Sanara MedTech - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 net revenue grew 28% year-over-year to $25.83M; gross margin expanded to 93%, and consolidated Adjusted EBITDA increased to $2.66M, with Sanara Surgical generating $4.72M Segment Adjusted EBITDA.
• EPS of -$0.23 beat consensus of -$0.44; revenue of $25.83M beat consensus of $25.15M; consolidated net loss improved to -$2.02M from -$3.53M in Q2 2024.
• Management initiated a formal process to evaluate strategic alternatives for Tissue Health Plus (THP) and guided H2 2025 THP cash investment to $5.5–$6.5M, with no material cash investments in THP anticipated after year-end.
• Operating cash flow turned positive ($2.7M in Q2) and Sanara Surgical delivered net income of $0.51M, highlighting commercial execution and margin leverage as near-term stock catalysts.

What Went Well and What Went Wrong

• What Went Well

  • Strong top-line and margin execution: net revenue +28% YoY to $25.83M; gross margin to 93% on mix and lower CellerateRX Surgical manufacturing costs.
  • Sanara Surgical profitability: $0.51M net income and $4.72M Segment Adjusted EBITDA; distribution network expanded (>400 distributors) and facilities sold into TTM grew to >1,400.
  • Positive cash generation: $2.7M operating cash flow in Q2; CFO confidence in liquidity (cash $17.0M, LT debt $44.2M, $12.25M available borrowing capacity through 12/31/2025).

  Key quote: “We generated approximately $500,000 of net income and $4,700,000 of Segment Adjusted EBITDA in the second quarter of 2025” — Ron Nixon.

• What Went Wrong

  • THP drag on profitability: THP net loss of -$2.53M and Segment Adjusted EBITDA of -$2.05M; added $1.3M SG&A in THP, contributing to consolidated other expense (+$2.0M) on higher term loan interest.
  • Higher interest burden: other expense rose to -$1.99M (vs. -$0.64M) tied to CRG term loan; diluted EPS remained negative at -$0.23.
  • Elevated operating expenses: total OpEx +14% YoY to $23.92M; SG&A +$2.6M and R&D +$0.3M as Surgical portfolio enhancements advanced.

Transcript

Speaker 6

Good day, and welcome to the Sanara MedTech Inc. second quarter of 2025 earnings conference call. Please note that this conference call is being recorded, and a replay will be available on the Investor Relations page of the company's website shortly. The company issued its earnings release earlier today. Before we begin, I would like to remind everyone that certain statements on today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For more information about the risks and uncertainties involving forward-looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10-K, as supplemented by the risk factors in the company's most recent quarterly reports on Form 10-Q.

This call will also include references to certain non-GAAP measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings release available on the Investor Relations portion of our website. Today's call will be hosted by Ron Nixon, Executive Chairman and Chief Executive Officer, and feature additional remarks from Seth Yon, President and Chief Commercial Officer, Sam Lapala, President and Chief Executive Officer of Tissue Health Plus, and Elizabeth Taylor, Chief Financial Officer. I would now like to turn the call over to Mr. Nixon. Sir, please go ahead.

Speaker 3

Thanks, Operator, and welcome everyone to our second quarter of 2025 earnings call. Let me outline the agenda for today's call. I'll begin by discussing our financial and operational highlights from the second quarter, followed by a discussion of our strategic priorities and key areas of focus for the balance of 2025. Seth will update you on the primary drivers of growth in our Sanara Surgical segment and the progress made with respect to our commercial strategy. Sam will share an update on the recent progress made in our THP segment. Lastly, Elizabeth will review our quarterly financial results in further detail before we open the call for questions. With that, let's begin with a review of our second quarter financial highlights. Our surgical team delivered net revenue of $25.8 million in the second quarter, representing 28% growth year over year.

This impressive performance is a testament to our commercial team's pace of execution on our growth strategy, as well as the strong demand we're seeing for our products in the market. Our net revenue growth was driven primarily by sales of our soft tissue products, which increased 28% year over year to $22.7 million. Specifically, sales of both our CellerateRX Surgical and BIASURGE Advanced Surgical Solution products fueled our performance. We also saw significant contributions from sales of our bone fusion products, which increased 25% year over year to $3.1 million, driven by growth across most of the products in the portfolio. In addition to achieving strong sales growth in our Sanara Surgical segment, we enhanced our gross margins and realized significant operating leverage as well. This enabled us to deliver notable improvements in the profitability profile of the surgical segment on a year-over-year basis.

Specifically, we generated approximately $500,000 of net income in the second quarter of 2025, an improvement of $2.7 million. We also generated $4.7 million of segment-adjusted EBITDA, an increase of $3.3 million, or 239%. Our surgical performance helped to offset continued investment in our THP segment and positioned us to drive significant year-over-year improvements in our profitability profile on a consolidated basis, including a 43% improvement in our net loss and a 350% improvement in our adjusted EBITDA. Lastly, we were pleased to generate $2.7 million of cash flow from operating activities during the second quarter. Turning to our operational highlights in the second quarter, first and foremost, our surgical team delivered strong performance across all key metrics of the commercial strategy, as Seth will discuss further.

In addition to our commercial team's progress, we made strides in our initiative to expand the portfolio of clinical evidence related to our two primary products, CellerateRX Surgical and BIASURGE Advanced Surgical Solution. During the second quarter, four new clinical manuscripts focused on the use of our products were submitted to key academic journals for review. Expanding our portfolio of clinical evidence is an important component of our strategy to educate the market on the benefits and value that we believe our products bring to the treatment of surgical wounds. We look forward to discussing the results and findings presented in these clinical manuscripts once they are published. We also continue to advance our new product initiatives. As a reminder, in January 2025, we acquired the exclusive U.S. marketing, sales, and distribution rights to two products for their use in managing periarticular fractures caused by a traumatic incident.

These two products are Hostic, a structural mechanically enhanced bioadhesive bone void filler, and an adjunctive fixation technology. When acquiring the rights to these products from their developer, Biomimetic Innovations Ltd., or BMI, we structured the agreement with key product development, clinical, and regulatory milestones. I'm pleased to report that BMI achieved two of these key development milestones during the second quarter. Based on this progress, we remain on track to launch Hostic during the first quarter of 2027, as we stated previously. Our commercial team is excited by the prospect of commercializing Hostic to address the more than 100,000 periarticular fractures that occur in the U.S. each year. Last, in our THP segment, we initiated our pilot program with a wound care provider group during the second quarter, as anticipated.

We also completed the acquisition of Carepix, which is an important part of our THP technology platform, and continue to engage with both payers and potential financial partners. I'd now like to provide some thoughts on our priorities for the balance of the year, beginning with our THP segment. As Sam will discuss in greater detail, we made significant progress on our THP-related initiatives during the first half of 2025. In parallel, we have actively managed our expenses in this segment to deliver against our stated expectations. For example, on our most recent earnings call in early May, we shared that we anticipated cash investment in our THP segment of $7.5 million to $8.5 million during the first half of the year, in addition to the $3.65 million paid in connection with our acquisition of Carepix.

We ultimately came in at the low end of the range with an actual THP-related cash investment of $7.5 million for the first half of 2025, in addition to the $3.65 million paid in connection with our acquisition of Carepix. Looking ahead, we're mindful of the existing level of cash used to support our THP-related initiatives. I want to be clear that actively managing expenses by reducing the level of cash investment in our THP segment in the second half of the year 2025 to preserve capital is absolutely a priority for our organization. Specifically, we expect our level of cash investment in this segment during the second half of 2025 to be between $5.5 million and $6.5 million. In parallel, we're working to evaluate and pursue the best path forward for THP for the benefit of our company and its shareholders.

As we announced in our earnings press release this morning, we have initiated a formal process to evaluate strategic alternatives for THP. We've also engaged a strategic advisor to assist in conducting this process. The intention of this process is to explore a full range of strategic alternatives with the ultimate objective of maximizing shareholder value, as well as to identify like-minded partners to support the future growth of this business. Importantly, the company does not anticipate making material cash investments in THP after year-end. While we're limited in our ability to communicate while this process is underway, we look forward to sharing future updates when appropriate. Stepping back, our surgical segment performance in recent quarters has enabled us to achieve significant commercial scale with net revenues of $97.2 million and segment-adjusted EBITDA of $14 million for the trailing 12 months ended June 30, 2025.

We're off to a strong start in the first half of 2025 with 27% growth in net revenue over the first half of last year, combined with significant improvements in the profitability profile of Sanara Surgical. Our surgical segment reported a net loss of $108,000 during the first half of 2025, and we generated $7.4 million of segment-adjusted EBITDA, an increase of $4.9 million, or 193% year over year. Lastly, on a consolidated basis, we generated approximately $700,000 of cash flow from operations over the first six months of 2025, compared to cash used from operations of $3 million over the same period in 2024. In the second half of 2025, we are focused on executing the strategies outlined for each of our business segments with the goal of delivering value to all of our stakeholders as we work to address significant unmet clinical needs in the healthcare industry.

We're committed to preserving capital as we position Sanara MedTech to deliver strong, sustainable growth and long-term value creation. I'll now turn it over to Seth to discuss the commercial execution in our Sanara Surgical segment.

Speaker 0

Thanks, Ron. I'd like to update you on the progress made by our commercial team with respect to three key initiatives that have been central to our recent performance and future growth. As a reminder, these are the three initiatives: one, developing our relationships with independent distributors; two, selling into new healthcare facilities; and three, penetrating the existing healthcare facilities we serve. Beginning with the first of the three commercial initiatives, our team has made strong progress in expanding our distributor network by identifying, engaging, and contracting with quality distribution partners. At quarter end, we had agreements in place with more than 400 distributors, compared to more than 300 this time last year. Given the significant expansion in our distribution network, our emphasis has increasingly shifted to onboarding our recently contracted distributors and training their reps.

Building relationships selectively with high-quality distributors and pursuing a strategic approach to targeting, training, and partnering with their reps is one of the key ways our commercial team is positioning Sanara MedTech for strong, sustainable long-term growth. Turning to our second commercial initiative, we continue to add new healthcare facility customers. Specifically, we expanded our customer base to include more than 1,400 healthcare facilities for the trailing 12 months ended June 30, 2025, compared to more than 1,100 facilities in the prior year period. Our traction on this front continues to benefit from our strategy to leverage the local relationships of the distributor reps that we partner with, as well as the significant progress we have made in expanding the number of facilities that our products are approved or contracted with to include more than 4,000 across the U.S.

With respect to our third commercial initiative, we increased our penetration of the existing healthcare facilities we serve by growing the number of surgeons using our products within these facilities. As I mentioned on our last earnings call, this represents one of the largest untapped areas of growth for our organization, as the existing hospitals we serve remain vastly underpenetrated. I'm pleased to report that we are experiencing strong growth in our surgeon user base in the second quarter on a year-over-year basis. As a part of this effort, we continue to see success in adding new surgeon users outside of our traditional specialties of spine and orthopedics, including adoption of Sanara Surgical products by plastics, general, and vascular surgeons.

To be clear, a rapid pace of progress in expanding our surgeon user base would not be possible if surgeons did not appreciate the compelling clinical benefits of our key products. Our products' ability to facilitate improved outcomes for high-risk patients represents one of the primary contributors to the strong, sustainable revenue growth and significant commercial scale that our Sanara Surgical team has achieved in recent years. Lastly, with respect to BIASURGE Advanced Surgical Solution, our advanced surgical solution used for wound irrigation, we continue to be pleased with the rapid growth we have experienced in this product during the second year of its commercialization. As I've mentioned in the past, virtually all of our surgeons we serve use some form of wash, often a traditional saline solution, to cleanse and prepare the surgical wound bed.

With this in mind, we continue to see success in introducing BIASURGE Advanced Surgical Solution to our existing customers and their facilities as a product that is complementary to the procedures in which CellerateRX Surgical is used. In tandem, our team remains focused on securing more approvals for BIASURGE Advanced Surgical Solution at the existing facilities we serve in order to facilitate its long-term growth. In summary, we believe our track record of strong sales performance and commercial execution demonstrates that we are pursuing the appropriate commercial strategy to capitalize on what we consider to be the vast, underpenetrated market opportunity that remains ahead of us. I'll now turn it over to Sam to provide an update on Tissue Health Plus.

Speaker 1

Thanks, Seth. We are excited to discuss our pace of progress both during this past quarter and in recent weeks. As a reminder, during the initial months of the second quarter, we completed the acquisition of Carepix and its technology stack, which forms the foundation of our THP technology platform. We also announced the availability of our THP technology platform, which included the THP Copilot mobile app designed to standardize wound care and reduce administrative burden for wound care clinicians across all care settings. On the heels of these accomplishments, at the end of the second quarter, we began our pilot program as planned with a provider group that delivers chronic wound care and serves six states. Our pilot began at one of the provider's locations. There, the provider's clinical and administrative teams are using THP Copilot integrated with the EMR to perform home-based wound care.

As a reminder, THP Copilot consists of a mobile app designed for use by clinicians, which integrates both our software as a medical device and clinical decision support systems. These tools aid clinicians' ability to deliver precise and personalized wound care while not replacing their professional judgment. Supported functionality includes aggregating patient and appointment contacts from the EMR, encounter preview and preparation, patient and wound assessment with imaging, intervention and protocol guidance, follow-up care guidance for orders including DME, reimbursement guardrails and coding optimization, progress notes assistance, integration with the EMR to post encounter details. The goal of this pilot program is to help us further validate and optimize our THP technology platform while gaining real experience in its use with a provider in a real-world clinical setting.

The provider has begun conducting the first patient encounters as part of this pilot program, and we have been pleased with the initial performance of our THP technology platform to date. We believe our THP technology platform's end-to-end platform architecture and functionality are performing as designed, delivering a groundbreaking experience and bringing our vision to life. This pilot program is already providing us with information to refine our THP technology platform and its implementation. As anticipated, we have obtained valuable insights related to the nuances of EMR integration, standard of care customization, user experience enhancements, and reimbursement adjustments. Concurrently, the client is taking us to hospital systems and home health agencies. This has further clarified our collaboration network functionality. Furthermore, we have enhanced our implementation playbook in response to insights gained from this pilot experience. In general, we are very encouraged by the provider's reception to THP Copilot.

In addition to this progress related to our wound care pilot program, our team also continues to raise the awareness of our THP offering in the provider market. Most recently, in July, we showcased our THP approach at the American Board of Scientific Medicine's annual scientific meeting. In addition, the THP executive team and the advisory board were highlighted as speakers and panelists at the 2025 Advanced Wound Care Summit in Boston. As a participant on the conference's executive panel, our Chief Scientific Officer, Dr. Ira Herman, and fellow panelists discussed how innovations like AI, telemedicine, and wearable technologies are reshaping the delivery of care. Through these and other initiatives, we continue to build a strong pipeline of interested providers. Looking ahead, we are preparing to expand the scope of our pilot program to include additional practitioners and locations in September, marking an important milestone for the THP team.

In addition to these efforts, we continue to focus on launching a pilot program with a payer during the fourth quarter of this year. To that end, we are in active discussions with a multi-state Medicare Advantage payer. We plan to leverage this payer pilot to establish our payer pricing and complete the build of our payer platform. Elizabeth will now review our second quarter financial performance.

Speaker 5

Thanks, Sam. Given that Ron covered our revenue results for the quarter, I'll begin with gross profit. Note that all percentage changes referenced throughout my remarks compare to the prior year period. Second quarter gross profit increased $5.7 million, or 32%, to $23.9 million. Gross margin increased approximately 250 basis points to 93% of net revenue, driven primarily by increased sales of soft tissue repair products and lower manufacturing costs related to CellerateRX Surgical. Second quarter operating expenses increased $2.9 million, or 14%, to $23.9 million. The change in operating expenses was largely driven by a $2.6 million, or 14%, increase in selling, general, and administrative expenses, and to a lesser extent, an approximately $300,000, or 28%, increase in research and development expenses.

The $2.6 million increase in SG&A was driven primarily by $1.5 million of higher direct sales and marketing spend in our Sanara Surgical segment, partially offset by approximately $200,000 of lower costs in this segment, and $1.3 million of additional SG&A in our Tissue Health Plus segment. As a reminder, the Tissue Health Plus segment SG&A expenses are primarily related to the build-out of certain aspects of the THP platform and infrastructure, which accelerated beginning in mid-2024. The approximately $300,000 increase in R&D was due in part to the development of enhancements to the surgical product portfolio. Operating loss in the second quarter was $31,000, compared to a loss of $2.9 million last year. Note, our surgical segment generated operating income of $2.5 million in the second quarter of 2025, an increase of $4.1 million year over year.

Other expense for the second quarter was $2 million, compared to approximately $600,000 of expense last year. The increase in other expense was primarily due to higher interest expense and fees related to our CRG term loan. Net loss for the second quarter was $2 million, or $0.23 per diluted share, compared to a net loss of $3.5 million, or $0.42 per diluted share last year. By segment, as Ron mentioned, we were pleased to generate approximately $500,000 of net income in our surgical segment, compared to a net loss of $2.2 million last year. Our Tissue Health Plus segment generated a net loss of $2.5 million, compared to a net loss of $1.3 million last year. Adjusted EBITDA for the second quarter of 2025 was $2.7 million, an increase of $2.1 million, or 350% year over year.

Sanara Surgical generated segment-adjusted EBITDA of $4.7 million, compared to $1.4 million last year. Tissue Health Plus generated segment-adjusted EBITDA loss of $2.1 million, compared to a segment-adjusted EBITDA loss of approximately $800,000 last year. Turning to the balance sheet, as of June 30, 2025, we had $17 million of cash, $44.2 million of long-term debt, and $12.25 million of available borrowing capacity through December 31, 2025. This compares to $15.9 million of cash, $30.7 million of long-term debt, and $24.5 million of available borrowing capacity as of December 31, 2024. Lastly, a few considerations to bear in mind for the remainder of the year. Our net revenue performance in the second quarter modestly exceeded our expectations and we are encouraged by our momentum through the first half of the year. Our focus remains on driving strong net revenue growth in 2025, fueled by our Sanara Surgical business.

We also continue to anticipate strong profitability in our Sanara Surgical segment for the full year. As Ron mentioned, during the second quarter, BMI completed two product development milestones under our exclusive license and distribution agreement. In connection with the terms of this agreement, on July 1, 2025, Sanara paid BMI €2 million related to the completion of these milestones in exchange for 4,116 additional shares of BMI, bringing Sanara's total ownership of BMI's outstanding equity to approximately 9.7% as of July 1, 2025. Between our current cash position, the anticipated cash flow from our Sanara Surgical segment this year, and the available borrowing capacity on our distinct facility, we are confident that we have sufficient financial resources to support our key growth initiatives. As we noted on our last earnings call, we do not anticipate a material impact from tariffs on our results of operations in 2025.

On behalf of the leadership team, I'd like to thank our colleagues across Sanara MedTech for their contributions to our performance and progress as an organization. Thank you as well to our shareholders and customers for their support and everyone on today's call for their interest in Sanara MedTech. With that, Operator, you may now open the call for questions.

Speaker 6

Thank you. If you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing *1. Thank you. Our first question will come from Ross Osborne with Cantor Fitzgerald & Co. Your line is live.

Speaker 4

Hey, guys. This is Matthew Parcon for Ross today. Thanks for taking the questions. I guess first on the distributors, can you walk us through how long it typically takes for a new partner to become productive in the field? How should we think about the contribution curve from recently signed partners versus more established relationships?

Speaker 6

Seth, you want to take that?

Speaker 0

Sure, Matthew. Good morning. Yeah, it really depends on a couple of things. What's the starting point in that market that they're in? Do we have already approvals in that market? That's always our goal, certainly. To enter into an agreement with a talented distributor network or group that already has some traction based upon the approvals that already exist. That learning curve is relatively short. We do that by placing an RSM in that market as well, to really be the driver in education alongside our clinical team, to all things that that distributor would need alongside their surgeon. It's those two things that really let us ramp and do that quickly. That timing can vary depending on market based upon the approvals and the opportunities that exist there.

That can range anywhere from days to certainly months, depending on the work that needs to be done to get up to speed.

Speaker 4

Got it. That's helpful. Maybe one for Elizabeth. Now, as you guys evaluate strategic alternatives for THP and continue to emphasize growth in surgical and bone fusion, how should we think about the cadence of OpEx as we move forward into 2026? Specifically, are there any areas within G&A or R&D where you see opportunities for leverage or any one-time costs we should be thinking about?

Speaker 5

Sure. Thanks for the question, Matt. We have guided the THP for the second half. Investment will be between $5.5 million and $6.5 million. We do have additional Hostic milestones. We are not positive when those will hit, but the total amount of the milestones is €2 million that we still will hopefully achieve. Unclear as to the exact timing of that. We have seen in the first half a bit of operating leverage. That's been a really positive thing. We don't comment anymore on future.

Speaker 6

Matthew, also, this is Ron. We constantly are working on our key products for new innovation around our key products. That's an ongoing basis of our daily routine for our R&D.

Speaker 4

Got it. Super helpful. Congrats on the next quarter, guys.

Speaker 6

Thank you. Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press *1 on your telephone keypad. Our next question is coming from Yi Chen with H.C. Wainwright & Co. Your line is live.

Speaker 2

Good morning. This is Eduardo on for Yi. Question on the specific surgical segment and the product growth that you're observing. Exciting to see that the bone fusion products are gaining some increased traction. I'm curious about CellerateRX Surgical, if you could add some color on specific growth for each of those products, CellerateRX Surgical, FORTIFY, and specifically BIASURGE.

Speaker 4

Seth?

Speaker 0

Happy to take that one too. You know, the soft tissue category as a whole has obviously been a great growth driver for us. The backbone of that space is truly CellerateRX Surgical and BIASURGE Advanced Surgical Solution as kind of our one-two punch. CellerateRX Surgical being the largest producer in that category and BIASURGE Advanced Surgical Solution quickly becoming the second largest producer. Really encouraged by how those continue to grow steadily. We think we've got a lot of green space with both of those two products into the future.

Speaker 2

Got it. That's helpful. Regarding the kind of initiatives, you mentioned you were adding, I don't know if I missed this specific number, adding new surgeons and increasing penetration in existing facilities. Do you have any more details on specific figures there and any feedback you've been getting from clinicians that's making the product stick and grow in utilization in each of your facilities?

Speaker 0

Yeah, as we talked about in the call itself, it's really coming down to three core areas for us. It's quality distributors under contract and getting them trained and up to speed and confident in our technologies. We expand by gaining access into facilities, whether that's contracted or new. How do we start to widen there? I think everybody on this call recognizes over the course of the last few years what we've built as our core businesses around ortho and spine. That is still our core business. What it's done is really given us a great foundation inside of those facilities for us to then start with our RSM and distributors to work in partnership to start seeking other specialties where there's great need for these technologies as well.

Some of those areas that we've penetrated or started to penetrate are now into that access surgeon space, plastics, general, and vascular as well. They're doing that in partnership at a great point.

Speaker 2

Okay. I guess just one final one on strategic thinking about THP. What's the big driver there looking for strategic alternatives instead of developing internally? What are the main decision points or data points you guys are looking at for that decision-making process?

Speaker 6

Yeah, Eduardo, this is Ron. We've made a significant investment into THP, and we have taken it to the point that we think it's a good time for us to look at other strategic partners that could take the product from where it is today with their capital to complement what we've already done with our capital. Just to continue to further expand that. When we say that we're looking at our strategic alternatives, that is many things. That is not just a sale of the business or whatever. It's to really find strategic partners because in many of the calls previously, we've talked about kind of the core is you've got to have your patient engagements, you've got to have providers, you've got to have payers, and you've got to have product companies. All those are good potential partners for us.

Speaker 2

Got it. Okay. Thanks for the clarity on all that. Thanks for taking the questions.

Speaker 6

Thank you. Thank you. As a final reminder, ladies and gentlemen, if you have any questions or comments, please press *1 on your keypad at this time. As we are currently seeing no remaining questions at this time, this will conclude today's conference. We thank you for your participation and hope you have a wonderful day.