TELA Bio, Inc. (NASDAQ:TELA) Q1 2023 Earnings Call Transcript May 14, 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to the TELA Bio First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. And I would now like to turn the conference over to Louisa Smith from the Gilmartin Group. Ms. Smith please, go ahead.

Louisa Smith: Thank you, Chris and good afternoon, everyone. Earlier today, TELA Bio released financial results for the first quarter 2023. A copy of the press release is available on the Company’s website. Joining me on today’s call are Tony Koblish, President and Chief Executive Officer; and Roberto Cuca, Chief Operating Officer and Chief Financial Officer. 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. 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 and quarterly reports on Form 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

These factors may include, without limitation, statements regarding product development and pipeline opportunities, product potential, the impact of various macroeconomic conditions, including the ongoing response to the COVID-19 pandemic, recessionary concerns, banking and stability and inflationary pressures, the regulatory environment, sales and marketing strategies, capital resources or operating performance. With that, I’ll now turn the call over to Tony.

Tony Koblish: Thank you, Louisa. Good afternoon, everyone, and thanks for joining us today for our first quarter 2023 earnings call. I’m pleased to report the TELA team delivered another outstanding quarter with revenue of 11. 9 million growing 45% year-over-year. Our hernia and PRS products both posted impressive gains even though elective procedure volumes have still not returned to 2019 pre-pandemic levels. However, we are seeing evidence of procedures trending in the right direction. As I’ve been doing in our recent earnings calls, I’ll take a few minutes to update you on our progress on the five factors that drive our revenue growth. I’ll start with GPO access. TELA currently has contracts with three national group purchasing organizations Health Trust, Premier and a third whose name we aren’t permitted to share.

Combined, these GPOs provide TELA with access to more than 50% of the hospitals in the United States. Health Trust was the first GPO to onboard OviTex in 2020, but this unfortunately coincided with the outbreak of the COVID-19 pandemic. Although this slowed uptake, the GPO was sufficiently impressed with our performance they have now renewed our contracts for a four year term expanded from the initial three year term. The Premier agreement, our second GPO when became effective in October of 2022, and contribute incremental new volume in the first quarter, which offset the cost of discounts to existing customers that adversely impacted revenue in the fourth quarter of 2022. Finally the third GPO, with whom we entered into an agreement in mid February, provide the dual source contracting the biosynthetic category that places us in competition with only a single other vendor.

Although we’ve been able to achieve significant growth even without extensive GPO access, these agreements should greatly streamline the process for a surgeon to adopt our products, with a result an uptick in OviTex utilization across a variety of hernia and abdominal wall procedures. The second factor we focus on its sales force size. To fully capitalize on the hospital access, we have attained through our GPO contracts, and leveraging our continued track record of recruiting and training sales reps to become productive contributors within six months we are targeting ending this year with 75 to 80 total reps. This is from a base of 61 at December 31, 2022 and as of today, we have 72 reps on board. We remain confident that we will be able to achieve and potentially exceed this goal with strategic hiring of additional experienced sales reps.

We expect one of the primary uses of the proceeds from our recent capital raise will help us further accelerate this growth in our commercial organization more generally. Third, we remain committed to expanding our portfolio of complimentary soft tissue restoration and preservation solutions as evidenced by the addition of three new product lines in the first quarter. In January, we launched NIVIS Fibrillar Collagen Pack is an absorbent matrix of type one and three bovine collagen designed to manage expediting weight wounds and control minor bleeding. These collagen types have been shown to stimulate cellular activity and contribute to new tissue development. In February we announced the launch of two larger configurations of the OviTex LPR device that are designed specifically for use in minimally invasive procedures repairing ventral and incisional hernias.

We previously noted that surgeon preference is shifting with more doctors treating hernias, using minimally minimally invasive techniques. In the first quarter 43% of OviTex uses were in robotic procedures and 20% were implanted laparoscopically. And finally, in March 2023, we announced the 510-K clearance of OviTex PRS long term resorbable for plastic and reconstructive surgery. This product is intended for implantation to reinforce soft tissue where weakness exists in patients requiring a soft tissue repair or reinforcement in plastic and reconstructive surgery. It also complements the existing OviTex PRs portfolio, with a third product configuration that expands its clinical utility. We expect another significant use of the proceeds from our recent capital raise will facilitate these R&D efforts leading to additional complimentary soft tissue restoration and preservation products channeled through our growing sales organization to the ultimate benefit of our customers and their patients.

Our R&D pipeline is robust, and we will continue to invest in developing innovative technologies and design advancements to our current product portfolio. The fourth factor driving growth is our portfolio of clinical data. One of the reasons we’ve been able to convert physicians to the use of OviTex is the extensive set of clinical data that we and the independent investigators have generated, examining the performance of our products in a wide variety of hernia, and abdominal wall procedures. We remain focused on expanding this clinical data, including through our active enrollment of patients into both our Bravo 2 study measuring the efficacy and durability of OviTex when used in robotic hernia repair, and our PRS retrospective clinical study, assessing outcomes of our OviTex PRS patients who had previously undergone breast reconstruction.

And finally, the fifth growth factor we focus on its sales reps productivity. As I mentioned above, our newest cohort of reps continue to reach profitability in under six months. A more recent driver of this productivity is our focus on training reps to sell both OviTex and OviTex PRS products into their accounts. As I’ve described before, those customers that buy both categories of products from us buy more on average than the sum of separate accounts that buy only one or the other product. That is the sum of one and one is not just two, but something more like three or four. The faster we can get our reps comfortable in selling across the product lines, the more productive and profitable our growing sales force can be. Finally, as I referenced earlier, a couple of weeks ago, we went to the equity capital markets and raised over $46 million in net proceeds.

We expect to invest these resources in the five factors that drive our growth, and most immediately into the continued expansion of our sales force. We grew revenue 45% year-over-year in the first quarter, and we aim to maintain at least this level of growth over the remainder of the year. I’m pleased to say that these new resources position us well for continued achievement this year and beyond. With that, I’ll ask Roberto to review our financial results for the first quarter.

Roberto Cuca: Thanks, Tony. As Tony mentioned earlier revenue for the first quarter of 2023 increased 45% year-over-year to $11.9 million, during which OviTex revenue grew 42% year-over-year and OviTex PRS grew 52%. Gross margin was 66% for the first quarter and was driven by the cost of goods the product actually sold within the quarter, as well as the mounts reserved for expected expiration of inventory purchased within the quarter whether or not sold in the quarter. As we described in our previous earnings call we expected to [full] step down from the fourth quarter as a result of the timing of our inventory purchases but the gross margins for full year 2023 will show improvement from 2022. Sales and marketing expense was $13.5 million in the first quarter of 2023 compared to $9.4 million in the same period in 2022.

This increase was mainly due to higher compensation costs as a result of the expansion of our commercial organization, higher travel and consulting expenses, and additional employee related costs due to the increased headcount, particularly in our customer facing roles. General and administrative expense of $3.6 million in the first quarter of 2023, compared to $3.5 million in the same period in 2022. R&D expenses $2.1 million in the first quarter of 2023, compared to $2 million in the same period last year. Loss from operations was $11.3 million in the first quarter of 2023, compared to $9.8 million in the prior year period. Net loss was $12 million in the first quarter of 2023, compared to $10.9 million in the same period in 2022. We ended the first quarter with $30.1 million in cash and cash equivalents.

In mid April, we conducted a public offerings raised $46.4 million after commissions and expenses. As Tony said the use of proceeds will be primarily for sales force expansion, and next to fund our R&D pipeline and clinical data collection efforts. Turning to the outlook for 2023. We are reiterating our full year guidance of revenues to be in the range of $60 million to $65 million, representing growth of 45% to 57% over the full year 2022. On that [note] call back to Tony for closing remarks. Tony?

Tony Koblish: Thanks Roberto. As you’ve just heard, we have great reasons to be very excited about 2023 and beyond. We started the year strong and expect that momentum to continue over the course of the year. our growing sales force can leverage our expanding GPO access exceptional clinical data and new product offerings to continue capturing market share. We estimate our total addressable market at 2 billion across our product offerings, of which we are just beginning to scratch the surface. We are confident that we have the leadership team in place to advance our five factors of growth and we look forward to demonstrating that as the year unfolds. With that, I’ll now ask Chris to open the line up for your questions. Chris please, proceed.

Q&A Session

Operator: Thank you. [Operator Instructions] First question will come from Frank Takkinen of Lake Street Capital Market. Your line is open.

Operator: Thank you. [Operator Instructions] Our next question will come from Kyle Rose of Canaccord. Your line is open.

Operator: Thank you. [Operator Instructions] Our next question will come from Michael Sarcone of Jefferies. Your line is open.

Operator: Thank you. Our next question will come from David Turkaly of JMP. Your line is open.

Operator: Thank you. [Operator Instructions] Our next question will come from the line of Matt O’Brien of Piper Sandler. Your line is open.

Operator: Thank you. I don’t see no further questions in the queue. I would now like to turn the conference back to CEO, Tony Koblish for closing remarks.

Tony Koblish: Thank you, Chris. And thank you to everyone for joining us this evening and thank you for your interest in TELA Bio. We look forward to seeing you next quarter.

Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect and have a pleasant day.