Earnings call transcript: Tenon Medical’s Q4 2024 results show revenue growth

Tenon Medical Inc. reported its financial results for the fourth quarter of 2024, showcasing a 12% increase in full-year revenue compared to 2023. Despite a slight dip in Q4 revenue, the company improved its gross margin and reduced net loss. The stock saw a slight decrease in regular trading but rebounded in after-hours trading. According to InvestingPro data, the company maintains a FAIR financial health score of 1.82, with notably strong liquidity metrics. The company’s market capitalization stands at $3.7 million, reflecting its micro-cap status in the medical devices sector.

Key Takeaways

• Full-year 2024 revenue increased by 12% to $3.3 million.
• Q4 2024 revenue decreased by 4.7% compared to Q4 2023.
• Gross margin improved from 42% to 52%.
• Net loss narrowed to $13.7 million from $15.6 million in 2023.

Company Performance

Tenon Medical’s performance in 2024 was marked by a significant revenue increase, despite a decline in the fourth quarter. The company made notable strides in improving its gross margin and reducing its net loss, indicating effective cost management and operational efficiency. InvestingPro analysis reveals impressive year-over-year revenue growth of 38.3%, though the company is quickly burning through cash. The improvement in financial health was further supported by an increase in cash and cash equivalents to $6.5 million, with no outstanding debt, maintaining a healthy current ratio of 3.52.

Financial Highlights

• Revenue: $3.3 million for 2024, a 12% increase from 2023.
• Q4 2024 Revenue: $770,000, a 4.7% decrease from Q4 2023.
• Gross Margin: Improved from 42% to 52%.
• Net Loss: $13.7 million, improved from $15.6 million in 2023.
• Cash and Cash Equivalents: $6.5 million, up from $2.4 million in 2023.

Market Reaction

Tenon Medical’s stock closed the regular session at $1.18, down 5.93%. However, in after-hours trading, the stock price slightly recovered, rising by 2.7% to $1.14. This movement reflects a cautious yet optimistic market sentiment, likely influenced by the company’s improved financial metrics and strategic initiatives. InvestingPro analysis indicates the stock has shown significant volatility with a beta of 1.89, and appears undervalued based on Fair Value calculations. Subscribers to InvestingPro have access to 13 additional ProTips and comprehensive valuation metrics for deeper analysis.

Outlook & Guidance

Looking forward, Tenon Medical plans to launch the Catamaran SE platform commercially by mid-2025, as part of its growth strategy. The company anticipates overcoming reimbursement challenges and is focused on expanding its market presence. The ongoing MAINSALE clinical study and continued investment in growth initiatives are expected to drive future performance.

Executive Commentary

CEO Steve Foster stated, "Our initiative throughout 2024 to restructure and invest in our sales and marketing program to build market share for our proprietary Catamaran system led the company to generate revenue growth of 12%." CFO Kevin Williamson added, "We entered 2025 with a healthy balance sheet that is fortified with ample cash runway to accelerate investment in our growth initiatives."

Risks and Challenges

• Reimbursement challenges remain a significant hurdle for the company.
• The competitive landscape in the SI joint fusion market could impact growth.
• Economic uncertainties and potential shifts in healthcare regulations pose risks.
• The success of upcoming product launches is crucial for future revenue growth.

Q&A

During the earnings call, analysts focused on the reimbursement landscape and the company’s strategic plans for market expansion. Tenon Medical emphasized its efforts to clarify coding and reimbursement issues and confirmed the presence of six area sales managers and 42 independent distributor contracts.

Full transcript - Tenon Medical Inc (TNON) Q4 2024:

Matt, Conference Call Moderator, Tenon Medical: Greetings, and welcome to the Tenon Medical Fourth Quarter and Full Year twenty twenty four 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 Kevin Williamson, Chief Financial Officer. Mr. Foster and Mr.

Williamson will present results of operations for the fourth quarter and full year ended 12/31/2024, 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.pennonmed.com. Before we begin the formal presentation, I’d like to remind everyone that statements made on the call and webcast may include predictions, estimates and other information that may be considered forward looking. While these forward looking statements represent our current judgment on what the future holds, they 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’re not obligating ourselves to revise or publicly release the results of any reservation of 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 should review our quarterly and annual report 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.

Steve Foster, President and Chief Executive Officer, Tenon Medical: Thank you, Matt, and good afternoon, everyone. I’m pleased to welcome you to today’s fourth quarter and full year twenty twenty four financial results and corporate update conference call for Tennon Medical. Our initiative throughout 2024 to restructure and invest in our sales and marketing program to build market share for our proprietary catamaran system led the company to generate revenue growth of 12% to $3,300,000 for the full year of 2024. Additionally, gross margin improved by 10 percentage points to 52% as compared to 42% in the same year ago period, driven by increases in revenue per surgical procedure. During the fourth quarter, we experienced a revenue decline of 4.7% over the prior year quarter, primarily due to reimbursement pre authorization headwinds that we believe to be transient in nature.

We expect future coding clarity combined with our recently published clinical data will positively impact these issues going forward. As we move towards sustainable revenue growth, our stable cost structure is expected to maintain a gross margin performance at recent levels and improve with increases in revenue. In the fourth quarter, we completed the alpha clinical review of our catamaran SE platform, a second generation and smaller version of our implant and access flow trial. The SE extends the line of implant offerings for physicians preferring a smaller catamaran implant and access profile when performing SI joint fusion procedures. During the Alpha clinical review, we found that the features of SE are well received across physician specialties and applications.

In particular, the low profile of SE provides a significant flexibility for the physician when doing an SI revision. The full commercial launch of SE is slated for mid year twenty twenty five. Underscoring our technical advances, we received three U. S. Patents during the fourth quarter related to our catamaran portfolio.

These patents cover advanced coatings designed to enhance bone in growth and fusion, as well as innovative configurations that facilitate the revision of failed SI joint procedures. These advancements allow for the use of an alternative device without requiring the removal or modification of the original surgical implant. This continued development of our intellectual property portfolio improves our competitive position in the industry and protects the overall portfolio. The Catamaran SI joint fusion system intellectual property portfolio now includes 12 issued U. S.

And foreign patents along with 23 pending U. S. And foreign patent applications. Tenon is committed to funding and executing clinical research that reinforces the clinical safety and effectiveness of our technologies. Our post market study called MAINSALE is Tennon’s prospective multicenter single arm study that evaluates clinical outcomes of patients with sacroiliac joint disruptions or degenerative sacroiliitis treated with the catamaran SI joint fusion system.

Patients will be evaluated for a period of up to twenty four months, reviewing various patient reported outcomes, radiographic assessments and adverse events. In short, the data collected aims to show that the catamaran system delivers on its promises. TENON announced the first peer reviewed publication of our interim analysis from the MAINSAL study in the third quarter of twenty twenty four. This interim analysis presents early experiences in the first thirty three consecutive patients treated with the catamaran SI joint fusion system across six U. S.

Clinical sites the primary and secondary clinical endpoints analysis at six months and radiographic CT fusion assessment performed by independent reviewers at twelve months. Notable outcomes from this interim analysis include statistically significant reduction in SI joint pain and disability scoring at six months, a robust safety profile and high patient satisfaction throughout all follow-up time points. Results provided definitive evidence of fusion response at twelve months and efficient surgical technique and procedural workflow. This peer reviewed analysis reinforces that catamaran systems and minimally invasive inferior posterior approach is safe and effective in the objective of relieving pain and reducing disability in adult patients diagnosed with SI joint disruptions or degenerative sacralitis that failed nonsurgical treatment. Early results and evaluations solidify our thesis that the catamaran’s unique design and less invasive inferior posterior approach is functioning as intended to optimize patient outcomes.

Of note, the interim data from our study and the over 1,000 surgeries performed today with the catamaran system demonstrate its exceptional safety profile, benefiting physicians and the patients that they treat. The importance of this clinical research for the company cannot be overstated. It will be compelling for treating physicians and payers alike within a market segment that is lacking peer reviewed data. While innovative technologies are exciting for treating physicians, clinical research is required to reinforce the value proposition of the technology. Additionally, this data sets our foundation to achieve positive coverage throughout the payer network.

We look forward to the publication of our next interim analysis, which remains imminent. Our ongoing workshop activities led by a network of valued physician faculty combined with the robust commercial infrastructure rebuild have prepared us for rapid expansion going forward. We hosted 24 physicians in catamaran workshops during the fourth quarter of twenty twenty four and had 93 for the full year of 2023 excuse me, 2024. Taken together, we entered 2025 with the right foundation and we are now focusing our investments on driving our top line via commercial expansion and focus on our workshop and training programs. In addition, we will be finishing investments in launching our CATAMARAN SC platform as well as completing the vital main sale prospective study.

And with that, I’ll turn it over to Kevin to discuss our financials in detail.

Kevin Williamson, Chief Financial Officer, Tenon Medical: Thank you, Steve. I will provide a summarized review of our financial results. A full breakdown is available in our press release that crossed the wire this afternoon. Our revenue was $770,000 in the fourth quarter of twenty twenty four, a decrease of 4.7% compared to $808,000 in the fourth quarter of twenty twenty three. Revenue for the year ended 12/31/2024 was $3,300,000 an increase of 12% compared to $2,900,000 in the prior year period.

The fluctuations in revenue for the three months and year ended 12/31/2024 as compared to the same periods in 2023 were primarily due to a slight decrease and a flat trend respectively in the number of surgical procedures in which the catamaran system was used, offset by an improved ASP, which was driven by account mix and market access efforts. The number of procedures in the fourth quarter was impacted by the timing of our restructured sales force, as well as reimbursement pre authorization delays leading to fewer surgeries performed during the quarter. With the investments made into our sales force, training program and market access efforts, we believe the reimbursement impacts and timing of our sales force restructure experienced in Q4 will become tailwinds for us moving forward in combination with our new SC platform and clinical data initiatives. Gross profit in the fourth quarter of twenty twenty four was $353,000 or 46% of revenue compared to $559,000 or 69% of revenue in the fourth quarter of twenty twenty three. For the year ended 12/31/2024, gross profit was $1,700,000 or 52% of revenue, a significant improvement from gross profit of $1,200,000 or 42% of revenue in the prior year period.

Gross margin percentage varied from period to period driven by the absorption of production overhead costs into our standard costs with operating leverage created by lower fixed costs. Operating expenses totaled $3,500,000 for the fourth quarter of twenty twenty four as compared to expenses of $3,700,000 in the fourth quarter of twenty twenty three. For the year ended 12/31/2024, operating expenses totaled $15,500,000 compared to $17,000,000 in the prior year period. Operating expenses decreased due to the restructuring of our sales operations in 2024 that temporarily reduced sales and marketing expenses and a decrease in research and development expenses, partially offset by an increase in general and administrative expenses. With continued investment in growth, including expanding our sales reach and prioritizing market access efforts and reimbursement and coverage initiatives, increases in sales and marketing expenses are expected in future quarters.

Net loss was $3,100,000 for the quarter of for the fourth quarter of twenty twenty four, flat as compared to the same period of 2023. For the year ended 12/31/2024, net loss was $13,700,000 compared to $15,600,000 in the previous year period. While we expect to continue to improve our net loss, the company does expect to incur additional losses in the future. Now turning to the balance sheet, as of 12/31/2024, cash and cash equivalents totaled $6,500,000 as compared to 2,400,000 as of 12/31/2023. We entered 2025 with a healthy balance sheet that is fortified with ample cash runway to accelerate investment in our growth initiatives, which was further boosted by $3,000,000 in gross proceeds received from the capital raise last week.

Lastly, as of 12/31/2024, the company has no outstanding debt. I will now turn the call back to Steve for closing thoughts. It

Matt, Conference Call Moderator, Tenon Medical: looks like now we’re conducting a question and answer session. First question is from Anthony Vendetti from Maxim Group. Please go ahead.

Anthony Vendetti, Analyst, Maxim Group: Yes. Hi, Steve. How are you doing? Hi, Anthony. So just in terms of the reimbursement landscape now, any improvement in that pre approvals now with that now that you have more data, maybe just talk a little bit about how that’s progressing at this point?

Steve Foster, President and Chief Executive Officer, Tenon Medical: Yes. Thanks, Anthony. Of course, the Tenon Medical directly, of course, doesn’t control the reimbursement environment per se. We’re certainly active participants in working through the various decision makers, etcetera, to bring the clarity necessary in the space. I do anticipate that that is moving to a sort of an ultimate conclusion here.

It’s difficult to be really clear on, hey, on this date, it’s all going to be squared away. It’s a process. But great progress has been made. I think people are working hard and in good faith to get there. And as soon as we get that clarity, I think what’s important is the coders themselves at each individual physician office or site, as well as the payers, etcetera, are seeking clarity on, hey, look, how does this work?

What are the definition of these codes? When are they going to stop changing, things of that nature. And we do believe great progress is being made in that regard. Before that happens, there’s just questions that slow the process down, right? We’re still having good success getting procedures approved, but it requires some additional time in going through appeal processes and things like that, that are really just sort of slowing things down right now.

Okay.

Anthony Vendetti, Analyst, Maxim Group: As you look at the full year 2025, what do you think you need to do from a sales perspective? Or do you have a plan to incrementally add some salespeople? Are you actively looking to add them now? Maybe just elaborate on that. Thanks.

Steve Foster, President and Chief Executive Officer, Tenon Medical: Yes. That was really our mission in and throughout 2024. We made some significant additions to our sales organization. They’re coming online as we speak here and most are now in place. We do anticipate we’ll have more horsepower, if you will, out there in the field, more coverage in key geographies and what have you.

So the answer to your question is yes, we’ve moved up to a bigger number of sales territories. And again, to reinforce, right, we have direct regional and area sales managers who interface with independent distributors to cover, to train and to handle the distribution of our technology out there in the field.

Anthony Vendetti, Analyst, Maxim Group: Okay. And so all those direct area sales manager positions are filled. And just remind me, Steve, how many do you have right now?

Steve Foster, President and Chief Executive Officer, Tenon Medical: There are they are filled and there are six of them across the country.

Anthony Vendetti, Analyst, Maxim Group: Okay. And then the independent distributors that you work with, what is the total sales it’s not your sales force, but how many sales people in aggregate make up the independent sales team?

Steve Foster, President and Chief Executive Officer, Tenon Medical: Yes, we have 42 existing independent distributor contracts out there. Now some of those are relatively small distributorships with one or two people involved, others are larger organizations. We have 42 total contracts out there, so formalized, if you will, engagement with an independent distributor in a specifically defined geography per the contract.

Anthony Vendetti, Analyst, Maxim Group: Okay, great. That’s helpful. Thanks so much. I’ll hop back in the queue. Excellent.

Matt, Conference Call Moderator, Tenon Medical: Thank you. This concludes the question and answer session. I’d like to turn the floor back to Mr. Foster for any closing comments.

Steve Foster, President and Chief Executive Officer, Tenon Medical: Thank you, Matt. I appreciate it. And I’d like to thank each of you for joining our earnings conference call today and look forward to continue to update you on our ongoing progress and growth. If we’re unable to answer any of your questions, please reach out to our IR firm, Emsi Group, who would be more than happy to assist. With that, I wish everyone a good day.

Matt, Conference Call Moderator, Tenon Medical: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you again for your participation.

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