Q4 2024 TELA Bio Inc Earnings Call
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Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the TELA Bio 4th quarter, 2024 earnings conference call. At this time, all participants are in a listen the only mode. A question and answer session will follow the prepared remarks.
Speaker Change: As a reminder, this conference call is being recorded. I would now like to turn the conference over to Greg Huddacek from the Gil Martin Group. Please, go ahead.
Speaker Change: Thank you, Lizzie. Good afternoon, everyone. Earlier today, TELA Bio released financial results for the fourth quarter of full year 2024. A copy of the press releases 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 will make projections of 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 the company's annual report on form 10K and quarterly reports.
Speaker Change: on Forms 10Q, which identify the specific factors that may cause actual results or events to differ materially from those described in each forward-looking statements.
Speaker Change: These sectors may include, without limitation, statements regarding product development and pipeline opportunities.
Speaker Change: Product potential, the impact, and various macroeconomic conditions identified in our filings, like changes in surgical procedure volumes, the regulatory environment, sales and marketing strategies, capital resources, or operating performance. With that, I will now turn the call over to Tony.
Tony: Thank you, Greg, and good afternoon, everyone. Thank you for joining TELA Bio's fourth quarter, 2024 earnings call. I'll begin by reviewing the quarter. In fact, there's that effective performance, then I'll turn the meeting over to Roberto for review of the financial event and our outlook before opening it up for your questions.
Tony: We generated 17.6 million in revenue in the fourth quarter, growing 3.8% versus the fourth quarter of 23. This was lower than our expectations and marks the first instance of single-digit revenue growth at TELA since the start of the COVID-19 pandemic.
Tony: Despite as we noted in our Q3 call, October marking the strongest first month of any quarter in TELA's history and trending toward the strong finish in 2024.
So, what happened?
There were several minor or hard-to-quantify external factors impacting performance.
Tony: But ultimately the primary driver of this underperformance was lower than planned headcount in our U.S. sales force.
Tony: in the fourth quarter, exacerbated further by a number of departures, including unplanned productive losses in late November and into December .
Tony: In August 24, we made some fundamental but necessary changes in our commercial organization to realign ourselves for us around a new strategic commercial direction.
Tony: This re-alignment included a focus reduction in headcount related to managerial, administrative and support roles, but also included the departure of approximately 10 to 15 underperforming sales reps to address gaps in productivity and efficiency.
Tony: Partially offset by the conversion of certain support personnel into quota-carrying roles.
Tony: Although our top reps continue to drive performance in line with expectations throughout Q4, we also for the first time in our history experience a number of departures from the Salesforce of productive reps.
Tony: These additional losses included some key reps who were lured away by large financial incentives from companies in the wound care space, as well as a few newer entrants building out their sales force within the plastic and reconstructive space.
Tony: When combined with the prior realignment, these losses created a situation where we simply didn't have the head count to make up the difference so late in the quarter.
Tony: Turning to some of the external headwinds that contributed to fourth quarter results. First, in late September , Hurricane Helene made landfall on the Gulf Coast of Florida and continued north through Georgia, South Carolina, and most notably in North Carolina.
Tony: Where the storm caused significant damage to a plant responsible for manufacturing 60% of the IV fluids used in the U.S.
Tony: Elected surgeries in our two strongest sales regions slow down as a direct result of the storm while the ensuing shortage of IV fluids appears to have affected surgical volumes throughout the US.
Tony: As we had anticipated, feedback from the field indicates that these shortages manifested more in November and December as hospitals depleted their existing stocks earlier in the quarter.
Tony: And finally, although it's difficult to measure Christmas and New Year's Day, they fell on the Wednesdays of their respective weeks.
Tony: Potentially reducing the number of days in those weeks that surgeons operated or that patient's scheduled procedures. While there is no clear signal of an impact in our sale, it's possible it had an effect.
Tony: and was cited by at least one other market participant as a cause for softness and Q4-elective procedure volumes.
Tony: Despite this disappointing fourth quarter performance, we have already implemented necessary measures to address the challenges we experience in the quarter. We believe these actions will in couple with a few substantial tailwinds will position and tell it for strong performance in 2025.
Tony: The primary adjustment comes from the full implementation of our full revised commercial strategy, including those short-term adjustments we made as part of our August or Q3 re-alignment.
Tony: This is led by an evolution of our field-based sales organization strategy where we have redefined our approach to the division of responsibilities between our territory managers or TM's and our account specialists or AS's.
Tony: The AS condition represents a vital direct field level auxiliary sales role, with each AS brought on board to provide procedural case coverage within the territory of one or more of our top
Tony: This team-based sales strategy allows our TM's to pursue new customer accounts.
Tony: or drive deeper penetration into existing customer accounts while simultaneously helping
Tony: AS is more rapidly integrated into our organization, receiving significant on-the-ground experience under the tutelage of our top TM's, with the potential to transition into a TM role more quickly and efficiently.
Tony: Where successful, this should set up the promoted AS for long-term success in their new territory.
Tony: We have seen success with this program so far through 2024, prompting us to allocate additional resources toward recruiting and retaining more AS's.
Tony: Their strategy aims to enhance the reach and productivity of our TMs, strengthen our relationship with customer accounts, and establish greater stability with existing customers, irrespective of future changes with the TMs or other <expletive> serving on these selling teams.
Tony: At the end of Q3, we had 76 field-based representatives, 69 territory managers, TNs, and seven account specialists, <expletive> .
Tony: However, if we look at the end of Q4, we had 71 total representatives with 63 TM's and 8 AS's.
Tony: The Interquarter Turn and Unexpected the Partures of several TM's ultimately drove volatility in top line performance. As we look ahead this year, we expect by the end of this month, we will have 88 total reps with nearly 70 TM's and close to 20 AS's.
Tony: Well on our way to reaching our year end target of 97 reps, consisting of approximately 70-60 m and 21 A-S's.
Tony: We believe this model positions us well for the future as it allows us to identify and foster top talent while providing a roadmap for developing additional high-performing TM's.
Tony: The value of a high-performing TM cannot be overstated as seen even in our Q4 results.
Where our top reps continue to perform well.
Tony: with the top 44 reps achieving over 90% of their quotas in the quarter, or virtually 100% of their allocated budget targets, even despite some of the external tail lens we discussed earlier.
Tony: Although we won't have full data to report until after the quarter, revenues year-to-date have been strong, and our signaling that the crucial cue for rebuild decisions inherent in this strategy will be important drivers for growth moving forward.
Tony: Our commercial leadership team, including our CCO, have now completed a full six month in their respective roles.
Tony: This period was marked by a strong third quarter and was followed by a more difficult period that included strategic shifts, implementation of a new market approach, and the recalculated sales structure.
Tony: With continued stability, we believe this should return TELA to sustain and normalize growth rates for 2025 and beyond.
Tony: In addition to these meaningful Salesforce adjustments, several other factors drive our optimism in our 2025 outlook. And expanding product portfolio, our broadening reach to surgeon customers, and our continued development of clinical data in support of our products.
Tony: From a broader perspective, there is a substantial portion of the market share that remains available for us to capture in both Hurnia and PRS. In Hurnia Repair, 80% of all procedures still utilize permanent synthetics.
Tony: and as at least one major competitor is publicly announcing shifts toward their costlier, resortable product lines, TELA has the opportunity to highlight over-text his consistent clinical performance and value proposition to drive adoption.
Tony: In the PRS market where we launched our first products in 2019, we are only beginning to address $800 million U.S. opportunity and we have significant runway to generate substantial growth with our expanding portfolio of PRS solutions.
Tony: In 2024, we launched among other products the Liquifix and Ovatex IHR product families.
Further expanding <unk> profile in the hernia repair space and increasing awareness of all of our products.
Tony: In 2025, we expect to launch larger size versions of our existing overtaxed Prs products.
Tony: And a new long term resorbable alternative for our hernia products. The Prs offerings in particular are highly anticipated by surgeons and certain techniques within that space require or benefit from access to larger units.
Tony: We expect both sets of innovations to represent incremental revenue as they are not merely replacing smaller pieces that were already being used.
Tony: In support of our expanded product offerings and we also continue to invest in medical education and broader surgeon outreach several initiatives are already driving and helping us set the stage for the year, including.
Tony: A live robotic hernia symposium, featuring forgot specialists faculty doctors, Philips Woodworth and regiment Reginald Bell both highly respected leaders in this space a national webinar with renowned surgeon Mr. Alastair Windsor from London, a leading advocate for shared decision, making Mr wind reserves.
Tony: <unk> elevates our commitment to furthering U S adoption of this current best practice in Europe.
Tony: Our third annual plastic reconstructive summit, an invitation only event spotlighting emerging technologies designed to enhance outcomes and soft tissue reconstruction and attended by more than 30 surgeons specialists in this space.
Tony: Beyond education, we've already made significant strides in regional and National Society meetings in 'twenty five with planned sponsorship of 16 key industry events, providing exposure to nearly 5000 Surgeons. In addition, we hosted a standing room only lunch symposium at stages, where experts Dr. Retched out.
Tony: Dr trip Buckley third and Dr. Stephen Demeter, letting engaging discussion on Paris esophageal hernia repairs.
Tony: Our long term eventual in Ingalls eight England data were also presented at this meeting showcasing their low recurrence rates across hundreds of patients with five years of follow up further validating the clinical benefits of overtaxed.
Tony: We remain committed to the collection of clinical data.
Tony: <unk> the value of our products and in the fourth quarter of 2024, we achieved the significant regulatory milestone of obtaining approval.
Tony: Approval for a Prs long term resorbable breast reconstruction investigational study this approval underscores our continued investment in clinical reasons research and to the future of our Prs business.
Tony: In addition, we continue to enroll our opera study a retrospective prospective trial evaluating the safety trial safety profile of <unk>, Prs and previous pre pectoral and sub <unk> implant based breast reconstructions.
Tony: We are aware of two newer search and publications based on surgeon derived studies involving the use of Prs in these applications with the understanding that several similar publications may be in progress.
Tony: By the end of 2025, we expect to have 300 to 400 patients under study using our various prs offerings.
Tony: Since <unk> inception, we have sold over 65000, overtaxed and nearly 15000, <unk> Prs units or.
Tony: Our next goal is to reach $100 million in revenue and shortly thereafter to achieve profitability.
Tony: Foresee reaching these milestones in the not too distant future and then continuing to establish our products as the gold standard for soft tissue preservation and restoration with that I will turn the call over to Roberto to provide more specifics on our financial results.
Roberto: Thanks, Tony.
Roberto: As Tony mentioned revenue for the fourth quarter of 2024 increased 4% year over year to $17 6 million and grew 19% for the full year to $69 $3 million with revenue from <unk> growing 17% and <unk> Prs revenue growing 21% for the year.
Roberto: The growth was primarily due to an increase in unit sales of our products, resulting from the addition of new customers and growing international sales.
Roberto: <unk> unit sales grew 28% for the quarter and 33% for the year, while Prs unit sales grew 11% for the quarter and 31% for the year.
Roberto: Gross margin was 61, 64% for the fourth quarter and 67% for the full year compared to 68% and 69% for the prior year periods respectively.
Roberto: The decrease was primarily due to higher expense recognized for excess and obsolete inventory adjustments as a percentage of revenue.
Roberto: Which resulted from the introduction of newer generation products.
Roberto: Sales and marketing expense was $14 million in the fourth quarter and $64 6 million for the full year compared to $17 to $17 2 million and $59 7 million for the prior year periods respectively.
Roberto: This increase was mainly due to higher compensation costs, primarily from increased commissions and severance costs increased travel and consulting consulting and additional selling related expenses, which offset decreases in marketing expenses.
Roberto: General and administrative expense was $6 6 million for the fourth quarter and $14 7 million for the full year compared to $4 1 million or $14 9 million for the prior year periods respectively.
Roberto: R&D expense for the fourth quarter was $2 million.
Roberto: And for the full year was $8 8 million compared to $2 7 million and $9 6 million for the prior year periods.
Roberto: Loss from operations was eight 4 million in the fourth quarter of 2024, and $34 $1 million for the full year compared to $12 3 million and $44 1 million in the prior year period.
Roberto: Net loss was $9 $2 million in the fourth quarter and $37 8 million for the full year compared to $12 9 million and $46 7 million for the prior year period.
Roberto: We ended 2024 with $52 $7 million in cash and cash equivalents.
Roberto: For 2025, we anticipate revenues to be in the range of $85 million to $88 million representing growth of 23% to 27% over the full year 2024.
Roberto: We expect the operating loss and net loss will continue to decrease coming in lower in 2025 and in 2024.
Roberto: Reviewing what reiterating what we said last year, we expect that the operating efficiency improvements that we made in the second quarter of 2024 will provide a reduction from the first half of 2024 run rate as a result, we expect opex in 2025 to be flat compared to full year 2024.
For the first quarter of 2025, we expect revenues to be in the range of 17 million to $18 million based in large part on our visibility into performance to date.
Tony: With that I'll hand, the call back to Tony for closing remarks.
Tony: Thank you Roberto as we reflect on 2024 and look ahead. Our progress is undeniable, we strengthened our global footprint expanded our educational impact and continue to differentiate our solutions through clinical validation and portfolio expansion.
Tony: Most importantly, importantly, we have entered 2025 with unwavering momentum and a motivated team and a clear vision for growth.
Tony: The market expected shifts away from synthetic mesh represent a significant opportunity for us and our strong commercial strategy positions us to capitalize on this evolving landscape.
Tony: Coupled with our discipline discipline to operating expenses and a strong cash position, we are well equipped to execute our plan and drive sustained success.
Tony: We are motivated by the early successes of this year from an energized national sales meeting to robust surgeon engagement at key industry events.
Tony: With a focus on execution innovation and collaboration we are confident in our ability to deliver meaningful value to our stakeholders as we head toward our next milestone of $100 million in revenue.
Tony: I want to thank our dedicated team for their relentless commitment and we look forward to a transformative year ahead together.
Tony: We will snap back.
Tony: With that I'll now ask Latif to open the line for your questions.
Latif: Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the queue. You May press Star one again, please standby, while we compile the Q&A roster.
Tony: Our first question.
Frank: Comments from Frank to Kennan.
Tony: Link Street capital markets.
Tony: Question. Please Frank.
Tony: Great. Thank you for taking the questions Hey, Tony here Roberto wanted to start with one follow up around the territory manager departures.
The net number you gave was down six territory managers from Q3 to Q4 and can you talk about gross numbers, how many reps did you lose and then how many did you.
Tony: Higher in the quarter and then I know you mentioned compensation is one factor or any other reasons for some of the rep departures yes.
Yes, I mean look there were ins and outs.
Tony: In Q4, but if you look at it in November and December roughly we lost 11.
Tony: Tms due to unplanned departures right. So they never tell you you don't see a comment.
Tony: And I guess they come in clusters. This hasnt really happened to me before so it's certainly got our attention and.
Yes.
Tony: Our reps are coveted they are sought after they are good and that was a big number.
Tony: Difficult to recover from late in the quarter.
Tony: Basically like I said some of these wound care companies that are smaller and have these interesting reimbursement positions definitely through some serious amount of guarantees and cash around.
Tony: Its allure these folks out and I think in 'twenty four we also had.
Tony: Some meaningful players they are building prs organizations and for lack of a better word I think we got poached.
Tony: At the very end of the year. So that's kind of where we are even with those ins and outs I think I mentioned, where we were.
Tony: With the.
Tony: At the end of Q4, well I'll tell you where we are now where we are now is about 88 territory.
Frank: Territory managers Frank.
Frank: With a mix of about 20 account specialists and the rest being Tms So we've snapped back pretty well.
Frank: The talent that we've been able to lure in and replace.
Frank: Think in some cases, where even upgrades from some of those 11 that departed I would consider those 11 that departed to be kind of in the middle to upper middle class range.
Frank: Our top performers were not impacted by that but some pretty pretty good reps went.
Frank: So we feel good about the energy and momentum we have.
Frank: In the first quarter.
Frank: And I think the grew.
Frank: The growth in application of the account specialists is going to blunt that risks, which we started to set up in Q3 of last year right not only do these account specialists allow our reps to extend their reach so so good for offense, but also good for defense right. They can have a deeper <unk>.
Frank: And the accounts with this team selling approach, which should be able to alert us to competitive activity and then if we ever do take a loss on the TM side and are depleted and that way we.
Frank: We have very strong account specialists in.
Frank: In place as backup and I'll, just say a little bit about the account specialists. So we used to have a program.
Frank: Known as associate reps.
Frank: And we really elevated that so we're hiring more experienced folks.
Frank: The account specialist role they have.
Frank: In most cases, some type of selling experience or in all cases, a very good clinical understanding and background. So these folks will be able to contribute our top reps, the two and three plus million.
Frank: Have all made excellent use of account specialist and it is.
Frank: It's a very well proven model for us that it extends the growth performance of our top reps. So I think we're in very good shape around the salesforce recovery and reconstruction with about 88 total field base folks on the ground right now our plan for the year Frank.
Frank: He has to be at around 97.
Frank: Maybe we get to 197 with a mix of mid seventies are higher on the PM side, and 20 or higher on the accounts.
Frank: Account specialist side.
Speaker Change: Okay. That's helpful. Thank you and then maybe on the outlook for 2025, I'm, most curious about kind of unit versus <unk>.
Speaker Change: ASP expectation and I think if you back into the Asps. It was down in that mid teen percent range for <unk>, and then still maybe close to double digits for Prs from an ASP perspective, how should we be thinking about your assumptions for volume versus ASP to get to that 2025 guidance.
Speaker Change: Yes, so I think.
Speaker Change: To a certain extent the advent of the IH, our and our collaboration and compatibility with the robot.
Speaker Change: It's a good thing.
Speaker Change: So that we can be a full service hernia provider, but.
Speaker Change: But obviously the AHRI, England, all procedures, a hiatal procedures, they're going to be a little bit of a lower.
Speaker Change: Asps, which can affect things.
Speaker Change: And as we're transitioning from a company that was more focused on ventral and complex, which tends to be higher asps.
Speaker Change: Bigger pieces, we have to get a more fulsome approach to selling the full bag across from England or line up and perhaps we were a little bit in no man's land.
Speaker Change: <unk> the growth of the IHS and the liquid fixed products, although great are coming on and we think that they should be able to fill that gap. So if you look at Q1 Frank.
Speaker Change: We did probably I don't know half or more maybe even two thirds of some case.
Speaker Change: So far in Q1 of IHS and liquid fix that we did from April to December last year. So we may have had a little bit of no man's land as we as we transition to a more full service provider at the end of 'twenty four.
Speaker Change: We're just going to have to make it up on the on.
On the volume and I think that seems to be playing out right now thus far in Q1, and the PRA side I think we're going to see possible ASP expansion.
Speaker Change: The two new large LTR pieces.
Speaker Change: We'll be the largest tissue based matrices ever developed.
Speaker Change: And we had 30 plastic surgeons in town.
Speaker Change: For a summit meeting last weekend and I can tell you there's a lot of interest in that product as well given the shift to <unk>.
Speaker Change: Prepack and DTI type procedures.
Speaker Change: So I do think that the Prs asps will be highly stable to growing on the hernia side, we have to transition to a full service provider and then we will find a new kind of stable watermark and then grow from there.
Speaker Change: Okay, Yeah, I mean I think.
Tony: Tony said it all.
Tony: Beam is in hernia, we added some smaller pieces that have lower asps and Prs. We've added some larger pieces that have higher asps.
Tony: In both cases, they're non cannibalistic, so they're incremental to pre existing revenues.
Tony: I'll have dilutive effects in opposite directions.
Tony: Got it Okay. That's helpful. And then if I could just sneak one more and was curious if you could comment on your confidence to get to.
Tony: Breakeven with the existing liquidity, obviously, it's maybe a little bit further out now with the <unk>.
Tony: That has been a little lower than expected, but just how should we think about when that could come and your confidence around getting there with existing liquidity.
Tony: So we remain very confident.
Tony: One of the things that we've done that we began at the end of last year and that is extending into this year you can take a harder look at our expenses.
Tony: Obviously, we are signaling that opex this year should be flat to last year.
Tony: My guess is that that was not an expectation that was baked in bi.
Tony: A lot of external observers so thats a positive versus what people may have been thinking.
Tony: But we believe that <unk>.
Tony: Even with the growth of the revenues, where it is on top of that the flat opex with the potential for further potential decreases of needed in future years.
Tony: No trouble hitting profitability.
Tony: Okay. That's helpful. Thank you.
Tony: Thanks, Mike.
Tony: Thank you.
Tony: Our next question comes from Caitlin Cronin of Canaccord Genuity. Please go ahead.
Caitlin Cronin: Hey, Thanks for taking my questions I guess just to start with.
Caitlin Cronin: The revenue guidance and maybe talk to the cadence.
Caitlin Cronin: Revenue for this year, starting with the Q1 and your assumption there and going forward I mean is that kind of building in the sales ramp.
Caitlin Cronin: Sales.
Caitlin Cronin: Sales reps getting up to productivity.
Caitlin Cronin: Sure so.
Caitlin Cronin: So in certain prior years, we had salesforce is growing across the year in 2024, we started the year with the target number of sales reps, we're pretty close to the target number of sales reps right now for this year. So we're not going to see the sort of.
Caitlin Cronin: Extended growth that we saw in say 2023, but that historical cadence and so I would point to 2024 since we had to disruptions in the year that historical cadence of a good step up from the first to the second quarter, a smaller step up from the second to third quarter because of the summer holidays in North America slightly.
Caitlin Cronin: Dampen the growth and then another bigger step up from the third to the fourth quarter.
Caitlin Cronin: What would you expect to see over the course of the year.
Caitlin Cronin: With the exception that I think Q1 of this year will be as usual or better.
Caitlin Cronin: Given that given our momentum that we see thus far.
Caitlin Cronin: Got it and then just with the reps being learned away into Q4, how can you kind of ensure that that won't happen going forward any kind of new incentive programs put in place.
Caitlin Cronin: Yes, I think.
Caitlin Cronin: I think the account specialist is one of the best <unk>.
Caitlin Cronin: Ups that we have to blunt that factor right.
Caitlin Cronin: I think a team selling approach is one that frankly I think is used.
Caitlin Cronin: By many of our larger competitors and there will be relationships I think.
Caitlin Cronin: With the account specialists working on a team approach with the Tms such that if we do get a TM poached.
Caitlin Cronin: We should be able to backfill that much more quickly it's already kind of baked already.
Caitlin Cronin: Our account our our specialists. They go through the exact same training process pre training sales school and then follow up after training at our Tms do they come into the company with the expectation that they have an opportunity in an inefficient timing.
Caitlin Cronin: Manner to become Tms themselves given that they are starting from a higher vantage point from the old Associate program.
Caitlin Cronin: And we like the concept of having.
Caitlin Cronin: Our.
Caitlin Cronin: Our account specialists working that team approach and chasing a target and a quota.
Speaker Change: Give me a little bit of an anecdotal example.
Caitlin Cronin: To show how we can.
Caitlin Cronin: Combat that so at the start of this year and look we were very cognizant that if we were going to have continued.
Exited from the company it would happen by the end of January.
Caitlin Cronin: Just on win bonuses were paid out that's just I think common or traditional and we had one exceptional player.
Caitlin Cronin: Take one of these guarantees.
Caitlin Cronin: We were able to.
Caitlin Cronin: To stop them cold in its tracks and stay with US once he saw our.
Caitlin Cronin: Our enhanced commission plan.
Caitlin Cronin: And the upside opportunity that we are affording this year. So this year what we've done is we've adjusted our comp plans such that we pay more if you get close to your quota right. So if it's a near Miss you have an opportunity to keep working and make more money, whereas in the past we had a little bit more of a <unk>.
Speaker Change: Cliff, where if you missed your quota step down and commission dollars available was marked now that might have worked for us earlier, but I think if we.
Speaker Change: We have reps that are in that 90% range. They can still get their payout and that should still drive them to go forward. The other thing that we've done is we've put some significant.
Speaker Change: Upside opportunity for stretch goals in fact, we put the whole commercial team on a national yearend stretch goal, we have quarterly stretch goals for each one of the regions.
Speaker Change: And and there is extra compensation that actually sits outside of the traditional comp plans. So they can win two ways. They can win within the comp plan by getting at quota or close to it and they can really win.
Speaker Change: If they exceed and get beyond quota and theres going to be a lot of competition and.
Speaker Change: And that's going to foster teamwork across the regions and across the whole National organization for this year. We debuted this at our National sales meeting, which we did on purpose earlier. This year at the end of January and I think we stunned them with how.
Speaker Change: Awesome. The comp plan is so I think we've got a very strong morale work ethic I think it dovetails beautifully with the new go to market strategy, which is which is rolling out was really rolled out in earnest at the NSM.
Speaker Change: I think the beginnings of that work excellent in Q3, and then Q4.
Speaker Change: Is what it is but I think we're back to that feeling of where we were in Q3 and maybe even much better given these enhancements to the comp plan and everyone's just feeling great right now.
Speaker Change: Awesome and maybe just another quick one if I can sneak it in I mean, maybe.
Speaker Change: Just a little more color on that.
Speaker Change: E.
Speaker Change: Composition of the mess in Q4, I mean, how much was that really due to kind of the sales rep disruption versus.
Speaker Change: Sure Jason.
Jason: It's hard to quantify the IV shortages I think more than anything we're pretty dependent on the southeast we've got two regions in the southeast which are two of our strongest regions and just the hurricane itself probably not.
Jason: Maybe a half mill or more off the top it's hard to quantify I don't think we're hanging our hat on that if you look at if you look at where we were at the end of October when we reaffirmed guidance.
Jason: If you just do.
Jason: Percentages than just straight mathematics.
Jason: The amount of sales that we generated in Q4. So that's to say we had three strong months in Q3, and then a fourth strong months.
Jason: Before we hit the air Pocket. If you just extrapolated what November and December should have been in traditionally a strong seasonality finish quarter quarter four to the year, we were well within guidance range just based on how October finished so.
Jason: Those those departures.
Jason: Have a had a very negative effect right. So you don't know when it's coming right. So you wind up with perhaps.
Jason: Some of those reps taken their foot off the gas before they go while theyre looking while they're contemplating our next move and then certainly our products no matter how good they are still required care and feeding and servicing and selling and we had significant losses from from those from those regions.
Jason: In November and December there's just no two ways around it so I think the bulk of it was right there.
Jason: Got it thanks.
Caleb: Thanks Caleb.
Speaker Change: Thank you. Our next question comes from David Kelley of citizens. Please go ahead David.
David Kelley: Hey, good evening.
Speaker Change: Tony maybe I think you said smaller wound care companies that might approach, but I guess I just.
David Kelley: Wanted to follow up.
David Kelley: Why do you think Thats now I mean.
David Kelley: And then looking to go public is there something like like what happened at all.
David Kelley: <unk>.
David Kelley: To a head in the fourth quarter, yes.
David Kelley: Heard these stories from.
Let's call it the more established wound care companies about these organizations.
The amount of reimbursement they are driving.
David Kelley: And the amount of guarantees and poaching that theyre doing I think it was our turn right I think it has happened to some of the other players from what I understand talking to the Ceos there in the past and I think it was our turn and.
David Kelley: If for whatever reason they were receptive this time around.
David Kelley: It could be that the new go to market strategy the accountability.
David Kelley: Discipline and reporting structure that we're driving.
David Kelley: Sort of.
David Kelley: Collaborated together to make that happen.
David Kelley: When I say small companies.
David Kelley: These companies are driving just outrageous revenue I don't know if you are familiar with this.
David Kelley: So there are companies in some cases that you don't hear much about but you're pretty bang shocks. When you when you see what theyre up to I understand that theyre trying to get a handle on.
David Kelley: With reimbursement gap that seems to be exploited there. It seems like we've been talking about this for years eventually they got to catch up with it I mean, the numbers from what I'm hearing.
David Kelley: And actual reimbursement by the government on a monthly basis or just.
David Kelley: Just shooting up and so the guys are in the money there hopefully it's temporary.
David Kelley: And we had we had a bunch of folks go.
David Kelley: There's nothing really thinking about it.
David Kelley: Incentive.
David Kelley: <unk> and motivation by.
David Kelley: By income.
David Kelley: To start.
David Kelley: I get it.
And I think you threw out.
David Kelley: A lot of numbers with the Tms significantly I just want to make sure I caught this right. So, yes, 11, Tms and how many.
David Kelley: Was that the big thing or was there also reps that left.
David Kelley: That's part of it as well.
David Kelley: <unk> the.
David Kelley: Plastic surgery directors and regional manager like I said, we've been able to backfill very effectively and in a lot of cases, I think we've upgraded I'm really happy with.
David Kelley: The talent in certain areas that we've already brought in and one one again another anecdote.
David Kelley: We had two Tms go in a certain state in a certain place I won't tell you where and we brought in a real real strong Guy and we gave him a couple of account specialists. One now will get them. Another one and he's spending his time reinvigorating 11 consignment accounts that that were not producing are under pretty.
David Kelley: In comparison.
David Kelley: This new Guy who is already rising up the stack rankings and it's probably third or fourth in the company. He's been on board for I don't know if since January so.
David Kelley: This can be resurrected and rehabilitated very effectively.
David Kelley: We are a very attractive place to come work, we pay superb.
David Kelley: <unk> and now it's even better given the enhancement of the near quota and over performance bonuses that were laying out there.
David Kelley: And.
David Kelley: It's rare that you can have that type of compensation structure with a product that is so differentiated.
David Kelley: So good in terms of clinical performance.
David Kelley: And if not every day that you do.
Get the chance to change the practice of medicine for one of the most common surgical procedures done on the planet hernia repair right I mean, it's not just us.
Speaker Change: Big competitor CEO of that Big organization is out there at Investor conferences talking about we got to get permanent plastic polypropylene out of People's Bellies I think that's a quote from one of the conferences we saw somewhere.
Speaker Change: Beautiful thing for me to hear it's what I say so.
Speaker Change: Route and add on I think if we can dislocate, 80% of the market.
Speaker Change: Certainly.
Speaker Change: In line to benefit from that I would say.
Speaker Change: So there's a lot of upside to being here.
Speaker Change: Thank you for that.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Matt O'brien of Piper Sandler. Please go ahead, Matt.
Matt O'brien: Thanks for that.
Speaker Change: Questions here.
Speaker Change: Maybe just starting.
Speaker Change: Unpack Q4, and a little bit more Tony you said that things are trending well in October kind of fall off a cliff in November and December.
Speaker Change: As I'm looking at my model, it's like $5 million in light of what I was expecting 500 of that is.
Speaker Change: Yes.
Speaker Change: Hurricane related so it just seems like even with losing 11 folks that we still may have come up a little bit short does that is that the right math or not and why is that and then.
Speaker Change: In other geographies, where you didn't see dislocation what kind of growth did you see in those territories, Manitoba, yeah. So Roberto can speak to that but like I said in the script.
Speaker Change: <unk> 44 top reps were 90% or better.
Speaker Change: To their target quota plan.
Speaker Change: So where we had tenure and stability this thing works great and.
Speaker Change: Where we didnt.
Speaker Change: It stopped and we're not at scale, yet where these products sell themselves not by a long shot I wish that was the case you've got to be present.
Speaker Change: Making sure that the usage is being.
Speaker Change: Done.
Speaker Change: It's.
Speaker Change: Both November and December were just lights out on.
Speaker Change: On those departures it was like I said plastic surgery directors really good ones that.
Speaker Change: We're contributing greatly one regional manager who is fairly strong and then the rest were LTM two were $1 billion five or more right. So their growth probably even though we had four good months in a row growth probably started winding down <unk>.
Speaker Change: Unbeknownst to us they don't tell us when theyre going to go well before that so I don't think its just what they would've done in November.
Speaker Change: December I think that whole group with sort of.
Speaker Change: Took their foot off the gas a little bit and then really the procedure volume in those territories.
Speaker Change: It was fairly low and so Matt I think you're thinking about it the right way. So if you back up to the first quarter of last year.
Speaker Change: We disclosed that we had 86 Tms and six what we then called associate reps at a time.
Speaker Change: So we entered the fourth quarter was 69 Tms.
Speaker Change: And seven associates are seven account specialists now.
Speaker Change: And exited with 63, so a net decrease of six.
Speaker Change: 11 gross turnover.
Speaker Change: So we were already light and so notwithstanding that we had a strong October but had we had more heads we might have been an even stronger position coming out of October and been better able to withstand the disruption of November and December so what I'd say is that it.
Speaker Change: A head count story in the fourth quarter.
Speaker Change: Going going into the quarter lighter than we had planned to and then losing unexpectedly many more than we would've expected.
Speaker Change: And those two things together accounted for the four five or so million dollars of missed revenue yes.
Speaker Change: By no means wanted to place the blame on the Hurricane right. We lost some revenue there but our.
Speaker Change: Our two south eastern regions still did fairly well because they were two of the most stable regions, but they did lose business for sure but it was all head count related.
Okay, and then as I look at the guide for 2005.
Speaker Change: The Q1 commentary.
Speaker Change: Pretty much done with Q1 here, that's a pretty steep ramp in the back half of the sales force.
Speaker Change: The number of one or two quarter phenomenon, it takes longer than that to get up to productivity. So I guess.
Speaker Change: We are having.
Speaker Change: Is it tough trends here.
Speaker Change: Why are we not afraid of continued.
Speaker Change: Shortfalls Q2 through Q4 of this year, just given the ramp that youre that youre required to hit the full year guide.
Speaker Change: So.
Speaker Change: I'm going to start with your first comment about the.
Speaker Change: Time, it takes to get up to speed. So we have continued to do that analytic.
Speaker Change: In new territories, we are continuing to get up to speed in six months or under.
Speaker Change: When you backfill a territory, though so somebody departs and youre able to get them in quickly.
Speaker Change: Some of them quickly.
Speaker Change: As you saw in the fourth quarter, if we had.
Speaker Change: <unk> gross departures, but only six reductions were already in the process of back filling.
Speaker Change: From previous quarters, if you can get somebody in quickly they are not starting from a zero quota in their territory.
Speaker Change: They are starting from something thats not quite what the departing rep would've.
Speaker Change: <unk> had they stayed on board.
Speaker Change: But it means that you can get up the slope faster. So what youre seeing is that we as we near the target of 76 Tms in 'twenty one.
Speaker Change: Specialists.
Speaker Change: Starting from where we are today, just under $70 million in 'twenty.
Speaker Change: We should be able to get to that sort of productivity.
Speaker Change: <unk> fairly quickly.
Speaker Change: And we feel good about it.
Speaker Change: Maintaining the standard seasonality across the year. So we typically do see a good step up from the first to the second quarter.
Speaker Change: Just because of seasonality in the way surgeons and patients to schedule their surgeries.
Matt O'brien: Matt if I could add 24 was obviously a tough year up and down right we had.
Matt O'brien: Our mix of exogenous factors and internal factors Q2 was impacted pretty heavy last year.
Matt O'brien: Cyber hacking and one of our major GPO is slowing down greatly.
Matt O'brien: With that and with the departures in November and December we still pulled out about 19% growth.
Matt O'brien: So with all of the elements that I mentioned enhanced compensation, great morale, great go to market strategy.
Matt O'brien: And new stability and these account specialists working in a team structure it should blunt.
Matt O'brien: Any impact in <unk>.
Matt O'brien: <unk>, 23% to 27% growth.
Matt O'brien: It seems very doable based on how we laid out the quotas on a quarter by quarter basis I think.
Matt O'brien: By the end of Q1, we'll have the ability to see where we fall where we land in and then.
Matt O'brien: The way the rest of the year shakes out will be probably a much better tighter.
Matt O'brien: Conversation that.
Matt O'brien: Got it thank you.
Matt O'brien: Thank you.
Speaker Change: Our next question comes from Michael Sarcone of Jefferies. Please go ahead Mike.
Michael Sarcone: Hey, good afternoon, and thanks for taking the questions I'll try to keep it quick here.
Speaker Change: Just follow up on the.
Michael Sarcone: Rep attrition in the compensation.
Michael Sarcone: Understand having the account specialists in place to mitigate some of that lost sales risk I guess, what's what's the appetite to compete with any of these guarantees should they continue to manifest.
Michael Sarcone: So you have a rock.
Michael Sarcone: Territory.
Michael Sarcone: And also in the context of trying to keep Opex flat, what kind of appetite do you have there to maintain some of your highest performers well I think within reason.
Michael Sarcone: Our employees are listening to this but we will.
Michael Sarcone: We're going to do what we need to do to retain our best players.
Michael Sarcone: Just the fact that the top 44 came in at 90% or above.
Michael Sarcone: And just the fact that the old Associate Rep program was so successful for our top five performers I think we've got a lot of proof there that it's worthwhile keeping our folks in place right now we feel very good about morale and direction.
Michael Sarcone: So.
Michael Sarcone: We don't want this to happen again.
Michael Sarcone: I don't think in my career I've been doing this for 30 years I don't think Ive.
Michael Sarcone: Seeing this kind of sort of.
Michael Sarcone: Poaching.
Michael Sarcone: So concentrated before so hopefully it's a one time.
Michael Sarcone: We've put great steps in place to mitigate or blunted going forward.
Michael Sarcone: And we will do what we need to do to keep the best most stable organization on the ground, we made significant changes to our leadership and go to market strategy.
Michael Sarcone: In may or June right. So we liked what we saw a lot in Q3.
Michael Sarcone: Last two actually for the first four months there and then the last two months were what they were and we like what we're seeing now in Q1 so.
Michael Sarcone: Although the results don't look great for those last two months theres plenty of positive signals wrapped around those two months.
Speaker Change: Got it thanks, Tony I'll leave it there I appreciate it thanks, Thanks, Mike.
Speaker Change: Thank you I would now like to turn the conference back to Tony <unk> for closing remarks, Sir.
Speaker Change: Alright, Thank you everybody stay tuned for Q1.
Speaker Change: We look forward to 2025.
Speaker Change: We appreciate your interest in the company, what we're trying to do is important and meaningful and we will succeed. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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