Earnings Call Transcript - TNON Q1 2026

Operator, Operator

Greetings, and welcome to the Tenon Medical First Quarter 26 Financial Results and Corporate Update Conference Call. As a reminder, this conference call is being recorded. Your hosts today are Steven Foster, President and Chief Executive Officer and Kevin Williamson, Chief Financial Officer. Mr. Foster and Mr. Williamson will present results of operations for the first quarter ended 03/31/2026, and provide a corporate update. A press release detailing these results was released today and is available on the Investor Relations section of our company's website, www.tenonmed.com. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcast may include predictions, estimates and other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause 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. For a more complete discussion of these factors and other risks, you should review our quarterly and annual reports on file with the Securities and Exchange Commission at www.sec.gov. At this time, I will turn the call over to Tenon Medical's chief executive officer Steven Foster. Please go ahead, sir.

Steven Foster, President and Chief Executive Officer

Thank you, Sachi, and good afternoon to everyone. I am pleased to welcome you to today's First Quarter 26 Financial Results and corporate update conference call for Tenon Medical. We are off to a solid start in 2026. We delivered strong first quarter revenue and gross profit, which were the highest for any first quarter in the company's history. First quarter revenue came in at $1.4 million, nearly double the prior year period. And gross margin reached 68.5% up from 44.5% a year ago. Two dynamics drove the quarter. More procedures across both of our platforms, and a meaningful, more efficient cost base behind those revenues. On the top line, growth came from two places. A higher number of Catamaran cases and the first full quarter of meaningful Symmetry Plus contribution since we acquired the SciVantage assets late last August. Physician engagement is a leading indicator for us as well, and on that front, we trained 21 physicians across both systems this past quarter. The most notable development this quarter is the expansion in gross margin. At 68.5%, we are approximately 24 percentage points higher than a year ago. While increased revenue has contributed through improved absorption of fixed production overhead, we are also benefiting from a more streamlined commercial footprint and stronger field productivity. We expect these structural gains to persist going forward. Beyond the financials, a few items from the quarter that are worth noting. First, our two-platform offering is increasingly working the way we had hoped. Physicians are evaluating Catamaran and Symmetry Plus as complementary tools in both primary and revision procedures. These systems provide optionality in inferior, posterior, and lateral approaches to the same anatomy, and we are seeing that this translate into adoption at several leading centers. Specific to capital, in March, we closed a $4.3 million senior convertible note placement with a group of institutional and high net worth investors. That financing extends our runway, gives us flexibility to keep investing behind commercial expansion, product launches, and our clinical programs without further distraction. Taken together, the quarter gives us a healthier balance sheet, a broader product set actually in the market, and clearer evidence that our cost work is sticky. Our intellectual property position continues to strengthen. The U.S. Patent and Trademark Office issued multiple notices of allowance during the quarter, on applications expected to grant later in 2026. On top of the 10 patents that issued in 2025, our portfolio today stands at 29 U.S. patents and 9 international patents granted with another 31 applications pending. That depth matters for a small-cap medical device company. It protects what we have built around Catamaran and Symmetry Plus. In addition, we have dramatically accelerated our R&D project work. This includes significant incremental additions to the Symmetry Plus lateral and oblique platform that will be launched in 2026. Additionally, in the spirit of providing comprehensive optionality to our physician customers, we are moving towards regulatory submission and subsequent alpha activity of a third approach to the sacral pelvic anatomy. Lastly, our aggressive commercial activity is highlighted by the addition of an experienced senior sales professional to manage the eastern part of the Lower 48. He will join other members of our commercial team at a newly established training and education center in the Tampa, Florida area designed intentionally to accelerate our physician and distributor education activities. Looking out over the rest of the year, our focus is very narrow: growing procedure volumes on both platforms, aggressively educating our physician and distribution partners, and protecting the gross margin gains we have made this quarter as we scale. We have multiple ways to win in this market — lateral and inferior posterior now, and additional innovations to come. With that, I will turn the call over to Kevin to discuss our financials in some detail.

Kevin Williamson, Chief Financial Officer

Thank you, Steven. I will now provide a summarized review of our financial results. A full breakdown is available in our press release that crossed the wire this afternoon. Starting with the top line, first quarter revenue was $1.4 million, an increase of approximately 90% from $700 thousand a year ago. Two factors are at work here. First, Catamaran surgical procedure volumes saw strong year-over-year growth, driven primarily by new physician adoption. And second, Q1 was the first quarter to fully reflect Symmetry Plus revenue since we closed that acquisition in August, and launched the system in Q4 2025. Further product enhancements and a full commercial launch in 2026 are expected to support continued growth this year and into 2027 and beyond. Gross profit was $900 thousand or 68.5% of revenue, versus $300 thousand or 44.5% of revenue in the first quarter of last year. That is an approximately 193% increase in dollar terms and the highest for any first quarter in the company's history. On a margin basis, we picked up about 24 percentage points year-over-year. The driver is straightforward: higher revenue is spreading our fixed production costs over a larger base and we expect to see continued margin expansion as revenue scales. Operating expenses came in at $4.2 million, modestly above the $4 million we ran in 2025. The step up is primarily driven by higher sales and marketing expenses, reflecting increased commercial activity related to higher revenue as well as supporting the Symmetry Plus rollout, while partially offset by lower stock-based compensation versus a year ago. When normalizing stock-based compensation expense year-over-year, within R&D, development-related expenses increased in the first quarter versus Q1 2025, driven by project-related activities tied to future product launches, primarily related to assets that were acquired in the acquisition we closed in August. Net loss for the quarter narrowed to $3.5 million or $0.31 per share from $3.6 million or $1.01 per share a year ago. The per-share figure benefits from a larger share count, but on a dollar basis, the improvement is real. Stronger revenue and gross profit more than offset higher OpEx and the interest expense from the March convertible note issuance. We ended the quarter with $4.6 million in cash and cash equivalents, compared to $3.8 million as of December 31, 2025. In March 2026, the company closed a private placement of senior convertible notes for gross proceeds of $4.3 million, which provides additional runway to fund our commercial and clinical priorities deep into the year. Overall, we believe the financial and strategic actions achieved this quarter have positioned Tenon with initiatives to drive faster growth while sustaining a streamlined and disciplined cost base. I will now hand the call back to Steven for closing comments.

Steven Foster, President and Chief Executive Officer

Thank you, Kevin. In summary, 2026 reflects early returns on the strategy we have been executing against, including approximately 90% year-over-year revenue growth, a 24-percentage-point expansion in gross margin to 68.5%, a strengthened balance sheet and a meaningfully expanded intellectual property portfolio. These results provide a strong platform for continued execution. Building on that foundation, our priorities are clear: drive continued procedure growth across both Catamaran and Symmetry Plus, expand our base of trained physicians, and maintain the disciplined cost structure now showing through our gross margin and field productivity. With the differentiated multi-approach portfolio, the strengthened balance sheet, and a deepening intellectual property portfolio, we believe Tenon is well positioned to build on this quarter's momentum and deliver increasing value to patients, providers, and shareholders. I thank you all for attending, and now I would like to hand the call over to our operator to begin our question and answer session covering the analysts. Sachi?

Operator, Operator

Thank you. We will now be conducting a question and answer session. Before pressing the star keys, one moment please while we poll for questions. The first question is from Scott Henry from AGP. Please go ahead.

Scott Henry, Analyst

Thank you, good afternoon. One of the first questions — with regards to seasonality. Typically, I think of surgical procedures being down in the first quarter. You have got payer deductible and copay resets and all of that. So based on a typical tough first quarter, it seems like we should be very encouraged by the strong numbers relative to Q4. Steven, do you think that is a fair assessment?

Steven Foster, President and Chief Executive Officer

Thanks for the question. Absolutely fair. The dynamics of payer deductible resets are very real. Our physicians have wild and crazy Decembers in particular, which I feel bad for them sometimes the way it piles up, but there is no doubt that is a real factor in all of this. And things tend to settle in Q1. I think that is true for Tenon just like any other medical device company, especially elective-type procedures such as ours. So I think that is a fair statement. I think it is very real and we are encouraged as well by a solid, strong Q1 that gets us off and running here in 2026.

Scott Henry, Analyst

Okay. Thank you. And then building off that, how should we think about, at least directionally, Q2 relative to first quarter? Are there any launch metrics that you can give us that we can follow to try to gauge the progress of the launch?

Steven Foster, President and Chief Executive Officer

Sure. So we will have a busy 2026. Symmetry Plus, which is our lateral platform that came over with the SciVantage acquisition, has been in alpha since late fall and is now coming out of alpha into full launch. That is the screw portion of that technology. We have two additional incremental pieces to that platform that will launch throughout 2026. One is involved in the preparation of the joint to create a proper defect to prepare the joint to be grafted, fixated, and eventually fused. The second component will come out a bit later in the year, which is an actual addition to the construct we believe will make the construct more effective. And so you will see both of those things happen throughout the course of the year. The Corticator technology will be first. The additional and incremental implant will be second. On top of that, I mentioned a new technology that we are working on that will be an additional approach to this anatomy that is preferred by many physicians in this space. That will be towards the end of the year, but we hope to be in alpha with that technology in Q4. And so all of those will be catalysts for us along with all the work that is going on just to get Catamaran and Symmetry Plus in front of physicians. There is clinical data in the backseat technologies. We are very encouraged by the reception of what has been done clinically with those technologies. So we are growing across all of those activities. We certainly are not waiting around for launches to target and grow, but those new technologies coming down the pipe will be catalysts as we get to those alpha starts and then eventually into a full launch.

Scott Henry, Analyst

Okay. Great, and final question. I will give Kevin a chance to chime in. OpEx in first quarter, is that a good baseline going forward? Perhaps it grows a little bit as sales increase — is that how we should think about OpEx in first quarter? Or is there any noise in that we should factor in?

Kevin Williamson, Chief Financial Officer

Yeah. Good afternoon, Scott. Thanks for the questions. I would absolutely say it is a good baseline here for the year, and we expect to continue to leverage the P&L and improve profitability throughout the year, growing revenue and expanding margin faster than we are growing OpEx, specifically around the fixed cost. So as far as looking at the fixed cost, absolutely a good baseline there. There will be some investments we make throughout the year, so you will see some increase in OpEx; it will be at a lower clip than revenue. And I think we have been pretty efficient to this point to mix in some strong investments here to lay the foundation for the rest of the year without expanding our fixed costs. You will continue to see that throughout the year.

Scott Henry, Analyst

Great. Thank you for taking the questions.

Operator, Operator

The next question is from Anthony Vendetti from Maxim Group. Please go ahead.

Anthony Vendetti, Analyst

Yes, thanks. On the new system, the new indication that you expect to have the alpha release in the fourth quarter 2026, can you talk a little bit about from a scientific standpoint how that is going to be complementary or differs from the two products that you have now? And then if you alpha release it in fourth quarter 2026, are you looking to commercialize it Q1 2027, Q2 2027 — do you have that sort of timeline framed out?

Steven Foster, President and Chief Executive Officer

So two things. One is we are committed to certain principles when we address various components of the sacropelvic anatomy, and the core principle is we are a fusion-focused, arthrodesis-focused organization. So while we will explore and introduce new approaches, new instrumentation, new technology to the space, we will stick with our core principles of proper joint preparation, grafting, and fixation. We believe in that deeply. We believe it is frankly something missing in the space, and we will be consistent with that with all of our launches. I will go that far with the new technology. If we are going to alpha, which are just early physician adviser usages, to make sure we have every detail taken care of and as much refinement as can possibly be completed with the instrumentation and all aspects of the system. And then, yes, as you described, right, in Q1 of 2027 we will be moving into full launch for that technology.

Anthony Vendetti, Analyst

Okay. Great. And then in terms of training physicians, how has that evolved for Tenon this year? Can you talk about the plans to accelerate that training or the training programs that you have in place to get more of these physicians up to speed and aware of your technology?

Steven Foster, President and Chief Executive Officer

Well, for us, it has evolved dramatically because we are not a single approach, single technology company any longer. We are using a variety of different training tools and training models — whether a physician wants to focus on an inferior posterior approach to the anatomy, a lateral or oblique approach to the anatomy, or other approaches. That is perhaps number one on the evolved question. I hope it is indicative of how enthusiastic we are that we are investing in this training facility in Tampa. It will be a fully equipped training facility. It really allows us the opportunity to bring people in whether they are interested physicians or distribution partners that need some cadence and some repetitive work on the instrumentation, sequencing, technology themselves, etc. We are very enthusiastic. Our demand has got to the point where it makes sense for us to make that investment, and we really look forward to having it online, which it is now, and making things happen going forward.

Anthony Vendetti, Analyst

Okay. Great. And then is there anything that you are doing specifically to try to increase conversion rates where you are like, okay, they have been trained or they know the product — how do you go about making sure that you can convert physicians from trying the product or demoing it to making it part of their ongoing practice?

Steven Foster, President and Chief Executive Officer

Sure. Our mission is relatively simple, but it is executed in a complex environment. The first thing we have to do is be compelling with the proposition. If you cannot sit down and convince them this is worth their time to take a look at and spend some time with, that is usually a combination of everything that you have done with the technology itself, the clinical research you have done, and things that compel them to take time out of a very busy schedule. When they get interested, the second level of complexity kicks in where you have to go through approval and access processes at these facilities. They have various committees and processes that must be satisfied. This is the area where we are making some investments. We have to get better and more efficient at getting through those processes and making sure we are leveraging everything that we have. The SciVantage acquisition gave us some access that we did not have previously, things that they had achieved prior to the transaction. Putting all of that together and making sure that we give ourselves as many opportunities to open the door for access to physicians to use in those facilities — that is a big challenge for us organizationally and something we are spending a lot of time, energy, and effort on.

Anthony Vendetti, Analyst

And then lastly for Kevin, gross margin was very strong at 68.5%, high 60s — is that a good gross margin to look at for the rest of 2026? And I believe, Kevin, chime in and tell me if I am wrong here, but at a larger revenue base in 2027 and beyond, the expectation is for that gross margin to be 70% plus. Correct?

Kevin Williamson, Chief Financial Officer

Correct. And as we continue to scale revenue, we will continue to absorb some of those fixed costs. They are not very large fixed costs, so as we get our revenue base up, we will absorb them and margin will continue to expand, moving towards what our true product margin is as you absorb logistics-based costs. So, yes, high 60s is a good place to be. We expect to increase from here, and I think we are going to be very happy with where our margin gets to over the coming quarters and into 2027.

Anthony Vendetti, Analyst

Excellent. Okay. Great. Thanks so much. Appreciate all the color. I will hop back in the queue.

Operator, Operator

This concludes the question and answer. I would like to turn the floor back over to Steven Foster for closing comments. Thank you, Sachi.

Steven Foster, President and Chief Executive Officer

I would like to thank each of you for joining our earnings conference call today. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach out to our investor relations firm, MZ Group, who will be more than happy to assist. And with that, I wish everyone a good day.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.