Q4 2023 Tenon Medical Inc Earnings Call
Participants
Steven Foster; CEO & President; Tenon Medicals, Inc.
Steven Van Dick; CFO & EVP of Finance & Administration; Tenon Medicals, Inc.
Bruce Jackson; Analyst; The Benchmark Company, LLC
Anthony Vendetti; Analyst; Maxim Group, LLC
Presentation
Operator
Greetings, and welcome to the Tenon Medical Fourth Quarter and Full Year 2023 results, financial results and corporate update conference call. As a reminder, this call is being recorded. And Your hosts today are Steve Foster, President and Chief Executive Officer, and Steve Van Dick, Chief Financial Officer. Mr. Foster and Mr. Van Dick will present the results of the operations for the fourth quarter and full year ended December 31, 2023 and provide a corporate update. A press release detailing these results was released today and is available on the Investor Relations section of our Company's website, www.tenonmed.com.
Before we begin the formal part of our presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates and other information that might be considered forward looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ material. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.
Throughout today's discussion, we will attempt to present some important or termination, some important factors relating to our business that may affect our predictions. For a more complete discussion of these factors and other risks you can review our prospectus dated April 26, 2022, particularly under the heading Risk Factors, which is on file with the Securities and Exchange Commission at www.SEC.gov.
At this time, I'll turn the call over to Tenon Medical's Chief Executive Officer, Steve Foster. Please go ahead, sir.
Steven Foster
Thank you, Paul, and good afternoon to everyone. I am pleased to welcome you to today's fourth quarter and full year 2023 financial results and corporate update conference call for Tenon Medical conclusion of 2023 marks the successful first full year of nationwide commercialization for the Catamaran system and operating Tenon medical as a public company. This success is highlighted by Tenon significant progress in our revenue growth and improving gross margins. We've entered 2024 from a position of operational strength and continue our focus on building market share. We've made considerable commercialization and technical progress and continue to gain traction in our go-to-market approach with SI focused positions and network partners adopting our proprietary Catamaran system, which we believe has broadened the competitive field of surgical options available for patients with chronic sacroiliac joint pain for degenerative simulators.
During the fourth quarter, Catamaran system experienced a [312%] increase in the number of surgical procedures from the prior year, which drove strong revenue growth with an increase of 192% year over year. The quarter was also highlighted by a third consecutive quarter of positive gross profit. Moreover, as mentioned in prior quarterly updates, our revenue growth and largely fixed cost structure will continue to fuel our gross margin performance to be sustainable at recent levels. We believe our fourth quarter was a good proof point as we achieved 69% gross margin, representing a significant sequential increase 57% gross margin in the third quarter for the full year of 2023, revenue grew 324% to $2.9 million and gross profit increased to $1.2 million as compared to a gross loss for the full year of 2022.
Continued expansion of our workshop activities during the fourth quarter, supported by our valued physician customers and the robust commercial infrastructure we built. As a reminder, we take a precise go-to-market approach through our workshop and training programs in order to address physicians and medical professionals with extensive backgrounds and experience in SI surgical technologies. We continue to focus on a hybrid approach with our local synthetic model and convert lab workshops to introduce the Cadomin system, creating a timely and efficient process for our physician customers. We supplement these efforts with intensive clinical support and service combined. These critical activities are designed to drive acceleration in the number of procedures completed with Catamaran system which we've experienced since we began the initiative, our program hosted 133 physicians and Catamaran workshops during the full year of 2023. During the fourth quarter we enhanced our marketing initiatives with participation in a series of immersive physician webinars training programs featuring the Catamaran system, attracting over 60 health care providers. Our partnership with Dr. Matthew Davies, of Orthopaedic Associates of Duluth, Minnesota provided a physician's perspective of our system as he discussed, his clinical experience performing over 50 Catamaran procedures. In addition to the presentation, Dr. Davies provided a demonstration of the simple inferior poster implantation technique of our unique transmitting SI joint implants. Building on the momentum of the quarter, we expect the number of surgical procedures to continue to grow as our sales team broadens our strategic marketing promotions and workshops featuring the Catamaran system. Additionally, we continue to enroll patients in our post-market multi-center clinical study and expect this enrollment to be finalized in the coming quarter. We expect a preliminary glimpse of early data in the coming weeks. Operationally in November, we were proud to pass a full quality system inspection technique or QC level to inspection conducted by the U.S. Food and Drug Administration. The QC inspection assesses the medical device manufacturers, compliance with quality system requirements and related regulations. The FDA's pass grade is validation of our ongoing stringent focus on our quality system, standardized controls and strict operational procedures that pan on medical. Additionally, during the fourth quarter, we entered a [125], $1.25 million secured note financing led by a cent special venture, which has been fully repaid by the issuance of Series A. preferred stock announced in February, we deeply value this investment and vote of confidence from a distinguished investor syndicate that veterans in the medical device industry. Because the $2.6 million of proceeds received from the February Series A. preferred offering was corresponding extinguishment of debt, will bolster our cash position and refined our balance sheet as we track toward 10 on's next stage of development, the growth, improved commercialization.
And with that, I'll turn it over to Mr. Van Dick, our Chief Financial Officer, to discuss our financials.
Steven Van Dick
Thank you, Steve. I'll give us a sync review of our financial results. A full breakdown is available in our press release that crossed the wire this afternoon. Our revenue was $808,000 in the fourth quarter an increase of 192% compared to $277,000 in the comparable year ago period. Revenue for the year ended December 31, 2023 was $2.9 million, an increase of 324% compared to the $691,000 in the comparable year-ago period. The increase in revenue for the year ended December 31, 2023 was as compared to 2022 was primarily due to an increase of 312% in a number of surgical procedures in which the Catamaran system was used.
Gross profit in the fourth quarter was $559,000 or 69% of revenues compared to a gross loss of $207,000 or a negative 75% of revenues in the comparable year ago quarter. Gross profit in the year ended December 31, 2023 was $1.2 million compared to a gross loss of $641,000 in the year ended December 31, 2022 Importantly, we have seen gross margin steadily improve due to the revenue growth associated with increased number of surgical procedures. Operating leverage created due to a lower relative fixed costs and the absorption of more overhead into our standard costs.
Operating losses totaled $3.1 million in the fourth quarter compared to a loss of $7.9 million in the fourth quarter of 2022. For the year ended December 31, 2023, operating losses totaled $15.7 million compared to $18.7 million in the prior year. Period. Decreases in operating expenses were primarily the result of a decrease in sales and marketing expense as a result of the internalization of our commercial team and the termination of our distribution partnership during the prior period and decreases in general and administrative expenses.
Net loss was $3.1 million for the fourth quarter compared to a loss of $7.9 million in the same period in 2022. For the year ended December 31, 2023, net loss was $15.6 million compared to $18.9 million in the prior year. The Company expects to incur additional losses in the future. As of December 31, 2023, cash and cash equivalents and short-term investments totaled $2.4 million as compared to $8.6 million as of December 31, 2022 as of December 31, 2023, the company had $1.2 million of outstanding debt related to our secured note offering in November, which has been fully repaid subsequent to quarter end with the series Series A. preferred stock. As of today, the Company has no outstanding debt.
I will now turn the call back to Steve for closing thoughts.
Steven Foster
As you see with the accelerating pace of Catamaran procedures and continued expansion of our sales and marketing efforts. We're very optimistic for continued growth from the commercialization of our proprietary FDA-cleared surgical implant system. We ended the fourth quarter with solid momentum in revenue and a third consecutive quarter of positive gross margin for the year of 312% increase in surgical procedures followed by 324% increase in full year revenues, we believe will continue this growth trajectory with our expanding commercial infrastructure and seasoned and sales management team. We continue to reinforce our commitment to validating and differentiating patient outcomes and radiographic assessment for the ongoing post-market clinical studies, we expect to expand the application of our distinct product offering to address s SI revision surgery is an adjunct to multilevel fusions. We are dedicated to executing our growth objectives as we prepare to prioritize improving the quality of life of patients suffering from SI joint pain while pursuing long-term value for our shareholders. I thank you all for attending. And now I'd like to hand the call back over to our operator to begin our question and answer session with our covering analysts. Paul?
Question and Answer Session
Operator
Thank you. We'll now be conducting a question and answer session. If you'd 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'd like to remove your question from the queue For participants using speaker equipment it may be necessary to pick up your handset before pressing the star key one other, please while we poll for questions.
Our first question is from Bruce Jackson with The Benchmark Company. Please proceed with your question.
Bruce Jackson
I guess some Thanks for taking my questions.
Just real quick, how many surgeons did you change in the quarter?
Steven Foster
So we I think thanks, Bruce and good to hear from you. So we put we trained 28 physicians over the quarter and 133 over the entire year.
Bruce Jackson
Okay, super and then on lithium, the post-approval study, what's the final enrollment number?
Steven Foster
Yeah. The the study was approved, Bruce, for a 50 patient study, we may wind up anywhere between 40 and 50 on this thing. And we feel like we've got a good data set cooking and what have you. So very much towards the tail end of that enrollment expect for it to ramp up here in the coming quarter. And as I mentioned, very excited about getting an early glimpse at the things we're focused on here.
First safety profile. Second, of course, is the of the efficiency and the effectiveness of the procedure to relieve patients pain. And then as a secondary endpoint, the radiographic assessment not seeking a healed and fused SI joint so far, we see that we see that early glimpse coming here very soon and enrollment wrapping up here shortly.
Bruce Jackson
Okay, great. That's it from me.
Thank you.
Steven Foster
Thank you, Bruce.
Operator
Our next question is from Anthony Vendetti with Maxim Group. Please proceed with your question.
Anthony Vendetti
Yes, thanks on so you did you trained 28 physicians in the fourth quarter. Do you have a target, the four per quarter training a approximately or a goal for 2024?
Steven Foster
Sure, Anthony. We of course, we do have objectives and goals there internally. And really we focused primarily on quality rather than quantity or I could train 1 million people if they don't adopt, I'm not making any headway. So it's really about targeting how we hope to achieve 25 plus well targeted a good profile, physicians, everything every single quarter and really focus our energy look, we're a relatively small operation. We need to aim small, Miss small and really focus our energies to make sure we finish were successful in achieving adoption. So probably right in that 25 to 30 areas, our sweet spot, and we'll continue to build on that as time progresses.
Anthony Vendetti
Okay, great. And then from a utilization perspective, I know it's early and so it could be a little lumpy quarter to quarter, but what trends are you seeing in terms of the utilization of the Catamaran system?
Steven Foster
Yeah, I knew the market is extraordinarily dynamic. There were some new reimbursement coding that came out in 2024. That always creates a lot of questions in the marketplace and things of that nature, very dynamic. What I can tell you is that the number of procedures is still growing spaces is seeing a lot of innovation, a lot of dynamic activity, but certainly you're right with a relatively small base of customers. We do see some lumpiness here and there as being a patients defer from one quarter to the next we see cancellations or what have you. But generally speaking, physicians are making progress in making SI a part of their practice there's some work there in the diagnostic component of the equation, in particular to start building SI as part of their offering and their practice. But a lot of progress there. And a lot of growth in this marketplace.
Anthony Vendetti
Okay, excellent. And then lastly, just the I believe you launched the new instrumentation kit with where what's been the reception from that. And then just general thoughts on on the physicians that you've gleaned from the from the fourth quarter?
Steven Foster
Yeah, the risk of sounding a little over to the reaction to our gym technology has been outstanding. That's a smaller profile and that doesn't just mean a smaller incision for the patients. It also means improved visualization during the radiographic process for the physician, and that's extraordinarily important, they need to see the surrounding landmarks and what have you this new profile is really allowing them to do that. So the reaction has been outstanding as to the the customers have been trained and put through workshops in Q4. Of course, that begins the process of moving them towards adoption, getting approvals at their facilities and things of that nature. And we continue to work through that and Sprint if get them to that through surgery and get them adopted.
Anthony Vendetti
Okay, great. Thanks so much.
I'll hop back in the queue.
Appreciate it.
Steven Foster
Thanks Anthony.
Operator
Thank you. There are no further questions at this time. I would now like to turn the call back over to Mr. Foster closing remarks.
Steven Foster
Thank you, Paul. So I'd like to thank each of you for joining the earnings conference call today and look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach out to our IR firm MZ Group who would be more than happy to assist. And with that, I wish everyone a good day.
Operator
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
