Q1 2025 TELA Bio Inc Earnings Call
Okay.
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Tela Bio first quarter 2025 earnings conference call.
Speaker Change: At this time all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session. Please be advised that today's conference is being recorded I would now like to turn the conference over to Lisa Smith from Gilmartin group.
Speaker Change: Sure.
Speaker Change: Thank you Gerald and good afternoon, everyone earlier today Tela Bio released financial results for the first quarter 2025, a copy of the press release is available on the company's website.
Speaker Change: Joining me on today's call are Tony called Walsh, President and Chief Executive Officer, and Roberto Cooker, Chief operating Officer, and Chief Financial Officer.
Speaker Change: Before we begin I'd like to remind you that during this conference call. The company may make projections and forward looking statements regarding future events.
Speaker Change: We encourage you to review the company's past and future filings with the SEC, including without limitation the company's annual report on Form 10-K.
Speaker Change: And he reports on Form 10-Q, which identify the specific factors that may cause actual results or events could differ.
Speaker Change: For materially from those described in these forward looking statements.
Speaker Change: These factors may include without limitation statements regarding product development and pipeline opportunities.
Speaker Change: <unk> potential.
Speaker Change: Fact of various macroeconomic conditions identified in our filings like changes in surgical procedural volume and regulatory environment.
And marketing strategies capital resources or operating performance.
Tony Walsh: With that I will now turn the call over to Tony.
Tony Walsh: Thanks, Louisa and good afternoon, everyone. Thank you for joining <unk> first quarter 2025 earnings call.
Tony Walsh: I'll begin by reviewing the quarter and the factors that drove performance then I'll turn it over to Roberto for a more detailed review of the financials and our outlook and share some closing thoughts before opening it up for your questions.
Tony Walsh: We generated $18 5 million in revenue during the first quarter, representing 12% growth over the prior year and 5% sequential growth over the fourth quarter of 24 in Q1, we saw strong demand for both the tax and other tax prs reinforced tissue matrix products with revenue per each growing approximately 15%.
Tony Walsh: And 2%, respectively, with Prs coming off a particularly strong performance a year ago.
Tony Walsh: Additionally, we were very pleased with the continued strength in our European business with 17% growth over the first quarter of 2024, reflecting what we believe to be an exact sexually attractive ex U S opportunity for color moving forward.
Tony Walsh: Based on its performance the strong morale of our commercial organization and our continued confidence in our performance. We are reaffirming our 2025 revenue expectation of 85 to 88 million representing growth from 23% to 27% over full year 'twenty for.
Tony Walsh: Let me provide some more insight into the continuing improvement and evolution of our commercial organization, we've seen real effectiveness from our new territory manager or TM.
Tony Walsh: Specialist or asset structure, which has already yielded quality results and show signs of further potential upside.
Tony Walsh: As of this week, we have 70 territory managers and 22 account specialist across our region and we plan to further augment these numbers with particular focus on the TM, including by fostering talent from within the organization.
Tony Walsh: Improved training program gives us confidence that all new reps will be able to hit the ground running and contribute meaningfully within the first quarter or two of hiring.
Tony Walsh: Year to date, we have trained a total of 25, new sales team members, comprising 11 and 14 assets.
Tony Walsh: We have seen very positive results across all of our training as we get the new reps into the field and have observed that the assets have shown great enthusiasm. In addition to strong product and clinical knowledge based on internal assessment, we conducted as part of our enhanced training program.
Tony Walsh: The new structure with ambitious assays will allow <unk> to further expand their networks, while simultaneously staying in front of existing accounts and driving sales. Furthermore, in the event that a TM depart the company.
Tony Walsh: And in place Aaas enabled continuity and account coverage, helping ensure customer relationships are maintained and business momentum is preserved.
Tony Walsh: We also continued to see positive dynamics, playing out within the broader hernia market with a shift away from plastic mesh and towards more natural repair products.
Tony Walsh: As to our benefit that the industry is transitioning away from permanent synthetic mesh and we continued to be strongly positioned to capitalize on this shift.
Tony Walsh: <unk> is equipped with strong and consistent clinical data showing the clinical value of this portfolio of products and as a result, we continue to gain market traction in this quarter. We reached over 69000 architect hernia implantation since inception, and overtake IHI, our annual Equifax has seen great momentum with over one.
Tony Walsh: $1 million, each and sales since the launch of 2024.
Tony Walsh: We remain committed to bringing new and complimentary products to market and we recently announced the launch of two larger sizes of our older Tech Prs product, which has the potential to simplify more complex plastic and reconstructive procedures.
Tony Walsh: Surgeons will no longer need to feature smaller pieces together for Houston larger applications, increasing their or efficiency, reducing costs and establishing <unk> as a premier repair solution with one of the broadest offerings for surgeon needs.
Tony Walsh: Year to date, we have presented the benefits of our product in front of more than 5000 surgeons globally with deep engagement of more than 500 surgeons through 'twenty five industry and <unk>.
Tony Walsh: The meetings to cadaver lab, numerous educational dinners and Webinars alive third recent podium and two standing room only industry symposia, one in the U S and one in Europe. We also hosted our third annual plastic and reconstructive surgery innovation summit, bringing together, leading surgeons to advanced techniques.
Tony Walsh: Bath tissue reconstruction.
Tony Walsh: Also of note we participated in the prestigious intuitive connect meeting in April attended by nearly 1000 surgeons in our space, where we were headlined as one of the three top sponsors and one of only 14 invited industry and attendees.
Tony Walsh: We were also the exclusive sponsor of the general surgeon welcome reception for the meeting including an overtaxed.
Speaker Change: IHI, our test drive and the da Vinci XI workstation with Dr. Paul <unk>, Jackup, Indiana Hernia centre, a longtime older Tech user and Tela bio key opinion leader and faculty member.
Speaker Change: Before I turn the call over to Roberto to review, our financials I'd like to address the current tariff environment and our exposure.
Speaker Change: As it stands today, there is a 10% tariff applied to products shipped into the U S from New Zealand, which is where the vast majority of our products are manufactured.
Speaker Change: Our long term supply and license agreement the tariff is shared equally by us.
Speaker Change: And the manufacturer because of the relatively modest acquisition prices of our products, we expect that our share of the tariff will negatively affect our gross margin by no more than 50 to 100 basis points. Additionally, we are working with our partner and collaboration to further reduce the tariff impact.
Speaker Change: By shipping products for example, intended for Europe directly to our distribution facility there rather than via the U S. As we've done historically.
Speaker Change: I will ask Roberto to view, our financial in more detail.
Speaker Change: Thanks, Tony.
Speaker Change: As you mentioned revenue for the first quarter of 2025 increased 12% year over year to $18 $5 million with revenue from <unk> growing 15% and <unk> Prs revenue growing 2% for the year.
Speaker Change: This growth was primarily due to an increase in unit sales of our hernia products, resulting from the addition of new customers and growing international sales overall.
Speaker Change: <unk> unit sales grew 29% for the quarter, while Prs unit sales declined slightly <unk>, 3% for the quarter. After an unusually strong first quarter in 2020 for stronger Asps for Prs offset this effects to provide incremental prs revenue growth year over year.
Speaker Change: Gross margin was 67, 6% for the first quarter compared to 68, 3% for the prior year period. The decrease was primarily due to excess and obsolete inventory adjustments as a percentage of revenue, which resulted from the introduction of newer generation products. This year.
Speaker Change: Sales in manufacturing sales and marketing expense was $16 6 million in the first quarter compared to $17 5 million for the prior year period the decrease.
Speaker Change: This was primarily due to lower compensation costs from a decrease in head count and lower consulting and travel expenses, which were partially offset by higher commission expense on an increased revenue base.
Speaker Change: General and administrative expenses were $3 $8 million for the first quarter compared to $3 8 million in the prior year period.
Speaker Change: R&D expense for the first quarter was $2 5 million.
Compared to $2 $4 million in the prior year period.
Speaker Change: Loss from operations was $10 5 million in the first quarter of this year compared to $4 8 million in the prior year period. The difference was largely attributable to the recognized gain of $7 6 million from the sale of the <unk> product line in the first quarter of 2024.
Speaker Change: Net loss was $11 3 million in the first quarter compared to $5 $7 million in the prior year period. Similarly affected by the sale of the <unk> product line last year.
Speaker Change: We ended the first quarter was $43 $8 million in cash and cash equivalents.
Speaker Change: We are reiterating.
Speaker Change: In fact guidance, which anticipates revenues to range from $85 million.
Speaker Change: $8 million Rep.
Speaker Change: Representing growth of 23% to 27% over the full year 2024, we also expect that operating loss and net loss will decrease over the course of the year and will be lower in 2025 and 2024, we expected operating efficiency improvements will result in 2025, opex being flat compared to 2024.
Speaker Change: That I will hand, the call back to Tony for closing remarks.
Speaker Change: And thank you Roberto looking ahead in 2025, we are positioned very well coming off of a strong first quarter. After recalibrating, our commercial organization to adjust to market dynamics and position us for success moving forward. We have the momentum to continue meaningful growth other tax is a truly differentiated solution.
Speaker Change: And as the world moves away from plastic mesh Ela is emerging as a leader with a clinically validated portfolio to support that ship.
Speaker Change: Finally, I'd like to thank all those at the company who contributed to our success. This quarter your commitment to increasing utilization of our exceptional product is making positive difference in people's lives around the world.
Speaker Change: With that I'll now ask Jeremy to open the line for your questions. Please.
Jeremy: Please go ahead.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Frank: Our first question comes from Frank <unk> from Lake Street capital markets. The floor is yours.
Frank: Great. Thanks for taking the questions. Congrats on a nice rebound in getting back to double digit growth I was hoping to ask one first on kind of cadence of revenue through the back half of the year going to see a strong start and good to hear you have got 25, new reps trained year to date, but what are really the key factors to continuing sequential growth through the end.
Frank: For the year and maybe any color on the cadence of that revenue would be helpful as well.
Frank: Okay.
Tom: So I'll start and Tom can jump in so.
Tom: Last year, we had a somewhat unusual year with disruptions in the second and the fourth quarter.
Tom: It was a historical precedent precedent last year isn't very very helpful. But if you look at the three years prior they all have very similar cadences, which we've talked about with investors in the past.
Tom: So we tend to have a bigger step up from the first to the second quarter, a smaller step up from the second to third quarter effected in large part by the summer holidays in North America, and then a bigger step up again from the third to the fourth quarter and we expect to see that pattern recapitulated. This year coming off of the first quarter that we just had.
Tom: <unk>.
Tom: <unk> that <unk> seen and the growth from quarter to quarter. It's just continued traction by our reps.
Tom: All of the reps quarter's increase.
Tom: Quarter to quarter throughout the year.
Tom: And.
Tom: With the introduction of our new asset class.
Tom: Our associate sales reps.
Tom: Assistance.
Tom: Revenue capture or share capture at practices.
Tom: Allows for the reps to continue focusing on getting new physicians using the product.
Tom: Having that growth.
Tom: Yes, I mean I'll add that the.
Tom: The Aaas program, although new.
Tom: Yes.
Tom: Is working quite well in tandem with our territory managers. So I think what you have to think about is if you look at our top 10 top 15 reps that have asses their growth is re accelerating and theyre getting stronger and stronger and stronger.
Tom: And then the presence of Eas is allows us to deal with what I'll call sort of the natural ins and outs.
Tom: The sales force much more efficiently without scrambling and without losing coverage. So there is a very strong element of offense.
Tom: Capability with the combination of these two types of selling entities and also a very strong defensive strategy as well.
Tom: So overall yields for a more stable environment for us to work through for 2025, we had to make a lot of adjustments. The last couple of years, along the way and we don't plan on doing that this year. So the name of the game at the street level is stability.
Tom: Adding strength.
Tom: And just driving the message like we know that we can.
Tom: We feel that our products stand up to the test of time, they deliver and we just got to keep at it.
Tom: Long process is a marathon, it's not a sprint and now we get measured quarter to quarter, but we feel great and our commercial team. Most importantly feel great coming out of an exceptional performance in Q1.
Tom: And they have a lot of confidence going forward.
Tom: That's helpful.
Tom: And then maybe on the competitive hiring front, obviously thats what impacted the fourth quarter numbers any changes in that dynamic have you seen.
Tom: Seen any more of the competitive hiring trying to come into your organization or do you feel that's kind of stabilized at this point and obviously that the aaas.
Tom: Some of that but any color there yes.
Tom: Yes, I am going to call it stabilized, but I think the real.
Tom: Message and description of it is back to a more natural process right where.
Tom: The ins and outs are more based on performance and.
Tom: And those types of things of course.
Tom: Our sales force in a super strong theyre, probably coveted by many of these companies, but I think we've done a great job of bringing morale back and create a stable environment and.
Tom: It's going to do a little commercial for the company. This is a fantastic place to work for all of our employees, but especially our commercial employees right. So we offer products that are game changing innovative backup and supported by great clinical data that is a dream for a commercial organization that product.
Tom: Do what we say they will do.
Tom: We have an exceptional incentive compensation program that commissions here are best in class.
Tom: So there is a lot of financial success possible for our commercial organization, which is great for them in their career development.
Tom: And their families. So.
Speaker Change: <unk> benefited not only is all of that curve, but you look at hernia for example, well over $1 billion market and.
Speaker Change: It's a procedure that may be one of the top number it's top of our surgical procedures in the world in terms of performed performing an incident.
Speaker Change: And we have an opportunity to be the catalyst for change right, 80% of the market is still polypropylene mesh and and it's obvious by the large players that.
Speaker Change: We are very anxious and interested in shifting away from that technology. Their solution is a resorbable polymer product our solution as a reinforced tissue matrix. So there's only so many solutions in a post or minimal polypropylene market and.
It's not every day you have a great opportunity great products, Great company to work with but also do something thats right for people for society for cost.
Speaker Change: And to change that practice.
Speaker Change: Very highly performed procedure and the Prs business isn't that much different it's about $1 billion market as well our products are standing up well our clinical data that is emerging there is exceptional also and there seems to be a great interest in moving away from cadaver skin in that market Theres a lot of interest in resorbable polymers.
Speaker Change: And RPM.
Speaker Change: Alex like we have so to a certain extent the dynamics and $2 billion plus market are just really excellent and situated well for us over the long haul.
Speaker Change: Got it that's helpful I'll stop there congrats again and.
Speaker Change: We look forward to addressing thanks.
Speaker Change: Thanks, Greg.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from Michael Sarcone of Jefferies. The floor is yours.
Michael Sarcone: Good afternoon, and thanks for taking our questions here.
Speaker Change: Just to start maybe.
Speaker Change: For clarification on <unk>.
Speaker Change: Tariff impact on gross margin you said 50.
Speaker Change: At 200 basis point I'm wondering if you could give us a little more color on when specifically do you think that could impact your gross margin this year and in that context, maybe help us think about gross margin phasing through the year.
Tony Walsh: Sure I'll start and Tony can jump in so.
Tony Walsh: The first shipments that would be affected by the new tariff or have just come in in the past couple of weeks. So obviously that didn't affect the just closed the first quarter.
Tony Walsh: We expect to see some of that starting to affect the second quarter and then.
Tony Walsh: Depending on whether that actually goes through our sales process and then product.
Tony Walsh: Eventually phase through into the third and fourth quarters, as we consume existing inventories and youll start seeing that product up here.
Tony Walsh: Our gross margin.
Tony Walsh: So it'll be a gradual shift towards that negative five two.
Tony Walsh: 1% effect on gross margin.
Tony Walsh: Over the course of the second and third quarters.
Tony Walsh: As far as the timing of.
Tony Walsh: Gross margin.
Tony Walsh: <unk>.
Tony Walsh: We tend not to.
Tony Walsh: Order as much inventory in the fourth quarter of the year because of the end of year holidays, and then stock up a bit more in the first quarter.
Tony Walsh: The charge, we have to take for potential obsolescence.
Tony Walsh: That negative impact is greatest in the first quarter and you tend to see that the <unk>.
Tony Walsh: Gross margin improves over the course of the year so.
Tony Walsh: So we expect to see that sort of pattern continuing slightly blunted by the effects of the tariffs.
Tony Walsh: Yes.
Tony Walsh: Ill add to that is.
Tony Walsh: We have an excellent partnership with the rollout.
Tony Walsh: And very collaborative relationship and.
Tony Walsh: So far into the future we are both dedicated to working well together.
Tony Walsh: To manage the impact of this.
Tony Walsh: We do have.
Tony Walsh: Some levers as we discussed.
Tony Walsh: Their remarks to to adjust some things and we will be taking a look at that as well as we go along through this process and we see how long the tariff tariffs last as well.
Tony Walsh: That's very helpful color. Thank you.
Tony Walsh: And Tony to your point totally get it that we don't know about the sustainability of the tariffs but.
Tony Walsh: To the extent.
Tony Walsh: This does it get resolved and.
Tony Walsh: The near term is there a way we should think about the potential impact in 2026 is it fair.
Tony Walsh: Kind of annualize the impact from 2025 and consider that maybe a worst case scenario.
Tony Walsh: I continue to think about it is that somewhere in between the 50 and 100 basis points, where the negative effect is going to settle out on our.
Tony Walsh: Going forward to stable basis.
Tony Walsh: So once you see the amount that's affected us in the second and third quarters.
Tony Walsh: <unk> out that slight discounts.
Tony Walsh: 2026 makes sense.
Tony Walsh: Yes.
Tony Walsh: Got it thank you.
Tony Walsh: Thanks, Mike.
Speaker Change: Thank you for your question again as a reminder, if you'd like to ask a question. Please press star one on your telephone.
Speaker Change: Our next question comes from Caitlin Cronin from Canaccord.
Speaker Change: As yours.
Speaker Change: Hey, guys, it's Mikael on for Caitlin and thanks for taking the question.
Speaker Change: You noted the bundling situation that GPS and being capped at 20% of volume share certain hospitals.
Speaker Change: Can you just talk about how that's playing out and if you've started working with GPS to potentially reclassify your products into their own category maybe to address the gap.
Speaker Change: Yes, so I think what we're doing there is.
Speaker Change: Just basic blocking and tackling we have too.
Get more surgeons using our product in any facility you can imagine if you've got five or 10 surgeons and you only have one or two using the products it's harder.
Speaker Change: To justify your position there so focusing on getting more surgeons in each facility up and running is Paramount and critical you just get harder to lever out and again this is <unk>.
Speaker Change: Hansen pivot to this TM as selling situation I think works very well for us our TN can do what they do best which is get it set up and move from place to place in our AF is Ken can stay put and make sure that they are working a broader number of customers potentially in each hospital.
Speaker Change: All and be present.
Speaker Change: If any of those kinds of activities start happening so again, a little bit of offense in a little bit of defense I.
Speaker Change: I think we've got a sales configuration at this point that it served us well.
Speaker Change: For managing that better than we have in the past.
Speaker Change: That's great. Thank you.
Speaker Change: Thanks Tahira.
Speaker Change: Thank you for your question.
Speaker Change: One moment please.
Speaker Change: Our next question comes from David <unk> from citizens JMP go ahead.
David: Okay, Great can you guys hear me.
Speaker Change: Got you Dave.
David: Alright. Thanks.
David: Just looking at the guidance for the year and then how the quarter played out between Prs <unk>.
David: Can you give us your updated expectations on sort of the growth rate for those two.
David: Maybe on the annual basis, or how that might shift moving forward.
David: So <unk> as you know launched more recently and so its earlier in its growth cycle. So.
David: So we have historically seen it in past years other than when there's been disruptions growing faster than <unk> and we can see we expect to continue to see that although as with all launching products that growth rate is going to slow a bit.
David: But we do expect.
David: To see good growth from both products with them a bit more growth from Prs.
David: Yes, and I'll, just remind everyone that.
David: <unk> has a higher ASP.
David: It's probably more sensitive given that back to the types of procedures that you see in a particular quarter.
David: Whether large sizes are smaller sizes are required. So there is that there is a bunch of moving parts with the Prs business, but overall as Roberto said, we are very bullish on the prospects for that set of products going forward and we continue to add to the product portfolio. So right now we have three implant configurations.
David: Theres, probably a fourth one coming at some point next year.
David: We have and comparisons to competitors the broadest range of products, there that can be tuned for different surgeon preferences and different patient needs, whether it's a niche like super sized pieces or or just different technique variants, whether they be revisions are primaries et cetera. So I think.
David: The scope.
David: And capacity of our product portfolio is going to get better and better.
David: I will separate us from competition as well.
David: So you really do you view this as like kind of a one off I know you mentioned the tough comp but that negative three.
David: We shouldnt be thinking that.
David: That happens again.
David: Just to reiterate that was on volume rather than on revenue revenue did grow.
David: Sure.
David: Got it thanks.
David: Got it.
Tony Walsh: Thank you for your questions. This concludes the question and answer session I would now like to turn it back to Tony.
Tony Walsh: For CEO for closing remarks. Thank you. Thank you Daryl and thank you to everybody who.
Tony Walsh: On this call I want to really think so.
Tony Walsh: <unk> employees.
Tony Walsh: We came out of the.
Tony Walsh: The gate this year strong with great morale, we had an excellent national sales meeting, where we rolled out many of these pivots and adjustments and it looks like we did a lot of the right things and I just wanted to say I am grateful to there.
Tony Walsh: Persistence and their patience and hard work and I look forward to continuing to execute well the remainder of the year at the end of the last call in the Q4, I said, we would snap back and hopefully you're getting a sense that we are in the process of snapping back but with that thank you have a great evening I know, it's a busy alright.
Tony Walsh: Alright.
Tony Walsh: See that path.
Tony Walsh: Sure.
Speaker Change: Thank you. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Tony Walsh: Okay.
Tony Walsh: Okay.
Okay.
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Tony Walsh: Yes.
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Tony Walsh: Okay.