Sanara MedTech Inc. Q3 FY2025 earnings call

Introduction and Background - Seth Yon joined Sanara in 2018 in various commercial roles and was appointed President and CEO in September. ### THP Business - Announced the cessation of THP operations after formal process of evaluating strategic alternatives didn't yield a viable option. Rationale was that next stage of THP commercialization would require considerable investment, so focusing resources on core Surgical business. ### Third Quarter Net Revenue Performance - Surgical team achieved net revenue of $26.3 million, up 22% y-o-y, driven by soft tissue repair products. Gross margins improved, operating leverage demonstrated, net income from continuing operations up $1 million, adjusted EBITDA up $2.3 million. ### Commercial Initiatives - 1. Distributor Network: Expanded network from over 300 to over 400 contracted distributors in 12 months ended Sept 30, focusing on onboarding and training new distributors. 2. New Healthcare Facilities: Leveraged distributor partners to sell into more than 1,400 new healthcare facilities in trailing 12 months vs over 1,200 prior-year. 3. Existing Healthcare Facilities Penetration: Focused on increasing number of surgeon users within existing facilities by targeting practitioners in and outside traditional specialties. ### Clinical and New Product Highlights - Clinical evidence: Two studies on CellerateRX published in peer-reviewed journals. New Product Initiatives: Progress under partnership with BMI, anticipating U.S. commercial launch of OsStic in first quarter of 2027 after completing milestones.

In the third quarter, the Surgical business achieved net revenue of $26.3 million, representing a 22% year-over-year growth. Soft tissue repair product sales increased 24% year-over-year to $23.4 million, which was the main driver of net revenue growth. The Surgical business' gross profit in the third quarter increased $4.8 million or 24% to $24.5 million, with gross margin increasing approximately 200 basis points to 93% of net revenue.

Fourth Quarter Outlook - Excluding one-time benefits from last year, revenue in fourth quarter of 2025 expected to increase in high single digits to low teens y-o-y. ### THP Cash Investment - Total cash investment related to THP expected to range from $5.5 million to $6.5 million in the second half of 2025, with $4 million in third quarter of 2025, and no material cash spend in THP after 2025. ### Long-Term - Focused on improving systems and processes, deepening competitive moat, and enhancing commercial strategy to drive strong sustainable growth.

THP-Related Risk - The formal process of evaluating strategic alternatives for THP didn't result in finding a viable option to monetize the asset, leading to the decision to cease THP operations, which may have implications for the company's previous investment and future resource allocation.

Q: Could you spend some more time on some of your initiatives in driving further penetration within existing facilities? How do your conversations go with new physicians? What are people excited about? What do they have more questions about?

A: Seth Yon mentioned that there's been a lot at the street level with the sales force, both on W-2 side plus distributor side to expand into new specialties. Also, R&D and clinical teams have worked on scientific, clinical, and economic evidence supporting product value. It's a culmination of these things to expand into new users and facilities.

Q: When thinking about operating profitability, are there areas outside of THP where we should expect cash savings? Or should we begin to expect leverage on sales and marketing going forward?

A: Elizabeth Taylor said they've kept headcount and sales flat with 40 reps and 400 distributors, and the model is working, seeing operating leverage on EBITDA line. Focused on sustainable and profitable growth, investing in product portfolio and top line, and seeing leverage in sales channel.

Q: Based on your outlook for the next quarter, you mentioned that excluding onetime benefits from last year, growth is going to be high single digits, low teens. Is that the right sort of expectation for this business going forward? Are you still -- because it is a significant sort of deceleration from where you've been. And so I'm curious on how you think about the cadence that you're expecting, your internal threshold that you're expecting. And the same thing along with the margins, where I noticed your EBITDA margin was effectively flat sequentially. And so I'm curious, do you have any sort of benchmark or target?

A: Seth Yon said they still feel very confident in Q4 performance, with opportunities from approved facilities and distributor partnerships. Elizabeth Taylor noted trailing 12 months EBITDA growth with revenue growth, and the business has operating leverage, though they don't give forward-looking guidance.

Q: It is my understanding a strategic partner was always expected to be required to bring to the market. Is this correct? With this in mind, why was a strategic partner not considered as an integral part before the costs were incurred?

A: Seth Yon said that THP started pursuing strategic partner in early 2024, team did a nice job developing the software and hoped beta sites would encourage activity, but unfortunately it didn't happen, leading to the decision to cease THP operations.

Q: Now that the THP is going to be discontinued, could you comment on the trend of total operating expenses? Should we project to see a meaningful decrease in operating expenses?

A: Elizabeth Taylor said they don't give forward-looking guidance but reminded that there's a supplemental disclosure on the website examining the Surgical business as a stand-alone business historically, and using that information can model the trend.