Steve Van Dick; Chief Financial Officer, Executive Vice President - Finance and Administration; Tenon Medical Inc
Greetings. Welcome to Tenon Medical first quarter 2024 financial results and corporate update conference call. As a reminder, this call is being recorded. Your host for 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 first quarter ended March 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 at 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 may be considered forward-looking. These forward-looking statements represent our current judgment on what the future holds. They're subject to risks and uncertainties that could cause actual results to differ materially.
Your question 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 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 prospectus seated April 26, 2022, particularly under the heading risk factors which are on file with Securities and Exchange Commission at www.SEC.gov.
At this time, I'll turn the call over to Tenon's Medical's Chief Executive Officer, Steve Foster. Please go ahead, sir.
Thank you, Sherry, and good afternoon to everyone. I'm pleased to welcome you to today's first quarter 2024 financial results and corporate update conference call for Tenon Medical. We began 2024 following a year of significant operational progress and continued focus on building market share across operations. We've made considerable commercialization and technical advances and remain on the right path as we begin our 2nd year of commercialization.
We aggressively monitor our commercial activities and have restructured our sales organization. Based on our 2023 learnings. During Q1, we had coverage in 205 geographic regions with the addition of new personnel assigned to these areas. We are now poised to move forward. We 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 and degenerative SEC-related.
Our first quarter of 2024 financial results reflected continued strong momentum with a 66% increase in revenue year over year, driven by a 42% rise in surgical procedures utilizing the Catamaran system. This is our fourth consecutive quarter of positive growth. Gross profit with a steady rate of gross margin of 65% as compared to the prior quarter. As we sustain revenue growth, we believe our stable cost structure will continue to maintain gross margin performance at recent levels.
During the quarter, we announced favorable interim results from our ongoing post-market clinical study. The first patients are now reaching their 12 month milestone, which includes a CT scan to assess bone healing. In addition to see marked improvements in VAS and ODI scores, we are seeing radiographic proof of bridging bone in these 12 months CT as assessed by an independent radiologist. This is further indication that Catamaran delivers on its clinical promises.
For those new to Tenon this prospective multi-center single arm post-market study evaluates the clinical outcomes of patients with sacroiliac joint disruptions or degenerative sacral latest treated with the Catamaran SI joint fusion system. Patients will be evaluated for a period of up to 24 months reviewing various patient reported outcomes, radiographic assessments and adverse events.
As mentioned during our earnings call in March, we are approaching the end of enrollment and anticipate a detailed interim analysis in the fall of 2024. This validation further underscored our confidence that the Catamaran's transpacific design, less-invasive put inferior posterior approach is fully functioning as intended to optimize patient outcomes through short-term stabilization and long term fusion of the SI joint.
Of note, the interim data from our study, combined with the over 500 surgeries performed with the Catamaran system to date is demonstrating an exceptional safety profile, benefiting patients and their physicians alike. We continued expansion of our workshop activities during the first quarter, supported by our valued physician faculty and the robust commercial infrastructure we continue to build.
As a reminder, we take a precise go-to-market approach to our workshop and training programs in order to address physicians and medical professionals with extensive backgrounds and experience in SI surgical technologies. We hosted 12 physicians and Catamaran workshops during the first quarter of 2024, with validation of our system's effectiveness demonstrated in the preliminary results from our post-market study, we have reached a critical inflection point that will drive further adoption of this important technology and will be broadening our strategic marketing promotion and workshop efforts to get the word out that Catamaran delivers.
Recently, we welcomed Christine Jacques to our Board of Directors for significant experience in the medical device field, focusing on go-to-market strategies of spine related technological innovation will provide valuable insight for our company. We further enhanced our growing patent portfolio for the Catamaran SI joint implant system with receipt of an issuance of a notice of allowance of patent application from the US Patent and Trademark Office, which further encompasses important claims for our system.
Currently, we have 8 issued US and international patents and 23 pending US and international patents applications. Additionally, during the first quarter, we strengthened our balance sheet to support our accelerated sales marketing initiatives we guarantee so we generated proceeds of $2.6 million from our preferred stock raise during the first quarter as we simultaneously retired $1.25 million in secured debt from the fourth quarter of 2023.
With that, I'll turn it over to Mr. Van Dick, our Chief Financial Officer, to discuss our financials.
Steve Van Dick
Thanks, Steve. I'll give us a sneak preview of our financial results. A full breakdown is available in our press release across the wire this afternoon. Our revenue was $719,000 in the first quarter of 2024 an increase of 66% compared to the $433,000 in the comparable year ago period.
The increase in revenue for the first quarter as compared to the same year ago period was primarily due to an increase of 42% in the number of Catamaran surgical procedures. Gross profit in the first quarter of 2024 was $470,000 or 65% of revenues compared to a gross loss of [$47,000] or a negative 11% of revenues in the comparable year-ago quarter. Importantly, we've seen gross margins steadily improve due to the revenue growth associated with an increase in the number of surgical procedures, which resulted in sustainable operating leverage due to the lower relative fixed costs and the absorption of more overhead into our standard costs.
Operating losses totaled $3.5 million for the first quarter of 2024 compared to a loss of $4.9 million in the first quarter of 2023. Decreases in the operating expenses were primarily a result of decreases in research and development expenses and third party sales and marketing expenses due to the implementation of an internal commercial infrastructure. Net loss was $3.6 million for the first quarter of 2024 compared to a loss of $4.8 million in the same period of 2023.
The Company does expect to incur additional losses in the future. As of March 31, 2024 our cash and cash equivalents totaled $4.4 million as compared to $2.4 million as of December 31, 2023 as of March 31, 2024. The Company has no outstanding debt for that, I'll turn it back, Steven for closing thoughts.
Steven Foster
Thank you, Steve. As we continue to drive momentum in the market represented by year-over-year increases in our Catamaran procedures. We are prioritizing the scale of our commercialization strategy of our proprietary FDA-cleared surgical implant system we ended the first quarter with attractive year-over-year revenue growth and a fourth consecutive quarter of positive gross margin.
We believe we will continue this growth trajectory supported by our expanding commercial infrastructure and seasoned sales management team. We are particularly encouraged by the interim clinical results from our post-market clinical trial as well as the safety profile emerging from our clinical experience to date. Our organization believes deeply in the first do no harm component of the critical.
It is committed to delivering technologies. Our physician customers can count on our investment in IRB controlled post-market data gathered together is further reinforcing that Catamaran system delivers on its promise. We will continue to refine and innovate to drive our growth objectives to further improve the quality of life for patients suffering from SI joint pain while pursuing long-term value for our shareholders.
I thank all of you for attending. And now I'd like to hand the call over to our operator to begin the question and answer session with our covering analysts shared.
Operator
Thank you. (Operator Instructions)Our first question is from Bruce Jackson with The Benchmark Company. Please proceed.
Bruce Jackson
Good afternoon and thank you for taking my questions. First, a on the question about the workshops and the composition of the doctors on what's the mix between the interventional pain physicians and the spine surgeons.
Steven Foster
Thank you, Bruce. Appreciate your question. Yes, look, we have a mix of orthopedic and neuro spine surgeon and Interventional Pain surgeon customers. Our mix in training is believe it or not we're right in that 50/50 range. There's a lot of debate about in this space between the specialties, et cetera. We are agnostic to that issue and we focus a great deal on making sure that the physicians we target and then feed into a workshop environment have the experience necessary to deal with this type of procedure that understand the SI joint, what have you like tell you how to answer your question specifically. We're right about at the 50/50 mark interventional and pain versus spine surgery.
Bruce Jackson
Okay, great. And then on a question on the post market study. So you released some data back in March that looked great. And I think you mentioned in the script that you're going to be releasing some more data later this year. Can you can you tell us how many patients when the first group of data that was released? And then what can we look forward to with the next arm data, please?
Steven Foster
Sure. Indeed, really what you can look forward to is increasing numbers. So in the first the press release, I believe you're referring to that was about a month to month and a half ago, we were reporting on the first few patients that have hit their 12 month milestone and gotten gone to get that critical post-op CT scan.
We're constantly monitoring how they're responding to their satisfaction, their pain scores, things of that nature. When we get to that 12 month mark, we want to do a radiographic assessment of the healing that's taking place around if the if the pain scores are improving and we see a good radiographic proof of bridging bone fusion, we're drawing the conclusion very quickly that what we set out to do has been achieved.
And so that's a critical landmark that 12-month Landmark, we had the first few patients, I believe it was six that it hit that milestone. That's what was involved in the first press release that came out. What you'll see, Bruce, in my fall is just increasing numbers instead of six, and we'll be up to 10, 11, 12 years into the 10s and things of that nature. And at that point, we'll be able to compile an interim analysis of the final document on the study, but it will be an interim analysis on our progress. We're as we start to draw conclusions about what we're seeing in this data.
Bruce Jackson
Okay, great. And then last question for me on. So I believe the study is going to be enrolling upwards of 50 patients eventually set rate in.
Then at what point do you think physicians will look at the data and say this is can give you the comfort to on keep this attractive it. Will the 12 month data be sufficient or will some of them wait for the 24-month data, and that's it for me. Thank you.
Steven Foster
Yes, and thanks to that of. So a couple of things. One, the study is set for a maximum of 50 patients. So we somewhere north of 40 and near 50, we'll shut down enrollment and go into a data gathering and assessment process of your where the physicians get moved. Look this is a wild card question because some really want to wait for the whole study to play out and see everything together.
Others will be moved. You're at that interim analysis time window. The bottom line is if the pain has gone away to a significant level, the patients are highly satisfied. They see actual pictures of a bridging bone fusion of the SI joint, they start drawing conclusions. You have something that's missing with all the different assay technologies out.
There is clear and definitive radiographic proof of our two DCs or fusion. This is something we've been committed to delivering since day one and are very much looking forward to us why we are so excited and put that release out a month and a half ago to see those early images of clearly field SI joint. So I think that's what you'll see. Bruce, is just the numbers continuing to grow as we move through the assessment of this data is the follow-up periods in the milestones.
Bruce Jackson
Excellent. Thank you.
Operator
Our next question is from Anthony Vendetti with Maxim Group. Please proceed.
Anthony Vendetti
Thanks. So just following up on the study. So 40 to 50 patients, 50 is max of where are you right now in terms of in terms of the number of patients? And then some how many sites. Do you anticipate when full enrollment is complete, how many sites are yet?
Steven Foster
Sure, Anthony, thanks for the thanks for the question. We are just about done because what I'll tell you. We're in the high 30s nearing 40 and just about wrapped up with enrollment type really do anticipate that will be happening here very shortly. And then we'll go ahead and shut that down. We have eight active sites with the study right now, but I don't see that expanding radically because we're down to maybe I don't know, eight, 10 more. Our cases to enroll in the trial. So it'll probably be in that eight range when all of a sudden the done.
Anthony Vendetti
Okay. And then and in terms of physician training, how do you see that that playing out, assuming the results come in and it's compelling, how do you anticipate that rollout will a couple of things.
Steven Foster
I mentioned some of the restructuring did our sales organization. So frankly, our our training number was a little lower than normal in Q1 because of that transition. So I expect number one now that we're bringing people on board and what have you I expect that number to expand and grow.
I think the other component to it, Anthony, that's really important is with clinical data like that, that goes out and gets in front of the physicians, either via podium presentations or posters or publications or what have you. We anticipate more inquiries right now though we're chasing. I'm trying to tell our story to get people interested, et cetera, with data, we hope that data will be compelling and it will compel physicians to inquire about.
Hey, can I check this file can I get into a workshop setting, et cetera. So all arrows are pointing up on the trading volume. We believe we've got our synthetic model in our training program down nice and tight now, et cetera. So we're ready to go and excited about.
Anthony Vendetti
Okay. And then just in terms of the sales force, as you go through this transition, what's the number that you think makes sense. But by the end of this year.
Steven Foster
Number in the sales organization?
Anthony Vendetti
Yes.
Steven Foster
Yes, so which we set five geographical regions around the country to put direct personnel to a combination of sales and management personnel as well as clinical support personnel to help with training and for surgeries, early surgeries and services. Things of that nature we anticipate those five regions to be really what we build off of here in the early stages.
And as our sales grow, it may make sense to go to 7 to 10, et cetera, as volumes go up and it gets too much for these guys to handle to have a bigger geography. And as we've talked about before, their jobs, they interface with independent distributors of people who are entrenched with the physicians out there, et cetera, to uptake to build local support of your case coverage, things of that nature. So that's the way our model works, and we'll be at five throughout the a calendar year 2024.
Anthony Vendetti
Okay, great. And then maybe just lastly, in terms of and I know it's early stages, a lot of fixed cost, but you know at let's say, normal volume, what's the margin on one of these systems, approximately, if you're not building them kind of a yes, single sort of pace, but you ramped up what should be the gross margin on one of these systems desktop-based?
Steven Foster
A fair question, and I'll let Steve Van Dick jump in as well. But I will say that here in the early stages, when we're not at the volume that you're talking about at full boat volume, we're pushing this 65% in gross margin. We see that as a baseline. We can grow from there as volumes go up and we can leverage. So we're encouraged. We think we can be a mid-70's margin organization going forward with our model without without putting undue stress on the organization. Steve, do you want to comment on that real quickly?
Steve Van Dick
Yes, I would just add that really for us right now, it's not so much the material costs of the implant because that's relatively small in comparison to the total cost of goods sold, which includes the overhead component related to the our operations team located in Los Gatos. And so like Stephen indicated that as volumes go up, we have a relatively high percentage of our costs that are risk are fixed or semi-fixed. And so we think that during the year know maintaining mid 60s kind of margins, it will be depending on actual sales volume and our mix between ASCs and hospitals, the margin should begin with the six. And as revenue grows, as Steve indicated, we think that as the revenue ramps, getting margins into the 70s is very doable.
Anthony Vendetti
Okay. Great. That's very helpful color. I appreciate and I'll hop back in the queue. Thank you.
Steven Foster
Thanks, Anthony.
Operator
Thank you. I would now like to turn the call back over to Mr. Foster for closing remarks.
Steven Foster
Well, thank you, Sherry. I'd like to thank each of you for joining our earnings conference call today and look forward to continuing to update you on our ongoing progress and growth. If for some reason, we were unable to answer any of your questions, please reach out to our IR firm MZ Group, who will be more than happy to assist.
Operator
And with that, I wish everyone a good day service that could create today's conference. You may disconnect your lines at this time, and thank you for your participation.