Sanara MedTech Inc.

Good morning, everyone, and thank you for participating in today's conference call to discuss Zenera MedTech's financial results for the first quarter ended March 31st, 2026. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 yesterday evening. On today's call are Seth Young, President and Chief Executive Officer, and Elizabeth Taylor, Chief Financial Officer. 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 factors set forth in the company's most recent annual report on Form 10-K. This call will also include references to certain non-GAAP financial measures. Reconciliations of those non-GAAP measures to the most comparable measures calculated and presented in accordance with GAAP are provided in the earnings release available on the investor relations section of the company's website. I would now like to turn the call over to Mr. Yon. Please go ahead, sir.

Thank you, operator, and welcome everyone to our first quarter 2026 earnings conference call. This was a strong quarter for us, which exceeded our expectations. Q1 2026 was the first full quarter in which we were entirely focused on the surgical market, and the results reflect our sharpened, focused, and enhanced financial model. We delivered 19% revenue growth compared to the first quarter of 2025, margin improvement, and broke through to gap net profitability with net income from continuing operations of $0.4 million or $0.04 per diluted share. Our first quarter revenue growth was largely supported by increased sales of our soft tissue repair products, including Celerate RX and BioSurge. Demand for our products is strong, and we're particularly pleased with our first quarter results, given that our first quarter is historically our seasonally slowest sales period of the year. The quarter was also impacted by a three-day weather-related shutdown in January, which caused us to lose three days of shipping during this period. Despite these challenges, we closed out the first quarter with the strongest sales month in company history in March, excluding October of 2024, which benefited from approximately 1.8 million of buy-as-search sales due to the industry disruption caused by Hurricane Helene. During the end of 2025 and continuing into 2026, we began strengthening our sales team to support enhanced net revenue growth and our heightened focus on the surgical market. At quarter end, we had grown our sales team to a total of 43 reps. In addition to strengthening our sales team, we're also very well positioned with a robust surgeon user network, a growing number of hospitals where our products are contract or approved to be sold, a growing number of facilities where our products were sold during the quarter, and a leading distributor network for our products that continues to expand. Let me dig into that a bit. As of quarter end, our products were contracted or approved to be sold in over 4,000 hospitals and ambulatory surgery centers throughout the United States. Our products were sold in over 1,400 facilities throughout the United States, up from more than 1,300 in the first quarter of last year. And we had agreements with more than 450 distributors compared to 400 at this time last year. Also, 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 year-over-year basis in Q1. While most of you know this, I want to reiterate that Sonera is not subject to reimbursement risk, given we are 100% focused on the surgical setting. This means that we have lower exposure to fluctuation in the cost of volume of patient care, which allows us to recognize a predictable and reliable revenue stream with consistently strong margins. Looking ahead, we believe we are well positioned with our strength and sales team in our more refined, pure place focus on the surgical operating setting to drive growth. In terms of capital allocation, we are focused on further strengthening our home business model. Our current capital allocation strategy is to drive organic growth, judiciously invest in R&D, and grow our pipeline of new products that align with our pure play surgical focus. This includes OSTIC, our licensed synthetic injectable structural bioadhesive bone void filler, which remains on track to be introduced to the market in the first quarter of 2027, as well as some longer-term initiatives that we expect to deepen our competitive moat and maintain our position as a leader in bringing innovative surgical products to market. We are encouraged by the strong start to the year and our prospects for the balance of 2026, For the second quarter, we expect to recognize net revenue in the range of $28.5 million to $29.5 million, or growth of 10% to 14% year over year. Looking at the full year, we also remain confident in our previously stated guidance of full year 2026 net revenue in the range of $116 million to $121 million, representing growth of approximately 13% to 17%. With that, I will now turn the call over to Elizabeth Taylor, our CFO, for a review of our financial results for the quarter. Please go ahead, Elizabeth.

Thanks, Seth. Net revenue in the first quarter of 2026 increased 4.4 million, or 19%, when compared to the first quarter of 2025, primarily due to increased sales of soft tissue repair products, including Celerate RX Surgical and BioSurge, as Seth mentioned before. First quarter gross profit increased $4.3 million, or 20%, from the prior year period to $25.9 million. Gross margin increased approximately 100 basis points to 93% of net revenue. The increase in gross profits and higher gross margin realized in the quarter was primarily due to increased market penetration and geographic expansion. Product mix and the company's strategy to continue expanding and developing its independent distribution network in both new and existing U.S. markets. Operating expenses for the first quarter of 2026 were $23.2 million, or 83.6% of sales, compared to $20.8 million, or 88.6% of sales, for the first quarter of 2025, an increase of $2.5 million, or 12% year-over-year. The increase in operating expenses was primarily due to higher selling, general, and administrative expenses offset by a decrease in research and development expenses for the first quarter of 2026. R&D for the first quarter of 2026 decreased to 0.8 million or 2.7% of sales compared to R&D of 0.9 million or 4.1% of sales for the first quarter of 2025. While R&D will fluctuate from quarter to quarter based on timing of projects, the company expects R&D on an annual basis to be within industry standards of 5% to 7% of sales. Operating income for the first quarter increased $1.8 million to $2.6 million compared to $0.8 million for the first quarter of 2025. Other expense for the first quarter of 2026 was $2.2 million compared to $1.4 million for the first quarter of 2025. The increase in other expense was primarily due to higher interest expense and fees related to our CRG term loan and share of losses from equity method investments. Net income from continuing operations for the first quarter was $0.4 million or $0.04 per diluted share compared to net loss from continuing operations of $0.6 million or 7 cents per diluted share in the first quarter of 2025. Moving to our non-GAAP results, adjusted EBITDA for the first quarter of 2026 increased 1.6 million, or 58%, to 4.3 million. The increase in adjusted EBITDA was primarily related to net revenue growth offset by increases in SG&A. Turning to the balance sheet, as of March 31st, 2026, we had $13.6 million of cash and $46.2 million in long-term debt. This compares to $16.6 million of cash and $46 million of long-term debt as of December 31, 2025. Net cash used in operating activities as of March 31, 2026, was $2.5 million, compared to $2 million in the three months ended March 31, 2025. Notably, We pay our debt service in the quarter entirely in cash as opposed to a combination of cash and payment in kind as we have done in prior quarters. We view this as a milestone and a reflection of our improving free cash flow generation. We are particularly pleased with our working capital in the quarter and ability to pay our debt service in cash given our first quarter historically requires a higher use of cash related to the payment of employee commissions and annual bonuses. This is encouraging as we progress through the year. As Seth stated, our capital allocation priorities have evolved alongside our strategic shift and focus to target and invest in opportunities in a pure play surgical setting. Looking ahead, we believe that our strengthened free cash flow will allow us to more efficiently invest in our organic growth, which includes expanding our sales team to address more underserved geographies. With that, I will now turn it back to Seth for closing remarks.

Thanks, Elizabeth. We are very pleased with our first quarter results, which serves as an encouraging early validation of our strategic shift in focus to our pure play surgical setting. We believe that we are well positioned with a strengthened sales team and growing market presence among hospitals, facilities, and distributors, a robust product pipeline, and improving free cash flow generation to strategically and efficiently allocate capital to drive long-term growth and value for our shareholders. With that, operator, you may now 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. One moment while we poll for questions. Your first question for today is from Frank Tuckinen with Lake Street Capital Markets.

Great. Thank you for taking the questions, and congratulations. Operator?

Operator, can you hear us? Yes, I can hear you. One moment, please.

Yeah, we lost Frank there, so we only heard his intro.

Frank, your line is live.

Perfect. Can you hear me now?

Yes.

I think so. Thanks, Frank. Sounds good. I was hoping to ask one follow-up on the first quarter. Could you maybe just break out what was the strongest contributor to outperformance? Maybe was it core accelerate execution, bias surge within the Vizient GPO? I'm guessing that the new reps haven't started to contribute yet, but I don't know if that's also a piece that's contributing as well. It'd be just great to have a little more color on Q1. Thanks.

Yeah, let's start with the reps, the new hires, those three that were mentioned in the calls. So they're still kind of going through training that's both in-house and then also out into the field as well. So their impact typically takes about, from the time of training completion, about six months to start to realize some impact from those individuals. You know, they've done a great job of coming in, getting educated, and getting comfortable with our technologies, and we fully anticipate that group, plus some others that we'll bring in before the end of the year. We'll be able to touch this business before the end of this calendar year. You know, from there, you know, we've done a really nice job in bringing back clarity to the organization on just being a surgical pure play. And we knew that was an important thing for us to do, and our team has responded extremely well. And even the distributor network, I think, has responded extremely well to it as well. So, I mean, that coupled with, you know, strong support around Celery and BioSearch. You know, you had mentioned, Frank, the Vizient contract. That was new to us in the first quarter. It's similar to a new hire, right? You have to go out and do ongoing training and education at the facility level, and our team is doing that. And so, you know, we're starting to see some uptick from that, and that's really encouraging. And at the same time, you know, Celerate continues to be, you know, a real anchor product for us, and our team continues to, one, get wider into facilities that they've been working in for some time, and two, reaching into new facilities as well. And they did an overall, you know, really sound job of all three of those things in the first quarter of 2026.

Got it. That's very helpful. And then I was hoping to ask a follow-up on guidance. Heard the comments of Q1, seasonally slowest, three-day weather shutdown, also strongest month in company history, Vizient coming this year as well as new reps. Maybe talk through how you contemplated leaving the guide unchanged versus maybe taking it up a little bit, just given some of the tailwind and strong execution you've had here to date.

Yeah, great question. I mean, the goal is always to try to replicate Q4, right? I mean, we know Q4 is just higher volume of procedures. And if you can do that in the first quarter, you know, you stand in good ground. One of the things that we were very well aware of going into this calendar year is in the start of 2025, we went through some reorg for the sales team in a really healthy way to set us up for long-term success as well. And as a result of that, we probably saw a little bit of a slowdown in Q1 of 2025. So we had a ton of confidence going into this calendar year in Q1. And to obviously go above our number in Q1 and hit 19% growth was a great achievement for our group. And then you start to look into Q2 at 10 to 14%. Again, some of that is just we knew we were going to have, you know, a really successful Q1. And Q2, you know, kind of that blended results from Q1 and Q2 guidance really puts us right kind of at that midpoint for our overall guidance on the year.

Got it. That's helpful. Thank you. Thanks for your questions.

Your next question is from Yi Chen with HC Wainwright.

Hi, this is Katie on for Yi. I was wondering if you could elaborate a little bit more. You spoke of some initiatives for deepening your competitive moat. Could you give us an idea of what that looks like?

There's a number of things, Katie. Thanks for the question that we continue to work on. One, we want to surround ourselves with clinical evidence on our core products, and we continue to do that at a really great rate. Two, the economic story that continued to come out and was published in the first quarter was really meaningful as well. And I think hospitals have done a great job over the last many years to do a solid evaluation of their spend and the meaningfulness of the products that get brought into the OR. And so there's three things that we want to make sure that we're very well aware of. The clinical evidence that supports those technologies, the economic evidence as well, and then to be well positioned with our ASP. We feel like we've done all three of those things. And then in addition to that, We're looking at things from an R&D perspective as well, on product enhancements and next-gen products as well, along with additional IP to support our technology. So there's a lot going on right now in way of that competitive mode space, and we feel really confident in the work that we're doing.

Excellent. Thank you, guys.

Thanks, Katie.

Your next question is from Christopher Vesely with Vesely Capital Partners.

Hey, guys. Thanks for taking the question. Just a quick one from me here. Is there any evidence that macroeconomic pressures pressuring hospital budgets generally or the pocket spending that covers scenario products?

Yeah, Chris, listen, I think that's a great question. You know, like I said a couple minutes ago, I think hospitals are doing a great job of really assessing their spend. inside the OR, and we're obviously a supply cost into the DRG. But again, the things that kind of let us stand out in those moments is the evidence that supports the technologies, both clinically and economic. And we feel that we're very well positioned with our selling price as well at the hospitals. So, you know, will that work continue by the hospitals? Of course. Will we continue to build more and more of our story around that evidence? Absolutely. And, again, we think that we're very well situated given those three things.

Got it.

Got it. Thank you. That's all from me.

Thanks for the question.

We have reached the end of the question and answer session, and I will now hand Nicole back to Seth for closing remarks.

Well, again, thank you so much for the questions. I just want to, again, thank our team, thank our distributor network, the facilities that trust us, and obviously the investor community as well. We're grateful for the opportunity, and we look forward to connecting with everybody after our second quarter's performance. Thank you.

This does conclude our conference call for today. Thank you for your participation.