announced the execution of an exclusive U.S. distribution agreement through RJB with Ipfu Systems for chemo mouthpiece. This product aligns well with Sonara's wound and skin care strategy.
Ron Nixon: which includes our licensed college of peptides from Tufts University with one particular peptide focused on radiation dermatitis.
Ron Nixon: SI Healthcare Technologies LLC, a joint venture entity owned 50-50 by Sonera and InfuSystem Inc. will be an exclusive distributor of the chemotherapy kits.
All right.
by our partner FDA system.
Ron Nixon: We look forward to working with EmphySystem Team commercializing this product in 2025. I'll now turn it over to Seth to discuss our surgical business results and momentum.
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Seth Yon: Thank you, Ron. As of the end of the third quarter, our products had been sold in over 1,200 hospitals across 34 states and the District of Columbia during the trembling 12 months, and were contracted or approved to be sold in more than 4,000 facilities.
Seth Yon: We currently have selling agreements with over 300 distributors representing 2,900 plus potential sellers.
Seth Yon: Looking at the growth of the territories and the facilities in which we sell, in Q3 our products were sold into over 900 facilities compared to over 600 facilities in the third quarter of 2023.
Seth Yon: Sales of our soft tissue products grew from $13.6 million in the 3rd quarter of 2023 to $18.9 million in the 3rd quarter of 2024.
Seth Yon: Sales of Bone Fusion products grew from $2.3 million in the third quarter of 2023 to $2.8 million in the third quarter of 2024.
Seth Yon: We continue to build momentum within our network of over 4,000 contracted or approved facilities, diligently working to expand our surgeon-user base in our core orthopedic and spine areas.
Seth Yon: We have also intensified our focus on non-traditional users to drive growth in both active and new accounts.
Seth Yon: Expanding into additional geography remains a top priority for our regional sales managers, particularly through the engagement of key distribution partners.
Seth Yon: The commercial team is working closely with our operations team to constantly enhance our sales analytics, which will uncover greater opportunities through a strategic focus across all the areas that we serve.
Seth Yon: In addition to our organic growth, we are regularly evaluating opportunities for surgical M&A and partnerships.
Speaker Change: Our management team sees synergistics potential transactions as a key growth driver that complements our strong organic growth. With that, I'll turn it over to Sam to provide an update on Tissue Health Plus.
Sam Mopala: Thanks, Seth. Last call, we outlined THP strategies to disrupt the $100 billion-plus non-acute wound care market.
Sam Mopala: As planned, Q3 was focused on enhancing our execution capacity and building the platform to support the scaled delivery of our distinctive care model.
Sam Mopala: We have established a world-class leadership team with extensive expertise in wound care and technology to oversee the execution of our global multidisciplinary team.
Sam Mopala: The development of THP's state-of-the-art wound assessment software has a medical device and innovative real-time EMR-integrated clinical decision support is on track for release in the first half of 2025.
Sam Mopala: Early previews have been well-received by the provider community, demonstrating its transformative value.
We are compiling a list of enthusiastic pilot partners.
Sam Mopala: On the payer side, we have successfully collaborated with a leading value-based care consulting firm to refine our program economics model, ensuring alignment with standard payer reimbursement strategies and infrastructure.
Sam Mopala: This engagement reaffirmed the efficacy of our innovative episodic risk-sharing model.
Sam Mopala: In preparation for market entry in mid-2025, we have launched an introductory website www.TissueHealthPlus.com to say hello to the world.
Sam Mopala: We have also recruited a Luminary Clinical Advisory Board to help us anticipate and overcome real-life adoption hurdles.
Speaker Change: I would now like to turn it over to Mike to discuss our financial results in more detail.
Thank you, Sam.
Mike McNeil: During the third quarter of 2024, Scenera generated net revenue of $21.7 million.
Speaker Change: compared to $16 million in the third quarter of 2023, a 35% increase over the prior year period. The higher revenue in Q3 was primarily due to increased sales of soft tissue repair products, including Celerate RX.
Speaker Change: As a result of increased market penetration, geographic expansion, and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets.
Speaker Change: Third quarter gross profit of $19.7 million increased $5.4 million or 38% compared to prior year. Year-to-date gross profit of $54.5 million increased $13.3 million or 32% compared to the same period in 2023.
Speaker Change: SG&A expenses for the third quarter were $19 million compared to $13.9 for the same period in 2023. The higher SG&A expenses included $3.7 million of direct sales and marketing expenses and $1.2 million of costs related to the build-out of our THP platform and infrastructure.
Speaker Change: Third quarter R&D expenses were $1.4 million compared to $1 million during the same period in 2023. R&D expenses included $600,000 and $800,000 attributable to our Tissue Health Plus segment for the quarters ended September 30, 2024 and 2023, respectively.
Speaker Change: Higher R&D expenses in 2024 are primarily due to new projects associated with Celerate RX.
Speaker Change: Interest expense was $900,000 for the quarter, compared to $200,000 in Q3 2023. The higher interest expense was primarily related to our term loan with CRG.
Speaker Change: Scenario had a net loss of $2.9 million for the third quarter of 2024 compared to a net loss of $1.1 million for the same period of 2023. The net loss included $2.7 million and $1.7 million.
Speaker Change: Attributable to our Tissue Health Plus segment for the quarters into September 20, September 30, 2024 and 2023, respectively.
Speaker Change: The higher net loss for the third quarter of 2024 was primarily due to higher SG&A costs related to the build out of the THP platform, higher interest expense related to our CRG term loan, and higher expense related to change in fair value of earn out liabilities.
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Speaker Change: As Ron mentioned earlier, in order to better inform the investor community of our strategic rationale of the acute and post-acute comprehensive strategy investments, we have separated financial results of our two operating segments, Scenario Surgical and Tissue Health Plus.
Speaker Change: Net of expenses we believe to be non-core to our operations. We generated consolidated positive EBITDA of $800,000 and $1.7 million during the three and nine months into September 30, 2024, respectively.
Speaker Change: Our scenario surgical segment generated positive EBITDA of 2.6 million during the third quarter of 2024 and 5.1 million year-to-date through September 30th, 2024. TissueL Plus generated negative segment EBITDA of 1.7 million during Q3 and negative 3.4 million during the nine months into September 30th.
Speaker Change: All corporate and overhead expenses are included in the Scenario Surgical segment as substantially all these costs relate to supporting operations and activities of the surgical segment. Scenario Surgical also includes our in-house research and development team, Rochelle Technologies.
Speaker Change: Our cash balance at the end of the quarter was $16.3 million. I will now turn it over to Ron for closing comments.
Ron Nixon: Thank you, Mike. We continue to execute on our strategic plan in both surgical and non-acute wound care value-based strategy. Our surgical team has generated positive adjustability and we expect to see continued improvement in operating results while executing on the growth plan and market expansion.
Ron Nixon: As discussed, we see a significant opportunity to disrupt the non-acute wound care market with our THP value-based strategy and anticipate a mid-2025 commercial launch. Operator, I'd now like to open the line for questions.
and the other one.
Speaker Change: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
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Speaker Change: And our first question today will be from Ross Osborne from Cantor Fitzgerald. Ross, your line is live.
Speaker Change: Hey guys, congrats on the progress and thanks for taking our questions today.
Speaker Change: Starting off, would you walk us through the rationale for the investment in chemo mouthpiece and how it fits into your broader strategy?
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Sure, happy to.
Speaker Change: So our strategy, Ross, has always been wound and skin care. We see, you know, many, many people think of wounds as a skin condition.
Speaker Change: We licensed the 18 college of peptides from Tufts. Those are all centered around wound and skin.
Speaker Change: We have a strategy moving forward on the value-based side, THP. That is a wound in skin. And the chemo mouthpiece directly impacts
Speaker Change: A skin condition that is horrific in the chemotherapy oncology space.
Speaker Change: So if you think about it, what happens is when they use chemotherapy,
in treating cancer.
Speaker Change: You can get these sores or mucositis sores and they are really a wound that is open in your mouth.
Speaker Change: And the only way historically to be able to solve that problem is use ice cubes, which is pretty antiquated. And so this a particular gentleman that had gone through cancer treatment,
had this horrific experience with oral mucositis.
Speaker Change: He's an engineer by background and decided he's going to come up with that. It's a Lenovo product, which means it's a one of a kind. It's very unique and we'll bring it to market with empty system because it fits our overall strategy very well. Thank you very much.
Speaker Change: Got it. Makes perfect sense. And then turning to THP, if I remember correctly, you were conducting a pilot program with a podiatry group. Curious about any feedback there and how that's progressed.
Speaker Change: Yeah, we've not decided that, but I'll turn it over to Sam to talk about that.
SOOP
Sam Mopala: Thank you, Ron. Ross, as we discussed last time, we were targeting pilots in the first quarter, in the first half, if you will, and we are on target to do that. And as I said on the earnings call, we have a list of people we're working with, and we are hoping to
The early previews have been really, really good.
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Speaker Change: Okay, great. Thank you for clarifying that. And then last one on THP, you know, how has it gone as far as attracting new operational personnel to join the team there?
Speaker Change: That's one thing we are particularly proud of, Ross, is we've been able to attract a very skilled team with a lot of execution experience in this space.
Speaker Change: and we have actually created a team both which is in the U.S. as well as in India to help us scale our platform development efforts.
Speaker Change: One of the things we also did was integrate it into the team external partners to kind of deal with the execution. But in terms of being able to attract the talent, it's been a really nice journey so far and we've been able to onboard them and make them productive really fast.
Thank you.
One thing I'll say.
Speaker Change: One thing we're also it makes very interesting in that in why it's also attractive many people know this is a needed
Speaker Change: strategy in this market and people have known for decades that this strategy needs to happen. It's complex, but Sam is the perfect person to lead that charge and he's built a team that complements him very, very well.
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Speaker Change: Perfect. And then maybe turning to OPEX, during the quarter you demonstrated controlled spend, particularly on the R&D line, but how should we think about OPEX for the balance of this year in 2025 as you launch Tissue Health Plus in addition to the other projects you have going on?
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Unknown Executive, Callon Nichols, Seth Yon
Speaker Change: We think through that very carefully, Ross, and we lay out exactly where we're going and how we plan to get there. And so we typically don't have a lot of surprises related to that. So it's in our budget. And so when we say that we're on
Speaker Change: that we are moving forward on our strategy to execute that strategy. We have the appropriate budget for that. And as we also said, we expect to see continued growth in our EBITDA, adjusted EBITDA.
Speaker Change: So it's all part of our overall planning and we don't see any surprises at this moment.
Speaker Change: Okay, perfect. And then lastly, any update on your work with Tufts relating to that 18-peptide you have?
Speaker Change: I'm sorry, I didn't hear the question, Ross. Say it again.
Speaker Change: Any update on your work with Tufts relating to the 18 peptides you have?
Speaker Change: Yes, so if you think about the skin and wound strategy that I discussed with you just a few minutes ago.
The radiation dermatitis is almost an identical same size market.
as the oral mucositis and there has been.
Speaker Change: No particular solution that has been developed that is a preventative and a solution for healing radiation dermatitis. And it's a horrific skin condition as a result of radiation.
Speaker Change: And both of those are the two skin conditions that really wreak havoc on keeping people on their
Speaker Change: on their regimen for chemotherapy and also radiation. So, yes, our technical team at Rochelle, scientific team, is working on that. And we're moving that forward as quickly as we can. And we see it as a very strong complement.
Speaker Change: for our JV with empty system because it will be the same call points.
Speaker Change: Perfect. Thanks for taking our questions and congrats again on the progress.
Thank you, Ross. Appreciate that. Thanks for the support.
Speaker Change: Thank you and once again it will be star 1 on your telephone keypad at this time if you wish to ask a question.
and the next episode.
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Speaker Change: We did get another question come from Ian Cassell from Micro Cap Club. Ian, your line is live.
Ian Cassell: Yeah, congratulations on the quarter. Can you talk generally about the types of partners that you're looking to attract for Tissue Health Plus and maybe just generally how those conversations are going?
Speaker Change: Sure, I'll turn that over to Sam and let him do that.
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Speaker Change: Thank you, Ron. Thank you, Ian, for the question. In terms of the partners that we're looking for, we're looking for two types of partners. One, financial partners, obviously, and second, execution partners. And as we laid out, we have actually filled our dancing card of execution partners.
Speaker Change: In terms of financial partners, we're really looking at some strategics who can bring execution as well, right? So not just money, but actually smart money, if you will.
Speaker Change: So, we're looking for people who have reached into the provider community, we're looking for people who have reached into the supply chain we'll be using at THP, so people like DME providers.
Speaker Change: We're looking for strategic product suppliers, product manufacturing companies who have deep science in this space as well.
Speaker Change: Outside of that, we're also looking for potential typical financial investors like venture capitalists or people who have an execution track record in the healthcare space we are targeting.
Speaker Change: Thank you. One last question. When Tissue Health Plus launches middle of next year commercially, would you expect that segment to be immediately profitable or will there be some ramp-up needed to get to profitability in that segment?
There will be a ramp-up needed to get to profitability.
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Okay, thank you.
Unknown Executive, Callon Nichols, Seth Yon
Speaker Change: Thank you. The next question will be coming from Chris Plam from Tall Pines Capital. Chris, your line is live.
Morning, guys.
Morning.
Speaker Change: Two questions. One, can we get an update on IP progress with Celerate and also just an update on Biosurge?
Unknown Executive, Callon Nichols, Seth Yon
Yep.
Seth Yon: Both, well, I'll let Seth talk about Biosurge and on the IP front, the IP front as we mentioned
Speaker Change: several calls. Historically, that is a priority for us and it is going very well and we'll be able to report by year end the success that we've had, but we continue to file provisional patents around all of our products.
Speaker Change: and the combination of our products and other things like that. So we are making really good progress, Chris. And then as it relates to Biosurge, Seth, maybe you can just talk about, you know, from the introduction of November through this quarter, you know, what you see.
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Seth Yon: Sure, great question Chris, thank you. So Biosurge Soft launched last year at this time, formally launched at the turn of the year. We are right on pace, not only at the facility level and gaining approvals, but starting to scale that product as well. It's really a facility level sale, not just a surgeon level sale, and we're really happy with how that's gone through the third quarter.
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Great. Thanks, guys.
Thank you, Chris.
Speaker Change: Thank you and the next question is coming from John Seidhoff from Twin Oaks Equity. John, your line is live.
John Seidhoff: Thank you. Good morning, Ron, Mike. How are you guys doing? Congratulations on another growth quarter. Year-to-date, year-over-year, 47 to 60 million. Fantastic results.
Thank you.
You bet. I just have two quick questions.
John Seidhoff: our share price and where it's been, you know, the mid 30s.
John Seidhoff: And I was wondering, could you tell us a little bit about what Scenera has for market makers out there? You know, just in the last, say, two years, you know, the lows have been $28 to $30 and the highs have been $45 to $50.
John Seidhoff: And so, you know, we've had people buy in at both of those levels and now we'll say we're around $35.
John Seidhoff: And so we at some point, you know, we do have to look out for these investors and try to get the price up a little higher with our net losses continuing on and borrowing more money for this growth.
A couple of the reviews out there say that
Speaker Change: It's maybe three years until profitability. I was wondering how you guys felt about that, because I know how much capital it takes to grow, of course.
But I just wanted to get you guys' thoughts on...
Speaker Change: The burn of cash, I know you have a lot of access to it, but what you see for profitability down the road, is it 100 million, is it something like that? I know it's a big question, and then how will that affect our market makers out there with our share price? Thank you.
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Thank you for your time. I appreciate it. Thank you.
Speaker Change: John, we were on pace exactly as we're planning. We like the progression of our adjusted EBITDA. Mike can speak to the actual cash. And so Mike, you can talk about that now. But I would tell you our plan is to continue to do exactly what we're doing.
Speaker Change: You know, 12 straight quarters, last I checked, that's a lot of time frame, and we're going to continue to keep that pace, that's what we want to do.
Speaker Change: And I think the market will take care of itself. All we have to do is continue to produce results. And we don't expect to have any surprises where we would need to have a highly diluted event.
Speaker Change: We look for events that are extremely creative to us and we've said that on many calls before from our M&A and partnering activity. And so, Mike, if you want to talk a little bit about your projections on cash flow, that'd be great.
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Yeah, thanks Rod
Speaker Change: Yeah, we had a strong cash performance in cash. And during the quarter, we actually generated a couple million dollars of positive cash flow in the quarter, from operating activities. And so, you know, we've been somewhat neutral through most of the year, and most of the, you know, the borrowing has been for investing activities. So we don't expect to be
Speaker Change: Burning cash and operating activities, you know, in the near future or even going forward.
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Speaker Change: Well, thanks, Mike. That's really good news to hear. And then, Ron, thanks also. I know that you guys are focused on growth. I know what it takes to
Speaker Change: to get there, and it's great to hear that, of course, you've got our investors in mind because the money that you've raised has certainly been non-dilutive, so I appreciate that.
Thank you.
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Unknown Executive, Callon Nichols, Seth Yon
Speaker Change: You guys have a great day. I appreciate it. Thanks. Thank you. Thanks John.
Speaker Change: Thank you. And there were no other questions from the lines. We did get some webcast questions in, so I'll go through a few of those right now.
Speaker Change: Can you give some more granularity on the timeline for THP? Will a pilot be launched in the first half of 2025?
Yes, Sam, you want to take that?
Sam Mopala: Sure, yes. We are planning to launch a pilot in the first half of 2025. Yes.
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Okay
Speaker Change: Can you give some color on where the majority of work is that remains in order to launch THP by mid-2025, engineering partnerships, etc.?
Unknown Executive, Callon Nichols, Seth Yon
Speaker Change: Sure, the majority of work, if you look at the work going on in THP, there are really three streams of work. The first stream of work, which is the locus of work, is really building the platform to scale the delivery of a care model.
Speaker Change: and that's where we have partnerships. While not naming partners, I can tell you the areas in which we are partnered. We are partnered in the area of integration with EMRs.
Speaker Change: We are partnered in the area of being able to accelerate our development efforts.
Speaker Change: And we have partnered in the area of being able to use innovative data management techniques and being able to take that data and leverage it into the rest of our tax.
Speaker Change: So what we're trying to do is to make sure that we are not rebuilding any things which are already in the marketplace and we are really building on top of what's in the marketplace. So the partnerships have really helped with that.
Speaker Change: The second stream of work we are doing is really continuously expanding our clinical model and testing its efficacy. And the clinical model and the science behind it essentially become an input to our platform.
Speaker Change: So the work continues on that, and we've made some very good progress there. For example, we have expanded our clinical model to include atypical wounds, which
Speaker Change: Concentrate about 20% of the wound population out there and that's some of the first work being done to qualify standard care for those
Speaker Change: The third piece, which your work is going on, is really around the commercialization of this. That includes being able to identify network partners and working with them.
Speaker Change: understanding pricing models, testing it, and in the marketplace, and we've received very good feedback on that as well. So those are really the three streams of work on which we're working on right now. Hopefully that helps.
Thank you. Thank you.
Speaker Change: Okay, the next question, what are your expectations regarding chemo mouthpieces contribution to top and bottom line?
Unknown Executive, Callon Nichols, Seth Yon
Speaker Change: We're not prepared to give that answer at this time. We obviously are very enthused and think it is a terrific opportunity in front of us.
Speaker Change: As we progress on the introduction of this product and start to launch in 2025 and get this commercially accepted in the marketplace through our partner with InfuSystem, then we'll come back and report what our expectation is. But it's a very big wide open market from my perspective.
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Speaker Change: Thank you. And what are some of the characteristics you're looking for in a potential M&A target for surgical?
Speaker Change: Yeah, we'll let them know what that is when we close it.
Speaker Change: Okay, and we are currently seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.
Speaker 1
Unknown Executive, Callon Nichols, Seth Yon