Biostem Technologies Inc

OTC:BSEM

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the BioStem Technologies' third quarter financial results and corporate update call. [Operator Instructions] Nic Johnson, you may begin your conference.

[Nicolas Johnson]

Good afternoon, everybody, and thank you for joining our conference call to discuss BioStem's Third Quarter 2022 financial results and corporate highlights. Leading the call today is Jason Matuszewski, Chief Executive Officer. We are also joined by Mike Fortunato, our Chief Financial Officer.

Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements based on the current expectations of management, which involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the over-the-counter market. You are cautioned not to place any undue reliance upon any forward-looking statements, which speak only as of the date made and may change at any time in the future.

Although it may be voluntary to do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the applicable security laws. This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website.

With that, I'm now pleased to turn the call over to Jason Matuszewski.

[Jason Matuszewski, executive]

Thank you, Nic. Good afternoon, everyone, and thank you for joining us today. The team at BioStem has made strong operational and financial progress in the third quarter of 2022. We continue our tremendous long-term growth trajectory for the remainder of 2022 and beyond, resulting in the net revenue of $1.1 million and a 74% gross margin for the quarter. Before Mike discusses the financial results in more detail, I would like to cover some of our recent milestones and initiatives.

First, I want to talk about our commercial team strategy. We continue to transition from an indirect sales force to a direct sales force with the addition of 3 direct sales hires during the quarter. We also continue to build out an experienced and well-equipped commercial team to match the pace of our expected growth. Second, we continue to invest heavily into sales infrastructure, including customer relationship management tools and B2B ordering portal and our care partner program.

We anticipate a rollout of our new Salesforce B2B e-commerce platform in Q1 of 2023 as well as equipping our commercial teams with Salesforce Sales Cloud, CRM. This will provide our customers easier access to order product and support documentation to increase the success of product adoption. Also, with Salesforce Sales Cloud, we will have better insight on our commercial pipeline and our commercial team's interactions with clinical providers through the Salesforce data analytics platform for future forecasting.

Provider support is also a key focus to realize product adoption. BioStem's care partner program initiative includes facilitating the best customer experience and answering questions regarding the coding and reimbursement process to support medical providers through every aspect of utilizing BioStem's allograft products.

Throughout 2023, we intend to expand the care partner program to support adoption in all MAC regions through CMS, gaining data and other approval requirements to promote our products through private payers or other health care networks. We also will continue to invest in marketing efforts, including improving our product-specific minisite, reimbursement support team and marketing personnel to further support our direct sales efforts. We look to get on the road in 2023, attending major wound care conferences to grow out the company's focus in advanced wound care sector.

Third, we expect the final decision regarding the VENDAJE AC Q code issuance in Q1 of 2023. VENDAJE AC is a dehydrated placental allograft that retains all the native layers of the placental tissue, specifically the amnion layer, chorion layer, the intermediate layer and the spongy layer. It can also be stored at room temperature. Issuance of a new code for this product will expand our CMS reimbursement product portfolio and the total addressable market. The multilayer architecture of this product creates a thicker graft, which can be used in more complex cases, such as burns or surgical recovery.

On the operations and research front, the operations and quality team have completed initial qualification steps for the MasterControl Manufacturing Mx module as well as the Quality System's Qx module. The Mx portion of this system is scheduled to be validated in December of this year, and we will be transitioning to a fully electronic record system by Q2 of 2023.

Our operations, research and development teams continue to implement the BioRetain processing method in our current and future allograft products. This results in increased retention of inherent beneficial biological qualities and components of our tissues. The company will soon be engaging with several market development focus groups, industry thought leaders and key stakeholders to support this initiative and accelerate the adoption of our product offerings.

Our BioRetain process has a competitive advantage over our competition as internal data analysis has shown that our allograft products retained elevated levels of the inherent beneficial biological qualities and components of allograft products.

Finally, in the third quarter, we announced key appointments to build out our leadership in corporate governance. Michael Fortunato, who is on the call today, has moved from our controller role to a Chief Financial Officer role. And Brandon Poe was appointed to the Board of Directors. Both bring substantial financial experience to the company. We look forward to expanding our team of industry leaders.

As I have mentioned before, we have put our company on a tremendous long-term growth trajectory. In the third quarter, we have executed on the fundamentals of this growth strategy. We look forward to continuing this progress in 2023, as we hone our focus on advanced wound care market and establishing ourselves as an industry leader in this space.

With that, let me turn the call over to Mike for the review of the third quarter 2022 year-to-date financial results. Mike?

[Michael Fortunato, executive]

Thank you, Jason. Net revenue for the 9 months ended September 30, 2022, was $6 million compared to $3.1 million for the 9 months ended September 30, 2021. This is an increase of $2.9 million or 95%. We've also gained manufacturing efficiencies during 2022, which has reduced overall production time by approximately 50%. Operating expenses for the 9 months ended September 30, 2022, were $7 million compared to $3 million for the 9 months ended September 30, 2021, an increase of $4 million or 134%.

Increase in operating expenses is primarily driven by additional head count, additional marketing expenses, investments in a direct sales force and increases in share-based compensation related to the conversion of certain liabilities to equity.

Total other expense net for the 9 months ended September 30, 2022, was net expense of $233,000 compared to $121,000 of net expense for the 9 months ended September 30, 2021, an increase of $112,000 or 92%. The 9 months ended September 30, 2021, contains the benefit of a onetime PPP loan forgiveness of $142,000. Net loss for the 9 months ended September 30, 2022, was $2.3 million or $0.21 per share compared to a loss of $1 million or $0.11 per share in the 9 months ended September 30, 2021.

I'll now turn to some cash flows and some balance sheet highlights. First, cash flows provided by operations was $762,000 for the 9 months ended September 30, 2022, compared to cash flows used in operations of $131,000 for the 9 months ended September 30, 2021. The increase in cash provided by operations is due to management's continued discipline over operating expenses as well as an increase in product sales. For year-to-date September 30, 2022, cash provided by operations is comprised of noncash charges of $3.6 million, offset by net losses of $2.3 million and net cash outflows of $508,000 from changes in assets and liabilities.

For the year-to-date September 30, 2021, cash used in operations is comprised of noncash charges of $945,000, offset by a net loss of $971,000, $469,000 noncash gain on PPP loan forgiveness and net cash inflows of $364,000 from changes in assets and liabilities.

Net cash used in investing activities during the 9 months September 30, 2022, was $395,000, which was primarily purchases of property and plant equipment of $199,000 and purchases of internal-use software for $196,000. Net cash used in investing activities during the 9 months ended September 30, 2021, was $1,000, which is primarily purchase of property and plant equipment of $36,000, offset by proceeds of $35,000 from the sale of one of our subsidiaries.

We expect investments in property and plant equipment and internal-use software to continue into 2023, as we increase capacity of our manufacturing facilities and investment in IT infrastructure. Net cash provided by financing activities for the 9 months ended September 30, 2022, was $335,000, which resulted from proceeds from loan borrowings of $850,000, issuance of common stock for cash $50,000, and $14,000 in new finance leases, offset by loan repayments of $533,000 and finance lease repayments of $45,000.

Net cash provided by financing during the 9 months ended September 30, 2021, was $379,000, which resulted from proceeds from PPP loan borrowings of $296,000 and issuance of common stock for cash of $125,000. And these were offset by repayments of notes payable of $11,000, and finance lease repayments of $31,000.

We expect to continue to fund the operations of the business through future financings. We expect to also use the proceeds from financings to fund ongoing investments into our sales and marketing function and, in particular, hiring, training, and deployment of a direct sales force. The company maintained cash on hand as of September 30, 2022, of $1 million compared to $356,000 as of September 30, '21. We continue to strengthen our balance sheet. The company converted $429,000 worth of liabilities in the common stock during the 9 months ended September 30, 2022.

I'll now turn the call back over to Jason.

[Jason Matuszewski, executive]

Thank you, Mike. We will now turn the call over to questions. Operator, will you please open the line?

[Operator]

Certainly. [Operator Instructions] There are currently no questions at this time. There are still no questions.

This does conclude today's conference call. Thank you for joining.