Sanara MedTech Inc.

Welcome to the Scenera MedTech first quarter of 2025 earnings conference call. Please note that this conference call is being recorded and a replay will be available on the investor relations page of the company's website shortly. The company issued its earnings release earlier today. Before we begin, I would like to remind everyone that certain statements on today's call 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 differ materially from those projected or implied by forward-looking statements, please see the risk factor set forth in the company's most recent annual report on Form 10-K. This call will also include references to certain non-GAAP measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings materials available on the investor relations portion of our website. Today's call will be hosted by Ron Nixon, Executive Chairman and CEO, and feature additional remarks from Seth Young, President and Chief Commercial Officer, Sam Mopala, President and CEO of Tissue Health Plus, and Elizabeth Taylor, Chief Financial Officer. I would now like to turn the call over to Mr. Nixon. Please go ahead.

Thanks, Operator, and welcome, everyone, to our first quarter of 2025 earnings call. Let me provide a quick agenda for today's call. I'll start by discussing a few of our financial and operational highlights from the first quarter. Seth will then discuss the commercial execution and progress made in our Scenera Surgical segment and outline the multiple growth opportunities we're focused on pursuing. Next Sam will provide an update on our Tissue Health Plus segment. And finally, Elizabeth will review our quarterly financial results in further detail before opening the calls for questions. Beginning with our first quarter highlights, our Scenera Surgical team delivered net revenue of $23.4 million, representing 26% growth year over year. This performance was consistent with our expectations for the quarter and represents a strong start to 2025. Our net revenue growth was driven primarily by sales of our soft tissue repair products, which increased 28% year over year to $20.5 million. Specifically, we saw strong growth in sales of both our Cellarate Rx surgical and biosurgical products, which continued to fuel our performance. We were also pleased to see contributions from sales of our Bone Fusion products, which increased 18% year over year to $2.9 million, with growth across multiple products in this portfolio. As Seth will discuss in detail, our sales performance reflects impressive execution by our Scenera Surgical commercial team on our growth strategy. We remain excited by the large greenfield opportunity that remains ahead of us. In addition to our Scenera Surgical segment revenue performance, we also enhanced our gross margins. Net loss per Scenera Surgical segment increased by $200,000 year over year to $600,000. And importantly, we were pleased to see Scenera Surgical segment adjusted EBITDA increased by $1.5 million year over year to $2.7 million. In our Tissue Health Plus segment, we continue to invest in the development of this value-based wound care strategy as we prepare to launch our pilot program with a wound care provider later in the second quarter. We are in active discussions with multiple potential financial partners to invest in the execution of our Tissue Health Plus strategy, and Ryan focused on allocating capital strategically and thoughtfully between our two business segments. In terms of our other operational highlights in the first quarter, as discussed in detail on our last earnings call, we enhanced our new product pipeline by securing the distribution rights to two additional technologies and expanded our senior leadership team with key appointments. We also amended the terms of our debt facility to provide increased financial flexibility as we execute our growth strategy. Lastly, our team has continued their work to strengthen our portfolio of clinical evidence We look forward to having multiple clinical manuscripts submitted for publication in key medical journals in 2025. I'm proud of our entire team's performance this past quarter across multiple fronts and look forward to continuing our momentum over the balance of 2025. I'll now turn it over to Seth to discuss the commercial execution and growth opportunities in our Scenera Surgical segment.

Thanks, Ron. As Ron mentioned, our Scenera Surgical segment commercial team delivered net revenue growth of 26% year over year. This growth was driven by our team's execution with respect to the following three initiatives related to our commercial strategy. One, advancing and deepening our distributor relationships. Two, selling into new healthcare facilities. And three, further penetrating the existing healthcare facilities we serve. Beginning with the first of the three commercial initiatives, we significantly expanded our network of distributor partners. Specifically, at the end of the first quarter, our team had engaged and secured selling agreements with over 400 distributor partners, compared to over 250 of the first quarter of 2024 and over 350 at the end of 2024. As a reminder, our expanded distributor network provides us with increased sales coverage and presence in key markets across the US. Turning to our second commercial initiative, we continued to add new healthcare facilities to our customer base by securing value analysis committee approvals and commencing sales to surgeons at these facilities. Over the last 12 months, our products were sold in over 1,300 facilities compared to over 1,080 facilities in the prior year period. With respect to our third commercial initiative, we increased our penetration of the existing healthcare facilities we serve by increasing the number of surgeons using our products within these facilities. While it's not our practice to disclose specifics related to our active surgeon user base, I'm pleased to share that we saw solid growth in the number of surgeon users on a -over-year basis in Q1. With this as a backdrop, we're pleased with the execution of our team and the progress we're seeing on our commercial strategy. We believe our commercial performance speaks to the durability of our customer base as well as the value that our scenario surgical products provide. As surgeons gain firsthand experience with the use of our key products like Celery RX Surgical and Biosurge, the value they bring to their procedures often leads them to become dedicated long-term users. Looking ahead, we remain focused in 2025 on pursuing these three commercial initiatives to capitalize on the multiple growth opportunities ahead of us. I'll now take a minute to outline some of these growth opportunities and our specific plans to pursue them over the balance of the year. While we will continue to add new distributor partners selectively, given our progress on the front over the last 18 months, we are increasingly focused this year on onboarding our recently added distributors and positioning our reps for success in selling our products. Our existing distributor network represents thousands of third-party sales reps. Importantly, only a percentage of these reps are currently selling our products. This is especially true for our larger distributor partners and our distributor partners engaged in recent quarters. With this in mind, increasing the number of distributor reps selling our products within existing distributor relationships represents a significant growth opportunity for our organization. In 2025, our team is focused on onboarding, training, and providing the requisite technical support needed to help additional reps within each distributor to begin selling our products. In parallel, we will continue to focus on adding new surgeon users within the more than 1,300 facilities that we currently serve. The vast majority of these facilities are hospitals and importantly, our surgeon penetration within these facilities remains low. Adding new surgeon customers within our existing facilities continues to represent one of the largest untapped areas of growth for our organization. Lastly, we will focus on continuing to add new healthcare facilities to our customer base with a goal of selling into more than 1,450 facilities by the end of 2025. As a reminder, we have contracts or approvals with over 4,000 facilities. This represents a significant opportunity for our commercial team and distributor partners to begin selling into new facilities. For all these reasons, we continue to believe we're in the early innings of our commercialization effort. We look forward to capitalizing on the multiple growth opportunities ahead of us as we educate prospective surgeon customers about the benefits of our products. With that, I'll turn it over to Sam to provide an update on Tissue Health Plus.

Thanks, Seth. 2025 has been a period of focused execution for Tissue Health Plus. Thanks to the hard work of the team, we announced the availability of the first release of THP's technology platform on May 1st as planned. This is a pivotal milestone in our journey to disrupt non-acute wound care. The THP technology platform release included THP Co-Pilot, our software offering which is designed to standardize wound care and reduce the administrative burden for wound care clinicians across all settings. THP Co-Pilot consists of a mobile app designed for use by clinicians which integrates both our software as a medical device and clinical decision support systems. These tools aid clinicians' ability to deliver precise and personalized wound care while not replacing their professional judgment. Additionally, THP Co-Pilot includes an administrative autopilot which for clinicians automates the process of enforcing reimbursement guardrails, optimizing billing codes, ordering medical supplies from durable medical equipment companies, and tracking the delivery of those supplies. THP Co-Pilot is also designed to integrate with the clinicians' existing electronic medical record systems which eliminates the need for charting after a clinician's encounter with a patient. THP Co-Pilot was developed on the top of CareFix technology stack which we acquired on April 1st. In advance of this acquisition, our team had been previously partnered with CareFix over the past year to leverage both their functionality and technology frameworks which form the foundation of our THP Technology Platform. Specifically, we use their mobile app functionality to accelerate the development of our THP Co-Pilot app. Our THP Technology Platform release is being implemented with a wound care provider group in preparation for the launch of our first pilot program. The implementation process involves configuring the wound care provider's clinical and administrative workflows to support an integrated wound care operating system aligned with their growth strategy. With this as a backdrop, we remain on track to launch our first pilot program with a wound care provider group later during the second quarter as previously discussed. Our team is also focused on raising the awareness of our THP offering in the provider market. Our THP solution was very well received last week at the Symposium of Advanced Wound Care Spring Meeting, one of the premier annual conferences for healthcare professionals and companies in the wound care industry, and we are building a strong pipeline of interested providers. In addition to these efforts, we continue to focus on launching a pilot program with a payer during the second half of the year. I would like to now turn this over to Elizabeth to review our first quarter financial results in more detail.

Thanks Sam. I will begin my remarks at the gross profit line since Ron discussed our quarterly revenue performance. Unless otherwise specified, all growth rates referenced during my prepared remarks are year over year basis. First quarter gross profit increased 5 million or 30% to 21.6 million. Gross margin increased approximately 240 basis points to 92% of net revenue, driven primarily by lower manufacturing costs related to Celerate Rx surgical. First quarter operating expenses increased 5.5 million or 30% to 23.7 million. The change in operating expenses was largely driven by a 5.2 million or 32% increase in selling general and administrative expenses and, to a lesser extent, a 0.2 million or 18% increase in research and development expenses. The 5.2 million increase in SG&A expenses primarily reflects 2.4 million of direct sales and marketing expenses in our Celerate surgical segment, 1.7 million of SG&A expenses in our Tissue Health Plus segment, and approximately 0.7 million of costs related to the buildout of our corporate infrastructure. Note, the Tissue Health Plus segment SG&A expenses are primarily related to the buildout of certain aspects of the THP platform and infrastructure, which accelerated beginning in the second quarter of 2024. Operating loss in the first quarter was 2.1 million compared to a loss of 1.5 million last year. Importantly, our Scenera surgical segment generated operating income of 0.8 million in the first quarter of 2025, an increase of 1 million year over year. Other expense for the first quarter was 1.4 million compared to 0.3 million of expense last year. The increase in the other expense was primarily due to higher interest expense and fees related to our CRG term loan. Net loss for the first quarter was 3.5 million or 41 cents per diluted share compared to a net loss of 1.8 million or 21 cents per diluted share last year. By segment, our Scenera surgical segment generated a net loss of 0.6 million compared to a net loss of 0.4 million last year and our Tissue Health Plus segment generated a net loss of 2.9 million compared to a net loss of 1.4 million last year. Adjusted EBITDA for the first quarter of 2025 was 0.7 million, an increase of 111% year over year. By segment, Scenera surgical generated segment adjusted EBITDA of 2.7 million compared to 1.2 million last year and Tissue Health Plus generated segment adjusted EBITDA loss of 2.0 million compared to a segment adjusted EBITDA loss of 0.9 million last year. With respect to our balance sheet, as of March 31, 2025, we had 20.7 million of cash, 42.8 million of principal debt obligations outstanding, and 12.25 million of available borrowing capacity. This compares to 15.9 million of cash, 30.5 million of principal debt obligations outstanding, and 24.5 million of available borrowing capacity as of December 31, 2024. During the first quarter, we amended the terms of our CRG term loan agreement to provide flexibility with respect to the timing and amounts of potential future borrowings, and borrowed an additional 12.25 million. As a reminder, our loan agreement provides for one additional borrowing of up to 12.25 million on or before December 31, 2025. Lastly, a few considerations to bear in mind for the remainder of the year. As Ron mentioned earlier, our net revenue performance in the first quarter was consistent with our expectations, and we remain pleased with our start to 2025. Our team remains focused this year on delivering net revenue growth, driven by our scenario surgical segment. We continue to expect improvements in our scenario surgical segment profitability in 2025. With respect to our Tissue Health Plus segment, we expect our cash investment in the first quarter of 2025 to be approximately 7.5 million to 8.5 million, compared to our prior expectation of 7.5 million to 10 million, excluding the acquisition of CareFix. This implies cash investment in the second quarter of 2025 of approximately 4 million to 5 million. Note, this expectation does not include the CareFix acquisition, which, as Sam mentioned, we completed on April 1 for a total of 3.65 million upon closing. We also remain focused on pursuing financial partners to invest in the execution of our Tissue Health Plus strategy. With our existing cash on hand, the expected cash generation in our scenario surgical segment in 2025, and the available borrowing on our existing facility, we believe we have the requisite capital to continue to pursue our strategic growth initiatives. Lastly, with respect to tariffs, it is important to note that, with the exception of Biosurge, all of our commercial products are manufactured in the United States. With this in mind, we do not anticipate a material impact from tariffs on our results of operations in 2025. With that, I'll turn it back to the operator to open the call for questions.

Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. Please hold a moment while we poll for questions. Your first question for today is from Yi Chen with HC Wainwright.

Morning. Eduardo. Just a little bit more color on your rates of penetration and understanding. Intuitively, that seems like the area where you'd probably get the most benefit in ROI, approaching profitability. It's kind of your vision for how you're going to improve penetration at existing facilities and your strategy there.

Seth, would you mind taking that, please?

Sure. Of course. Good morning. We do it with really a coupled approach between our RSMs, which we've talked a lot about in the past, territory managers as well, and then our distributor expansion. Our distributor expansion has jumped significantly over the last 18 months. And that's been done intentionally for that very reason. It's to get us access into new accounts, but also to penetrate existing accounts deeper and further. So it's really a coupled approach between both the RSM and our distributor partners.

Got it. And is there any kind of signal on reorder rates that you could provide that, you know, you mentioned that people who use a product really like it. Do you have any numbers on the reorder rates?

We haven't provided that in the past. I will say this. Our business tends to stick, you know, both on the cell rate side and biosurgeon-like. Once surgeons gain comfort with those two products, and that takes some time to do that, oftentimes they'll start with high-risk cases to see how products perform. And then as they do perform highly and with highly successful rates, they continue to use that and expand that across more procedures.

Okay. That's really helpful.

Thanks for taking the questions. You bet. Sure.

As a reminder, if you would like to ask a question, please press star 1. Your next question for today is from Ross Osborne with Cancer Fitzgerald.

Hey, guys. This is Matt Park on for Ross today. Thanks for taking the questions. I guess starting off with gross margin came in very strong in the quarter. Can you help us frame how we should think about gross margin cadence through the remainder of 2025 and any areas for further leverage as volume scales?

So, Ross, this is Ron. So how I think about it is when we bought the technology from the original designer or developer of the product last year, that actually gave us some advantage on the manufacturing side because there was some additional margin there to be had. So I would say that it's, you know, you never can tell what external other costs could come about. So I just think modeling it in your, you know, just kind of consistent with how you've done it in the past is probably good to go forward. I can't see us achieving a lot more leverage than what we have today on the gross margin side.

Got it. That's helpful. And then just one more from me on Tissue Health Plus. Given that you remain on track for a pilot program launch in the second quarter, can you help walk us through what success will look like in this initial phase, whether that's clinical outcomes, patient volume, or economic validation, and how quickly you anticipate scaling beyond the first site? Thanks. Yeah, that sounds good.

Sorry, Ron. I jumped the gun there. So Ross, to just answer your question, we're really looking at the success of the pilot being measured in three sets of metrics. First is the clinician-facing metrics. These include things like protocol and formula adherence. So to just remind you, one of the key things we are actually implementing as part of our platform is the clinical decision support, which guides the clinician. So how well they adhere to the protocols and the formulary. That's a key metric there. And the second metric facing the clinician, again, is helping them decrease their post-encounter time. So for every minute a clinician spends in front of a patient, they could be spending up to two to three minutes after the patient encounter completing the documentation. So that is a key metric we are trying to influence. And the last clinician metric is around completion of documentation. How well documented is the encounter? On the operating side, which is the second category of metrics, we look at things like an increase in staff productivity. And the way we do that is before we started the implementation, we have actually done time and motion studies of their practice end to end. So we have baseline timings. And we look at improvements based on our workflow technology, how we are helping them with that. We also look at increased capture in billing services per visit. And we also look to decreasing inventory, wound care related inventory costs and wastage. So some high level operational metrics. The third bucket of metrics we look at are adoption metrics, which is, for example, the percentage of clinicians using our THP co-pilot. What is the user satisfaction surveys, MPS, so on and so forth.

Got it. That's helpful. Thanks for taking the questions, guys.

We currently are seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.