TELA Bio, Inc. Q3 FY2023 Earnings Call

Good day and thank you for standing by, and welcome to the TELA Bio Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference call is being recorded. I would now like to introduce your host for today’s call, Greg Chodaczek. You may begin. Thank you, Justin, and good afternoon, everyone. Earlier today, TELA Bio released financial results for the third quarter 2023. A copy of the press release is available on the company’s website. Joining me on today’s call are Tony Koblish, President and Chief Executive Officer, and Roberto Cuca, Chief Operating Officer and Chief Financial Officer. Before we begin, I’d like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company’s past and future filings with the SEC including, without limitation, the company’s Annual Report on Form 10-K and quarterly reports on Form 10-Qs, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development and pipeline opportunities, product potential, the impact of various macroeconomic conditions, including the COVID-19 pandemic, recessionary concerns, banking instability, and inflationary pressures, the regulatory environment, the introduction of new products or product enhancements by us or others including those which may be perceived to negatively impact the demand of our products now or in the future, sales and marketing strategies, capital resources, or operating performance. With that, I’ll now turn the call over to Tony.

Thank you, Greg. Good afternoon, everyone, and thanks for joining us today for our third quarter 2023 earnings call. We are pleased to report another quarter of strong financial results and operational execution. Revenue in the third quarter was $15.1 million, growing 35% year-over-year. Notably, this was the 11th consecutive quarter of 35% growth or greater, driven by continued market share gains and increased surge in adoption of the OviTex product portfolio. PRS growth was especially strong at 46% year-over-year, notably driven by the launch of the long-term resorbable version of OviTex PRS, which includes specific design features aimed at enhancing the clinical utility of OviTex PRS for surgeons and patients in plastic and reconstructive surgery. In addition, our hernia portfolio continues to perform with OviTex recently becoming the most implanted biologic hernia repair mesh in the United States, reflecting the growing recognition of the clinical utility of the product for this application. Today, I will review with you the progress we’ve made on the five factors that have combined to drive our growth. Roberto will provide a more detailed review of our financial results, and then I’ll make closing remarks before opening the line for your questions. I’ll start by discussing sales force size and individual sales representative productivity together, as they had a joint impact on our Q3 revenue. As of today, we have 79 commissioned sales reps, with our goal being to end the year with 75 to 80 filled positions. Of these 79, 55 have been in their roles for at least six months. During our second quarter earnings call, we had 75 reps, of which 50 had at least six months tenure. The newness of a third of our reps at our last call was the result of turnover in the second quarter affected by new regional managers hired at the end of last year, who identified opportunities for upgrading talent in certain territories. While 35% organic growth is outstanding, we believe it would have been even higher, but for the transition of territory responsibilities in the second quarter. That said, I am pleased to report that the newer reps are quickly progressing along the learning curve and their productivity ramp is consistent with our standard six months to break-even profitability metric. Therefore, we anticipate the impact of reps’ turnovers to be meaningfully lower in Q4. Additionally, we have taken the following steps to accelerate the productivity of our newer reps and our sales performance in general. First, we rolled out intensive PRS sales training to ensure that all our reps are comfortable selling the product compliantly and effectively. This additional training added to the availability of the OviTex PRS long-term resorbable should help all our reps, particularly those with less than six months experience on the job. Second, we’ve implemented two supplemental incentive programs in the fourth quarter to drive increased performance through the remainder of this year and into next. The first incentivizes those reps already on track to achieve their quotas to further outperform. The second provides a boost to those reps who might be short of quota but have the potential to contribute incrementally more. These steps are already helping us to properly return to over 35% growth as anticipated, and should set us up for a strong 2024 performance. Moving on to the third factor driving revenue growth, GPO access; expansion within existing GPO contracts is on track and efforts to add additional GPOs and IDNs are going well. TELA has contracts with three national group purchasing organizations that enable enhanced and more efficient access to hospitals and surgeons throughout the country. These GPO contracts are critical to TELA’s commercial strategy and provide the opportunity for surgeons to use OviTex products right off the hospital storeroom shelf without requiring approval from hospital administrations. The first of our three GPO contracts is our long-standing relationship with HealthTrust, with whom we resigned a four-year renewal. The second contract is with Premier, with whom we’ve now had a full year of implementation as it became effective on October 1, 2022. Premier is the second-largest GPO in the country, giving us access to over 4,400 hospitals within its extended network. Lastly, our most recent GPO relationship offers us a dual source contract in the biosynthetic category. There’s tremendous upside opportunity for TELA within these three contracts, as well as from new contract opportunities, and we look forward to providing updates as our access further expands. Our fourth factor is the range of complementary products in our portfolio that enable us to leverage the existing sales force and call points across the soft tissue reconstructive space. We have launched four products so far in 2023; the first is the large size OviTex LPR for use in minimally invasive surgery, and the inhibitors of fibrillar collagen pack are gaining market share with different levels of surgeon familiarity to leverage by our sales force. The third, OviTex PRS long-term resorbable launched in the third quarter and it’s taken off quickly, given surgeons' prior knowledge of the product line and interest in the new performance characteristics. Finally, and most recently, we are in the process of launching the LiquiFix hernia mesh fixation devices, LiquiFix8 and LiquiFix Precision. These products, which are indicated to fix mesh to tissue inside the body and to close the peritoneum, the membrane surrounding the abdominal cavity, have been marketed in Europe under the brand LiquiBand FIX8 and represent the first product of its kind to be approved for sale in the US. We believe that this product line allows our sales force to call on surgeons in a technology space where they are comfortable and will increase access to additional surgeons, eventually opening opportunities to also discuss the benefits of OviTex in other areas of their hernia practice. Regarding our fifth factor, clinical data, we continued to collect data both prospectively and retrospectively for our hernia and PRS products respectively. We’re proud of the performance of our products and we’ll expand our datasets through, for example, our BRAVO II study, which measures the effectiveness of OviTex products when implanted robotically. I’d like to now address the question that has been top of mind with investors, which is what is the potential negative impact of GLP-1 agonist drugs on the market that TELA serves. Specifically, if patients lose weight on these medicines, how might that affect the rate of hernia repair and plastic and reconstructive surgeries? With regard to the latter, much PRS is used in plastic and reconstructive procedures that we believe are both unrelated to weight loss and on account of weight loss. With regards to hernia, we have consulted with general surgeons in this space who collectively have identified four potential ways in which GLP-1s may, in their opinion, actually increase the need for hernia repairs. First, an important contraindication for surgery in general, and hernia repair specifically, is morbid obesity. Patients who lose weight could become newly eligible for repairs that a surgeon might previously have advised against. Second, a risk factor for hernia is physical activity, and to that extent, it would be reasonable to expect more need for hernia repairs with weight loss. Third, obesity can conceal existing hernias, particularly umbilical hernias, and weight loss can reveal the need for these repairs. Finally, GLP-1s are apparently associated with acid reflux conditions, which could necessitate hiatal hernia repairs in response. Although these examples indicate the potential for GLP-1s to increase the need for hernia repair, the real takeaway is that we do not expect GLP-1 to meaningfully reduce hernia repair rates in any reasonable scenario. With that, I’ll now turn the call over to Roberto to review our financial results and outlook.

Thanks, Tony. Third quarter revenues grew 35% year-over-year to $15.1 million, with OviTex and OviTex PRS growing 30% and 46% respectively. These increases are attributable to the ongoing expansion of our commercial organization leading to new customers, increased existing customer penetration and a growing international sales presence. Tony mentioned that revenues and growth would have been even higher absent the disruption of second quarter sales rep turnover and described the steps we’re taking to quickly regain previously planned performance levels. It’s worth noting, though, that in those territories that were continuously staffed, that is those not affected by turnover, performance was consistent with the higher level of revenue growth we had expected. This validates that our underlying forecast assumptions, other than turnover, were robust and reliable. Gross margin for the quarter was 69%, compared to 66% in the same period of 2022. The margin improvement was driven primarily by more efficient inventory management practices, which resulted in a decrease of obsolete and excessive inventory as a percentage of revenue year-over-year. We expect our gross margins to continue at around this level as we operate using more rigorous inventory practices. Operating expenses were $20.6 million in the third quarter compared to $16.8 million in the prior year period. This increase was a result of additional headcount as we continue to expand our organization, consequent higher compensation and employee-related expenses, increased travel expenses, as well as an increase in consulting fees and higher study costs. Loss from operations was $10.2 million in the third quarter of 2023, compared to $9.5 million in the prior year period. Turning to our outlook for the full year, we now expect revenues to range from $57 million to $60 million, reflecting growth of 38% to 45% over the full year 2022 and applying revenue for the fourth quarter ranging from $15.5 million to $18.5 million, compared to $11.6 million in the fourth quarter of 2022. Although both the third and fourth quarters have come down from our prior expectations, we anticipate that the steps Tony outlined, that we’re taking to address the sales force turnover disruption will allow us to return to sequential growth, more similar to that reflected in our prior guidance. We believe the sales rep disruption is largely behind us and that our sales growth rate from Q3 to Q4 is on track with our prior expectations, but from a lower base due to the impact of the turnover in the second quarter. We ended the third quarter with $58 million in cash and cash equivalents compared to $65 million at the end of the second quarter, meaning that we used $7 million in the quarter. As our revenues continue to grow and OpEx is held to a much lower growth rate, we expect cash usage to decline. We’ll have more to say about this on our fourth quarter earnings call when we announce revenue guidance for 2024. But for the moment, know that we remain confident in our cash position and continue to believe it will be sufficient to fund us to profitability. I’ll now turn the call back to Tony for closing remarks.

Excellent. Thank you, Roberto. I’d like to reiterate my excitement for the success TELA Bio has achieved to date. On September 30, we completed our 11th consecutive quarter of 35% or more year-on-year growth. This was driven by our continued focus on developing and expanding each of the five factors in parallel to achieve consistent share capture. Notwithstanding our exceptional performance so far, TELA represents only a small part of the hernia market on a unit basis with plenty more room to expand and the possibility of a material growth inflection in the future. We are focused on taking full advantage of this opportunity to improve patients’ lives with our products. I want to thank the TELA team for their achievements this quarter, especially those who helped us efficiently expedite the impact of the sales transition. As a result, we remain on track for continued strong growth. We are confident about our future prospects as we believe we have the key pieces in place to continue to take share, including extensive GPO coverage, broad sales coverage in high volume markets, industry-leading product performance data, a robust R&D pipeline that continues to deliver new products, and an experienced management team, and a path to profitability with our current balance sheet. And even though we keep growing our market share each quarter, most of the market is still there for the taking, and we plan to do just that. With that, I’ll now ask Justin to open the line for your questions.

Thank you. And our first question comes from Frank Takkinen from Lake Street Capital Markets, your line is now open.

Great, thanks for taking the question. Hey, Tony, Roberto. Just wanted to follow up on some of the sales force commentary. I was hoping you could take us a little bit deeper into maybe the reasoning behind some of that turnover and why it was higher than expected. I don’t know if there was a certain background or characteristic associated with those less effective in the sales force, essentially getting at what are you doing differently now to ensure a more stable sales organization that can grow per rep productivity more effectively and consistently?

Sure, thanks for the question, Frank. I’ll start, and then Tony can jump in. As we’ve discussed before, we revitalized our RM team, which are the regional managers who sit above the territory managers, which we call sales reps, in the fourth quarter of last year, to the tune of about 12 new RMs. And those RMs came in the first quarter and evaluated their teams of approximately seven reps each. Over the course of the first quarter, roughly one of each of those RMs identified a territory manager that they felt could be upgraded. The territory might be at above breakeven levels of revenue, but the growth was not where we wanted to get to $200 million in the short term that we’re hoping to achieve. So over the course of the second quarter, those RMs independently proposed and then followed through on replacing those territory managers. This happened starting at the end of the first quarter, extended through the second quarter, and was complete by the end of the second quarter, such that, as Tony mentioned, on our second quarter earnings call, we had 75 reps, of which 50 had been with us for six months or more, suggesting or indicating that 25 had been with us for six months or less. So those were the turnover reps, roughly 13, and then the remainder were new hires to expand our sales force. Essentially, what we’re doing is reaching higher up into the organization from the perspective of lower performers and replacing reps that might be hitting greater than breakeven numbers but whose growth had become a bit slower. The RMs had determined that that could be upgraded. So that all took place in the second quarter. We entered the third quarter, in the first month, believing that we were on track to hit numbers notwithstanding, but it’s clear that it heated off in the latter part of the third quarter. To answer the second part of your question, what we’re doing to ensure that we have the right reps in place and that they’re growing at the rates we need, we have a couple of programs in place for the fourth quarter, addressing both the fourth quarter and the longer term. The first is we have two new training sessions in place. Our new sales reps go through a longer introductory training session, and then all reps go through deeper PRS training. One of the things we found is that new reps tend to be a little slower on the uptake of PRS sales and that’s a greater potential source of sales and growth. Secondly, we put in place two incremental incentive plans: one for those reps that are on track to exceed their quotas for the fourth quarter, incentivizing them to further than they already are, and another for those reps that might be short of their quotas, targeting those who are forecasted to be short of their quotas, to give them additional motivation to sell and not just wait for the reset of their quotas in the next quarter.

Yeah, Frank. I think philosophically, we run the business with an eye towards long-term, durable, sustainable growth and quality. We did a massive upgrade in talent with our regional manager team, and we gave them the task of figuring out where we had some stagnation or slower growers, and they did just that. We made the decision to do it again to have the strongest team in place at the end of this year. This year is going to be what it’s going to be, but we’re already thinking about next year. Just look at the key metric; we drove this type of growth with only about 50 or 55 reps that were even on board for six months. We’ve got a bolus of 25, 25 plus reps, that are right now getting trained, seasoned, and matured. We want them to be passing through that six-month point of productivity, as we start next year. Our goal remains a $200 million company as efficiently and effectively as possible.

Okay, that’s good color. And then maybe just for my second one, can you just talk to some of the factors between the low end and high end of guidance?

So, just the rate at which we’re able to get our reps up to speed, unpredictable things in the economy; we expect to see, as we normally do, that the fourth quarter is the strongest of the year. We tend to see a strong push in December as both physicians and our sales reps push to hit their numbers. But exactly how that all comes together is a little bit variable, so the range accounts for that variability.

We can have a big run when things come together at the end of quarters, right. So we want to make sure that we have this thing maturing and peaking at the right moments, not just in a year, but during each quarter as well. So timing.

Got it. Thanks for the questions.

And one moment for our next question. Our next question comes from Caitlin Cronin from Canaccord Genuity. Your line is now open.

Thanks for taking the questions. Hey, what’s up? I know you talked a little bit in the last question about how you saw a little bit of weakness kind of coming out of Q3. What have you seen coming into October and November for Q4 in terms of the business environment and just kind of rep productivity?

Sure, one of the ways we analyze the quarters is we measure the ratio of the first month of the quarter to the actual fully achieved quarter. We have historical data on that, obviously, ever since post-COVID. What we see is that the ratio of our actual October sales to what we forecast for the fourth quarter is right in line with our historical data of what actually occurs. We feel pretty comfortable based on that and then based on the activities, the tactics that were put in place to get our reps back up to speed, that we’re on track for hitting the quarter.

Yeah. And to back up what Roberto said, Caitlin, if you look at July, right in Q3, that metric that Roberto mentioned, as a percent, the first month was not in line.

Got it. Makes sense. Okay. And then just for my second question, any thoughts on 2024 growth, or at least maybe comment on thoughts where the Street is right now for 2024, a little bit over $80 million?

So we’re still in process of putting together our budget right now, and that includes the revenue budget. I think that off of the prior Street numbers, the growth rate was probably on the lower end of a reasonable range. But given the new numbers that we could be coming out of the year with, that number might be on track. We think a bit more about the growth rate than the actual single number. But we’re digging into that and, as Tony said, one of the things about what we’ve just done is we put in place a sales force that, as of today, we have 79 sales reps, of whom 55 have been with us for six months or more, and then by the first quarter of next year, that should be much closer to the full complement of 79 being at that six-month mark with some additional hires between now and then.

Yeah, I mean, to give you a feel, Caitlin, we’re running a week-long sales school right now, and I think we have 35 attendees, five or six new regional managers, and the rest are all reps. I think it’s by far the strongest, best-pedigreed group that I’ve ever seen. Things are just getting better and better and better, which reduces your tolerance for decent performance, mediocre performance coupled with stagnation. As Roberto said, this is about growth, and next year will be about efficient growth. Holding our infrastructure as solid as possible, absent of a sales force and customer facing, we have the infrastructure to drive that growth and attract that talent pool, and we’re going to take advantage of it.

And thank you. One moment for our next question. Our next question comes from Matthew O’Brien from Piper Sandler. Your line is now open.

Afternoon, thanks for taking the questions. Sorry to harp so much on Q4. But two months ago you guys were talking about a midpoint of $62.5 million, and now we’re about $58.5 million, so it’s down about $4 million for the back half of the year alone over the last two months, so it just seems pretty significant. I’d love to hear a little bit more about that specifically. I mean, I don’t know if there were like 10 or 15 people that were doing tons of revenue that you lost or you moved on from, or how that works. And then the bump from Q3 to Q4 in absolute dollars is the biggest bump as far as the midpoint of the range goes that the company has seen, actually much more than the company has ever seen. So just again, the comfort level on that, what bridges you to get that extra revenue in Q4, as you have a third of the reps that are still pretty junior.

Sure. Let me start with the bump question first. One of the ways we analyze our thinking about the quarters in the year is we take a look at what we’ve achieved in the quarter-to-date. A rough way to do that is the first month of the quarter, and then how that measures up against what we are hoping to do for the full quarter, and then how that ratio compares to historical achievement in prior quarters. Based on what we’ve seen in October revenues and comparing that to what we expect to see at the midpoint of the range for the quarter, that’s right in line with what the historical average is for achievement, the first month to full quarter. On that data point, and then on the initiatives that we put in place to incentivize the reps to close the gap from the performance we had in the third quarter, we feel comfortable about hitting those numbers. As far as Q4 and the reduction of approximately $4 million from the midpoint of the prior year’s guidance range to the current, the turnover in the sales reps that occurred largely in the second quarter is what drove that. As Tony mentioned on the last earnings call, we had 75 reps, of those a third had less than six months tenure. So that was a bit more turnover than we had initially budgeted. We thought it was the right thing to do based on the analysis of the RMs. We believe it puts us in the best place for continued significant growth, our goal being to grow the best company we can as quickly as possible. We put in place some steps to ensure that we get back to the growth rates that we had previously planned for.

And Matt, also something to consider is, given where we are in our development stage and our growth, a lot of the usage of our product is based on rep presence, right. So if we were a bigger, more established, larger market share player, you might just have natural momentum. We have some of that certainly, but it’s the presence thing, right. So when you do that transition, you tend to dip. So even though we had stagnation or mediocre performance in some of these territories, they likely went down, but now they’re filled with stronger talent, and we should start to see that move. The other factor to consider is the PRS LTR product; we did a soft launch of that around August, and it’s well over $2 million, probably 50% of that is new business. So that’s going to be a superb driver for us over the next 24 months; it’s just warming up. It’s not even in everyone’s hands yet. So from a timing perspective, we feel very good about where we are over the next six months. Again, like I said, we are focusing really hard on the start of next year and continuing to drive that stronger growth rate next year.

Got it. And then maybe just as kind of a follow-up to that, Tony, how much did it cost you, you think, this transition? It sounds like, I don’t know, 15 or 20 reps, or maybe less than that, maybe eight to 10 reps. How much did it cost you in Q3? Do you estimate? And then how productive were those?

From a revenue perspective?

How productive were the remaining reps? It seems they performed exceptionally well in Q3 to achieve this level of growth.

Well, Roberto is going to jump into the meat of your question, but I’m glad you brought that up. That’s a superb observation. Focus on the fact that we drove the revenue bulk and growth with 55 reps with a chunk of those only six months in. There’s certainly a longer tenured rep, but that’s a pretty powerful impact. So we lost probably 13 or so or 14 in this upgrade process. You can just see that this thing is set up to have the full complement of 79 or 80 reps now being at the level of the previous 55 again as we start next year.

And Matt, I realize I didn’t hit the first part of your first question squarely, which was did we lose a lot of high-performing reps? We didn’t. So we retained all of our highest performing reps. You might think about it as us reaching up higher from the lowest performing reps and taking out reps that, while not obvious underperformance cases, we’re maybe at higher than breakeven revenues but were not on the growth trajectory that we needed. Your question about the cost of making these changes, of the 25 reps that were with us for less than six months, about 13 of those were turnover reps, and the remainder were new hires to fulfill our growth goals for the year. In the turnover category, we typically provide severance of about three months. The incremental cost would be how much overlap there is when we get the new reps in. Given that we did end the second quarter with 75 reps, there’s probably some overlap, but that pay amount of overlap is not going to be a huge amount affecting our P&L.

One more comment, Matt, since this is the strong, heavy topic here, is of those 55 tenured reps, they did an excellent job of attaining forecasts. If you look at the underserved or turnover territories, most of that shortfall was due to the vacancies or the transitions. We had a target that was higher than consensus, so the loss was probably a smidge higher than consensus, right. There’s a powerful, productive sales force that’s coming together. I’d say this is a timing dislocation or growing pain.

Okay. And I’m sorry, Tony, to keep harping on this and monopolize everything here.

Bring it, we love it.

Was the productivity of this group, that 55, up double digits from Q2 to Q3? That’s what I’m getting in the model, in a seasonally soft quarter.

I will have to think about that.

So we had, yes, very strong performance in the existing reps. One thing to know is that in the turnover territories, the new reps were coming into territories that previously had revenues, so it’s not like they achieved zero.

Actually, we constituted, yes.

So there was continuity in some of those territories. But, yes, our existing reps had very high performance levels.

Okay, thank you.

Thanks, Matt.

And thank you. One moment for our next question. Our next question comes from Michael Sarcone from Jefferies. Your line is now open.

Good afternoon, and thanks for taking the questions.

Thanks, Michael.

Thanks, Michael.

Just a follow-up on Matt’s question about the sales reps. You just mentioned your internal targets were maybe a little higher than consensus, which was a little over $16 million. So I guess that’s around a $1 million shortfall in 3Q, and you took guide down by $4 million at the midpoint. Does that mean the original expectation for 4Q was just kind of midpoint of the 4Q guide plus that $3 million? Is that a fair way to think about it?

No. So I think Tony didn’t specify exactly what our internal expectations were. So, yes, we have very high performing reps, as I said. We had some turnover that we didn’t expect at the beginning of the year, but we did it for the right reasons. We set out to our sales force; we have reasons to believe that the newly recruited RMs who come in and are very high quality had good enough eyes to bring in new reps who are going to perform even better than the reps that we already have. The reps that remained onboard continuously in our territories did perform at a very high level to achieve what was achieved in the third quarter. It’s worth reiterating that we had 35% growth in the third quarter.

We set a high bar; we push ourselves. We’re constantly focused on analyzing, continuous improvement, and doing the right thing. But Michael, I want to point out some qualitative thoughts: The qualitative positive indicators for the company right now are through the roof. They’ve never been better. I already talked about the LPR and its update. We just came out of the American Hernia Society meeting, we sponsored a lunch-and-learn, which are usually sparsely attended. We had well over 200 surgeons packed, every seat was filled, and there were standing room only against the back wall. That to me is a massive signal of interest in the company, interest in the product. That’s been our biggest challenge—getting the visibility and the validation. We are running a super aggressive and sophisticated medical education program. Our target was to train and educate 1,000 HCPs this year, and we’re already over 1,100. This is both on the plastic side and the hernia side, so the exposure and interest in what we’re doing is huge. We just came out of the ASPS meeting in Austin, and again, we had a huge showing there. We had hundreds of doctors and participants in some of our sponsored events. Our booth traffic was super high, and we ran two ad boards. I think we had something like 30 different surgeons through those ad boards. Again, the validation and getting to know us is huge. I’m really excited about the fact that we are accelerating our penetration and relationships with robotic surgeons that are KOL trainers and proctors for the major robotics company. We’re starting to set up case observation sites now. Every time one of these educators, mentors, and surgeons are exposed to our product, that’s a huge footprint and opportunity, and we’re just starting that out but we’ve made tremendous progress in the last quarter. I offer that up as some ancillary qualitative assessments; they are through the roof, and all those metrics have never been higher.

Got it. Thank you for that. That is really helpful. And forgive me on this one, because I know Roberto did give us a little teaser and said hold on for the questions. But I’m just curious because I get a lot of inbounds on the consensus right now models continued cash burn at a $25 million to $30 million range for the next few years. I was wondering if you could give us any incremental color or tidbits on your ability to drive leverage in the model?

Absolutely. I’m glad you asked that question. The one thing that we do feel comfortable with talking about next year versus this year is we expect growth in OpEx to go down considerably, and our goal is to constrain it to a single digit. We burned $7 million of cash in the third quarter—that cash burn can be a little seasonal. We ended the quarter with $58 million of cash. If you divide that by seven or by something higher, you can see that even straight lines, we have a pretty long pathway, but that doesn’t factor in the improvement to cash burn as our revenues grow at considerably higher rates than our OpEx does. There’s still room for gross margin to improve even from the levels that we’ve currently been achieving.

Yeah, we understand where we are, we understand the job for next year, and we are on track, as Roberto said, to constrain that OpEx at a lower level and to start to drive leverage. We have the infrastructure in place to make the growth happen.

Okay, thank you.

Thanks, Michael.

And thank you. One moment for our next question. Our next question comes from Dave Turkaly from JMP Securities. Your line is now open.

Hey, good evening, guys. I just want to clarify one point, not trying to beat a dead horse here. But the 12 new regional managers that you hired in 1Q, were those replacements, or did you not have them before?

We had seven regional managers, and we basically upgraded each one of those and added to get to 12.

One of them was promoted to become an area.

That’s right. This is a massive push for continuous improvement and upgrade to set ourselves up from the $50 million, $60 million business we are now to have the talent in place to go beyond $100 million to $200 million.

Got it. And then your comments about the incremental programs, I’d love to just get color if you could give it to us. How many of your folks are above quota and how many are not—broad percentage stroke, if you can give it to us?

So the quota is not by month but by quarter. As for projections of the likelihood of hitting quota, the majority of them would be above quota. As Tony mentioned, we have 79 reps, and 55% of them have been with us for at least six months. It would be very unlikely for any of the 55 to be expected to be below quota. The shorter tenured reps will have nominal quotas, but the remainder should be on track or being helped considerably. So I’d say the large majority of our reps are on track for at least hitting quota.

Great, thank you for that.

Thanks, Dave.

And thank you. I’m showing no further questions. I would now like to turn the call back over to Tony Koblish to close the call out.

All right. Thanks, Justin. And thank you everyone for joining us. We appreciate your continued interest in TELA Bio. Have a great rest of the evening, and we look forward to talking to you again next time. Thank you.

This concludes today’s conference call. Thank you for participating. You may now disconnect.