Sanara MedTech Inc.

Q3 2022 Earnings Conference Call

11/15/2022

spk08: Good day, ladies and gentlemen, and welcome to the Sonara MedTech Incorporated Q3 2022 Earnings and Business Update. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Colin Nichols, Director of Investor Relations. Sir, the floor is yours.
spk02: Thank you, and good morning, everyone. I'd like to welcome you to Sonara MedTech's Earnings Conference Call. for the quarter ended September 30th, 2022. We issued our earnings release yesterday afternoon, and I would also like to highlight that today's deck can be found under the SEC filing section of the investor relations page of our website. This supplemental deck, as well as a copy of the earnings release and a form 10-Q for the quarter ended September 22 are available on this page. We will reference this information in our remarks today. We expect today's prepared comments from Ron Nixon, Executive Chairman, Zach Fleming, Chief Executive Officer, and Mike McNeil, Chief Financial Officer, to last approximately 15 minutes to allow time for Q&A. 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. For more information about the risk and uncertainties involving forward-looking statements and factors that could cause actual results to vary materially from those projected or implied by forward-looking statements, please see our most recent annual report on Form 10-K and our Form 10-Q for the quarter. Now, I'd like to turn the call over to Ron.
spk04: Thank you, Kellen, and good morning, everyone. In the third quarter of 2022, Sonera generated $13 million dollars in revenue, representing a 124% increase from the prior year period. Third quarter revenues included $3 million of Cyndia sales. The third quarter of 22 was another record quarter for Synera, as well as for our historical business before we acquired Cyndia. Additionally, it was also the first quarter during which the company generated $4 million of revenue in a single month. Company had a loss before income taxes of $3.2 million for the third quarter of 2022. The higher loss in 2022 was due to increased SG&A costs, higher R&D expenses, and higher amortization of our acquired intangibles. Mike will go into further detail, but our net loss after tax is $1.5 million for Q3. The lower net loss in 2022 is due to the recognition of a non-cash income tax benefit of $1.7 million in Q3 related to purchase accounting of the CINDIA acquisition. As previously discussed at the beginning of the third quarter, we completed our acquisition of CINDIA. So I could go into more detail shortly. During the quarter, we worked to integrate CINDIA into Scenaria's business, and we continue to see significant opportunities as well as synergies from the combination of the two companies we proved this combination's value through our previous cindia joint venture which led to the acquisition of the business subsequent to the end of the quarter we announced our partnership with infu system holdings we will discuss this later in the call but this partnership pairs scenario's product line and deep expertise in wound care with infu systems distribution and complex billing capabilities as well as our existing sales team and national footprint. In Q3, we delayed the submission of our precision healing imager 510K due to an electrical firmware issue that has now been resolved. We plan to file our 510K next month by the end of the year. Turning to our broader comprehensive wound and skin strategy, we continue to have discussions with a number of value-based companies and plan to launch this strategy in 2022. Now I'd like to have as I'm coming to discuss the quarter and .
spk06: Thanks, Ron. Our surgical team continues to generate strong sales growth, penetrating farther into existing customer base and also expanding into new geographic areas. At the end of the third quarter, we had a total of 36 field sales managers employed. We continue to see growth in our distributor partnerships and individuals representing our products. At the end of Q3 2022, CellRate RX was sold in 662 hospitals and ambulatory surgery centers across 28 states during the trailing 12 months, including facilities where CellRate was sold by Sendia since our acquisition of Sendia in July 2022 and was approved to be sold in 1,714 facilities. As we have discussed before, we believe there are approximately 12,000 hospitals in the ambulatory surgery centers in the United States where CellRate RX Surgical could potentially be used. Subsequent to the end of the quarter, we filed our 510K for Biosurge. This is our surgical cleanser. We believe that the product could have a significant impact both on the surgical wound care market and our sales when commercially available. As Rahm mentioned, in the third quarter, we worked to integrate Cyndia into Synera. Cyndia generated approximately $3 million in revenue for the quarter. We continue to focus on four key Cyndia products, Amplify Verified Inductive Bone Matrix, Allocyte Advanced Cellular Bone Matrix, BiForm Bioactive Multiple Matrix, and Texagen Amniotic Membrane Allograft. We believe that these products fit well with our Cellrate RX offering and could be used by our existing customers either as a standalone product or in conjunction with Cellrate RX. Turning it to our InfuSystem partnership, this is a true 50-50 partnership focused on delivering a complete wound care solution targeted at improving patient outcomes, lowering the cost of care, and increasing patient and provider satisfaction. The partnership is expected to enable InfuSystem to offer innovative products, including Cork Medical LLC's Negative Pressure Wound Therapy, NPWT, devices and supplies, and Sennare's Advanced Wound Care product line and associated services to new customers. The partnership pairs Sineris product line and deep expertise in wound care with InfuSystems distribution and complex billing capabilities, 15 sales team, and national footprint. By pairing the company's capabilities, we believe we are positioning the partnership to successfully offer a comprehensive solution to NPWT patients. Now I will turn it over to Mike to discuss our financial results.
spk03: Thanks, Zach. For the quarter, we generated revenues of $13 million compared to revenues of $5.8 million for the third quarter of 2021. represented 124% increase from the prior year period. Third quarter revenues included 3 million of Sendia sales. SG&A expenses for the quarter were 12.1 million as compared to 6.9 million for the third quarter of 2021. The higher SG&A expenses in the third quarter of 2022 were primarily due to higher direct sales and marketing expenses, which accounted for approximately 3.9 million or 75% of the increase compared to prior year. The higher direct sales and marketing expenses were primarily attributed to increase in sales volume Our sales commissions of 3.1 million as a result of higher product sales and 0.5 million of increased costs as a result of Salesforce expansion and 0.3 million of costs related to travel and operational support. We had a net loss of 1.5 million for the third quarter of 2022 compared to a net loss of 2 million for the third quarter of 2021. The net loss was positively impacted by the recognition of a non-cash income tax benefit of 1.7 million related to purchase accounting for the Sendia acquisition. Our cash at the end of Q3 was $10.3 million. With that, I'll turn it back to Ron for some closing remarks.
spk00: Ron, are you on mute? Alan, you want me to wrap that up? If you would, yes, please.
spk06: Okay. Thanks, Mike. As we've discussed, we continue to have record revenue quarters at Sedera, driven by both our sell rate product line as well as the addition of products distributed by Sendia. We believe we have positioned ourselves with InfuSystem to drive sales in the NPWT market and look forward to updating you in the future on the results of that partnership. That concludes our remarks, and we look forward to answering any questions you may have. Operator, we are ready to open the call for questions. Thank you.
spk08: Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions.
spk07: Again, I remind you to please press star 1 at this time if you would like to pose a question. Okay. Once again, if there are any remaining questions or comments, please press star 1 on your phone at this time.
spk00: Sir, there appear to be no further questions in the queue.
spk07: We do have a last-minute question from Chris Plan with Tall Pines Capital.
spk05: Two questions, if you guys could give us a little more insight and also how you folks see the opportunity to buy a surge. Sure. This is Zach.
spk06: So the NP System Partnership allows us to have a group of folks focused on the wound care space. They have a sales team that has been out selling the negative pressure. and now they're going to be selling the court system as well as our products. So certainly an approach that allows us to have people in the field. They also have a complex billing and capabilities, which is certainly necessary in the wound care space, so that should help quite a bit. In addition, they have distribution and different facilities where they can store and ship product on local levels. They have seven across the U.S., so that will help as well as we start to go into these new markets. And then transitioning, talking a little bit more. The second question, what was that one more time? On BioSurge. Oh, BioSurge, yes, sorry. BioSurge, you know, that product, like I said, the 510K has been filed. And that should, you know, take a little bit of time just kind of leaving it into the agency to approve that. And then that product is going to be sold into surgical cases. The premise is that in surgery, they always irrigate on the way into the cavity that they're working on, as well as on the way out, particularly with the hardware cases that we attend. So they do a lot of that with both orthopedics, spine, podiatry, really all of the surgical cases. And this product would go in and cleanse the area, eradicate the biofilms, and allow for a cleaner procedure and reduce the chance of infection.
spk07: Great. Thanks.
spk00: You're welcome.
spk07: And as a reminder, if you have any questions that you would like to add, please press star 1 on your phone. We do have some questions.
spk08: So we turn the floor back to Callan with those questions.
spk02: Sure, thank you. So we have some questions coming in from the WebEx. One question is for Zach. Are there any updates on publishing clinical studies on Celerate?
spk06: So we've talked a little about coming studies. We're excited to say that there are some shortly. I can't say when and I can't say by who, but I think you guys will like the studies. We've worked really hard on them and should be seeing those in the not-too-distant future.
spk02: Thank you, and next question, do you have any sense of the penetration rates of celerate inside of existing hospitals?
spk06: I think that we have a sense that it's sort of an open book. There's many surgical specialties and all are appropriate for the use of celerate in order to reduce wound complications. So the product typically can get in through orthopedics or spine is usually one of our first forays into that because that's the 1099 groups that we leverage. And then from there, it's, you know, 10, 15 additional specialty. So in any given hospital, it's quite different. So it's hard to give you one answer, but we certainly can see where, you know, many, many specialties can pick that product up and use it. And on a typical basis, they're using it, you know, about a third of the time when they have an appropriate case. Because what they're looking for is that patient that has a comorbid condition that would reduce their ability to heal. So just a very, very approximate number would be around that one-third of their cases is that way, is, you know, comorbid.
spk02: Thank you. Any sense of what percent of surgeries, but I think this is probably a similar follow-up, but any sense of what percent of surgeries Celerate is used in in some of your earliest hospitals?
spk06: I don't have a number for that. Yeah, I'd be making that up if I told you a number. I don't have that number.
spk02: Okay. As Celerate into hospitals, ASDs become harder and a difficult operating environment for hospitals.
spk06: There's always complexities, but it has not become harder. In fact, the doctors and facilities are looking for solutions to help their patients. You know, they're having to see these patients that are, like we just said, highly comorbid, and so they need to be able to have solutions to help them heal as well just to avoid complications. So same story as always. It's no more difficult now than ever.
spk02: Next question, what are important... drivers of increasing utilization within existing hospitals?
spk06: So it's adoption in training. So for us, we have to get in access to the hospital, certainly find that initial supporter, and usually a physician that would take our product to the value analysis committee and gain approval. and then from there it's our our regional sales managers and territory managers have to go in and begin to train and spread that word to these additional surgeons and we do that through different uh promotional activities but as well in servicing and servicing means you're standing and doing some training usually in the operating suite and then this is the last question that i have uh from the webex could you update us on how the pilots with home health agency went
spk02: Is there a market fit there?
spk04: Yeah, and I'll take that, Zach, if you would like. So the pilots that we've been doing in home health care have shown us that having the complete comprehensive strategy is going to be of great value. And we have seen that the ability of us to be able to link our specialist with a provider have added value in terms of knowledge at the bedside so that they get better care. And so we have high expectation when our imager comes out that that's just going to give us more data at the wound bed in order to be able to make better decisions.
spk07: Our next call-in question comes from Ian Castle with IFCM.
spk01: Thanks for taking my questions. Maybe my first question was on the negative pressure side, you know, either Zach or Ron or whoever, I'm just curious if you could kind of highlight that market opportunity. How big is negative pressure as a percentage of the acute wound care market? And, you know, who are the large players there? And maybe, you know, how are you and Infuse and Cork Medical's product differentiated, if at all?
spk04: Yeah, so I'll be happy to take that one in. Negative pressure is a very large part of the acute wound care space. And it's been dominated by KCI, which is part of 3M, and it's in the middle of . And KCI has always been . But there's a big post-acute market that is in the hospital setting. But in the post-acute market, there are many players in that segment as it goes down through skilled nursing facilities and home health, et cetera. And so we see it as a very large market. I think that the overall NPWT market is probably close to two billion, somewhere between a billion and two billion, if you look at the worldwide stats. But what we know is there's been many instances where negative pressure is a very good therapeutic device. for advancing wound care. And we believe with some of the products that we've got at Senera, such as our antimicrobial and our hydrolyzed collagen, that that will actually, in combination, produce even better results. And so that's what we're focused on. As you know, Ian, our long-term focus is always about lower overall cost and improving outcomes.
spk01: Thanks for the color on that. The next question is, was there significant integration expense with integrating Sendia, that acquisition during the quarter? And maybe a follow-up to that initial question would be, are there other kind of accelerate distributors that are out there that would be good acquisition targets for you guys?
spk04: It's hard for us to speculate on that, you know, Ian. It kind of unfolds as it unfolds. We're always in conversations, and we're always looking for ways to expand what we do, either geographically, product-wise, or technology-wise. But in a call like this, we really expect it.
spk01: Maybe the last question. I know in the previous call you mentioned your goal is to be cash flow break-even by the end of Q1 of 23. Is that still the goal?
spk04: It's still the goal.
spk01: Thank you.
spk08: Thank you, Ian. There are no remaining questions in the queue. Do our hosts have any closing comments or thoughts they would like to finish with?
spk04: I would just like to thank everyone for joining us on our call, and we appreciate you being our shareholders, and thank you for all the support. Take care.
spk06: Thank you. Bye-bye.
spk08: Bye. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Disclaimer

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