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Greetings. Welcome to the Sanara MedTech Inc. First Quarter Results and Business Update Conference Call. [Operator Instructions] Please note this conference is being recorded.
I will now turn the conference over to your host, Callon Nichols, Director of Investor Relations at Sanara MedTech. Callon, you may begin.
Thank you, and good morning, everyone. I'd like to welcome you to Sanara MedTech's Earnings Conference Call for the quarter ended March 31, 2024.
We issued our earnings release yesterday morning, and I would like to highlight that we have posted today's deck on the Investor Relations page of our website. This supplemental deck as well as a copy of the earnings release and the Form 10-Q for the quarter ended March 31, 2024, are also available on this page. We will reference this information in our remarks today.
With us today are Ron Nixon, our Executive Chairman and CEO; Mike McNeil, our Chief Financial Officer; and Seth Yon, our President, Commercial.
Please note that certain statements in this conference call and our press release and in our supplemental deck include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For more information about the risks and uncertainties involving forward-looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in our most recent annual report on Form 10-K is supplemented by the risk factors in our most recent quarterly report on Form 10-Q.
Also, this conference call, our earnings release and supplemental deck, reference certain non-GAAP measures. In that regard, I direct you to the reconciliation of these measures in the earnings materials that are available on our website.
Now I'd like to turn the call over to Ron.
Thank you, Callon, and good morning, everyone. As we mentioned in our press release yesterday, our former CEO, Zach Fleming, resigned on Friday. We're in the process of finalizing a separation agreement with Zach, and I've been appointed CEO by the company's Board of Directors. As a result of Zach's departure, the company will no longer be presenting the proposal for the election of a ninth Director on our Board of Directors at the Annual Meeting of Shareholders in June.
As many of you know, I've been intimately involved with the leadership team in developing and executing Sanara's strategic vision since the inception of Sanara MedTech. And I'm looking forward to working with the Sanara's leadership team now on a daily basis to continue that execution.
Turning to our first quarter results. First quarter of 2024 was the company's tenth consecutive record quarter. The company generated $18.5 million in revenue in Q1 over the course of '23 -- 2023. We made significant advancements in data analytics, sales force optimization and sales processes. As I've told many of you before, when you're in a high-growth business, you need to be able to build infrastructure, data analytics and details around these processes in order to be able to improve, to continue that growth. We believe that that's been implemented and that will pay dividends going forward.
These improvements and the momentum we've achieved in the fourth quarter helped us to exceed our forecast for the first quarter, and we believe position us to continue to build upon the success the teams achieved in previous periods. At the 3 months ended March 31, 2024, coming at a net loss of $1.8 million, while we generated positive adjusted EBITDA of $300,000 over the same period.
I'd like to provide a brief update on our partnership with InfuSystem. We continue to invest in this partnership and are focused on 3 potential areas of opportunity. The first initiative for the partnership is to distribute Sanara's advanced wound care products, including BIAKOÂŻS and HYCOL, as well as negative pressure wound therapy products into long-term care skilled nursing facilities and wound centers.
Building upon the strategic objectives, we're also exploring emerging opportunities for InfuSystem to distribute our advanced wound care products outside of this channel. We also agree that our partnership will play a key role in Tissue Health Plus, our value-based care strategy that you've heard about many times before, which is planned to include standardized wound prevention and treatment plans that utilize Sanara's wound care products. As these opportunities continue to develop, we will provide additional updates.
And as I mentioned in our last call, we're having discussions with potential partners participating in the execution of the Tissue Health Plus strategy. During the process, we're continuing to invest in the technology, capabilities and infrastructure that we believe are required to commercialize this very well-designed strategy, but we do not anticipate that this will continue spending by us alone in 2024, and we hope to have our partnerships in place so that we can execute. And these partners we're looking for are not just financial partners, they are strategic partners. We're also continuing focusing expansion of the existing surgical product offering.
Lastly, we made significant progress in the area of intellectual property and manufacturing processes for Cellerate product line itself. We think that this has been something we've talked about for many times and we believe that it's got a significant ability for us to be able to get more IP around the product as we continue to advance this through many of the different specialties.
I'd like to now introduce you to Seth Yon, our President of Commercial. Seth has been with the company since 2018, and over the years, has been promoted multiple times to roles of increasing responsibility. In his current position as President of Commercial, he leads our national sales team and multiple internal teams, including marketing, customer support, national accounts and business operations. He's been instrumental in building out our sales team and infrastructure at Sanara, and I'm looking forward to working closely with him on the execution of our strategy.
Seth, I'll now turn it over to you to discuss our surgical sales results in more detail.
Thanks, Ron. In the first quarter of 2024, our products were sold in over 1,080 facilities across 34 states and the District of Columbia. We continue to focus on increasing the use of our products in new and existing territories, expanding usage into new specialties and increasing our current facility sales. Our products were approved to be sold in more than 3,000 facilities as of March 31, 2024.
Subsequent to the end of the quarter, a new contract with a large GPO went into effect, which has had a significant impact on the number of facilities in which our products are approved to be sold.
Sales of our soft tissue products grew from $12.9 million in the first quarter of 2023 to $16.1 million in the first quarter of 2024. Sales of bone fusion products decreased slightly from $2.6 million in 2023 to $2.5 million in 2024. This was due to a slower-than-expected adoption of ALLOCYTE Plus as well as a larger-than-normal order from a facility in Q1 of 2023 of BiFORM, which subsequently returned to previous levels in subsequent quarters.
I will now turn it over to Mike McNeil to discuss the details of our recent loan agreement with CRG as well as our most recent financial results. Mike?
Thank you, Seth. I'd like to discuss the new debt facility. We recently announced with CRG. This transaction helped us strengthen our cash position and provided access to growth and acquisition capital in a way that was nondilutive to equity holders. The facility allows for flexibility in the event of a transaction we believe would be accretive given the fact the company has the ability to draw additional capital beyond the initial $15 million at our option. We are currently in discussions with the commercial bank for an additional $10 million revolver as permitted under the CRG facility, which could give us access to what we expect will be lower cost capital for immediate needs.
The term loan is structured as a senior secured loan with a 5-year term and up to $55 million in aggregate potential proceeds. In addition to the $15 million drawn at close, we can draw up to an additional $40 million before June 30, 2025.
I'll now go into more detail about our most recent financial results for the 3 months ended March 31, 2024. Sanara generated net revenue of $18.5 million compared to $15.5 million for the first quarter of 2023, a 19% increase over the prior year period. Higher revenue in 2024 was due to increased sales of our soft tissue repair products, including CellerateRX as a result of increased market penetration, geographic expansion and our continuing strategy to expand independent distribution network in both new and existing U.S. markets.
SG&A expenses for the first quarter of 2024 were $16.2 million compared with $13 million for the same period in 2023. The higher SG&A expenses in the first quarter of '24 were primarily due to higher direct sales and marketing expenses, which accounted for approximately $2.2 million or 69% of the increase compared to the prior year period.
Higher direct sales and marketing expenses were primarily attributable to an increase in sales commissions of $1.6 million as a result of higher product sales and $0.6 million of increased costs as a result of sales force expansion and operational support.
R&D expenses for the 3 months ended March 31 were $0.9 million compared to $1.3 million for the same period in 2023. The lower R&D expenses in '24 were primarily due to lower costs associated with the Precision Healing Diagnostic Imager and LFA.
Sanara had a first quarter net loss of $1.8 million compared to a net loss of $1.2 million during the same period in 2023. A higher net loss in 2024 was due to higher SG&A costs and higher amortization of our acquired intangible assets, partially offset by higher gross profit and lower R&D expenses. Our cash on hand at the end of the quarter was $2.8 million.
With that, I'll turn it back to Ron for some closing remarks.
Thanks, Mike. We're pleased with our progress in the first quarter, continued growth and the results that we had in that first quarter. We obviously are striving to seek profitability. This is not a revenue play. This is a play to build a business and build it for the long term, and we plan to do so.
Related to our surgical business, we've had multiple opportunities to continue to -- that we continue to review that complement our existing product offering, continue to expand our products into other areas of specialty as well as other hospitals. You know that how many hospitals we are in today, and we want to continue to advance that across the U.S.
This concludes our remarks, and we look forward to answering any questions you may have. Operator, we're ready to open the call for questions.
[Operator Instructions] And we did have a question coming from Ian Cassel from IFCM.
Ron, I just had one question and I can jump back in the queue. My question was the recent CEO transition, has that transition disrupted the sales momentum you've shown for Q1?
Not at all. I would tell you, Ian, that the team is stronger than it's ever been. Seth Yon has been driving this for a long period of time. And the sales team is -- we're sorry to see him go, but quite frankly, there's 0 disruption.
Okay. A follow-up question maybe for Seth. I noticed that the bone fusion products, they've been kind of flat year-over-year. I was wondering if you could maybe speak to that since I believe the supply disruption kind of became abated in Q4.
Sure. As I mentioned earlier, we did have a little bit of softening as we return with ALLOCYTE Plus. And I do believe a lot of that is related to timing. As you can imagine, when you have an issue with inventory, that inventory then becomes an issue and it's replaced at a facility level with something else. And so we had to start that cycle, that process again to get that product back in and get reengaged with our distributors as well. And that cycle, that process has taken a little bit longer than we had expected.
There were no other questions from the lines at this time. [Operator Instructions] Okay. We did have an Ian Cassel coming with a follow-up.
When we think about the Tissue Health Plus and partnering on that, is that -- and I was trying to remember what you said in your prepared remarks, but is that something you expect hopefully to happen by the end of '24, being able to have some partnerships with that?
Yes, it is what we anticipate. So Ian, what we have done is we have designed a really thoroughly thought out strategy for how you approach value based in wound care. And actually, no one has ever actually done this. So it is complicated because you've got payers, you've got providers, you've got products, you've got patients traveling through the continuum. You have -- so there's the issue of where do you keep -- take care of these patients because they're in the home setting, they're in home care, they're in SNFs, they're in LTACHs.
And because of all the discussions we've had historically about how episodic care does not fit well with the wound for -- just from a timing standpoint, you have -- typically, the focus is on the primary comorbidity that gave rise to that wound. And so you really have to think through, how do we catch this in its journey, how do we build a platform that will allow for us to have continuous monitoring of that patient, but also have care coordination and navigation to be able to work through this.
So when you think of all those steps, those are ideal partners that we would look forward to participate with us, and that would be a financial partner as well as a partner that bring some value add to our overall strategy.
Okay. And maybe a follow-up. You're now CEO of the company. Do you view this as a temporary thing? Or do you see yourself staying in here permanently?
It was a temporary thing when I started and spent 2.5 years in the seat. I'm actually in the seat every day. And there's not a day go by that I'm not talking to somebody from Sanara. So really, from my perspective, it's just a better line of communication for me to everyone. And we're going to just onward and upward. And I'm looking forward to the journey. And I have no plans to change out of this position anytime soon. And when something unforeseeable happens, and so I'm trying to dodge as many cars as I can, et cetera.
So this is something that doesn't happen, but I'm looking forward to it. This is my passion. This was originally my concept of what we wanted to go do and build this business. And I think we've done a remarkable job. And it's only from one thing. It's not me. It's because we have people that are highly competent, that are passionate about what we do, and they are in our company. And I don't see anybody that doesn't have that passion continuing and going forward for the execution of our strategy.
And maybe to that, you recently announced adding 2 more folks to the management team. Can you talk about why you brought them on board and your experience working with them?
Absolutely. We have a great team to begin with. But what you have to do is you're going through these growths, and we're anticipating higher growth. So when you anticipate higher growth, you have to have more people in the seat, and we look at a lot of opportunities. So we felt like we needed a dedicated Corporate Development person that also has got a strategic background. And so that's Tyler Palmer that joined us. He's got a long-standing experience in wound care.
And then we also need that operational focus with somebody that's also got financial strengths to complement what we do. And that's Jake Waldrop, and Jake and I have worked together for many years, and he came out of the ortho business and the lower extremity ortho space, and he understands it really well. And he is a former Chief Financial Officer that adapted real well to being a Chief Operating Officer. So we are delighted to have both of those in our camp.
What we also don't talk about is just all the other new people that come on to support all of this and our sales effort, the new trainees that come on board from the sales side, that all are just remarkable and we're excited about coming on because we just keep getting more laser focused on what our needs are. And with those needs, we go identify the right kind of people. And if you've got a good strategy and a growth company, people that are high performers seek you out.
And so I'm very positive about where we're going and I feel very good about the depth of the team. And this is not stopping. We'll continue to advance the depth of the team in order to keep up always with the infrastructure. As I've always said, companies go up. They've got to go sideways to build infrastructure and support so that they don't collapse then they go back up again. It's a journey, and it just continues to happen, and that's how you can build greatness.
[Operator Instructions] And while we wait for any other questions, we did have a couple come in from the web.
And can you speak to the profitability in relation to the revenue increasing, R&D decreasing, but the profitability taking a step back? And then also, can you share some color around the SG&A increase and how it appears to be increasing as fast or faster than the revenue quarter-over-quarter?
Yes. So I will start by speaking to the lumpiness of how costs come in. And that is depending on how we're hiring, depending on how we are advancing sales. As you know, on our SG&A, a big variable in the SG&A is commissions paid. That goes -- that correlates very well with more sales coming in.
And Mike, I'll let you talk about it in just a second. But as you think about the business, we are striving for profitability. We achieved profitability, although in a minor way. That's not where we want our levels to be. But what we also have to balance is, is that when we see opportunities that we think are a really good opportunity for our shareholders long term and building value, we don't want to -- we want to be prudent and make sure that we've got adequate capital that if we're going to take a bet on something that we believe will add significant value to us, we just need to make sure that we -- the level of cash available to us to be able to do that, which means that we might forego some period of time for profitability if we know it's going to be a multiple of that from the investment that we made. But operational efficiency, sales efficiency and profitability are all top of mind.
Mike, is there anything else you'd like to add?
Yes, Ron. I would just like to add. 2023 included a couple benefits to the P&L, such as change in fair value of earn-out liabilities. We had a big credit last year that we didn't have this year. And then also the amortization of our intangibles went up significantly. And that really accounts for the higher net loss in 2024.
There were no other questions in queue at this time. I would now like to hand the call back to Ron Nixon for closing remarks.
Okay. Thank you very much. We thank all our shareholders for being on the call today. It is, besides the people and our firm, the shareholders matter a lot. We love the continued support that you've given us. And thank you very much for the support to this transition.
As we said, we do not believe it will be disruptive at all. But many of you have called to talk about your confidence with our firm, and we thank you for that and greatly appreciate it. So thank you very much. We look forward to talking to our shareholders in the near term. Take care.
Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.