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spk00: Good morning and welcome to the Cenara MedTech, Inc. first quarter 2023 results and business update conference call. At this time, all participants are on the listen-only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to Callan Nichols. Please go ahead.
spk01: Thank you and good morning, everyone. I'd like to welcome you to Cenara MedTech's earnings conference call for the quarter ended March 31st, 2023. We issued our earnings release yesterday afternoon, and I would like to highlight that we've posted today's deck on the investor relations page of our website. This supplemental deck, as well as a copy of our earnings release and the form 10-Q for the quarter ended March 31st, 2023, 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 and 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 risks 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. Now, I'd like to turn the call over to Ron.
spk08: Thank you, Callan, and good morning. In Q1 2023, scenario generated $15.5 million in net revenue, representing a 99% increase from the prior year period. The first quarter of 2023 was another record quarter for Scenera, and March was the highest sales month in the company's history. We continued to see strong growth and accelerate sales, as well as increased sales from the products we licensed from Koch Biotech. Sales at Scendia were flat from Q4 to Q1 due to a stock out of Alisite product, which we'll discuss in greater detail later. The company had a net loss of $1.2 million compared to a net loss of $3.2 million for the prior year period. The lower loss was driven by higher sales and a change in the fair value of our earn-out liabilities. On March 16, 2023, we submitted to FDA a 510 pre-market notification for our precision healing multispectral imager. Zach will go into more detail on the imager's capabilities, but we believe that it's a critical component of our value-based strategy. Subject to the end of the quarter, the company received 510 clearance for BioServe's advanced surgical solution. This product, which was developed by our team at Rochelle, is expected to commercially launch in 2023. As we mentioned on our previous call, in the first quarter, we entered into a sales agreement with Cantor Fitzgerald for an ATM offering of our capital stock. We entered into this agreement for two purposes. The first was to raise capital for opportunistic partnerships and acquisitions, and the second was to increase the liquidity of our common stock. We currently intend to use the net proceeds we received from this offering to potentially fund acquisitions, further development of our products and technology pipeline, as well as clinical studies, Salesforce expansion, and for general corporate purposes. During the quarter, we chose to utilize our ATM, and over the course of 17 trading days, we received approximately $1 million in net proceeds. Sales were paused at the end of Q1. We could potentially reactivate the ATM if and when the management and board determined it's appropriate. Now, I'd like to ask Zach Fleming to discuss our business in more detail. Thank you.
spk06: Thanks, Ron. Our surgical sales team continues to generate strong sales growth, penetrating further into our existing customer base and also expanding into new geographic areas. During the trailing 12 months ended March 31st, 2023, our products were sold in over 800 hospitals and ambulatory surgery centers across 30 states, And as of March 31st, 2023, our products were contracted or approved to be sold in over 1,800 facilities. In the first quarter, we continued to experience supply issues with the Allisite product line. The amount of qualifying eligible donor tissue was significantly impacted due to donor screening requirements. During the first quarter of 2023, we were unable to fill certain orders for this product, which negatively impacted our sales. We do not anticipate a full resolution of the supply issues until the second half of 2023. that we are continually looking at options that would shorten this timeline. As Ron mentioned, subsequent to the end of the quarter, we received FDA clearance for BioSurge, our surgical cleanser. We plan to launch this product in late 2023. The exact timing of the launch has been impacted by supply issues related to sterile bags. We are currently scheduling manufacturing runs and developing our marketing plan. Turning to our multispectral imager, As we have said before, this is a key part of our strategy targeting value-based care. The imager allows clinicians to view and digitally record multispectral and white light images of a wound, measure and digitally record the size of a wound, view and digitally record images of fluorescence emitted from a wound when exposed to an excitation light, and view and digitally record thermal images of a wound. With these pieces of data, clinicians can begin to understand what is taking place in a wound and start to develop an appropriate care plan. Additionally, over time, as more and more data is collected, the company expects it will be able to use predictive analytics to suggest appropriate treatment plans. In summary, we are on plan through the first quarter. We are continuing to expand distribution. We are adding focus, including two new specialties, into our call patterns, and we are always evaluating the performance of our team and upskilling and training. We are continually gaining more approvals, and we are continuing to add additional studies that will separate us from competition, and we believe that clinical evidence will help us achieve our goals for 2023. With that, I'll turn it over to Mike McNeil to review our financials.
spk02: Thank you, Zach. For the quarter ended March 31st, 2023, Sonera generated net revenues of $15.5 million compared to net revenues of $7.8 million for the quarter ended March 31st, 2022, a 99% increase from the prior year period. Net revenues the first quarter of 2023 included 3 million of sendia sales sga expenses for the quarter ended march 31st 2023 were 13 million compared to 9.4 million for the same period in 2022. our first quarter sgna expenses included 1.4 million of costs related to sendia operations the higher sgna expenses in 2023 were primarily due to higher direct sales and marketing expenses which accounted for approximately $3.4 million, or 95% of the increase compared to Q1 of 2022. The higher direct sales and market expenses were primarily attributable to an increase in sales commissions of $2.9 million as a result of higher product sales and $0.5 million of increased costs related to Salesforce expansion and operational support. We expect our SG&A expenses to continue to decline as a percentage of net revenues as our sales growth outpaces costs of Salesforce expansion and corporate overhead. R&D expenses for the quarter ended March 31, 2023, were $1.3 million compared to $0.2 million for the same period in 2022. The higher R&D expenses in 2023 were primarily due to costs related to the precision healing, multispectral imager, and LFA for assessing patient wound and skin conditions. A change in the fair value of our earn-out liabilities resulted in a benefit of $0.5 million for the quarter ended March 31, 2023. The decrease in the fair value is due to a change in the discount factor utilized in our evaluation models, a decrease in the projected amounts to be paid, as well as adjustments to the projected timing of the payments to be made. For the three months ended March 31st, 2023, we had a net loss of $1.2 million compared to a net loss of $3.2 million for this first quarter of 2022. Our cash on hand at March 31st, 2023 was $7.3 million. With that, I'll turn it back to Ron for closing remarks.
spk08: Thank you, Mike. As we've discussed, we continue to advance the growth of our Celerate product line as well as the addition of our non-Celerate surgical products that we market through our distribution network. So far in 2023, we have continued advancement in the area of innovation with the 510 submission for our imager and the 510 clearance for BioSurge. That concludes our remarks and we look forward to answering any questions you may have. Operator, we're ready to open the call for questions.
spk00: Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Ross Osborne with Cantor Fitzgerald. Please pose your question. Your line is live.
spk05: Hi, guys. Congrats on the quarter. And I apologize. I've been juggling a couple of calls in case these have been addressed. But starting off, could you just walk through the commercialization plan for BioSurge and level of inventory you have in order to meet demand upon launch? Sure, Zach.
spk06: Yeah, I can take that question. Of course, we're having meetings on that daily. Our current plan is we do have – some product that is not available for sale. We'll do some, we're doing trials with doctors so they can get a preview of the product and give us feedback. We are going to optimize the plan, but essentially when the product becomes available late this year, we will launch to our team with a training, and then the team will, you know, kind of attack it. Very similar to Celerate in the respect that they'll need to go gain approvals. We do have contracts out there that we believe will be able to tack on this product to those approvals, essentially because we're an approved vendor. you can add products to that vendor relationship with the hospital. That isn't always the case, but it is oftentimes. And then from there, it will be a training and gaining doctor's approval to start to use, very similar to what you probably guys know about Celerate. And then products, we should have no problem with supply at the point where we have these bags. So we just need to, as I mentioned in the call, we just are waiting on these bags that the product resides in.
spk05: Okay, great. And I guess as far as market awareness, is this something you're going to have to go out and educate physicians on, or do you think it will be adopted pretty quickly after what I imagine is not a too difficult training process?
spk06: On market research, it shows that the doctors are familiar with this category, and I think they're very open to using this type of product. In the historical sense, there's been sort of a doctor's cocktail created that the doctor created out of antibiotics and saline or something of a similar nature. And then over the years, a few products have entered the market to start to normalize and make it more consistent. And I think they look for a consistent result with scientific backing. Our product, of course, has that. It is the sister product to our wound product, which is known as Biocos. Biocos has a lot of data as well. So we're coming to the market with data, and I think that's going to help sell it. And as you mentioned, it's not a high curve. It's a standard practice to irrigate the wound on surgery, both on the way in to the surgical site and also on the way out of the surgical site.
spk05: Very great. And then lastly, can you provide some more color on your ability to drive higher sales per facility? Is this a function of higher utilization of seller rate at existing facilities, or have you seen more facilities adopt more than one product?
spk06: I think it's all the above. So, you know, we mentioned right there in the summary comments I had, which were driving more doctor usage of different specialties. So, we're finding additional specialties within a facility that find utility out of Celerate and or our other products. We do have a nice suite of products that solve a lot of problems that for multiple specialties, the Forteville Phi line, as well as the Bone Biologics line. and bone synthetics. So all those products really lend themselves to a bunch of different specialties, a bunch of different surgeries. So you have both occurring that you mentioned, which is, you know, more products used by an individual surgeon and more surgeons using. So that's kind of the combination that we're seeing out there and why we're seeing more per facility.
spk08: Yeah, and Ross, I would add to that. There's one other thing is that as we go get a foothold into a new market for us, as you can see, we continue to expand our market state by state. As we get that foothold and we start to get the approvals and we get a vast number of approvals when the geographic region that we're going after, then we can go with the territorial manager to have much more penetration daily in that site. And that's why you're never going to see this as just a pure linear. It happens to be linear at this moment. But as we continue to expand to be in all 50 states, as we want to be, you're going to continue to have these deals where you get your foothold, you get your territorial managers that are going in there daily to penetrate, and then the movement to these new specialties, as Zach said, is going to be paramount. And we see numerous specialties that will benefit from our products.
spk05: Perfect. Thanks for taking my questions and congrats again on the quarter. Thank you.
spk00: Your next question is coming from Michael Liu with IFCM. Please pose your question. Your line is live.
spk04: Hi, everyone. Thanks for taking my questions. So maybe my first question is it seemed like in the quarter you made a lot of progress towards getting to profitability. I think you were close to cash flow neutral before working capital. I'm curious if you think that this the business as it continues to grow is you know profitable and cash flow positive as you got it to in the past going forward or if you know it'll continue to oscillate based on when you do hires and r d and stuff like that yeah michael i'll take that as mike mcneil pointed out earlier we continue to get leverage on our fixed costs and leverage on our gna
spk08: So our goal is to absolutely be profitable even in the existing way we are with our structure having the post-acute strategy as well.
spk04: Great, thanks. And maybe just about revenue in Q1, it seems like there wasn't too much sequential growth over Q4. And then I know you talked about in the past focusing more on penetrating existing hospitals rather than getting new approvals. I'm curious if you're just shifting a little bit now towards focusing on profitability like you're talking about versus growing as fast as before or if it's just normal seasonality and you think you can continue to grow at past rates going forward.
spk08: Zach, you want to take that because, Michael, you just hit the operative word. There is in all surgeries seasonality, especially in that first quarter when you've got
spk06: know people that have not paid their deductible yet and so you see that but zach i'll let you take that question yeah we were happy with the first quarter uh very happy with it to exceed your fourth quarter even just by a little bit um is really kind of unusual in the surgical space to ron's point and so we're right on plan as i mentioned on that and um you know it does have to do with the fourth quarter you know there's a lot of um use of deductibles as the year closes Doctors are trying to jam in every case that they can at the end of the year in order to get their patient load relieved that they've been waiting to do surgeries on. And then you start the new year, and I think it's just a really good performance, a good sign that the business is healthy and we're headed in the right direction. And I think, to your point, did that create any slowdown that we're focused on profitability? No, I don't think that's what created it. I think we are focused on it. But that isn't why, and it wasn't a slowdown for that matter. In fact, like I said, it accelerated. But it sounds like maybe you had an expectation of it growing more. But I would say we're really happy with where we are.
spk04: Yeah, no, that's great to hear. And then maybe my next question on the ATM. So it seems like you, you know, had it open for a short period of time, as you mentioned, and raised a million dollars. I'm curious just the thought process on that. Like it seemed like a lot of hassle to raise only a million dollars. I'm curious. how we should think about that going forward and sort of what the purpose of that was.
spk08: You know, it's the first that we utilized it, and it was not out there for that long, Michael, and actually we were very pleased with it because it's a very efficient way for us to get capital into the company at a low cost, relatively speaking, when you've got a volatile market. We think it's a really good tool, and we'll decide in the future if we need it or not, but it served its purpose for us and proved out to us that it is a good strategy.
spk04: Great, thanks. And maybe my last question on Sandia. So it sounds like that's continuing to be impacted by the Alisite stockouts, but I'm curious if you could comment. I know the strategy is to sort of upsell Sandia products to your salary base and vice versa. Do you think that, and, you know, Sendia sales have been flat for the last couple of quarters. How long do you think is the lead time before we start to see, you know, material impact from that upselling process take place?
spk06: I think, yeah, so no problem. So we are real happy with that. So, you know, the Allisite product is a material product in that bag. So had that been available, we would have seen growth. So I think that's something to remember when you're looking at that number. That's really since, you know, basically fourth quarter of last year, we started to see that stock out problem due to donor screening. And as a result, that business has looked flat. But in actuality, it hasn't been flat. You know, for everything but Allison, just to be clear.
spk04: Yeah, no, that makes sense. Okay, great. Yeah. Thanks for taking my question. You're welcome.
spk08: Yeah, thanks, Michael.
spk00: We do have some questions coming from the webcast. Your first webcast question is from Juan Alonso. On slide four, Mike mentioned that you continued strong sales growth. The QOQ sales have grown about 2%, right? Previous Qs had 4%, 4%, and 11% sequential growth. Could you add some color as to why sales are decelerating despite an increase of hospitals and ASCs? Roughly how much do you expect by a surge to gross sales over next year? Any color on TAM would also be appreciated.
spk06: What was that last part? Any color on what?
spk00: On TAM, TAM?
spk06: Total addressable market. Yeah, yeah, no, I know what that is. So if you looked at our Q4 2022, or excuse me, 2021, And then you said, well, we grew by 11% in Q1 of 22. That would be true. However, that fourth quarter in 2021 was affected by COVID, if you recall. Like right at the start of that quarter, there was a real depression in terms of cases available. So not a great comparison, that 11% growth. So I would tell you that this has been a very linear growth to date. And then to the first quarter this year, We're really happy with where we are. It's a new record quarter, you know, month after month records each of the months of the quarter. And so really pleased with where we are. I don't believe there's a slowdown. I think, you know, we do have hiring waves in the business. So we hire. Those people get up and running. I think most of you have seen our map of penetration in the marketplace. And as you might have seen, we're around 30 states where we're at 50,000 or more in sales annually. And what our goal has been is to expand into the additional 20 states and grow those to a sizable amount. So we've focused a lot on that. Somebody mentioned a moment ago that we also are focused within the buildings. And those are, you know, things that we're working on and are in process. But I think they've done well. We're obviously a bigger company. So that one, a couple percent that we grew is a sizable amount in the dollar sense. So we're pleased with where we are. And then I think it may have been something else. But go ahead. if Mike or Ron would like to add anything.
spk08: No, I think you covered it great, Zach. Thanks.
spk00: We have an additional webcast question coming from Sean Kim. Would you be able to provide some color how we should view the growth for Celerate RX in the current quarter, Q2-23?
spk08: No, we have not provided anything on a forward-looking basis, and so we just let the quarters roll out until we can get Good predictability. When we can get really good predictability, then we will start doing forecasting and give guidance.
spk00: Once again, if you do have any questions, please press star 1 on your phone at this time. We do have a question from Ian Castle with IFCM. Please pose your question. Your line is lined.
spk03: Yeah, I was wondering if you could provide some color or some update on the Infuse Systems Partnership.
spk08: Yeah, the Empty Systems Partnership is continuing to advance. There's a lot of just what I would call technical review and really operational review to make sure that we get this right. So it may look like it's not moving forward, but it is clearly moving forward and we're getting a lot around that. And we've brought in some additional people on our side to really focus on it. And so it just is a, It's just going to take time for that one, and we want to do it right, and I think it's going to be a very good partnership long-term.
spk03: And your next question about precision healing, do you see that product being kind of sold individually, or is that strictly part of your comprehensive wound care strategy?
spk08: Yeah, from my perspective, Ian, I think it is part of a system. And so I think that that device is just one component of the overall strategy that Because I have seen out there devices that are in the market. I have seen one-offs on being able to analyze certain aspects. None of that have I seen have impact on value-based arrangements. I think you have to have the entire strategy, and that's why we focused on the entire strategy.
spk03: Okay. And is it still your goal to hopefully have a partnership on that side by year-end?
spk08: Yeah, what we are doing is we have brought in another manager that has experience in wound care to help drive that strategy. And so that is our goal is to still implement and find partners by the end of the year. And when I say partners, I'm talking about people that can actually impact us having a value-based strategy and be able to actually start to execute in the field where we are decreasing cost and increasing outcomes.
spk03: OK, thank you.
spk00: Once again, if there are any questions, please press star 1 on your phone at this time. There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Ron Nixon for any closing remarks.
spk08: Thank you, everyone, for joining our call this morning. We really appreciate our shareholders and we thank you for all that you do to support us. So thank you and look forward to speaking soon. Take care. Thanks, everyone.
spk00: Thank you. 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.
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