TELA Bio Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 9 speakers on the call.

Operator

Good day and thank you for standing by and welcome to TeleBio Third Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to introduce your host for today's call, Craig Hidadecic. You may begin.

Speaker 1

Thank you, Justin, and good afternoon, everyone. Earlier today, TeleBio released financial results for the Q3 2023. A copy of the press release is available on the company's website. Joining me today on today's call are Tony Koblish, President and Chief Executive Officer and Roberta Cuca, Chief Operating Officer and Chief Financial Officer. Before we begin, I'd like to remind you that during this conference call, the The company will make projections and forward looking statements regarding future events.

Speaker 1

We encourage you to review the company's past and future filings with the SEC, including without limitation the The company's annual report on Form 10 ks 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-nineteen pandemic, recessionary concerns, banking instability And inflammatory 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 will now turn the call over to Tony.

Speaker 2

Thank you, Greg. Good afternoon, everyone, and thanks for joining us today for our Q3 2023 earnings call. We are pleased to report another quarter of strong financial results and operational Revenue in the Q3 was $15,100,000 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 surgeon 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 OVA Tech's PRS, which includes specific design features aimed at enhancing the clinical utility of OVA Tech's PRS for surgeons and patients In addition, our hernia portfolio continues to perform with OvaTax 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.

Speaker 2

Today, I'll review with you the progress we've made on the five factors that combine to drive our growth. Roberto will provide a more detailed review of our I'll start by discussing sales force Size and individual sales representative productivity together as they had a joint impact

Speaker 3

on our

Speaker 2

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 6 months. During our Q2 earnings call, We had 75 reps, of which 50 had at least 6 months tenure. The newness of a third of our reps At our last call was the result of turnover in the Q2 affected by new regional managers who we have hired At the end of last year and who identified opportunities for upgrading talent in certain territories.

Speaker 2

While 35% organic growth is Standing, we believe it would have been even higher, but for the transition of Territory Responsibilities in the 2nd 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 6 month to breakeven 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.

Speaker 2

This additional training added to the availability of the OVATEX PRS long term resorbable should help all our reps, particularly those with less than 6 months experience on the job. 2nd, we've implemented 2 supplemental incentive programs in the 4th 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.

Speaker 2

Moving on to the 3rd factor driving revenue growth, GPO access. Expansion within existing GPO contracts is on track and efforts to add additional GPOs and IDNs are going well. TELA has contracts with 3 national group purchasing organizations that enable enhanced and more efficient access to hospitals and surgeons throughout the country. These GPO contracts are critical to TELUS commercial strategy and provide the opportunity for surgeons to use the OVATEX product Our long standing relationship with HealthTrust with whom we re signed a 4 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.

Speaker 2

Premier is the 2nd largest GPO in the country giving us access to over 4,400 hospitals within its extended network. Lastly, our most recent GPO relationship offers us A dual source contract in the biosynthetics category. There is 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 first 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 We have launched 4 products so far in 2023. The first two, the large size OVERTEX LPR for use in minimally invasive surgeries And the NIBITZ Fibrillar Collagen PAC are gaining market share with different levels of surgeon familiarity to leverage by our sales force.

Speaker 2

The 3rd, OVATEX PRS long term resorbable launched in the Q3 and has 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, Liquifix 8 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 68 and represent the first product of 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 BobaDex in other areas of their hernia practice. Regarding our 5th factor, clinical data, we continue 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-two study, which measures the effectiveness of OvaTek's products when implanted robotically.

Speaker 2

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-one agonist drugs on the markets that TELUS 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 on account of weight loss. With regards to hernia, we have consulted with general surgeons in this space whom collectively have identified 4 potential ways in which GLP-1s may, In their opinion, actually increase the need for hernia repairs.

Speaker 2

First, an important contraindication 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. 2nd, 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. 3rd, obesity can conceal existing hernias, in particular umbilical hernias and weight loss can reveal the need for these repairs.

Speaker 2

Finally, GLP-1s are apparently associated with acid reflux conditions, which could necessitate hiatal hernia repairs in response. Although these examples indicate the potential for GLP-1s to increase the need for hernia repair, the real takeaway 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.

Speaker 4

Thanks, Tony. 3rd quarter revenues grew 35% year over year to $15,100,000 with OVERTEX and OVERTEX PRS growing 30% and 46 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 2nd quarter sales rep turnover and describe the steps we are taking to quickly regain previously planned performance levels. It's worth noting that Though that in those territories that were continuously filled, 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 forecast assumptions other than turnover were robust and reliable.

Speaker 4

Gross margin for the quarter was 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 or around this level as we operate using more rigorous inventory practices. Operating expenses were $20,600,000 in the 3rd quarter compared to $16,800,000 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.

Speaker 4

Loss from operations was $10,200,000 in the Q3 of 2023 compared to $9,500,000 in the prior year period. Turning to our outlook for full year 2023, we now expect revenues to range from $57,000,000 to $60,000,000 Reflecting growth of 38% to 45% over the full year 2022 and applying revenue for the Q4 ranging $15,500,000 to $18,500,000 compared to $11,600,000 in the Q4 of 2022. Although both the 3rd and 4th 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 subsequent growth excuse me, 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 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 Q3 with $58,000,000 in cash and cash equivalents compared to $65,000,000 at the end of the 2nd quarter, meaning that we used $7,000,000 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.

Speaker 4

We'll have more to say about this on our Q4 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.

Speaker 2

Excellent. Thank you, Roberto. I'd like to reiterate my excitement for the success TeleBio 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 5 factors in parallel to achieve consistent share capture.

Speaker 2

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 had 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 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 and D pipeline that continues to deliver new products, an experienced management team And a path to profitability with our current balance sheet.

Speaker 2

And even though we keep growing our market share each quarter, most of the market is still there for Taken and we plan to do just that. With that, I'll now ask Justin to open the line for your questions.

Speaker 4

Thank

Operator

you. And our first question comes from Frank Taconian from Lake Street Capital Markets. Your line is now open.

Speaker 5

Great. Thanks for taking the questions. Hey, Tony, Roberto, just wanted to follow-up on some of the sales force commentary. I 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 or essentially getting at What are you doing differently now to ensure a more stable sales organization that can grow per rep productivity more effectively and consistently?

Speaker 4

Sure. Thanks for the question, Frank. I'll start 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 Q4 of last year, to the tune of about 12 new RMs. And those RMs came in, in the Q1 and evaluated their teams of Approximately 7 reps apiece.

Speaker 4

And over the course of the Q1, roughly one of each 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 $200,000,000 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 Order and was complete by the Q2 such that as Tony mentioned, on our Q2 earnings call, we mentioned that we had 75 reps, Of which 50 had been with us for 6 months or more suggesting or indicating that 25 had been with us for 6 months or less. So those were the turnover reps of roughly 13 and then the remainder were new hires to expand our sales force. So essentially what we are 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.

Speaker 4

And that RM had determined that that could be upgraded. So that all took place in the second We entered the Q3 in the 1st month, believing that we are on track to hit numbers notwithstanding. We saw some of that peter off in the latter part of the Q3. And so what we're doing to answer the second part of your question, which is what are we doing to make We get back on track and that we have the right reps in place and that they're growing at the right growth rates. We have a couple of Programs in place for the Q4, to both address the Q4 and the longer term.

Speaker 4

So the first is we have, 2 new training sessions in place. So our new sales reps are going 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 And then second, we put in place 2 incremental IC plans, one for those reps that are on track To exceed their quotas for the Q4, to incentivize them to further, than they already are, grow beyond their quotas and then for those reps that might be short of their quotas that is forecast to be short of their quotas, And additional incentive plan to give them additional motivation to sell and not just wait for the reset of their quotas in the next quarter.

Speaker 2

Yes. Frank, I think philosophically, right, 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 and I'd 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 6 months.

Speaker 2

We've got a bolus of 25 plus reps that are right now getting trained, seasoned and matured, And we want them to be passing through that 6 month point of productivity, higher 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 deck 12 months after that and the 12 months after that. Our goal remains $200,000,000 company as efficiently and effectively as possible.

Speaker 5

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?

Speaker 4

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 Q4 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 Together is really something that's a little bit variable and so the range just accounts for that variability.

Speaker 2

We tend to have a big run

Speaker 3

at the end of quarters, right?

Speaker 2

Frank, 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. Thanks, Frank.

Speaker 5

Got it. That's good color. Thanks for the questions.

Operator

And thank you. And one moment for our next question. And our next question comes from Caitlin Cronin from Canaccord Genuity.

Speaker 3

Your line is now open.

Speaker 6

Hey, thanks for taking the questions.

Speaker 7

Thanks, Steve.

Speaker 6

Hi, 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 November for Q4 In terms of the business environment and just kind of rep productivity.

Speaker 4

Sure. So one of the ways we analyze the quarters is we Measure the ratio of the 1st month of the quarter to the actual fully achieved quarter. So we have historical data on that obviously Ever since post COVID, we have it 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 Q4 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 we've put in place to get our reps back up to speed That we're on track for hitting the quarter.

Speaker 2

Yes. 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 1st month was not in line, right? So there was a difference.

Speaker 6

Got it. Makes sense. Okay. And then just for my second question, any thoughts on 2024 growth or at least maybe comment on thoughts of where the Street is right now for 2024, a little bit over 80 1,000,000

Speaker 4

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 the single number, but we're digging into that. And as Tony said, one of the things about what we've just 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 6 months or more.

Speaker 4

And then by the Q1 of next year, that should be much closer to the full complement of 79 Being at that 6 month mark with some additional hires between now and then.

Speaker 2

Yes. I mean to give you a feel, Caitlin, we're running a week long sales school right now and I think we have 35 attendees, 5 or 6 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?

Speaker 2

And next year will be about efficient growth, holding our infrastructure as solid as possible, Absent the sales force and customer facing, but we're going to we basically have the infrastructure to drive that growth and And attract that talent pool and we're going to take advantage of it. So that's it.

Speaker 6

Awesome. Thanks for taking the questions.

Speaker 2

Thanks, Taylor. Thanks.

Operator

Ann, 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.

Speaker 3

Afternoon. Thanks for taking the questions. And sorry to harp so much on But 2 months ago, you guys were talking about a midpoint at 62.5 and now we're about 58.5. So it's down about $4,000,000 For the back half of the year alone, over the last 2 months. So it just seems pretty significant as far That drop goes and I'd just love to hear a little bit more about that specifically.

Speaker 3

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 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 A third of the reps that are still pretty junior.

Speaker 4

Sure. So let me start with the bump question first. So as I mentioned on the prior question, One of the ways we analyze our thinking about the quarters and 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 1st 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 quarter, 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, 1st 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 3rd quarter, We feel comfortable about hitting those numbers.

Speaker 4

And again, that's a series of training and then some incremental incentive plans. As far as Q4 and the reduction of approximately $4,000,000 from the midpoint of the prior year's guidance range to the current And that $4,000,000 impact on the second half of the year, The turnover in the sales reps that occurred largely in the Q2 is what drove that. So as Tony mentioned, On the last earnings call, we had 75 reps. Of those, a third had less than 6 months tenure. So that was a bit more turnover than we had initially budgeted.

Speaker 4

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.

Speaker 2

Yes, 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 a presence thing, right? So when you do that transition, you tend to dip.

Speaker 2

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 $2,000,000 $2,500,000 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.

Speaker 2

So from a timing perspective, we feel very good about where we are over the next 6 months. And again, like I said, Focusing really hard on the start of next year and continuing to drive that stronger growth rate next year.

Speaker 3

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 I think It sounds like, I don't know, 15 or 20 reps, not less than that, maybe 8 to 10 reps. How much did it cost you in Q3 do you estimate? And then how productive were those

Speaker 4

from a revenue perspective?

Speaker 3

Yes. Yes. I mean, I think And how productive sorry, just real How productive were those remaining reps? It seems like the remaining reps did an unbelievable job in Q3. Well, Roberto is going to

Speaker 2

jump into the meat of your question, but I'm As 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 6 months, right? Certainly, there's longer tenured reps. 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?

Speaker 2

So Yes.

Speaker 8

And Matt, so I realized

Speaker 4

I didn't hit 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, were maybe at higher than breakeven revenues, But we're not on the growth trajectory that we needed. And to your question about the cost of making these changes, so of the 25 reps that were within with us for less than 6 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 3 months.

Speaker 4

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 2nd quarter with 75 reps, There's probably some overlap, but that base pay amount of overlap is not going to be a huge amount affecting our P and L.

Speaker 2

Yes. 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 forecast, right? And if you look at the underserved or turnover territories, right, Most of that shortfall was due to the vacancies or the transition. And we had a target that was higher than So the loss was probably a smidge higher than consensus, right? So there's a powerful, productive sales force that's coming together here.

Speaker 2

I'd say this is a timing dislocation or a growing pain.

Speaker 3

Okay. And I'm sorry, Tony, to keep harping on this and monopolize Bring it. We love it. 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.

Speaker 2

Yes, we'll have to think about that.

Speaker 4

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 0 or very well.

Speaker 2

Yes, 3 weeks constituted, yes.

Speaker 4

So there was continuity in some

Speaker 5

of those

Speaker 4

territories, but Yes, our existing reps had very high performance levels.

Speaker 5

Okay. Thank you.

Speaker 4

Thanks, Matt.

Operator

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

Speaker 7

Good afternoon and thanks for taking the questions.

Speaker 3

Thanks, Michael.

Speaker 7

Just a follow-up on that question About the sales reps, so you just mentioned your internal targets were maybe a little higher than consensus, which was at a little over $16,000,000 So I guess that's around a $1,000,000 shortfall in 3Q and you took guide down by $4,000,000 at the midpoint. Does that mean The original expectation for 4Q was just kind of midpoint of the 4Q guide plus that $3,000,000 Is that a fair way to think about it?

Speaker 4

No. So I think Tony didn't specify exactly what our internal expectations were. So, yes, so we yes, We had 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.

Speaker 4

We've reset the 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 on board 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 3rd quarter. And I think it's worth reiterating at least one more time that we had 35% growth in the 3rd quarter. Yes.

Speaker 4

So, yes, we had high expectations. There was a disruption to them. We believe we fixed that and we continue to have high expectations. Look,

Speaker 2

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?

Speaker 2

I already talked about the LTR and its uptake. But 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.

Speaker 2

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 sophisticated medical education program. Our target was to train and educate 1,000 HCPs this We're already over 1100, right?

Speaker 2

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. We just came out of the ASPS meeting in Austin And again, we had a huge showing there. We had 100 upon 100 of docs and participants in some of our sponsored events.

Speaker 2

Our booth traffic was super high. We ran 2 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.

Speaker 2

So We're starting to set up case observation sites now. Every time one of these educators mentors a surgeon, they're going to be exposed to our product. I kind of think that if we can get into that robotic platform from the grassroots ground up through surgeons that 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 Add some ancillary qualitative assessment. They're through the roof.

Speaker 2

All those metrics have never been higher.

Speaker 7

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 So continued cash burn in kind of $25,000,000 to $30,000,000 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?

Speaker 4

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 single digits. We burned $7,000,000 of cash in the 3rd quarter.

Speaker 4

That cash burn can be a little seasonal. We ended the quarter with $58,000,000 of cash. If you divide that by 7 or 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 at considerably higher rates than our OpEx does. And there's still room too for our gross margin to improve even from the levels

Speaker 2

that we Yes. 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.

Speaker 7

Okay. Thank you.

Speaker 5

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.

Speaker 8

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

Speaker 2

We had 7 regional managers, and we basically upgraded each one of those and added To get to 12. 1 of them

Speaker 4

was promoted to become an area maker.

Speaker 2

That's right.

Speaker 4

And the remainders were upgraded. And that was in the 4th quarter.

Speaker 2

Yes. I mean, this is a massive push for continuous improvement and upgrade, right, to set ourselves up from the $50,000,000 $60,000,000 business we are now to have the talent in place to go beyond $100,000,000 to 200,000,000

Speaker 7

Got it. And then

Speaker 8

in your comments about the incremental programs, I'd love to just get color, if you would 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.

Speaker 5

So the quota is not by month,

Speaker 4

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 6 months. It'd be very unlikely for any of the 55% to be expected to be below quota.

Speaker 4

And of the shorter tenured reps, some of them are going to be in their Q1 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.

Speaker 2

Great. Thank you for that.

Speaker 5

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 Koplish to close the call out.

Speaker 2

All right. Thanks, Justin, and thank you everyone for joining us. We appreciate your continued interest in TeleBio. 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.

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Earnings Conference Call
TELA Bio Q3 2023
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