TELA Bio, Inc. (NASDAQ:TELA) Q3 2023 Earnings Call Transcript

TELA Bio, Inc. (NASDAQ:TELA) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Good day and thank you for standing by, and welcome to the TELA Bio Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference call is being recorded. I would now like to introduce your host for today’s call, Greg Chodaczek. You may begin.

Greg Chodaczek: Thank you, Justin, and good afternoon, everyone. Earlier today, TELA Bio released financial results for the third 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 will 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-Qs, 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 COVID-19 pandemic, recessionary concerns, banking instability and inflationary pressures, the regulatory environment, the introduction of new products or product enhancements by us or others including those which may be perceived to negatively impact the demand of our products now or in the future, sales and marketing strategies, capital resources or operating performance. With that, I’ll now turn the call over to Tony.

Tony Koblish: Thank you, Greg. Good afternoon, everyone, and thanks for joining us today for our third quarter 2023 earnings call. We are pleased to report another quarter of strong financial results and operational execution. Revenue in the third quarter with 15.1 million growing 35% year-over-year. Notably, this was the 11th successive quarter of 35% growth or greater, driven by continued market share gains and increased surge in adoption of the OviTex product portfolio. PRS growth was especially strong up 46% year-over-year, notably driven by the launch of the long-term resorbable version of OviTex PRS, which includes specific design features aimed at enhancing the clinical utility of OviTex PRS for surgeons and patients in plastic and reconstructive surgery.

In addition, our hernia portfolio continues to perform with OviTex recently becoming the most implanted biologic hernia repair mesh in the United States, reflecting the growth recognition of the clinical utility of the product for this application. Today, I will review with you the progress we’ve made on the five factors that combined to drive our growth, Roberto will provide a more detailed review of our financial results, and then I’ll make closing remarks before opening line for your questions. I’ll start by discussing sales force size and individual sales representative productivity together, as they had a joint impact on our Q3 revenue. As of today, we have 79 commissioned sales reps, with our goal being to end the year with 75 to 80 filled positions.

Of these 79, 55 have been in their roles for at least six months. During our second quarter earnings call, we had 75 reps of which 50 had at least six months tenure. The newness of a third of our reps at our last call was the result of turnover in the second quarter effected by new regional managers who we have hired at the end of last year, and who identified opportunities for upgrading talent in certain territories. While 35% organic growth is outstanding, we believe it would have been even higher, but for the transition of territory responsibilities in the second quarter. That said I am pleased to report that the newer reps are quickly progressing along the learning curve and their productivity ramp is consistent with our standard six months to break even profitability metric.

Therefore, we anticipate the impact of reps’ turnovers to be meaningfully lower in Q4. Additionally, we have taken the following steps to accelerate the productivity of our newer reps and our sales performance in general. First, we rolled out intensive PRS sales training to ensure that all our reps are comfortable selling the product compliantly and effectively. This additional training added to the availability of the OviTex PRS long-term resorbable should help all our reps, particularly those with less than six months experience on the job. Second, we’ve implemented two supplemental incentive programs in the fourth quarter further to drive increased performance through the remainder of this year and into next. The first incentivizes those reps already on track to achieve their quotas to further outperform.

The second provides a boost to those reps who might be short of quota, but who have the potential to contribute incrementally more. These steps are already helping us to properly return to over 35% growth as anticipated, and should set us up for a strong 2024 performance. Moving on to the third factor driving revenue growth, GPO access; expansion within existing GPO contracts is on track and efforts to add additional GPIOs and IDNs are going well. TELA has contracts with three national group purchasing organizations that enable enhanced and more efficient access to hospitals and surgeons throughout the country. These GPO contracts are critical to TELA’s commercial strategy and provide the opportunity for surgeons to use OviTex product right off the hospital storeroom shelf without requiring approval from hospital administrations.

The first of our three GPO contracts is our long-standing relationship with HealthTrust with whom we resigned a four year renewal. The second contract is with Premier with whom we’ve now had a full year of implementation as it became effective on October 1, 2022. Premier is the second largest GPO in the country, giving us access to over 4400 hospitals within its extended network. Lastly, our most recent GPO relationship offers us a dual source contract in the biosynthetic category. There’s tremendous upside opportunity for TELA within these three contracts, as well as from new contract opportunities and we look forward to providing updates as our access further expands. Our fourth factor is the range of complementary products in our portfolio that enables us to leverage the existing sales force and call points across the soft tissue reconstructive space.

We have launched four products so far in 2023; the first to the large size OviTex LPR for use in minimally invasive surgery and the inhibitors of fibrillar collagen pack are gaining market share with different levels of surgeons familiarity to leverage by our sales force. The third, OviTex PRS long-term resorbable launched in the third quarter and it’s taken off quickly, given surgeons prior knowledge of the product line and interest in the new performance characteristics. Finally, and most recently, we are in the process of launching the LiquiFix hernia mesh fixation devices, LiquiFix8 and LiquiFix Precision. These products, which are indicated to fix mesh to tissue inside the body and to close the peritoneum, the membrane surrounding the abdominal cavity have been marketed in Europe under the brand LiquiBand FIX8 and represent the first product of its kind to be approved for sale in the US.

We believe that this product line allows our sales force to call on surgeons in a technology space where they are comfortable and will increase access to additional surgeons eventually opening opportunities to also discuss the benefits of OviTex in other areas of their hernia practice. Regarding our fifth factor clinical data, we continued to collect data both prospectively and retrospectively for our hernia and PRS products respectively. We’re proud of the performance of our products and we’ll expand our datasets through, for example, our BRAVO II study, which measures the effectiveness of OviTex products when implanted robotically. I’d like to now address the question that has been top of mind with investors, that is what is the potential negative impact of GLP-1 agonist drugs on the market that TELA serves.

Specifically, if patients lose weight on these medicines, how might that affect the rate of hernia repair and plastic and reconstructive surgeries? With regard to the latter, much PRS is used in plastic and reconstructive procedures that we believe are both unrelated to weight loss and an account of weight loss. With regards to hernia, we have consulted with general surgeons in this space whom collectively have identified four potential ways in which GLP-1s may, in their opinion, actually increase the need for hernia repairs. First, an important contra indication for surgery, in general, and hernia repair specifically, is morbid obesity. Patients who lose weight could become newly eligible for repairs that a surgeon might previously have advised against.

Second, a risk factor for hernia is physical activity, and to that extent, it would be reasonable to expect more need for hernia repairs with weight loss. Third, obesity can conceal existing hernias, in particular umbilical hernias, and weight loss can reveal the need for these repairs. Finally, GLP-1s are apparently associated with acid reflux conditions, which could necessitate hiatal hernia repairs and response. Although these examples indicate the potential for GLP-1s to increase the need for hernia repair, the real takeaway is that we do not expect GLP-1 to meaningfully reduce hernia repair rates in any reasonable scenario. With that, I’ll now turn the call over to Roberto to review our financial results and outlook.

Roberto Cuca: Thanks, Tony. Third quarter revenues grew 35% year-over-year to $15.1 million, with OviTex and OviTex PRS growing 30% and 46% respectively. These increases are attributable to the ongoing expansion of our commercial organization leading to new customers, increased existing customer penetration and a growing international sales presence. Tony mentioned that revenues and growth would have been even higher absent the disruption of second quarter sales rep turnover and described the steps we’re taking to quickly regain previously planned performance levels. It’s worth noting, though, that in those territories that were continuously failed, that is those not affected by turnover, performance was consistent with the higher level of revenue growth we had expected.

This validates that our underlying forecasts assumptions other than turnover were robust and reliable. Gross margin for the quarter was 69%, compared to 66% in the same period of 2022. The margin improvement was driven primarily by more efficient inventory management practices, which resulted in a decrease of obsolete and excessive inventory as a percentage of revenue year-over-year. We expect our gross margins to continue at around this level as we operate using more rigorous inventory practices. Operating expenses were $20.6 million in the third quarter compared to $16.8 million in the prior year period. This increase was a result of additional headcount as we continue to expand our organization, consequent higher compensation and employee-related expenses, increased travel expense, as well as an increase in consulting fees and higher study costs.

Loss from operations was $10.2 million in the third quarter of 2023, compared to $9.5 million in the prior year period. Turning to our outlook for full year, we now expect revenues to range from $57 million to $60 million, reflecting growth of 38% to 45% over the full year 2022 and applying revenue for the fourth quarter ranging from $15.5 million to $18.5 million, compared to $11.6 million in the fourth quarter of 2022. Although both the third and fourth quarters have come down from our prior expectations, we anticipate that the steps Tony outlined that we’re taking to address the sales force turnover disruption will allow us to return to sequential growth, more similar to that reflected in our prior guidance, or said another way, we believe the sales rep disruption is largely behind us and that our sales growth rate from Q3 to Q4 is on track with our prior expectations, but from a lower base due to the impact of the turnover in the second quarter.

We ended the third quarter with $58 million in cash and cash equivalents compared to $65 million at the end of the second quarter, meaning that we used $7 million in the quarter. As our revenues continue to grow and as OpEx is held to a much lower growth rate, we expect cash usage to decline. We’ll have more to say about this on our fourth quarter earnings call when we announce revenue guidance for 2024. But for the moment, know that we remain confident in our cash position and continue to believe it will be sufficient to fund us to profitability. I’ll now turn the call back to Tony for closing remarks.

Tony Koblish: Excellent. Thank you, Roberto. I’d like to reiterate my excitement for the success TELA Bio has achieved to date. On September 30, we completed our 11th consecutive quarter of 35% or more year-on-year growth. This was driven by our continued focus on developing and expanding each of the five factors in parallel to achieve consistent share capture. Notwithstanding our exceptional performance so far, TELA represents only a small part of the hernia market on a unit basis with plenty more room to expand and the possibility of a material growth inflection in the future. We are focused on taking full advantage of this opportunity to improve patients’ lives with our products. I want to thank the TELA team for their achievements this quarter, especially those who helped us efficiently expedite the impact of the sales transition.

As a result, we remain on track for continued strong growth. We are confident about our future prospects as we believe we have the key pieces in place to continue to take share including extensive GPO coverage, broad sales coverage in high volume markets, industry leading product performance data, a robust R&D pipeline that continues to deliver new products, and experienced management team, and a path to profitability with our current balance sheet. And even though we keep growing our market share each quarter, most of the market is still there for the taking, and we plan to do just that. With that, I’ll now ask Justin to open the line for your questions.

See also 30 Most Conservative Countries in the World and their Economic Development and 20 Most Valuable Gambling Companies in the World.

Q&A Session

Operator: Thank you. [Operator Instructions] And our first question comes from Frank Takkinen from Lake Street Capital Markets, your line is now open. Great, thanks

Frank Takkinen: Great. Thanks for taking the question. Hey, Tony, Roberto. Just wanted to follow up on some of the sales force commentary. I was hoping you could take us a little bit deeper into maybe the reasoning behind some of that turnover and why it was higher than expected. I don’t know if there was a certain background or characteristic associated with those less effective in the sales force, essentially getting at what’s the — what are you doing differently now to ensure a more stable sales organization that can grow per rep productivity more effectively and consistently?

Roberto Cuca: Sure, thanks for the question, Frank. I’ll start until and Tony can jump in. So as we’ve discussed before, we revitalized our RM team, so that’s the regional managers who sit above the territory managers, which is what we call sales reps, in the fourth quarter of last year, to the tune of about 12 new RMs. And those RMs came in the first quarter and evaluated their teams of approximately seven reps apiece. And over the course of the first quarter, roughly one of each of those RMs identified a territory manager that they felt could be upgraded, the territory might be at above breakeven levels of revenue but the growth was not where we wanted to be to be getting to $200 million in the short term that we’re hoping to get.

So over the course of the second quarter, those RMs independently proposed and then followed through on replacing those TMs, the territory managers. So that happened starting at the end of the first quarter, extended through the second quarter, and was complete by the second quarter such that, as Tony mentioned, on our second quarter earnings call, we mentioned that we had 75 reps, of which 50 had been with us for six months or more suggesting or indicating that 25 had been with us for six months or less. So those were the turnover reps, roughly 13, and then the remainder were new hires to expand our sales force. So essentially, what we’re doing is reaching higher up into the organization from the perspective of lower performers and replacing reps that might be hitting greater than breakeven numbers, but whose growth had become a bit slower.

And the RM had determined that that could be upgraded. So, that all took place in the second quarter. We entered the third quarter, in the first month, believing that we’re on track to hit numbers notwithstanding, but it’s awesome that heated off in the latter part of the third quarter. And so what we’re doing to answer the second part of your question, which is what are we doing to make sure that we get back on track and that we have the right reps in place, and that they’re growing at the rate growth rates, we have a couple of programs in place for the fourth quarter, to both address the fourth quarter and the longer term. So the first is we have two new training sessions in place. So our new sales reps are gone through a longer introductory training session and then all reps are going through deeper PRS training.

One of the things we found is that new reps tend to be a little slower on the uptake of PRS sales and that’s a greater potential source of sales and growth. And then second, we put in place two incremental IC plans, one for those reps that are on track to exceed their quotas for the fourth quarter, to incentivize them to further than they already are well beyond their quotas, and then for those reps that might be short of their quotas, that is targeting forecast to be short of their quotas, an additional incentive plan to give them additional motivation to sell and not just wait for the reset of their quotas in the next quarter.

Tony Koblish: Yeah, Frank, I think philosophically, right, where we run the business with an eye towards long-term durable, sustainable growth and quality right. So we did a massive upgrade in talent with our regional manager team and we gave them the task of figuring out where we had some stagnation or slower growers, and they did just that. And we made the decision to do it again to have the strongest team in place at the end of this year. This year is going to be what this year is going to be but we’re already thinking about next year. And if you just look at the key metric, which is we drove this type of growth, with only about 50 or 55 reps that were even on board for six months, we’ve got a bolus of 25, 25 plus reps, that are right now getting trained seasons and matured and we want them to be passing through that six months point of productivity, hire talent, by the way, right as we start next year.

So we’re thinking ahead, not just to triage what Roberto mentioned for the rest of this year, but really, the focus is the 12 months after that and then 12 months after that. Our goal remains $200 million company as efficiently and effectively as possible.

Frank Takkinen: Okay, that’s good color, and then maybe just for my second one, can you just talk to some of the factors between the low end and high end of guidance?

Roberto Cuca: So, just the rate at which we’re able to get our reps up to speed, unpredictable things in the economy, we expect to see, as we normally do that the fourth quarter is the strongest of the year, we tend to see a strong push in December as both physicians and our sales reps push to hit their numbers. But exactly how that all comes together is really something that’s a little bit variable and so the range just accounts for that variability.

Tony Koblish: We can have a big run [Multiple Speakers] things come together at the end of quarters, right. So we want to make sure that we have this thing maturing and peaking at the right moments, not just in a year, but during each quarter as well, so timing.

Roberto Cuca: Thanks, Frank.

Frank Takkinen: Got it. Thanks for questions.

Operator: Thank you. And one moment for our next question. And our next question comes from Caitlin Cronin from Canaccord Genuity. Your line is now open.

Caitlin Cronin: Thanks for taking the questions. Hey, what’s up? I know you talked a little bit in the last question about how you saw a little bit of weakness kind of coming out of the Q3. What have you seen coming into October and November for Q4 in terms of the business environment and just kind of rep productivity?

Roberto Cuca: Sure, so one of the ways we analyze the quarters is we measure the ratio of the first month of the quarter to the actual fully achieved quarter. So we have historical data on that, obviously, ever since post-COVID, well it isn’t even pre-COVID but it’s useful post-COVID, and what we see is that the ratio of our actually achieved October sales to what we forecast for the fourth quarter is right in line with our historical data of what actually occurs. So we feel pretty comfortable based on that and then based on the activities, the tactics that were put in place to get our reps back up to speed, that we’re on track for hitting the quarter.

Tony Koblish: Yeah. And to back up what Roberto said, Caitlin, if you look at July, right in Q3, that metric that Roberto mentioned, as a percent, the first month was not in line, right, so there was a difference.

Caitlin Cronin: Got it. Makes sense. Okay. And then just for my second question, any thoughts on 2024 growth, or at least maybe comment on thoughts where the Street is right now for 2024, a little bit over 80 million?

Roberto Cuca: So we’re still in process of putting together our budget right now and that includes the revenue budget. I think that off of the prior Street numbers, the growth rate was probably on the lower end of a reasonable range. But given the new numbers that we could be coming out of the year with that number might be on track. We think a bit more about the growth rate than the actual — single number. But we’re digging into that and, as Tony said, one of the things about what we’ve just done is we put in place a sales force that, as of today, we have 79 sales reps in place of whom 55 have been with us for six months or more and then by the first quarter of next year, that should be much closer to the full complement of 79 being at that six month mark with some additional hires between now and then.

Tony Koblish: Yeah, I mean, to give you to give you a feel, Caitlin, we’re running a week long sales school right now and I think we have 35 attendees, five or six new regional managers, and the rest are all reps. And I think it’s by far the strongest, best pedigreed group that I’ve ever seen, right. So things are just getting better and better and better, which reduces your tolerance for decent performance, mediocre performance coupled with stagnation. As Roberto said, this is about growth, right, and next year will be about efficient growth. Holding our infrastructure as solid as possible, absence of sales force and customer facing but we’re going to — we basically have the infrastructure to drive that growth and attract that talent pool and we were going to take advantage of it. So that

Caitlin Cronin: Awesome. Thanks for taking the questions.

Roberto Cuca: Thanks, Caitlin.

Tony Koblish: Thanks.

Operator: And thank you. And one moment for our next question. And our next question comes from Matthew O’Brien from Piper Sandler. Your line is now open this.

Matthew O’Brien: Afternoon, thanks for taking the questions. A – Roberto Cuca Hi, Matt.

Matthew O’Brien: Sorry to harp — hey, sorry to harp so much on Q4. But two months ago you guys are talking about a midpoint of 62.5 and now we’re about 58.5, so it’s down about 4 million bucks for the back half of the year alone over the last two months, so it just seems pretty significant as far as is that drop goes. And I just love to hear a little bit more about that specifically. I mean, I don’t know if there was like 10 or 15 people that were doing tons and tons of revenue that you lost or you moved on from or how that works. And then the bump from Q3 to Q4 in absolute dollars is the biggest bump, as far as the midpoint of the range goes that the company has seen, actually much more than the company has ever seen. So just again, the comfort level on that, what bridges you to get that extra revenue in Q4, as you have a third of the reps that are still pretty junior.

Roberto Cuca: Sure. So let me start with the bump question first. So as I mentioned on a prior question, one of the ways we analyze our thinking about the quarters in the year is we take a look at what we’ve achieved in the quarter-to-date and the rough way to do that is the first month of the quarter, and then how that measures up against what we are hoping to do for the full quarter and then how that ratio compares to historical achievement in prior quarters, and in the prior year’s quarters, so the seasonalized quarters. So based on what we’ve seen in October revenues, and comparing that to what we expect to see at the midpoint of the range for the quarter, that’s right in line with what the historical average is for achievement, the first month to full quarter.

So on that data point, and then on the initiatives that we put in place to incentivize the reps to close the gap from the performance we had in the third quarter, we feel comfortable about hitting those numbers. And again, that’s a series of training and then some incremental incentive plans. As far as Q4 and the reduction of approximately $4 million from the midpoint of the prior year’s guidance range to the current, in that $4 million impact on the second half of the year, the turnover in the sales reps that occurred largely in the second quarter is what drove that. So, as Tony mentioned, on the last earnings call, we had 75 reps, of those a third had less than six months tenure. So that was a bit more turnover than we had initially budgeted.

We thought it was the right thing to do based on the analysis of the RMs, we believe it puts us in the best place for continued significant growth, our goal being to grow the best company we can as quickly as possible. And we put in place some steps to make sure that we get back to the growth rates that we had previously planned for as quickly as possible.

Tony Koblish: And Matt also something to consider is, given where we are in our development stage and our growth, a lot of the usage of our product is based on rep presence, right. So if we were bigger, more established, bigger market share player, you might just have natural momentum more of it. We have some of that, certainly, but it’s the presence thing, right. So when you do that transition, you tend to dip. So even though we had stagnation or mediocre performance in some of these territories, likely those went down, but now they’re filled with stronger talent and we should start to see that move. The other factor to consider is the PRS LTR product, right, we did a soft launch of that around August or so and it’s well over 2 million, 2.5 or so, probably 50% of that is new business.

So that’s going to be a superb driver for us over the next 24 months, and it’s just warming up, it’s not even in everyone’s hands yet. So from a timing perspective, we feel very good about where we are over the next six months, and again, like I said, focusing really hard on the start of next year and continuing to drive that, that stronger growth rate next year.

Matthew O’Brien: Got it. And then maybe just as kind of a follow up to that, Tony, how much did it cost you, you think this transition of these things? It sounds like, I don’t know, 15 or 20 reps or maybe less than that, maybe eight to 10 reps. How much did it cost you in Q3? Do you estimate? And then how productive were those?

Tony Koblish: From a revenue perspective?

Matthew O’Brien: Yeah, I mean, how productive — sorry, just real quick, how productive were those remaining reps? It seems like the remaining reps did an unbelievable job in Q3 even get to this kind of growth.

Tony Koblish: Well, Robert is going to jump into the meat of your question, but I’m glad you brought that up. That’s a superb observation that I think you got to focus on the fact that we drove the revenue bulk and growth with 55 reps with a chunk of those six months, right. Certainly, there’s a longer tenured rep but that’s a pretty powerful impact, right. So we got 25 new ones idling and we lost probably 13 or so, 14 or so in this upgrade process. So I think you can just see that this thing is set up, right, to have the full complement of 79 or 80 reps now being at the level of the previous 55 again, as we start next year, right, so.

Roberto Cuca: And Matt, I realize I didn’t hit the first part of your first question squarely, which was did we lose a lot of high performing reps? We didn’t. So we retained all of our highest performing reps, you might think about it as us reaching up higher from the lowest performing reps, and taking out reps that, while not obvious underperformance cases, we’re maybe at higher than breakeven revenues, but we’re not on the growth trajectory that we needed. And so your question about the cost of making these changes, so of the 25 reps that were within — were with us for less than six months, about 13 of those were turnover reps, and the remainder were new hires to fulfill our growth goals for the year. In the turnover category, we typically provide severance of about three months and so the cost — the incremental cost would be how much overlap there is when we get the new reps in.

And given that we did end the second quarter was 75 reps, there’s probably some overlap, but that that base pay amount of overlap is not going to be a huge amount affecting our P&L.

Tony Koblish: Yeah, I mean, one more comment, Matt, since this is the strong, heavy topic here, is of those 55 tenured reps, they did an excellent job of attaining forecasts, right. And if you look at the underserved or turnover territories, right, most of that shortfall was due to the vacancies or the transitions. And we had a target that was higher than consensus, so the loss was probably a smidge higher than consensus, right. So there’s a powerful, productive sales force that’s coming together here. I’d say this is a timing, dislocation or growing pain.

Matthew O’Brien: Okay. And I’m sorry, Tony, to keep harping on this and monopolize everything here.

Tony Koblish: Bring it, we love it.

Matthew O’Brien: Was the productivity of this group, that 55, up double digits from Q2 to Q3, because that’s what I’m getting in the model, in a seasonally soft quarter?

Tony Koblish: I will have to think about that.

Roberto Cuca: So we had, yes, very strong performance in the existing reps. One thing to know is in the turnover territories, the new reps were coming into territories that previously had revenues, so it’s not like they achieved zero.

Tony Koblish: Actually, we constituted, yes.

Roberto Cuca: So there was continuity in some of those territories. But, yes, our existing reps had very high performance levels.

Matthew O’Brien: Okay, thank you.

Tony Koblish: Thanks, Matt.

Operator: And thank you. And one moment for our next question. And our next question comes from Michael Sarcone from Jefferies. Your line is now open.

Michael Sarcone: Good afternoon, and thanks for taking the questions.

Tony Koblish: Thanks, Michael.

Roberto Cuca: Thanks, Michael.

Michael Sarcone: Just a follow up on Matt’s question about the sales reps. So you just mentioned your internal targets were maybe a little higher than consensus, which was a little over 16 million. So I guess that’s around a $1 million shortfall in 3Q and you took guide down by 4 million at the midpoint. Does that mean the original expectation for 4Q was just kind of midpoint of the 4Q guide plus that 3 million? Is that a fair way to think about it?

Roberto Cuca: No. So I think Tony didn’t specify exactly what our internal expectations were. So, yeah, so we — yes, we have very high performing reps, as I said. We had some turnover that we didn’t expect at the beginning of the year, we did it for the right reasons. We set to sales force, we have reasons to believe that the newly recruited RMs who come in and who are very high quality, had good enough eyes to bring in new reps who are going to perform even better than the reps that we already have. The reps that were onboard continuously in our territories, as was pointed out in the prior question, did perform at a very high level, to achieve what was achieved in the third quarter and I think it’s worth reiterating at least one more time that we had 35% growth in the third quarter. So, yes, we had high expectations, there was a disruption to them. We believe we fix that and we continue to have high expectations.

Tony Koblish: We set a high bar, we push ourselves. And we’re constantly focused on analyzing, continuous improvement and doing the right thing. But Michael, I want to point out some qualitative thoughts, right, the qualitative positive indicators for the company right now are through the roof. They’ve never been better, right. I already talked about the LPR and it’s update. But you know, we just came out of the American Hernia Society meeting, we sponsored a lunch and learn, which are really usually pretty sparsely attended, we had well over 200 surgeons packed, every seat was filled, they were standing room only against the back wall. That to me is a massive signal of interest in the company, interest in the product.

And that’s been our biggest challenge is getting the visibility and the validation. We are running a super aggressive and sophisticated medical education program. Our target was to train and educate 1000 HCPs this year, we’re already over 1100, right. So that’s both on the plastic side and the hernia side, so the exposure and interest in what we’re doing is huge. And the message is being promulgated in a big way. Well, we just came out of the ASPS meeting in Austin and again, we had a huge showing there. We had hundreds upon hundreds of Docs and participants in some of our sponsored events. Our booth traffic was super high, we ran two ad boards. I think we had something like 30 different surgeons through those ad boards. So again the validation and getting to know us is huge.

But I’m really excited about the fact that we are accelerating our penetration and relationships with robotic surgeons that are KOL trainers and proctors for the major robotics company. So we’re starting to set up case observation sites now, every time one of these educators, mentors, and surgeon, they’re going to be exposed to our product. So I kind of think that if we can get into that robotic platform from the grassroots ground up through surgeons, that’s a huge footprint and opportunity, and we’re just starting that out but we’ve made a tremendous amount of progress in the last quarter. So I offer that up as some ancillary qualitative assessments, they are through the roof, all those metrics have never been higher.

Michael Sarcone: Got it. Thank you for that, that is really helpful. And forgive me on this one, because I know, Roberto did give us a little teaser and said hold on for the questions, but I’m just curious, because I get a lot of inbounds on the consensus right now models continued cash burn at a $25 million to $30 million range for the next few years. I was wondering if you could give us any incremental color or tidbits on your ability to drive leverage in the model?

Roberto Cuca: Absolutely. So I’m glad you asked that question. The one thing that I think we do feel comfortable with talking about next year versus this year is we expect growth in OpEx to go down considerably, and our goal is to constrain it to a single digit. We burned $7 million of cash in the third quarter that cash burn can be a little seasonal, we ended the quarter with $58 million of cash. If you divide that by seven or by that by something higher, you can see that even straight lines, we have a pretty long pathway but that doesn’t factor in the improvement to cash burn as our revenues grow with considerably higher rates than our OpEx does. And there’s still room to for gross margin to improve even from the levels that we’ve currently been achieving.

Tony Koblish: Yeah, we understand where we are, we understand the job for next year, and we are on track, as Roberto said, to constrain that OpEx at a lower level and to start to drive leverage. We have the infrastructure in place to make the growth happen.

Michael Sarcone: Okay, thank you.

Roberto Cuca: Thanks, Michael.

Operator: And thank you. And one moment for our next question. And our next question comes from Dave Turkaly from JMP Securities. Your line is now open.

Dave Turkaly : Hey, good evening, guys. I just want to clarify one point, not trying to beat a dead horse here. But the 12 new regional managers that you hired in 1Q, were those replacements or you did not have them before?

Roberto Cuca: We had seven regional managers and we basically upgraded each one of those and added to get to 12.

Tony Koblish: One of them was promoted to become an area.

Roberto Cuca: That’s right. That’s right.

Tony Koblish: And the remainders were upgraded and that was in the fourth quarter.

Roberto Cuca: Yeah, I mean, this is a massive push for continuous improvement, and upgrade, right to set ourselves up from the $50 million, $60 million business we are now to have the talent in place to go beyond $100 million to 200 million.

Dave Turkaly : Got it. And then your comments about the incremental programs, I’d love to just get color if you could give it to us. How many of your folks are above quota and how many are not, a broad percentage stroke, if you can give it to us?

Roberto Cuca: So the quota is not by month but by quarter, so it’s projections of likelihood of hitting quota, and the majority of them would be above quota. So Tony mentioned that, as of today, we have 79 reps and 55% of them have been with us for at least six months, it’d be very unlikely for any of the 55 to be expected to be below quota.

Tony Koblish: Yeah.

Roberto Cuca: And of the shorter tenured reps, some of them are going to be in their first quarter in which the quota is essentially nominal, but the remainder should be on track or being helped considerably. So I’d say the large majority of our reps are on track for at least hitting quota.

Dave Turkaly: Great, thank you for that.

Roberto Cuca: Thanks, Dave.

Operator: And thank you. And I’m showing no further questions. I would now like to turn the call back over to Tony Koblish to close the call out.

Tony Koblish: All right. Thanks, Justin. And thank you everyone for joining us. We appreciate your continued interest in TELA Bio. Have a great rest of the evening and we look forward to talking to you again next time. Thank you.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.