Greetings. Welcome to the Sanara MedTech Inc. Fourth Quarter and 2023 Full Year Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Callon Nichols. 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 and year ended December 31, 2023. We issued our earnings release yesterday afternoon, 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-K for the quarter and year ended December 31, 2023 are also available on this page. We will reference this information in our remarks today. With us today are Ron Nixon, our Executive Chairman; Zach Fleming, our Chief Executive Officer; and Mike McNeil, our Chief Financial Officer. Please note that certain statements in this conference call, in 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. 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. Fourth quarter of 2023 was another record revenue quarter for Sanara, and 2023 was another revenue record year. The company generated $17.7 million in revenue in Q4, $65 million in revenue for the year. For the three months ended December 31, 2023, the company had a net loss of $300,000. For the year ended December 31, 2023, we had a net loss of $4.4 million. We were breakeven on an adjusted EBITDA basis in Q4 and generated a $300,000 adjusted EBITDA loss for the year. We incurred expenses of $400,000 in the second half of 2023 due to an acquisition opportunity that didn't materialize. Looking ahead to 2024, we expect to further expand our sales force and focus on new geographic areas, further penetrate additional specialties outside of ortho and spine, and continue to drive new product development, including expanding the CellerateRX platform intellectual property as well as beginning development of the peptides we recently licensed from Tufts University to expand our peptide platform. We're also continuing to seek complementary partnerships and platform expansion opportunities that could be beneficial to our business. I'd like to also provide a brief overview of Tissue Health Plus, our value-based care strategy for post-acute wound care. This strategy fits well with Sanara's goal to lower cost and improve outcomes within the healthcare system. However, there are significant differences between THP and our surgical business, which is focused on the acute market related to healing and preventing infections of surgical sites, while THP is being developed to address the prevention and treatment of chronic wounds at home. Given the differences in the site of care, selling channels and payment systems between our surgical business and Tissue Health Plus, we believe this is very complementary to our post-acute strategy partnership with InfuSystem. We envision the InfuSystem wound care partnership being an integral part of the Tissue Health Plus strategy given their focus on overall wound care and the common objective of improving outcomes and lowering costs for the healthcare system. We have begun to have discussions with other potential partners to share the development cost of our strategy that could result in Sanara potentially owning less than a majority of Tissue Health Plus while carrying out this very important strategy. I will now turn it over to Zach to go into more details on our achievements during 2023.

Thanks, Ron. I'd like to start by discussing the strategic and operational achievements that the company realized in 2023. In August, we acquired all rights for human wound care uses for CellerateRX and HYCOL in addition to other wound care assets. Since the transaction, we have eliminated the royalty we pay on these two products and we now have full rights to develop our own proprietary products. As we previously discussed, we had supply issues related to our ALLOCYTE product line in 2023. In late 2023, we saw this issue and successfully launched and recorded our first sale of ALLOCYTE Plus. This product replaces our ALLOCYTE product and is processed by an alternative supplier with in-house processing capabilities. This will afford us greater control of product supply. The company now has a sufficient supply of ALLOCYTE Plus to meet currently expected demand, and we have measures in place to adequately stock the product in the future. In addition to our first sale of ALLOCYTE Plus in November 2023, we launched and recorded our first sale of BIASURGE Advanced Surgical Solution. We view this product as a significant addition to the portfolio and believe that it can be used in any surgery where Sanara products are currently used. In November 2023, Sanara announced publication of a retrospective study involving 5,335 patients. The study demonstrated the effectiveness of CellerateRX Surgical Powder in promoting surgical wound healing, specifically a significant decrease in surgical site infections was observed with a significant reduction in surgical site infection rates of 59% among patients undergoing elective surgery. This reduction was most pronounced in clean cases with a 69% decrease in surgical site infection rates. In December, we executed a license agreement with Tufts University for 18 unique peptides. We are currently exploring opportunities to incorporate these peptides into new products that we could develop at Rochal. Turning to our sales results, in 2023, our products were sold in over 1,000 facilities across 34 states and the District of Columbia. Our products were approved to be sold into more than 3,000 facilities as of December 31, 2023. Sales and approvals of BIASURGE continued to grow and we are pleased with the traction we've seen in this product. At the end of 2023, we had 39 field sales representatives. We've made significant strides in our data analytics and the use of various sales metrics to both measure our performance as well as penetrate further into our existing accounts and hospital approvals. These efforts have given us detailed insights into our business and allowed us to refine our model for the steps that need to be taken to develop a successful sales manager and territory. Sales of both our soft tissue products and our bone fusion products continue to grow. Sales of soft tissue products were $54.8 million in 2023 compared to $41.7 million in 2022. Sales of bone fusion products were $10 million in 2023 compared to $4 million in 2022. I'd now like to provide additional details beyond what Ron mentioned earlier on Tissue Health Plus, our value-based care strategy for the chronic wound market. We're currently in discussions with prospective partners to facilitate commercialization of Tissue Health Plus and sharing the development costs of the complete strategy. Excluding non-cash items, our full-year operating expenses for Tissue Health Plus in 2023 were approximately $5.2 million. While we work to find the right partners, we'll continue to build out the key capabilities needed to commercialize Tissue Health Plus. These include a care hub, a managed service organization, and a technology platform. The care hub will include a virtual care coordination and navigation center. The management service organization will be a network of providers delivering a high standard of patient site wound care. And the technology platform will be an automation and integration platform to scale the care hub and MSO network workflows. We believe this comprehensive strategy will be unique and impactful in lowering costs and improving outcomes for wound care patients, providers, and payers. I will now turn it over to Mike to discuss our financial results.

Thank you, Zach. As Ron mentioned earlier, we generated revenue of $65 million in 2023 compared to $45.8 million in 2022, a 42% year-over-year increase. The higher net revenue in 2023 was primarily due to increased sales of soft tissue repair products, which includes CellerateRX and bone fusion products as a result of our increased market penetration, geographic expansion, and our continuing strategy to expand our independent distribution network in both new and existing U.S. markets. Full-year 2023 SG&A expenses were $57 million compared to $46 million in 2022. SG&A as a percent of revenue decreased from 100.3% in 2022 compared to 87.7% in 2023. The higher SG&A expenses were primarily due to higher direct sales and marketing expenses, which accounted for approximately $8.1 million or 74% of the increase compared to the prior year period. The higher direct sales and marketing expenses in 2023 were primarily attributable to an increase in sales commissions of $6.9 million as a result of higher product sales. 2023 SG&A expenses also included $1.2 million of increased costs as a result of sales force expansion and operational support and $0.4 million of costs associated with an acquisition opportunity that didn't materialize. We expect our SG&A expenses to continue to decline as a percent of net revenues as our sales growth outpaces the cost of sales force expansion and corporate overhead. 2023 R&D expenses were $4.1 million compared to $3.4 million in 2022. The higher R&D expenses in 2023 were primarily due to costs related to the Precision Healing diagnostic imager and LFA. R&D expenses for 2023 also included costs associated with ongoing development projects for our products currently in development. We had a net loss before income tax of $4.4 million for the year ended December 31, 2023, compared to a loss before income tax of $13.9 million in 2022. The lower loss in 2023 was primarily due to increased gross profit and changes in fair value of earn-out liabilities, partially offset by higher SG&A costs, higher R&D expenses, and higher amortization of our acquired intangible assets. For the year ended December 31, 2023, we had a net loss of $4.4 million compared to a net loss of $8.1 million in 2022. The lower net loss in 2023 was primarily due to additional gross profit realized on higher 2023 revenues. Our cash on hand at the end of the year was $5.1 million. With that, I'll turn it back to Ron for some closing remarks.

Thank you, Mike. As we mentioned before, Sanara had both a record quarter and record year in 2023. We continue to build the infrastructure that we need to support our growth in the future, and we're grateful for the hard work and dedication of the entire team. That concludes our remarks and we look forward to answering any questions you may have. Operator, we are ready to open the call for questions. Thank you.

Certainly. At this time, we will be conducting a question-and-answer session. Your first question for today is from Ross Osborn with Cantor Fitzgerald.

Hey, guys. Good morning, and congrats on the strong results. So, starting off maybe with BIASURGE, could you discuss how many centers you sold during the fourth quarter, or maybe how many you're approved to be sold in? And as a follow-up, any feedback you could share on that initial launch? Thank you.

Zach, you want to take that? Zach, you're on mute.

I'm sorry, I heard the first part, you said how many centers in the fourth quarter. What was the second part?

Just any feedback you could share.

Yeah. So, BIASURGE has been very well received in the market. As you know, we had a pre-launch soft trial where we sent product out to facilities and were able to get feedback from surgeons. That yielded quite a few pre-sales approvals and we began to sell those immediately. Since the launch, really in November and December, we've been gaining additional traction in the market and getting additional trials going. As you recall, when we do approvals, we have to go through sort of the evaluation analysis, but oftentimes it's a trial where they want to take a look at the product for a few patients. We have not disclosed the total number for the fourth quarter, but we feel really good about where we are. We have about 51 through the fourth quarter, which we actively sell to and we’re continuing to add to those. We’re really happy with the product. The doctors have found it to be a great addition to the same cases that they're already using Cellerate in as well as some of our bone biologics. They desire to prepare the site by eliminating biological contaminants, any biofilm, and then they add in our product like Cellerate to help close the wound.

Got it. Great to hear it. And then maybe lastly for me, just on Cellerate, what do you hope to improve with that offering following the acquisition of the 18 peptides?

Zach, do you want to take that?

Ron, do you want to take that? Oh, I can...

I didn't actually hear the question.

He just asked what our goals are with the 18 peptides. They are a different set of peptides, but go ahead.

I'm happy to take that. So, Ross, we obviously see Cellerate as falling into the category with collagen peptides. One of the keys that we're trying to do is increase our intellectual property around our collagen strategy with CellerateRX. As we mentioned, we aim to expand our coverage into other specialties. There might be uniqueness needed based on certain specifications of collagen peptides that we would like to develop. So, they have numerous indications for use and as we sort through that and begin to prioritize our focus, we'll keep it centered around CellerateRX. We aim to strengthen that platform, but also expand into more uses within the surgical arena. Some of those peptides might even have applications outside of that. For those cases, we will likely seek partners that have stronger marketing capabilities to assist us. Thus, the primary reason we pursued this is to secure a greater technological advantage in the marketplace through our intellectual property.

Sounds great. Thanks for taking my questions, and congrats again on the strong results.

Thank you, Ross.

Thank you.

Your next question is a webcast question from Neil Cataldi. You mentioned ALLOCYTE sales began to pick up back up in October of last year. However, we didn't see much of an increase in its revenue segment during the fourth quarter. Can you give us a sense for where you're at today with ALLOCYTE in terms of ramping back to a normal run rate? And how should we think about that run rate in terms of annual size?

Sure, I can take that. So, yeah, we did see a delay in our ability to obtain full supply late last year, starting around September and extending into October. We did a good job of managing based on available sizes. So, to your point, we didn't see a tremendous decrease, nor did we see a significant increase in revenue from that product due to our management of the sizes as they were demanded in the market. Now, with ALLOCYTE Plus, we've had to go back out to facilities to get a new approval, as this becomes a line extension or new product. We've done that, going back to facilities where we had previously built some momentum before our supply issues. Now we're back on target with most of these facilities. Some have transitioned to other products, but for the most part, we’ve been able to regain momentum with them. There’s additional time needed to restock and ramp up, but we are confident in our approach moving forward, and we’ve implemented proactive measures to approach new facilities while regaining business from surgeons and distributors. So, this fourth quarter has been about regaining our footing, and now we’re moving forward positively.

Your next question is from Michael Liu at IFCM.

Hi, guys. Thanks for taking my questions. Congrats on the quarter. My first question, could you potentially clarify the sales force growth throughout the year? I think you disclosed last year that you ended the year at 39, and you're at 39 now. And it sounded like you added a couple throughout the year, and it seems to be about flat. So, could you just maybe take us through the cadence of how many sales force reps you've had throughout the year and where the major changes have happened?

I think the straightforward way to look at it is that three individuals were reclassified and roughly four were let go in the fourth quarter. There were some changes in classifications and promotions along with the terminations.

Yes, Michael, the most noteworthy point is that we accomplished a 42% increase in revenue growth while maintaining the same number of sales representatives from the beginning of 2023 to the end. Our data analytics are being well utilized, resulting in greater efficiency, providing us with better speed to profitability per representative while also enhancing our understanding of their potential within each selling area. I think the efficiency gains we've achieved have given us great leverage with our sales force, and we will continue to expand as necessary in the marketplace.

We are continually making adjustments to the team based on data and analytics. We aim to tweak the structure for optimal performance. So, you can expect that to continue; we always strive to increase efficiency where possible. That’s part of our management approach.

Okay. Great. And on the Tissue Health Plus potential spin-out or partnership, and I appreciate you can't provide too many details yet, but I was curious if you could tell us what stage you are in the talks of doing that spin-out. And my main question is when you do a transaction that one way or another gets Tissue Health Plus off your books, would that be a cash inflow to Sanara or a cash outflow for you, or would it not impact your cash?

Yeah. Here's how I would describe it, Michael. Our strategy places high value on Tissue Health Plus. No one has ever achieved pulling together a comprehensive strategy like we've outlined before. Our goal is to secure funding for this strategy with partners that can help implement it. As noted, we've included an MSO network in this strategy, which would not be owned by us, hence a partnership. There are various needs related to this strategy that could be fulfilled by partners who have a better focus in particular areas. We're seeking to finalize these partnerships in 2024 and aim to begin commercialization in 2025. We expect a pilot launch to take place early in Q1, followed by full commercialization. Overall, we anticipate this will generate long-term cash flow. This could either involve equity distributions to Sanara or retaining majority ownership with distributions. The core focus is to secure partners to fund this strategy effectively while maintaining our performance.

Okay. Thanks. So, to clarify, you're not looking at potential deal structures where Sanara would have to fund a JV along with a partner or something like that? You would definitely be...

Not in any significant way. We've already made substantial investments into that area, and that would be our contribution to the partnership.

Okay. Thanks for taking my questions.

You bet.

Your next question is from Chris Plahm with Tall Pines Capital.

Good morning, guys.

Good morning, Chris.

Good morning.

Zach, probably a question for you on Cellerate. Could you give us maybe a little more color on two things? One, kind of the organic growth from the existing 1,000 hospitals you guys are already selling into for this year and beyond? And then, also maybe a little more color on the gap that you want to close on sales with the 2,000 gap on approvals and where we're selling into today?

Sure, thanks for the question. So, for the 1,000 existing accounts, one of our main goals is to expand into new specialties. We've made great progress, particularly in ortho, spine, and foot and ankle, which are straightforward for our representatives and our 1,099 contractors. These specialties have a significant need for this type of product to ensure effective closure around expensive hardware. We also see tremendous opportunities in plastic surgery, vascular surgery, and other challenging wound cases. We are actively producing additional case studies and reports to showcase the product's benefits in these areas. Our educational efforts target clinical staff crucial to surgical closures and post-operative care. Furthermore, we’re bolstering our sales support to manage larger accounts due to demand, which we’ve detailed earlier. Our TM model enhances regional sales efforts. Regarding the additional 2,000 approvals, these represent further opportunities with our current contractors and new partnerships. We've utilized our analytics to pinpoint facilities that offer the most potential within those 2,000. Therefore, our strategy involves targeting these facilities and building relationships with the surgeons associated with them using data-driven insights.

Chris, we don’t provide a forecast or specific penetration statistics, but I can assure you that we see significant greenfield opportunities among both our current 1,000 and the additional approved facilities. There remains plenty of growth potential for Cellerate products.

Great. Thanks, guys.

Thank you.

You're welcome.

We have reached the end of the question-and-answer session. I will now turn the call over to management for closing remarks.

Thank you everyone for joining our call this morning. We greatly appreciate your support, and thank you for your patience and for being great long-term shareholders with us.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.