Good afternoon, ladies and gentlemen, and welcome to the TELA Bio First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Louisa Smith from Gilmartin Group. Thank you, Gerald, and good afternoon, everyone.

Earlier today, TELA Bio, Inc. released financial results for the first quarter of 2025. A copy of the press release is available on the company's website. Joining me on today's call are Antony 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 may 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 Forms 10-Q, 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 identified in our filings, like changes in surgical procedural volume, the regulatory environment, sales and marketing strategies, capital resources, or operating performance. With that, I will now turn the call over to Antony Koblish.

Thanks, Louisa, and good afternoon, everyone. Thank you for joining TELA Bio, Inc.'s first quarter 2025 earnings call. I'll begin by reviewing the quarter and the factors that drove performance. Then I'll turn it over to Roberto for a more detailed review of the financials and our outlook, then share some closing thoughts before opening it up for your questions. We generated $18.5 million in revenue during the first quarter, representing 12% growth over the prior year and 5% sequential growth over the fourth quarter of 2024. In Q1, we saw strong demand for both OviTex and OviTex PRS reinforced tissue matrix products, with revenue for each growing approximately 152%, respectively, with PRS coming off a particularly strong performance a year ago. Additionally, we were very pleased with the continued strength in our European business with 17% growth over the first quarter of 2024, reflecting what we believe to be an exceptionally attractive international opportunity for TELA Bio, Inc. moving forward. Based on this performance, the strong morale of our commercial organization, and our continued confidence in their performance, we are reaffirming our 2025 revenue expectation of $85 to $88 million, representing growth from 23% to 27% over the full year 2024. Let me provide some more insight into the continuing improvement and evolution of our commercial organization. We've seen real effectiveness from our new territory manager and account specialist structure, which has already yielded quality results and shown signs of further potential upside. As of this week, we have 70 territory managers and 22 account specialists across our region. We plan to further augment these numbers with particular focus on the territory managers, including by fostering talent from within the organization. Our improved training program gives us confidence that all new representatives will be able to hit the ground running and contribute meaningfully within the first quarter or two of hiring. Year to date, we've trained a total of 25 new sales team members, comprising 11 territory managers and 14 account specialists. We have seen very positive results across all of our training as we get the new representatives into the field and have observed that account specialists have shown great enthusiasm, in addition to strong product and clinical knowledge based on internal assessments we conduct as part of our enhanced training program. The new structure with ambitious account specialists will allow territory managers to further expand their networks while simultaneously staying in front of existing accounts and driving sales. Furthermore, in the event that a territory manager departs the company, an in-place account specialist enables continuity and account coverage, helping ensure customer relationships are maintained and business momentum is preserved. We also continue to see positive dynamics playing out within the broader hernia market, with the shift away from plastic mesh and towards more natural repair products. It is to our benefit that the industry is transitioning away from permanent synthetic mesh, and we continue to be strongly positioned to capitalize on this shift. OviTex is equipped with strong and consistent clinical data showing the clinical value of this portfolio of products, and as a result, we continued to gain market traction this quarter. We reached over 69,000 OviTex hernia implantations since inception, and OviTex IHR and Liquefix have seen great momentum with over $1 million each in sales since the launch of 2024. We remain committed to bringing new and complementary products to market, and we recently announced the launch of two larger sizes of our OviTex PRS product, which has the potential to simplify more complex plastic and reconstructive procedures. Surgeons will no longer need to suture smaller pieces together for use in larger applications, increasing their operating room efficiency, reducing cost, and establishing OviTex PRS as a premier repair solution with one of the broadest offerings for surgeon needs. Year to date, we have presented the benefits of our product in front of more than 5,000 surgeons globally, with deep engagement of more than 1,500 surgeons through 25 industry and society meetings, two cadaver labs, numerous educational dinners and webinars, a live surgery symposium, and two standing-room-only industry symposia, one in the US and one in Europe. We also hosted our third annual plastic and surgery innovation summit, bringing together leading surgeons to advance techniques in soft tissue reconstruction. Also of note, we participated in the prestigious Intuitive Connect meeting in April, attended by nearly 1,000 surgeons in our space, where we were headlined as one of the three top sponsors and one of only 14 invited industry attendees. We were also the exclusive sponsor of the general surgeon welcome reception for the meeting, including an OviTex IHR test drive on the da Vinci five workstation. Dr. Paul Zotek of Indiana Hernia Center, a longtime OviTex user and TELA Bio, Inc. key opinion leader and faculty member. Before I turn the call over to Roberto to review our financials, I'd like to address the current tariff environment and our exposure. As it stands today, there is a 10% tariff applied to products shipped into the US from New Zealand, which is where the vast majority of our products are manufactured. Based on our long-term supply and license agreement, the tariff is shared equally by us and the manufacturer. Because of the relatively modest acquisition prices of our products, we expect that our share of the tariff will negatively affect our gross margin by no more than 50 to 100 basis points. Additionally, we are working with our partner in collaboration to further reduce the tariff impact by shipping products, for example, intended for Europe directly to our distribution facility there rather than via the US as we've done historically. I'll now ask Roberto to review our financials in more detail.

Thanks, Tony. As you mentioned, revenue for the first quarter of 2025 increased 12% year over year to $18.5 million, with revenue from OviTex growing 15% and 2% for the year. Growth was primarily due to an increase in unit sales of our hernia products, resulting from the addition of new customers and growing international sales. OviTex unit sales grew 29% for the quarter, while PRS unit sales declined slightly by 3% for the quarter after an unusually strong first quarter in 2024. Stronger average selling price for PRS offset this effect to provide incremental PRS revenue growth year over year. Gross margin was 67.6% for the first quarter compared to 68.3% for the prior year period. The decrease was primarily due to excess and obsolete inventory adjustments in the percentage of revenue, which resulted from the introduction of newer generation products this year. Sales and marketing expense was $16.6 million in the first quarter compared to $17.5 million in the prior year period. The decrease was primarily due to lower compensation costs from a decrease in headcount, lower consulting and travel expenses, which were partially offset by higher commission expense on an increased revenue base. General and administrative expenses were $3.8 million for the first quarter compared to $3.8 million in the prior year period. R&D expense for the first quarter was $2.5 million compared to $2.4 million in the prior year period. Loss from operations was $10.5 million in the first quarter of this year compared to $4.8 million in the prior year period. The difference was largely attributable to the recognized gain of $7.6 million from the sale of the Nivas product line in the first quarter of 2024. Net loss was $11.3 million in the first quarter compared to $5.7 million in the prior year period, similarly affected by the sale of the Nivas product line last year. We ended the first quarter with $42.8 million in cash and cash equivalents. We are reiterating guidance, which anticipates revenues to range from $85 million to $88 million, representing growth of 23% to 27% over the full year 2024. We also expect that operating loss and net loss will decrease over the course of the year and will be lower in 2025 than in 2024. We expect that operating efficiency improvements will result in 2025 operating expenses being flat compared to 2024. With that, I'll hand the call back to Tony for closing remarks.

Thank you, Roberto. Looking ahead, in 2025, we are positioned very well coming off of a strong first quarter. After recalibrating our commercial organization to adjust to market dynamics and position us for success moving forward, we have the momentum to continue meaningful growth. OviTex is a truly differentiated solution, and as the world moves away from plastic mesh, TELA Bio, Inc. is emerging as a leader with a clinically validated portfolio to support that shift. Finally, I'd like to thank all those at the company who contributed to our success this quarter. Your commitment to increasing utilization of our exceptional products is making a positive difference in people's lives around the world. With that, I'll now ask Gerald to open the line for your questions. Please go ahead.

Thank you. At this time, we will conduct a question and answer session. Please wait for your name to be announced. To withdraw your question, please press 11 again. Please standby while we compile the Q&A roster. Our first question comes from Frank Takkinen from Lake Street Capital Markets. The floor is yours.

Great. Thanks for taking the questions. Congrats on a nice rebound and getting back to double-digit growth. Hoping to ask one first on the cadencing of revenue through the back half of the year. Good to see a strong start, and good to hear you've got 25 new reps trained year to date. But what are really the key factors to continuing sequential growth through the end of the year? And maybe any color on the cadencing of that revenue would be helpful as well.

So I'll start, and Simon can jump in. So last year, we had a somewhat unusual year with disruptions in the second and fourth quarter. So historical precedent from last year isn't very helpful. But if you look at the three years prior, they all have very similar cadences, which we discussed with investors in the past. So we tend to have a bigger step up from the first to the second quarter, a smaller step up from the second to the third quarter affected in large part by summer holidays in North America, and then a bigger step up again from the third to the fourth quarter. And we expect to see that pattern continue this year coming off of the first quarter that we just had. What drives that cadencing and the growth from quarter to quarter is just continued traction by our representatives. All of the representatives' quotas increase quarter to quarter throughout the year. And, you know, with the introduction of our new account specialist class, their assistance in revenue capture, share capture, and practices allows the representatives to continue focusing on getting new physicians using the products and driving that growth. Yeah. I mean, I'll add that the account specialist program, although new, is working quite well in tandem with our territory managers. So, you know, I think what you have to think about is if you look at our top 10, top 15 representatives that have account specialists, their growth is reaccelerating, and they're getting stronger and stronger. And then the presence of the account specialists allows us to deal with what I'll call, you know, sort of the natural ins and outs of a sales force much more efficiently without scrambling and without losing coverage. So there's a very strong element of offensive capability with the combination of these two types of selling entities and also a very strong defensive strategy as well. So overall, it just yields for a more stable environment for us to work through for 2025. We had to make a lot of adjustments the last couple of years along the way, and we don't plan on doing that this year. So the name of the game at the street level is stability, adding strength, and just driving the message like we know that we can. We feel that our products stand up to the test of time. They deliver, and we just have to keep at it. This is a long process. It's a marathon, it's not a sprint. I know we get measured quarter to quarter, but we feel great, and our commercial team, most importantly, feels great coming out of an exceptional performance in Q1. And they have a lot of confidence going forward.

That's helpful. Thank you. And then maybe on the competitive hiring front, obviously, that's what impacted the fourth quarter numbers. Any changes in that dynamic? Have you seen any more of the competitive hiring trying to come into your organization, or do you feel that kind of stabilized at this point? Obviously, the account specialists did insulate some of that, but any color there?

Yeah. I’m going to call it stabilized, but I think the real message and description of it is back to a more natural process, right, where the ins and outs are more based on performance and those types of things. Of course, you know, our sales force is super strong. They're probably coveted by many of these companies, but I think we've done a great job of bringing morale back and creating a stable environment. And, you know, I'm just going to do a little commercial for this company. This is a fantastic place to work for all of our employees, but especially our commercial employees. Right? So we offer products that are game-changing, innovative, backed up, and supported by great clinical data. That is a dream for a commercial organization. The products do what we say they will do. We have an exceptional incentive program. The commissions here are best in class. So there is a lot of financial success possible for our commercial organization, which is great for them, their career development, and their families. So, you know, the other benefit is not only is all of that superb, but you look at hernia, for example, well over a billion-dollar market. And, you know, it's a procedure that may be one of the top surgical procedures in the world. And we have an opportunity to be the catalyst for change. Right? 80% of the market is still polypropylene mesh, and it's obvious that the large players are very anxious and interested in shifting away from that technology. Their solution is a resorbable polymer product. Our solution is a reinforced tissue matrix. So there's only so many solutions in a post or minimal polypropylene market. And, you know, it's not every day that you have a great opportunity, great product, great company to work with, but also do something that's right for people, for society, for cost, and to change the practice of a very highly performed procedure. And the PRS business isn't that much different. It's about a billion-dollar market as well. Our products are standing up well. Our clinical data that is emerging there is exceptional also. And there seems to be a great interest in moving away from cadaver skin in that market. There’s a lot of interest in resorbable polymers and RTM products like we have. So to a certain extent, the dynamics in the $2 billion-plus market are just really excellent and situated well for us over the long haul.

Got it. That's helpful. I'll stop there. Congrats again, and look forward to the rest of the year.

Thanks. Thanks, Frank.

Thank you for your question. Our next question comes from Michael Sarcone of Jefferies. The floor is yours.

Good afternoon, and thanks for taking our questions here. Just to start, maybe some more clarification on, you know, the tariff impact on gross margin. You said 50 to 100 basis points. Wondering if you could give us a little more color on, you know, when specifically you think that could impact your gross margin this year? And in that context, help us, you know, think about gross margin phasing through the year.

Sure. I'll start, and Tony can jump in. So the first shipments that would be affected by the new tariff have just come in in the past couple of weeks. So, obviously, that didn't affect the just-closed first quarter. We expect to see some of that starting to affect the second quarter, and then, you know, product depending on whether that actually goes through our sales process. And then product will eventually phase through into the third and fourth quarters as we consume existing inventories, and you'll start seeing that product appear in our gross margin. So it'll be a gradual shift towards that negative 50 to 100 basis points effect on gross margin over the course of the second and third quarters. As far as the timing of gross margin, we tend not to order as much inventory in the fourth quarter of the year because of the end-of-year holidays and then stock a bit more in the first quarter. Because of the charge we have to take for potential obsolescence, that negative impact is greatest in the first quarter, and you tend to see the gross margin improve over the course of the year. So we expect to see that sort of pattern continuing, slightly blunted by the effect of the tariffs.

Yeah. The only thing I'll add to that is, you know, we have an excellent partnership with AROA and a very collaborative relationship. And, you know, so far, and into the future, we are both dedicated to working well together, you know, to manage the impact of this. We do have some levers, as we discussed in the remarks, to adjust some things, and we'll be taking a look at that as well as we go along through this process. And we see how long the tariffs last as well.

That's very helpful color. Thank you.

Thank you for your question. Again, as a reminder, if you'd like to ask a question, please press 11 on your telephone. Our next question comes from Caitlin Cronin from Canaccord. The floor is yours.

Guys, it's Mikaela on for Caitlin. Thanks for taking the question. You've noted the bundling situation at GPOs and being capped at 20% of volume share at certain hospitals. Can you just talk about how that's playing out and if you've started working with GPOs to potentially reclassify your products into their own category, maybe to address the gap?

Yeah. So, you know, I think what we're doing there is, you know, just basic blocking and tackling. We have to, you know, get more surgeons using our product in any facility. You know, you can imagine if you've got five or ten surgeons and you only have one or two using the product, it's harder, you know, to justify your position there. So, you know, focusing on, you know, getting more surgeons in each facility up and running is paramount and critical. You just get harder to lever out. And, again, you know, this enhanced pivot to this territory manager-account specialist selling situation, I think, works very well for us. Our territory manager can do what they do best, which is get it set up and move from place to place, and our account specialists can stay put and make sure that they're working a broader number of customers potentially in each hospital and be present if any of those kinds of activities start happening. So, again, a little bit of offense and a little bit of defense. You know, I think we've got a sales configuration at this point that serves us well for managing that better than we have in the past.

That's great. Thank you.

Thanks, Mikaela.

Thank you for your question. One moment, please. Our next question comes from David Turkaly from Citizens JMP. Go ahead.

Hey, Greg. Can you guys hear me?

Got you, Dave. Thanks.

Just looking at the guidance for the year and then, you know, how the quarter played out between PRS and OviTex, can you give us, like, your updated expectations on sort of the growth rate for those two? Maybe on an annual basis or how that might shift moving forward?

So PRS, as you know, launched more recently, and so it's earlier in its growth cycle. So we have historically seen it in past years, other than when there's been some disruptions, growing faster than OviTex. And we continue to expect to continue to see that, although, you know, as with all launching products, that growth rate is going to slow a bit. But we do expect to continue to see good growth from both products with a bit more growth from PRS.

Yes. And I'll just remind everyone that PRS has a higher average selling price. It's probably more sensitive given that fact to the types of procedures that you see in a particular quarter, you know, whether large sizes or smaller sizes are required. So there's a bunch of moving parts with the PRS business. But overall, as Roberto said, we are very bullish on the prospects for that set of products going forward. And we continue to add to the product portfolio. So right now, we have three implant configurations. There's probably a fourth one coming at some point next year. You know? So we have, in comparison to competitors, the broadest range of products there that can be tuned for different surgeon preferences and different patient needs. Whether it's a niche, like supersized pieces, or just different technique variants, whether they be revisions or primaries, etcetera. So I think, you know, the scope and capacity of our product portfolio is going to get better and better, which will separate us from competition as well.

So you really view this as, like, kind of a one-off. I know you mentioned a tough comp, but that negative three, you know, we shouldn't be thinking that happens again.

Correct. And to reiterate, that was on volume rather than on revenue. Revenue did grow.

Got it. Thanks.

Thank you for your question. This concludes the question and answer session. I would now like to turn it back to Antony Koblish for closing remarks.

Thank you, Gerald, and thank you to everybody who is on this call. I want to really thank the TELA Bio, Inc. employees. We came out of the gate this year strong with great morale. We had an excellent national sales meeting where we rolled out many of these pivots and adjustments, and it looks like we did a lot of the right things. And I just want to say I'm grateful for their persistence and their patience and the hard work, and I look forward to continuing to execute well through the remainder of the year. At the end of the last call, at the end of Q4, I said we would snap back. And hopefully, you're getting a sense that we are in the process of snapping back. So with that, thank you. Have a great evening. I know it's a busy time. See you next time.

Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.