Greetings, and welcome to the Tenon Medical Second Quarter 2023 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. Your hosts today are Steve Foster, Chief Executive Officer and President; and Steve Van Dick, Chief Financial Officer. Mr. Foster and Mr.

Van Dick will present results of operations for the second quarter ended June 30, 2023, 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.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.

While these forward-looking statements represent our current judgment on what the future holds, they are 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 are not obliging 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 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 dated April 26, 2022, particularly under the heading Risk Factors, which is 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, sir. .

Thank you, Madeline, and good afternoon, everyone. I'm pleased to welcome you to today's second quarter 2023 Financial Results and Corporate Update Conference Call for Tenon Medical.

Over the course of our record second quarter, we achieved $743,000 in revenue, representing a triple-digit growth of 450% year-over-year and 72% sequentially from the first quarter.

Our fully commercialized Catamaran System designed to deliver a refined surgical option for patients with chronic sacroiliac joint pain or degenerative sacroiliitis that fail conservative care is rapidly gaining momentum and increasing surgical procedures. .

We marked an important milestone in the second quarter with gross profit and gross margin turning positive at $194,000 and 26%, respectively. .

Our positive second quarter reflects a focus on building our commercial infrastructure and sales management team. We continue to target physicians who have been trained on SI procedures or have significant experience with SI Surgical Technologies by facilitating an aggressive local workshop training program. .

We are showcasing our unique solution through a wide variety of channels, conferences and hands-on workshops, which include a combination of our local synthetic model and cadaveric lab workshops to train physicians on the Catamaran System. This has proven to be a timely and efficient process for our physician customers.

All of these critical activities are designed to drive acceleration in the number of procedures completed with the Catamaran System. Confirming our approach during the second quarter, our surgical procedures increased 469% compared to the year ago quarter. .

To reach our sales goals, we continue to execute our go-to-market strategy during the second quarter, hosting 43 physicians in Catamaran workshops. These sessions are designed to highlight the effectiveness and ease of use of our product as well as how the interior, posterior approach to the optimized pathway in the anatomy.

This distinct implant system addresses a significant unmet market opportunity and is designed to produce broad demonstrable advantages over market competitors.

Building on the momentum of the second quarter, we expect the number of surgical procedures to continue to grow as our sales team broadens our aggressive marketing, promotion and workshops featuring the Catamaran System. .

In Q3, representing our continued commitment to ongoing innovation, Tenon will initiate a limited release of our newly refined system to deliver Catamaran starting in September 2023. These enhanced tools promised to deliver upgraded graft handling, smaller access profile and enhanced access stabilization.

The upgrades will assist our market application expansion into SI revision surgery, an adjunct multilevel fusion and SI procedures utilizing navigation software and imaging. .

With that, I'll turn it over to Mr. Van Dick, our Chief Financial Officer, to discuss our financials. .

Thank you, Steve. I'll give a succinct review of our financial results. A full breakdown is available in our press release that crossed the wire this afternoon. .

Our second quarter revenue was $743,000, an increase of 450% compared to $135,000 in the comparable year ago period. Revenue for the first 6 months of this year was $1.2 million, an increase of 471% compared to $206,000 in the same period last year.

The increase in revenue for the 3 and 6 months of this year as compared to the same periods in 2022 was primarily due to increases of 469% and 476%, respectively, in the number of surgical procedures in which the Catamaran System was used. .

Gross profit in the second quarter of this year was $194,000 or 26% of revenue compared to a gross loss of $136,000 or a negative 101% of revenue in the comparable year ago period. .

For the first 6 months of this year, gross profit was $147,000 or 13% of revenue compared to a gross loss of $340,000 or a negative 165% of revenue for the first 6 months of 2022. Gross margin percent improved due to higher revenue associated with the increase in the number of surgical procedures. .

Operating losses totaled $4.3 million for our second quarter compared to a loss of $5.5 million in the second quarter of 2022.

The decrease in operating expenses were a result of the arbitration settlement and other consulting expenses in Q2 of 2022, offset by an increase in stock-based compensation, increases in sales and marketing and general expenses. .

For the first 6 months of this year, operating losses totaled $9.2 million compared to $7.5 million in the prior year period.

The increase in operating expenses were a result of an increase in stock-based compensation, increases in sales and marketing and general expenses as the company builds a sales function and infrastructure to support future growth. .

The net loss was $4.3 million in our second quarter compared to a loss of $5.5 million in the same period of 2022. For the first 6 months of this year, net loss was $9.1 million compared to $7.8 million in the previous year period. The company expects to incur additional losses in the future.

As of June 30, 2023, cash and cash equivalents and short-term investments totaled $6.3 million as compared to $8.6 million in December 31, 2022. .

I will now turn the call back to Steve for his closing thoughts. .

Thank you, Steve. With the accelerating pace of Catamaran procedures, we're very optimistic for continued growth in the commercialization of our proprietary FDA-cleared surgical implant system.

We marked the second quarter with strong revenue gains and a positive gross margin and believe we can continue on this growth trajectory with our expanding commercial infrastructure and seasoned sales management team. .

Looking ahead, the revenue growth, combined with our recent capital raise positions us appropriately to further accelerate our momentum in the second half of the year. .

We continue to reinforce our commitment to validating and differentiating patient outcomes and radiographic assessment with ongoing post-market clinical studies and expect to expand the application of our distinct product offering to address SI revision surgery, adjunct to multilevel fusion and SI procedures utilizing navigation software and imaging.

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We look forward to additional updates in the months to come as we continue to expand our sales infrastructure and execute on our growth objectives to deliver long-term value to our shareholders. I thank everyone for attending. .

And now I would like to hand the call over to the operator to begin our question-and-answer session.

Madeline?.

[Operator Instructions] Our first question comes from Bruce Jackson with the Benchmark Company. .

First off, congrats on achieving gross profit positivity. The number of doctors trained in the quarter, 43, it's up sequentially.

Is that something that you can do -- can you continue to increase the number of doctors who are trained next quarter?.

Yes. Bruce, this is Steve. Thank you for the congrats and the question. I do believe we can continue to expand that number, as our sales team gets comfortable, trained up to speed, et cetera. And frankly, as they broaden their activities, all of this feeds on itself. And I do anticipate that number to continue to expand and grow. .

Okay.

And then are you still happy with the synthetic training model? Is that helping you out at all?.

Very much so. Look, the physicians are extraordinarily busy. The degree to which we can bring a workshop session to them make it very convenient, do it in an evening or over a weekend or what have you, really pays dividends that keeps them from having to jump on a plane and go someplace, et cetera.

So we're leveraging this synthetic model to do local programs to bring faculty in virtually to talk through with the physicians about their experience with the technology and what have you, and it seems to be extremely well received. And quite honestly, Bruce, it lets us move more quickly.

Getting a trip planned for a physician takes time with their tough schedules. Bringing it to them lets us move very quickly when they're ready to be exposed to the system. .

Okay. That's great.

Then in terms of the physicians that you have trained in, who have performed the procedure, how well are they -- are they repeating the procedures? Is it something where they've been trained and then they get comfortable with it and then they start performing the procedures in a routine fashion?.

Indeed, sure. In these early stages, of course, we're looking to see if our technology is sticky, that if people get trained and exposed to the technology, do they adopt and do they stick with it and keep rolling and we're really happy with what we see on that front. .

The technology is proving to be reproducible over and over again. And that goes to this inferior posterior approach that we've talked a little bit about, Bruce, on several occasions. But this -- I want to really stress. This is a unique way of getting at this anatomy, different from any other competitor that we have. .

We believe that approach will prove to be a more efficient, reproducible pathway that stays away from neuro and vascular structures and gives a physician the comfort that they can get where they need to be and get the job done. .

And of course, we're early, we launched this technology just a couple of quarters ago. So we're early in the process. But what we're seeing is that is coming to fruition. And it makes us really encouraged as we expose physicians to the technology.

We watch their reaction and we watch how quickly they come back and reproducibly use the technology to serve their patients. So really encouraged with what we're seeing. .

Then last topic is the new delivery system.

So maybe you could like tell us a little bit about how much it differs from the current delivery system? And are the doctors who are trained on the current system, can they pick up the new system fairly easily?.

Yes. Bruce, thanks for the question. We do believe that -- well, let me back up, first and foremost, medical device is about constant iteration and improvements.

You hear from your physician customers, if you're smart enough to listen carefully, you can really improve the way the technology feels in their hands, the sequence of instrumentation, things of that nature. And we're exceptionally focused on that. As a small organization, we want to respond very quickly to those kinds of feedback.

And that's what we've done here. .

I talked about graft handling. This is just when we drill the 2 holes, we harvest that -- the patient's own bone and pack our implant with that graft. Handling that graft can be a bit tedious, et cetera.

We believe we've come up with some great ideas to make that process faster, more efficient, frankly, more gratifying for the staff and the physician alike. .

The access profile, this is the access sleeve through which we put the implant is shrinking pretty dramatically, approximately 40%. And of course, every physician wants to do as little soft tissue disruption as humanly possible, but yet still get the job done effectively. And so that's what that's all about. .

And we believe through this alpha that we call it, this sort of test period, it will prove out that we're reducing the size of that access requirement, in the incision size pretty dramatically. .

And then third, you always want the entire procedure to be satisfying for the physician. You want things to be stable, intuitive, easy for the nurses to support, things of that nature. And so we've taken a number of steps to continue that refinement process. .

You asked about access. That's exactly right. We've been quite aggressive with how we put this alpha together.

It will be somewhat limited in September just to make sure everything we've done is delivering on its promises and that our physician advisers are satisfied, and then we're in a position to make the technology available rather aggressively to our physician users. And it just involves a small add-on trade to our existing base trade in the procedure.

So it's relatively straightforward for them to have access to the technology. .

Okay. Great. I actually have one more question. Financial question. Is the income statement profile in the third quarter going to look like the first quarter or the second quarter this year? You had a little bit of a downtick in the SG&A line.

So is that going to come back up with the increased activity? Or is that like the level this quarter is that the level that you would expect going forward?.

Yes, Bruce, thanks for that. I think you're going to find it's somewhere in between. I think the SG&A, of course, is going to go up with higher revenues due to the commission structure.

But the R&D and general administrative, the G&A cost should remain relatively flat Q2 to Q3, except we may see some increase in the stock compensation -- stock-based compensation line. .

[Operator Instructions] At this time, it appears there are no further questions. I would now like to turn the call back over to Mr. Foster for his closing remarks. .

Thank you, Madeline. So 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 we were unable to answer any of your questions, please reach out to our IR firm, MZ Group, we'll be more than happy to assist. .

With that, I wish everyone a good day. .

This concludes today's conference. Thank you for attending. Have a pleasant evening..