Greetings. Welcome to Tenon Medical First Quarter 2024 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. Your host for today are Steve Foster, President and Chief Executive Officer; and Steve Van Dick, Chief Financial Officer. Mr. Foster and Mr. Van Dick will present results of operations for the first quarter ended March 31, 2024, 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. 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. 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 obligating 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 Securities and Exchange Commission.

Thank you, Sherry, and good afternoon to everyone. I'm pleased to welcome you to today's first quarter 2024 financial results and corporate update conference call for Tenon Medical. We began 2024 following a year of significant operational progress and continued focus on building market share. Across operations, we've made considerable commercialization and technical advances and remain on the right path as we begin our second year of commercialization. We aggressively monitor our commercial activities and have restructured our sales organization based on our 2023 learnings. During Q1, we had coverage in 2 of 5 geographic regions. With the addition of new personnel assigned to these areas, we are now poised to move forward. We continue to gain traction in our go-to-market approach with SI-focused physicians and network partners adopting our proprietary Catamaran System, which we believe has broadened the competitive field of surgical options available for patients with chronic sacroiliac joint pain, in degenerative sacroiliitis. Our first quarter of 2024 financial results reflected continued strong momentum with a 66% increase in revenue year-over-year driven by a 42% rise in surgical procedures utilizing the Catamaran System. This is our fourth consecutive quarter of positive gross profit with a steady rate of gross margin of 65% as compared to the prior quarter. As we sustain revenue growth, we believe our stable cost structure will continue to maintain gross margin performance at recent levels. During the quarter, we announced favorable interim results from our ongoing post-market clinical study. The first patients are now reaching their 12-month milestone, which includes a CT scan to assess bone healing. In addition to seeing marked improvements in VAS and ODI scores, we are seeing radiographic proof of bridging bone in these 12-month CT scans as assessed by an independent radiologist. This is further indication that Catamaran delivers on its clinical promises. For those new to Tenon, this prospective multicenter single-arm post-market study evaluates the clinical outcomes of patients with sacroiliac joint disruptions or degenerative sacroiliitis treated with the Catamaran SI Joint Fusion system. Patients will be evaluated for a period of up to 24 months, reviewing various patient-reported outcomes, radiographic assessments, and adverse events. As mentioned during our earnings call in March, we are approaching the end of enrollment and anticipate a detailed interim analysis in the fall of 2024. This validation further underscored our confidence that the Catamaran's transfixing design, less invasive inferior posterior approach is functioning as intended, to optimize patient outcomes through short-term stabilization and long-term Fusion of the SI Joint. Of note, the interim data from our study, combined with the over 500 surgeries performed with the Catamaran System to date is demonstrating an exceptional safety profile, benefiting patients and their physicians alike. We continued expansion of our workshop activities during the first quarter, supported by our valued physician faculty and the robust commercial infrastructure we continue to build. As a reminder, we take a precise go-to-market approach through our workshop and training programs in order to address physicians and medical professionals with extensive backgrounds and experience in SI surgical technologies. We hosted 12 physicians and Catamaran workshops during the first quarter of 2024. With validation of our system's effectiveness demonstrated in the preliminary results from our post-market study, we have reached a critical inflection point that will drive further adoption of this important technology. Tenon will be broadening our strategic marketing, promotion, and workshop efforts to get the word out that Catamaran delivers. Recently, we welcomed Kristine Jacques to our Board of Directors. Her significant experience in the medical device field focusing on go-to-market strategies of spine-related technological innovation will provide valuable insight for our company. We further enhanced our growing patent portfolio for the Catamaran SI Joint Implant system with the receipt of an issuance of a notice of allowance of patent application from the U.S. Patent and Trademark Office, which further encompasses important claims for our system. Currently, we have 8 issued U.S. and International patents and 23 pending U.S. and International patent applications. Additionally, during the first quarter, we strengthened our balance sheet to support our accelerated sales and marketing initiatives. We generated proceeds of $2.6 million from our preferred stock raise during the first quarter as we simultaneously retired $1.25 million in secured debt from the fourth quarter of 2023.

Thanks, Steve. I'll give a succinct review of our financial results. A full breakdown is available in our press release across the wire this afternoon. Our revenue was $719,000 in the first quarter of 2024, an increase of 66% compared to the $433,000 in the comparable year-ago period. The increase in revenue for the first quarter as compared to the same year-ago period was primarily due to an increase of 42% in the number of Catamaran surgical procedures. Gross profit in the first quarter of 2024 was $470,000 or 65% of revenues compared to a gross loss of $47,000 or a negative 11% of revenues in the comparable year-ago quarter. Importantly, we have seen gross margins steadily improve due to the revenue growth associated with an increase in the number of surgical procedures, which resulted in sustainable operating leverage due to the lower relative fixed costs and the absorption of more overhead into our standard cost. Operating losses totaled $3.5 million for the first quarter of 2024 compared to a loss of $4.9 million in the first quarter of 2023. Decreases in the operating expenses were primarily a result of decreases in research and development expenses and third-party sales and marketing expenses due to Tenon's implementation of an internal commercial infrastructure. Net loss was $3.6 million for the first quarter of 2024 compared to a loss of $4.8 million in the same period of 2023. The company does expect to incur additional losses in the future. As of March 31, 2024, our cash and cash equivalents totaled $4.4 million as compared to $2.4 million as of December 31, 2023. As of March 31, 2024, the company has no outstanding debt.

Thank you, Steve. As we continue to drive momentum in the market, represented by year-over-year increases in our Catamaran procedures, we are prioritizing the scale of our commercialization strategy of our proprietary FDA-cleared surgical implant system. We ended the first quarter with attractive year-over-year revenue growth in the fourth consecutive quarter of positive gross margin. We believe we will continue this growth trajectory, supported by our expanding commercial infrastructure and seasoned sales management team. We are particularly encouraged by the interim clinical results from our post-market clinical trial as well as the safety profile emerging from our clinical experience to date. Our organization believes deeply in the component of the Hippocratic oath to first do no harm, and we are committed to delivering technologies our physician customers can count on. Our investment in IRB controlled post-market data gathering is further reinforcing that the Catamaran System delivers on its promises. We will continue to refine and innovate to drive our growth objectives to further improve the quality of life for patients suffering from SI Joint pain while pursuing long-term value for our shareholders. I thank all of you for attending.

Our first question is from Bruce Jackson with The Benchmark Company.

First, a question about the workshops and the composition of the doctors. What's the mix between the interventional pain physicians and the spine surgeons?

Thank you, Bruce. I appreciate your question. Yes, we have a mix of orthopedic and neuro spine surgeons and interventional and pain surgeon customers. Our mix in training is, believe it or not, right, in that 50-50 range. There's a lot of debate about in this space between the specialties, etc. We are agnostic to that issue. We focus a great deal on making sure that the physicians we target and invite into a workshop environment have the experience necessary to deal with this type of procedure, that understand the SI Joint, and what have you. But yes, to answer your question specifically, we're right about at the 50-50 mark interventional and pain versus spine surgeon.

Okay. Great. And then a question on the post-market study. So you released some data back in March that looked great. And I think you mentioned in the script that you're going to be releasing some more data later this year. Can you tell us how many patients were in the first group of data that was released? And then what can we look forward to with the next data release?

Certainly. What you can anticipate is an increase in numbers. About a month to a month and a half ago, we reported on the first few patients who reached their 12-month milestone and underwent the important post-operative CT scan. We continuously monitor their responses, satisfaction, pain levels, and other relevant metrics. When we approach the 12-month mark, we aim to conduct a radiographic assessment to evaluate the healing process, improvements in pain scores, and evidence of bridging bone fusion. If we observe positive results, we can quickly conclude that our objectives have been met. The 12-month mark is significant. Initially, we had six patients reach this milestone, which was included in the first press release. In the fall, you can expect to see more patients, increasing from six to ten, eleven, twelve, and possibly into the teens. At that stage, we will compile an interim analysis that will summarize our findings and progress as we start drawing conclusions from the data.

Okay. Great. And then last question for me. So I believe the study is going to be enrolling upwards of 50 patients eventually. Is that right? And then at what point do you think physicians will look at the data and say this is going to give me the comfort to give this a try? Will the 12-month data be sufficient? Or will some of them wait for the 24-month data?

Yes, and thanks for that. So a couple of things. One, the study is set for a maximum of 50 patients. So we're somewhere north of 40 and near 50 will shut down enrollment and go into the data gathering and assessment process. Where do physicians get moved? Look, this is a wildcard question because some really want to wait for the whole study to play out and see everything together. Others will be moved at that interim analysis time window. The bottom line is if the pain has gone away to a significant level, the patients are highly satisfied, and they see actual pictures of a bridging bone Fusion of the SI Joint, they start drawing conclusions; something that's missing with all the different SI technologies out there is clear and definitive radiographic proof of an arthrodesis or a Fusion. This is something we've been committed to delivering since day one and are very much looking forward to, and that's why we are so excited and put that release out 1.5 months ago to see those early images of clearly healed SI Joint. So I think that's what you'll see, Bruce, is just the numbers continuing to grow as we move through the assessment of this data as the follow-up periods and the milestones.

Our next question is from Anthony Vendetti with the Maxim Group.

Yes. So just following up on the study, so 40 to 50 patients, 50 is max. Where are you right now in terms of the number of patients? And then how many sites do you anticipate when full enrollment is complete, how many sites are you going to do?

Yes. Sure, Anthony. Thanks for the question. We're just about done. Here is what I'll tell you, we're in the high 30s, nearing 40 and just about wrapped up with enrollment. I really do anticipate that it will be happening here very shortly and we'll go ahead and shut that down. We have eight active sites with the study right now. I don't see that expanding radically because we're down to maybe, I don't know, eight to ten more cases to enroll in the trial. So it will probably be in that eight range when all is said and done.

Okay. And then in terms of physician training, how do you see that playing out, assuming the results come in and it's compelling? How do you anticipate that rollout?

Well, a couple of things. I mentioned some of the restructuring we did in our sales organization. So frankly, our training number was a little lower than normal in Q1 because of that transition. So I expect, number one, now that we're bringing people on board and what have you, I expect that number to expand and grow. I think the other component to it, Anthony, that's really important is with clinical data like that, that goes out and gets in front of the physicians either via podium presentations or posters or publications or what have you, we anticipate more inquiries. Right now, we're chasing, trying to tell our story, get people interested, et cetera, with data we hope that data will be compelling and it will compel physicians to inquire about; hey, can I check this stuff out, can I get into a workshop setting, et cetera. So all arrows are pointing up on the training volume. We believe we've got our synthetic model and our training program down, nice and tight now, etc. So we're ready to go and excited about it.

Okay. And then just in terms of, and I know it's early stage, a lot of fixed costs, but at, let's say, normal volume, what's the margin on one of these systems approximately if you're not building them kind of at a single sort of pace, but you've ramped up? What should be the gross margin on one of these systems?

Yes. It's a fair question. I'll let Steve Van Dick jump in as well, but I will say that here in the early stages, when we're not at the volume that you're talking about at full boat volume, we're pushing the 65% in gross margin. We see that as baseline, and we can grow from there as volumes go up and we can leverage. So we're encouraged. We think we can be a mid-70s margin organization going forward with our model without putting undue stress on the organization. Steve, do you want to comment on that real quickly?

Yes. I would just add that really for us right now, it's not so much the material cost of the implant because that's relatively small in comparison to the total cost of goods sold, which includes the overhead component related to our operations team located in Los Gatos. So like Steve indicated, as volumes go up, we have a relatively high percentage of our costs that are fixed or semi-fixed. And so we think that during the year, maintaining mid-60s kind of margins depending on the actual sales volume and our mix between ASCs and hospitals, our margin should begin with a six. And as revenue grows, as Steve indicated, we think that as the revenue ramps, getting margins into the 70s is very doable.

I would now like to turn the call back over to Mr. Foster for closing remarks.

Well, thank you, Sherry. 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 for some reason we were unable to answer any of your questions, please reach out to our IR firm, who will be more than happy to assist. And with that, I wish everyone a good day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.