Q4 2023 Sanara Medtech Inc Earnings Call
Participants
Callon Nichols; Director - Investor Relations; Sanara Medtech Inc
Ron Nixon; Chairman; Sanara Medtech Inc
Zach Fleming; Chief Executive Officer; Sanara Medtech Inc
Michael McNeil; Chief Financial Officer; Sanara Medtech Inc
Ross Osborn; Analyst; Cantor Fitzgerald
Michael Liu; Analyst; Intelligent Fanatics Capital Management
Chris Plahm
Presentation
Operator
Welcome to the Syneron medtech, Inc. Fourth Quarter and 2023 Full Year Results and Business Update Conference Call. 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, this conference is being recorded. I will now turn the conference over to your host, Caroline Nicholls. You may begin.
Callon Nichols
Thank you, and good morning, everyone, and I'd like to welcome you to Ciner medtech Earnings Conference Call for the quarter and year ended December 31st, 2023. We issued our earnings release yesterday afternoon, and I would like to highlight that we have posted today's deck on the Investor Relations page of our website, the supplemental deck, as well as a copy of the earnings release and the Form 10 K for the quarter and year ended December 31st, 2023, or also available on this page. We will reference this information in our remarks today with us today are Ron Nelson, our Executive Chairman, Sach Fleming, our Chief Executive Officer, and Mike McNeil, our Chief Financial Officer. Please note that certain statements in this conference call in our press release and in our supplemental deck include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For more information about the risks and uncertainties involving forward looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in our most recent annual report on Form 10 K. Also this conference call, our earnings release and supplemental deck reference certain non-GAAP measures. In that regard, I direct you to the reconciliation of these measures in the earnings materials that are available on our website.
Now I'd like to turn the call over to Ron.
Ron Nixon
Thank you, Calin, and good morning. Everyone. fourth quarter of 2023 was another record revenue quarter for senior and 2023 was another revenue record year. Company generated $17.7 million in revenue in Q4 and $65 million in revenue for the year. For the three months ended December 31, 2023, the Company had a net loss of $300,000 for the year ended December 31, 2023, we had a net loss of $4.4 million. We were breakeven on an adjusted EBITDA basis in Q4 and generated a $300,000 adjusted EBITDA loss for the year. We incurred expenses of $400,000 in the second half of 2023 due to an acquisition opportunity that didn't materialize in looking ahead to 2024, we expect to further expand our sales force and focus on new geographic areas, further penetrate additional specialties outside of both on spine and continuing to drive new product development, including expanding this decelerate RX platform, intellectual property as well as being developed and began developing peptides. We recently licensed from Tufts University to expand our peptide platform. We're also continuing to see complementary partnerships and platform expansion opportunities that could be beneficial to our business.
I'd like to also provide a brief overview of tissue health plus our value-based care strategy. For post-acute care post-acute care. This strategy fits well with scenarios go to lower cost and improve outcomes within the health care system. However, there are significant differences between THP. and our surgical business, which is focused on the acute market related to healing and preventing infections of surgical sites. While PHP. is being developed to address the prevention and treatment of chronic wounds and home, given the differences in the care suite and the site of care selling channels and payment systems between our surgical business in tissue Health Plus we believe this is very complementary to our post-acute strategy partnership with InfuSystem. We envision the system wound care partnership being an integral part of the tissue Health Plus strategy, given their focus on overall wound care and the common objective of improving outcomes and lowering costs for the health care system. If we have begun to have discussions with other potential partners to share the development cost of our strategy that could result in scenario potentially owning less than a majority of tissue Health Plus, but carrying out this very important strategy.
I will now turn it over to Zach to go into more details on our achievements during 2023.
Zach Fleming
Thanks, Ron. I'd like to start by discussing the strategic and operational achievements that the Company realized in 2023.
In August, we acquired all rights for human wound care uses for salary, Rx and high costs in addition to other wound care assets. Since the transaction we have eliminated the royalty we pay on these two products, and we now have full rights to develop our own proprietary products. As we previously discussed, we had supply issues related to our LSA product line in 2023. In late 2023, we solve this issue and successfully launched and recorded our first sale of our site plus this product replaces our outside of tuning, replaces our LSA product in this process by an alternative supplier with in-house processing capabilities. This will afford us greater control of product supply. So it's easy The Company now has a sufficient supply of our site plus to meet currently expected demand, and we have measures in place to adequately stock the product in the future. In addition to our first sale of Alflex plus. In November 2023, we launched recorded our first sale of BioStorage advanced surgical solution. We view this product as a significant addition to the portfolio?
Yes, Kipp, our breadth of portfolio and believe that it can be used in any surgery where scenario, but products are currently used in November 2023 scenario analysis and publication of a retrospective study involving 5,335 patients. The study demonstrated the effectiveness of salary, Rx, surgical powder and promoting surgical wound healing, specifically a significant decrease in surgical site infections was observed. This exhibited a significant reduction in surgical site infection rates of 59% that was among patients undergoing elective surgery. This reduction was most pronounced in clean cages with a 69% decrease in surgical site infection rates. In December, we executed a license agreement with Tufts University for 18 unique peptides. We are currently exploring opportunities to incorporate these peptides into new products that we could develop it Rochelle.
Turning to our sales results. In 2023, our products were approved or excuse me, were sold in over 1,000 facilities across 34 states and the District of Columbia, our products were approved to be sold into more than 3,000 facilities as of December 31, 2023. Sales and approvals of Biosearch continued to grow, and we are pleased with the traction we have seen in this product at the end of 2023, we had 39 field sales representatives, but we've made significant strides in our data analytics and the use of various sales metrics to both measure our performance as well as penetrate further into our existing accounts and hospital approvals. These efforts have given us detailed insights into our business and allowed us to refine our model for the steps that need to be taken to develop the sales, successful sales manager and territories. Sales of both our soft tissue products in our bone fusion products continued to grow. Sales of soft tissue products were $54.8 million in 2023 compared to $41.7 million in 2022. Sales of bone fusion products were $10 million in 2023 compared to $4 million in 2022.
I'd now like to provide additional details beyond what Ron mentioned earlier on tissue health plus our value-based care strategy for the chronic wound market. We're currently in discussions with prospective partners to facilitate commercialization of tissue L plus and sharing the development cost of the complete strategy. Excluding non-cash items, our full year operating expenses for TCL plus in 2023 for approximately $5.2 million. While we work to find the right partners, we'll continue to build out the key capabilities needed to commercialize tissue Health Plus. These include a care hub, a managed service organization and a technology platform. The carrier hub will include a virtual care coordination and navigation center. The management service organization will be a network of providers delivering a high standard of patient side, wound care and the technology platform will be an automation and integration platform to scale the care hub and MSO. network workflows. We believe this comprehensive strategy will be unique and impactful and lowering costs and improving outcomes for wound care patients, providers and payers.
I will now turn it over to Mike to discuss our financial results.
Michael McNeil
Thank you, Zach. As Ron mentioned earlier, we generated revenue of $65 million in 2023 compared to $45.8 million in 2022, a 42% year over year increase. The higher net revenue in 2023 was primarily due to increased sales of soft tissue repair products, which includes accelerate RX and bone fusion products. As a result of our increased market penetration, geographic expansion and our continued strategy strategy to expand our independent distribution network in both new and existing U.S. markets. Full year 2023 SG&A expenses were $57 million compared to $46 million in 2022. Sg&a as a percent of revenue decreased from 100.3% in 2022 compared to 87.7% in 2023. The higher SG&A expenses were primarily due to higher direct sales and marketing expenses, which accounted for approximately $8.1 million or 74% of the increase compared to the prior year period. The higher direct sales and marketing expenses in 2023 were primarily attributable to an increase in sales commissions of $6.9 million as a result of higher product sales, 2023 SG&A expenses also included $1.2 million of increased costs as a result of sales force expansion and operational support and $0.4 million of costs associated with an acquisition opportunity that didn't materialize. We expect our SG&A expenses to continue to decline as a percent of net revenues as our sales growth outpaces the cost of sales force expansion in corporate overhead. 2023 R&D expenses were $4.1 million compared to $3.4 million in 2022. The higher R&D expenses in 2023 were primarily due to costs related to the precision healing diagnostic imager and LFA. R&D expenses for 2023 also included costs associated with ongoing development projects for our products currently in development, we had a net loss before income tax of $4.4 million for the year ended December 31, 2023, compared to a loss before income tax of $13.9 million in 2022. The lower loss in 2023 was primarily due to increased gross profit and changes in fair value of earn-out liabilities, partially offset by higher SG&A costs, higher R&D expenses and higher amortization of acquired intangible assets for the year and for the year December 31st, 23, we had a net loss of $4.4 million compared to a net loss of $8.1 million in 2020. To the note, lower net loss of 23 was primarily due to additional gross profit realized on higher 2023 revenues. Our cash on hand at the end of the year was $5.1 million. With that, I'll turn it back to Ron for some closing remarks.
Ron Nixon
Thank you, Mike. As we mentioned before, scenario had both a record quarter and record year in 2023. We continue to build the infrastructure that we need to support our growth in the future, and we're grateful for the hard work and dedication of the entire team.
That concludes our remarks, and we look forward to answering any questions you may have. Operator, we're ready to open like to open the call for questions.
Question and Answer Session
Operator
Thank you. Secondly, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue you may press star two. If you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please while we poll for questions.
Yes. Your first question for today is from Ross Osborne with Cantor Fitzgerald.
Ross Osborn
Again, good morning and congrats on the strong results so starting off maybe with Biosearch, could you discuss how many centers we sold in during the fourth quarter and maybe how many Europeans would be sold at it as a follow up now and feel like we can share more than launch.
Ron Nixon
Zach, do you want to take that? Zach, you're on mute.
Zach Fleming
I'm sorry. I heard the first part. You said how many centers in the fourth quarter? What was the second part?
Ross Osborn
But just any feedback you could share?
Zach Fleming
Yes. So biosurgicals has been we're very well liked out in the market as you know, we had a from a pre pre launch soft trial where we, as I said, product out of facilities, we're able to get feedback from surgeons, and that's yielded quite a few pretax sales approvals and we'd be able to sell those immediately. And then we've spent a lot of time since the launch really November and December just gaining additional traction in the market, getting additional trials going. As you recall, when we do approvals, we have to go through sort of the back analysis, but oftentimes it's a trial as well, where they want to take a look at the product for a few patients. And so we've done that and we have not disclosed the number total for the fourth quarter, but we feel really good about where we are. We have about at this point, right around 51 through the fourth quarter, Kevin, just texted me. So we did a we did add 51 in the fourth half 51 through the fourth quarter and are actively selling to those. And we're continuing to add to those, which we'll discuss next quarter where we progress, but we're really happy with the product. And the doctors have really found that to be a really nice Adhibit to the same cases that they're already using Zelle Reagan as well as some of our bone biologics. So as you can imagine, they want to prepare the site by getting rid of them, biologic contaminants, any of the biofilm, et cetera. And then they add in our product like accelerate to help close the wound.
Ron Nixon
And again, Greg, as we've been able and Kinross, obviously, it's very complementary to celebrate, as Zach mentioned, and given that we you know that we have published the study retrospective study that we did for reduction of surgical site infection. This just goes hand-in-hand with that very complementary. So I think it's going to be well received by the surgeons that already use satellite.
Ross Osborn
Got it. Great to hear it. And then maybe lastly for me, just on accelerate what you hope to improve with that offering by the acquisition of the 18 peptides?
Ron Nixon
Jacquie?
Zach Fleming
Ross, you want to take that idea and
Ron Nixon
I didn't actually hear the question.
Zach Fleming
He just asked what are we trying to accomplish by getting 18 peptide. So different, we had a peptide.
Ron Nixon
But on the other hand, I'm happy to take that.
So Ross, we the obviously a separate falls into the category of being a having collagen peptides. And one of the keys that we're trying to do is increase our IP around the whole collagen strategy that we've got going forward with separate Rx and on. And we are, as we mentioned, we want to expand our coverage into other specialties. There might be uniqueness needed or required based on certain specific some comments in peptides that we would like to develop. And so they've got a number of indications for use through those 18. And as we sort through that and begin to look at what those priorities are going to be for us going forward. We will obviously keep it centered around accelerate our efforts, which is obviously our obviously a great product today will continue to be in the future. Just wanted to strengthen that platform, but also expanded into more usages within the surgical arena. And some of those peptides actually have application outside of that and more than likely in that case, we will be seeking partners to have stronger capabilities on the marketing front for us with those. But the dominant reason that we did that is to continue to secure more and more technological advantage in the marketplace through our IP.
Ross Osborn
Sanjay? Hi. Thanks for taking my questions and congrats on strong results.
Ron Nixon
Thank you. Ron.
Operator
Thank you. Your next question is a webcast question from Neil cattle cattle. All D, you mentioned LSA sales began to back pickup backup in October of last year. However, we didn't see much of an increase in its revenue segment during the fourth quarter. Can you give us a sense for where you're at today with LSI in terms of ramping back to a normal run rate? And how should we think about that run rate in terms of annual?
Zach Fleming
Yes, sure. I can take that. So yes, we did have I see a kind of a delay in or inability to get full supply late last year, starting around September and actually extended into October. We did a good job of managing based on the sizes available. And so to your point, we didn't see a tremendous drop-off density, a tremendous increase from that particular product because of the management of just the sizes as they were demanded out in the market. And so what we've done is with our site plus, you have to go back out to the facilities, get a new approval, becomes a line extension or a new product that has to get added. And so we've done that and gone back to facilities where we had had some momentum and had lost the ability to sell because of supply. And then now we're back on paid with most of those facilities. Some of them had moved on to other products. But for the most part, we're able to get back on track with all those facilities.
But then there's the additional time that takes to stock and then start to ramp up. And then then we're trying to regain some of the business from the surgeons and so forth. And of course, the distributors that work with us as well and retrain them coach them back up on this particular product and then get it started again. So that's where we see that. And it's kind of like that whole fourth quarter was the kind of regain our footing. And then into this year, start to sell in and proactively approach new facilities and go beyond where we were. So we kind of tread water, if you will, and now we're on the move forward and we feel confident in our approach and where we're headed with that product is starting to move forward.
Very nice.
Operator
Your next question is from Michael Lu at ICE.
Michael Liu
Yes, hi, guys. Thanks for taking my questions. Congrats on the quarter. And my first question, could you potentially clarify the sales force growth throughout the year? I think you disclosed last year that you ended the year at 39 and you're at 39 now, and it sounded like you added a couple of throughout the year and it seems to be about flat. So could you just maybe take us through the cadence of them, how many sales reps you've had throughout the year and where the major changes have happened?
Zach Fleming
Yes. I think the simple way to think of it is that three folks got reclassified and then for roughly four got analyst Board got terminated in Q4. And then so you had kind of reclassifications promotions would be part of that and then terminations and
Michael Liu
Okay. So broadly, Olivia, that.
Ron Nixon
Yes, Michael, the one thing that I think is the most noteworthy is that we accomplished a 42% increase in revenue growth with the same number of beginning and at the beginning of 2023 or ending at 2022. And where we ended 2023. Our data analytics, as Zach mentioned earlier, are being well utilized. We're seeing much better efficiency. And so we have a much better job speed to profitability per rep. We also have a much better understanding of their potential and how to achieve that potential within each one of the areas that they're selling him. So I think the efficiency gains we've gotten there is giving us great leverage on our sales force and then we'll just continue to expand as needed into the marketplace.
Zach Fleming
Yes, we're always making adjustments to the team at when it whenever we see it all this data and analytics really trying to make adjustments to optimize the team. Obviously, you'll continue to see that that's not going to change. And we always want to increase efficiency where we can. And so that's the second component of that where we're at, like Ron said, we're going to look at that data. We're going to optimize location, and we're optimizing the call points. And so in doing that, that's that's the kind of plus minus. And we have always let people go that maybe aren't working out as well. So that just will continue to happen.
Michael Liu
Okay, great. And then on the tissue health plus potential spin out our partnership, and I appreciate you can't provide too many details yet, but I was curious if you could tell us what stage you are in the talks of doing that spin out. And then my main question is when you do a transaction that one way or another gets tissue, how to close off your books, would that be a cash inflow to scenario or a cash outflow for you? Or would it not impact your cash?
Ron Nixon
Yes. So we do here's how I would describe it, Michael, due to our strategy, we're very much big believers that tissue Health Plus no one has ever accomplished pulling the comprehensive strategy together, the way that we've described it today to you and our overarching goals are achieved funding for the strategy with partners that can actually help implement the strategy, as you saw that we've got the MSO network as part of what we do, that is not something that we would own. So that's a partnership we have other needs out there related to the strategy that could be fulfilled with partners that have a better, a better focus on certain areas of that. So those are the types of value-added partners that we're seeking. We want to have that accomplished in 2024. We then want to begin to commercialize in 2025, and we assume that would be some sort of a pilot launch either probably sometime in the beginning of Q1 and then go full commercial. But the overall expectation is that this will be a cash flow generator long term and whether or not that is accounted for under the equity method where it will be distributions kicked out to Samara or rather we still own the majority of it. And it's kicked out one way or the other. We want to secure those partners that will help fund this strategy to completion and not be a significant drag on a scenarios overall performance Okay, thanks, sir.
Michael Liu
To clarify, you're not looking at a potential deal structures where, for example, scenario would have to fund the JV along with a partner or something like that.
Ron Nixon
You would definitely not cannot be safer and go out and we can we've already made lots of investment into that. So that would be our contribution into the partnership.
Michael Liu
Okay. Thanks for taking my questions.
Zach Fleming
Cool.
Operator
As a reminder, if you would like to ask a question, please press star one. Your next question is from Chris Palm, Paul Pines, Capital.
Chris Plahm
Morning, guys.
Ron Nixon
Morning, Chris, are you
Chris Plahm
that's probably a question for you on tolerate some. Could you give us maybe a little more color on two things. One, kind of the organic growth from the existing 1,000 hospitals you guys are already selling into for this year and beyond? And then also maybe a little more color on the gap that you want to close on sales with the 2000 gap and approvals and where we're selling into today?
Zach Fleming
Sure. Thanks for the question. So for the 1,001 of the main things we're trying to do. There is expanded new specialties. We've done a good job, I think getting into ortho and spine and foot and ankle. Those are fairly straight line for our representatives and as well as the 1099 agents we recontract with. And I think those for those particular specialties have a great need for this type of product they're putting in fairly expensive hardware and material. And then, of course, want to make sure that the tissue closes on eventually around it. And then, of course, there's any potential problems they might have where as the wound would move forward, they could decelerate to help that wound to heal. And so we also see a big opportunity plastics in general vascular, primarily those three, but additional specialties as well, where they are really challenging patients and really challenging wounds. And we think that there's a lot of opportunity. I've seen a lot of this already where we've started to access these new specialties. So we're coming out with additional case studies. We're going to do some additional case reports where do things to really explore and exploit out those particular specialties. So they see the benefits of the product just like we've seen with with Ortho spine it and put dietary. So that's the main goals is to expand kind of horizontally in the facilities get a little deeper. We are also doing a lot of education to the clinical staff. So every surgery have scrub tech circulator. There's different types of nurses that support the case as well as nurse practitioners and first assist. And those people are really critical to the closures and in the cases as well as the postoperative care. So we've done a lot of effort just because bias there just such a great product to have handhold accelerate is really educating the one-two punch of those products and the power there. So you can prepare the wound and then you can close the wound or help biologically support the wound visit continues to healing. So that's that's really the goal with 1,000 is to continue to expand and grow around those. And some of that is just gaining more head count. We talked about account a moment ago. We're going to have to put a few people in to support larger accounts because there's just a demand. There's a lot of time associated with supporting the cases. So we can we want out of to have people in the cases at all times and really own the account. So we could have the TM model, which you may remember, that's a supportive component to the regional sales manager. So that will continue as well. And then to gain access to the additional 2000, a lot of those are just additional partners, 1099 agencies that we can contract with and access into those accounts. We've obviously gotten great data, which allows us to identify and prioritize which facilities have the most opportunity within those 2000. So you're going to target those and have our people run to those particular accounts and then identify the surgeons within as well because that data is available that really they're dealing with potential problems or patients that have high risk. That's the type of person we would, of course, want to call on and used as a champion. And that happens through a lot of different things trade shows where we're meeting and being on in front of different surgeons and meeting new distributors, but also happens through podium talks and things of that nature. And then additional papers that will have written and published. So all those things kind of helped to bring in or surround sound and create more demand in these additional accounts.
Ron Nixon
And Chris, we are we don't actually put out a forecast or penetration into what markets we're going into. But I can tell you that the greenfield opportunities, both for the of the current thousand plus the overall approvals that we have is significant. So we see plenty of potential runway for the salaried class.
Chris Plahm
Great. Thanks, guys.
Ron Nixon
Thank you.
Zach Fleming
Welcome.
Operator
We have reached the end of the question-and-answer session. And I will now turn the call over to management for closing remarks.
Ron Nixon
Greg, you, everyone for joining our call this morning, and we greatly appreciate your support, and thank you for being patient and great long-term shareholders with us.
Operator
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
