Biostem Technologies - Q3 2022

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and welcome to the BioStem Technologies third quarter financial results and corporate update call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Nic Johnson, you may begin your conference.

Nic Johnson (Investor Relations Officer)

Good afternoon, everybody, and thank you for joining our conference call to discuss BioStem's third quarter 2022 financial results and corporate highlights. Leading the call today is Jason Matuszewski, Chief Executive Officer. We are also joined by Mike Fortunato, our Chief Financial Officer. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements based on the current expectations of management, which involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the over-the-counter market. You are cautioned not to place any undue reliance upon any forward-looking statements which speak only as of the date made and may change at any time in the future.

Although it may be voluntary to do so from time to time, the company undertakes no commitment to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by the applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliation of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the investor relations portion of our website. With that, I'm now pleased to turn the call over to Jason Matuszewski.

Jason Matuszewski (CEO)

Thank you, Nic. Good afternoon, everyone, and thank you for joining us today. The team at BioStem has made strong operational and financial progress in the third quarter of 2022. We continue our tremendous long-term growth trajectory for the remainder of 2022 and beyond, resulting in the net revenue of $1.1 million and a 74% gross margin for the quarter. Before Mike discusses the financial results in more detail, I would like to cover some of our recent milestones and initiatives. First, I want to talk about our commercial team strategy. We continue to transition from an indirect sales force to a direct sales force with the addition of three direct sales hires during the quarter. We also continue to build out an experienced and well-equipped commercial team to match the pace of our expected growth.

Second, we continue to invest heavily into sales infrastructure, including customer relationship management tools, a B2B ordering portal, and our care partner program. We anticipate a rollout of our new Salesforce B2B e-commerce platform in Q1 of 2023, as well as equipping our commercial team with Salesforce Sales Cloud CRM. This will provide our customers easier access to order products and support documentation to increase the success of product adoption. Also, with Salesforce Sales Cloud, we will have better insight on our commercial pipeline and our commercial team's interactions with clinical providers through the Salesforce data analytics platform for future forecasting. Provider support is also a key focus to realize product adoption. BioStem's care partner program initiative includes facilitating the best customer experience and answering questions regarding the coding and reimbursement process to support medical providers through every aspect of utilizing BioStem's allograft products.

Throughout 2023, we intend to expand the care partner program to support adoption in all MAC regions through CMS, gaining data and other approval requirements to promote our products through private payers or other healthcare networks. We also will continue to invest in marketing efforts, including improving our product specific mini sites, reimbursement support team, and marketing personnel to further support our direct sales efforts. We look to get on the road in 2023, attending major wound care conferences to tout the company's focus in advanced wound care sector. Third, we expect a final decision regarding the VENDAJE AC Q code issuance in Q1 of 2023. VENDAJE AC is a dehydrated placental allograft that retains all the native layers of the placental tissue, specifically the amnion layer, chorion layer, the intermediate layer, and the spongy layer. It can also be stored at room temperature.

Issuance of a new code for this product will expand our CMS reimbursement for product portfolio and the total addressable market. The multilayer aspects of this product create a thicker graft, which can be used in more complex cases such as burns or surgical recovery. On the operations and research front, the operations and quality team have completed the initial qualification steps for the MasterControl Manufacturing MX module, as well as the quality systems QX module. The MX portion of the system is scheduled to be validated in December of this year, and we will be transitioning to a fully electronic record systems by Q2 of 2023. Our operations research and development teams continue to implement the BioREtain® processing method into our current and future allograft products. This results in an increased potential of inherent beneficial biological qualities and components of our tissues.

The company will soon be engaging with several market development focus groups, industry thought leaders, and key stakeholders to support this initiative and accelerate the adoption of our product offerings. Our BioREtain® process has a competitive advantage over our competition. As internal data analysis has shown that our allograft products retain elevated levels of the inherent beneficial biological qualities and components of allograft products.

Finally, in the third quarter, we announced key appointments to build out our leadership and corporate governance. Michael Fortunato, who's on the call today, has moved from our controller role to a chief financial officer role, and Brandon Poe was appointed to the board of directors. Both bring substantial financial experience to the company. We look forward to expanding our team of industry leaders. As I have mentioned before, we have put our company on a tremendous long-term growth trajectory.

In the third quarter, we have executed on the fundamentals of this growth strategy. We look forward to continuing this progress in 2023 as we hone our focus on the advanced wound care market and establishing ourselves as an industry leader in this space. With that, let me turn the call over to Mike for the review of the third quarter 2022 year-to-date financial results. Mike.

Mike Fortunato (CFO)

Thank you, Jason. Net revenue for the nine months ended September 30, 2022 was $6 million compared to $3.1 million for the nine months ended September 30th, 2021. This is an increase of $2.9 million or 95%. We've also gained manufacturing efficiencies during 2022, which has reduced overall production time by approximately 50%. Operating expenses for the nine months ended September 30, 2022 were $7 million compared to $3 million for the nine months ended September 30, 2021. An increase of $4 million or 134%. Increase in operating expenses is primarily driven by additional headcount, additional marketing expenses, investments in a direct sales force, and increases in share-based compensation related to the conversion of certain liabilities to equity.

Total other expense net for the nine months ended September 30th, 2022 was net expense of $233,000 compared to $121,000 of net expense for the nine months ended September 30, 2021. Increase of $112,000 or 92%. The nine months ended September 30th, 2021 contains the benefit of a one-time PPP loan forgiveness of $142,000. Net loss for the nine months ended September 30, 2022 was $2.3 million or $0.21 per share, compared to a loss of $1 million or $0.11 Per share in the nine months ended September 30, 2021. I'll now turn to a statement of cash flows and some balance sheet highlights.

First, cash flows provided by operations was $762,000 for the nine months ended September 30, 2022, compared to cash flows used in operations of $131,000 for the nine months ended September 30th, 2021. The increase in cash provided by operations is due to management's continued discipline over operating expenses as well as an increase in product sales. For year-to-date September 30, 2022, cash provided by operations is comprised of non-cash charges of $3.6 million, offset by net losses of $2.3 million and net cash outflows of $508,000 from changes in assets and liabilities.

For the year-to-date September 30, 2021, cash used in operations is comprised of non-cash charges of $945,000, offset by net losses of $971,000, $469,000 non-cash gain on PPP loan forgiveness, and net cash inflows of $364,000 for changes in assets and liabilities. Net cash used in investing activities during the nine months, September 30, 2022 was $395,000, which was primarily purchases of property, plant, and equipment of $199,000 and purchases of internal use software for $196,000. Net cash used in investing activities during the nine months ended September 30, 2021 was $1,000, which was primarily purchases of property, plant, and equipment of $36,000, offset by proceeds of $35,000 from the sale of one of our subsidiaries.

We expect investments in property, plant, and equipment and internal use software to continue into 2023 as we increase capacity of our manufacturing facilities and investment in IT infrastructure. Net cash provided by financing activity during the nine months ended September 30, 2022 was $335,000, which resulted from proceeds from loan borrowings of $850,000, issuance of common stock for cash $50,000, and $14,000 in new finance leases, offset by loan repayments of $533,000 and finance lease repayments of $45,000. Net cash provided by financing during the nine months ended September 30, 2021 was $379,000, which resulted from proceeds from PPP loan borrowings of $296,000 and issuance of common stock for cash of $125,000.

These were offset by repayments on those payable of $11,000 and finance lease repayments of $31,000. We expect to continue to fund the operation of the business through future financings. We expect to also use the proceeds from financings to fund ongoing investments into our sales and marketing function, and in particular, the hiring, training, and deployment of a direct sales force. The company maintained cash on hand as of September 30, 2022 of $1 million compared to $356,000 as of September 30, 2021. We continue to strengthen our balance sheet. Company converted $429,000 worth of liabilities into common stock during the nine months ended September 30, 2022. I'll now turn the call back over to Jason.

Jason Matuszewski (CEO)

Thank you, Mike. We will now turn the call over to questions. Operator, will you please open the lines?

Operator (participant)

Certainly. If you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the questions. Again, if you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. There are currently no questions at this time. There are still no questions. This does conclude today's conference call. Thank you for joining.