Tenon Medical, Inc. (NASDAQ:TNON) Q4 2023 Earnings Call Transcript
Tenon Medical, Inc. (NASDAQ:TNON) Q4 2023 Earnings Call Transcript March 12, 2024
Tenon Medical, Inc. beats earnings expectations. Reported EPS is $-0.68, expectations were $-1.38. Tenon Medical, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Tenon Medical Fourth Quarter and Full Year 2023 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. 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 results of 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 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 materially. 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'll attempt to present 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. The conclusion of 2023 marks a 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's 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 physicians 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 or degenerative sacroiliitis.
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 from 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 was supported by our valued physician customers and the robust commercial infrastructure we've 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 cadaveric lab workshops to introduce the Catamaran 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 the Catamaran System, which we've experienced since we began the initiative.
Our programs hosted 133 physicians in Catamaran workshops during the full year of 2023. During the fourth quarter, we enhanced our marketing initiatives with the participation in a series of immersive physician webinar training programs featuring the Catamaran System, attracting over 60 health care providers. Our partnership with Dr. Matthew Davies of Orthopedic 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 a simple, interior-posterior implantation technique of our unique transfixing SI Joint implant. 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 multicenter 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 QSIT Level 2 inspection conducted by the U.S. Food and Drug Administration. The QSIT inspection assesses the medical device manufacturer's compliance with quality system requirements and related regulations. The FDA's pass grade is validation of our ongoing and stringent focus on our quality system, standardized controls, and strict operational procedures at Tenon Medical. Additionally, during the fourth quarter, we entered a $1.25 million secured note financing led by Ascent Special Ventures, 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 as veterans in the medical device industry. With the $2.6 million in proceeds received from the February Series A preferred offering and this corresponding extinguishment of debt, we bolstered our cash position and refined our balance sheet as we track toward Tenon's next stage of development and growth in commercialization. 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 a succinct 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, as compared to 2022 was primarily due to an increase of 312% in the 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 margins steadily improve due to the revenue growth associated with increased number of surgical procedures, operating leverage created due to lower relative fixed costs, and the absorption of more overhead into our standard cost. 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 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: Thank you, Steve. With the accelerating pace of Catamaran procedures and continued expansion of our sales and marketing efforts, we're very optimistic for continued growth in 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, a 312% increase in surgical procedures is followed by a 324% increase in full year revenues. We believe we will continue this growth trajectory with our expanding commercial infrastructure and seasoned sales management team. We continue to reinforce our commitment to validating and differentiating patient outcomes and radiographic assessment with ongoing post-market clinical studies and expect to expand the application of our distinct product offering to address SI revision surgery and adjunct to multilevel fusion.
We are dedicated to executing our growth objectives as we 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 would like to hand the call back over to our operator to begin our question-and-answer session with our covering analysts. Paul?
Operator: [Operator Instructions] Our first question is from Bruce Jackson with The Benchmark Company. Please proceed with your question.
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