TELA Bio Inc Aktie

Thank you. Good afternoon, ladies and gentlemen, and welcome to the Telebio second quarter 2026 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 will now like to turn the conference over to Louisa Smith.

Thank you, Lisa, and good afternoon, everyone. Earlier today, Telebio released financial results for the second quarter and to June 30th, 2026. A copy of the press release is available on the company's website. Joining me on today's call are Joe Capper, Chairman of the Board, Heather Goetz, Chief Executive Officer, Jeff Blizzard, President, Roberto Kuka, Chief Operating Officer and Chief Financial Officer, and Jim Hagan, Senior Vice President of Strategic Operations and Marketing. Before we begin. 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 quarterly reports on Forms 10-Q, which identify the specific risk factors that may cause actual results to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development, pipeline opportunities, sales and marketing strategies, and the impact of various additional risk factors as identified in our regulatory filings.

With that, I'll now turn the call.

over to Jeff thank you Louisa good afternoon and thank you for joining tele bios second quarter 2026 earnings call I will start to call a few comments about the important leadership change announced last week naming Heather gets as the new chief executive officer and director of tele bio then turn the call over to the management team for an update on the business. Heather brings a proven track record of driving operational excellence, leading organizations through complex business and financial transformations, and creating long-term value. We are confident that under Heather's leadership, Telebio will build on its strong foundation, expand its impact for patients and surgeons, and deliver value for our shareholders and employees. On behalf of the board, I also want to extend our sincere gratitude to Tony Kobles for his vision, leadership, and entrepreneurial spirit in founding Telebio and guiding the company through its early growth stage. Tony's commitment to innovation led to the development of Ovi-Tex and helped establish Telebio as a leader in soft tissue reconstruction. We are deeply appreciative of his many contributions and wish him continued success in his future endeavors.

I will now turn the call over to Heather. Thank you, Joe, and good afternoon, everyone. Let me start by extending my gratitude, especially to our team, for the warm welcome. I am honored to join TeleBio at such an exciting time in the company's evolution. There are many things that attracted me to the organization, one of which is its differentiated product portfolio that spans the hernia and plastic and reconstructive surgery spaces. products were designed with patient outcomes in mind and they work for example the efficacy of the hernia products is supported by robust clinical studies as demonstrated in the Bravo study at a two point six percent recurrence rate Oba text has one of the lowest needs for repeat surgery while being used successfully in the most complex surgical tissue repair procedures. It is a privilege to be part of an organization that can improve the lives of patients that addresses a 2.8 billion market opportunity. Unfortunately, the results of the business this quarter do not reflect the quality and potential of the portfolio.

We believe that this is because of several factors. The markets in which we compete are highly specialized and require substantial onboarding and training for new sales reps. As a result, the time to productivity for the new hires has taken a bit longer than anticipated. In addition, earlier in the year, some adjustments were made to the sales team's focus and incentives, specifically around PRS, that initially appeared positive, but that we later determined needed to be adjusted. Finally, the continued practice of anti-competitive contracting and bundling in hospitals, which is the core issue in our lawsuit against Beck and Dickinson, continues to create barriers to OVTEC adoption. While we are not without competitive and market challenges, I am energized by the opportunity to see the company through its next phase of growth by leveraging my experience in leading organizations through complex business and financial transformations. I will now turn the call over to Jeff to discuss the dynamics impacting our business in more detail and how we are addressing each of these challenges.

Roberto will review the second quarter financials and we will then open the call up for your questions. Jeff? Thank you, Amy.

Thank you, Heather. As you saw in the release, revenue for the second quarter was at $19.3 million, a decrease of 4% from the second quarter of 2025 and below our expectations. The shortfall was concentrated almost entirely to our Obatex PRS portfolio. I will now walk through what drove the miss and detail out our action plan that we have in place to get back on track. In January, we initiated a pilot where we tested the concept of having a dedicated PRS rep calling on targeted hospitals. The hypothesis was that in focus, we could build a clinical relationship, provide superior surgical support, and create a sustainable business upon clinical outcomes problems with exclusive presence. After extensive analysis from our sales leadership team and feedback from the field, we concluded that the pilot had unintended consequences causing confusion within the sales organization, which subsequently contributed to the PRS decline. We acted fast and stopped the pilot to move back to our original structure in which every TM represents a full breadth of portfolio across their entire territory.

The PRS Action Plan we are rolling out now will have a full training program for the U.S. field team, combined with how best to resource and leverage the medical office. With these positive changes in place and what we know about the seasonality of PRS, we expect to see recovery in the second half of the year. Stepping back to the broader US field organization, we continue to make progress on the tenure and productivity curve we've talked about over the last several quarters. We've previously discussed the importance of sales reps progressing through their early tenure as historically we've seen productivity build more meaningfully as reps gain experience and mature in their roles. While progress is happening, it's not the pace we originally anticipated due to changes and focus and competitive challenges as referenced above. We maintain confidence that the investment we've made in this team over the past year is translating into the kind of durable, tenured field organization we need to drive consistent performance. Globally, our core hernia business continues to perform well.

OviTech's unit volumes grew 12% year-over-year, meaningfully ahead of our 6.6 growth in OviTech's dollar revenue, which indicates we continue to take procedural share even as the U.S. market shifts towards smaller companies. smaller size units with the prevalence of robotic hernia repairs. In the US, as Heather mentioned, we continue to battle against the competitive dynamics of bundling from our largest competitors. which has been particularly challenging in the last 18 months. To help combat this, we've upgraded our talent within our market access and contracting team. OviTek's long-term data has continuously shown recurrence rates in the single-load single-digits, whereas other biologic and biosynthetic hernia repair materials have recurrence rates consistently 10 times higher. In programs where we are allowed to compete fairly, the value proposition becomes abundantly clear to both surgeons and hospital administrators. I'm encouraged that Liquifix had another strong quarter, with revenue up 39% over the prior year period, and our international business continued to be a source of consistent growth, with revenue up 26% year-over-year as we deepen our presence in the UK and other key European markets. As a reminder, our European growth comes entirely from our hernia portfolio, since OviTech's PRS is still working through the regulatory process to reach the European market.

Europe continues to be one of our more durable parts of our business, and we remain focused on deepening our positioning in these markets. While we're behind where we expected to be at the end of the second quarter, our commercial organization has the agility to adjust as needed and we're doing just that. We've designed the best hernia portfolio in the market, and we're taking decisive action to get the PRS business back on track. We've also upgraded leadership in our market access team. We have a maturing sales force, and we continue to demonstrate sustainable growth in Europe. Our team has stepped up and I'm truly encouraged by what's ahead. I'll now turn it over to Roberto to walk through the financials in more detail.

Thank you, Jeff. As Jeff described, revenue for the second quarter of 2026 was $19.3 million, a decrease of approximately 4% compared to $20.2 million in the second quarter of 2025. This was primarily driven by a decline in our OVIT-X PRS unit volume and the continued shift to smaller, lower-priced hernia units in our OVIT-X PRS unit volume. next mix, partially offset by continued growth in our international business. International sales revenue of $3.8 million represents a 26% increase over the prior year period. Global Obatex unit volume increased 12% year-over-year, with 5,776 units sold in the second quarter compared to 5,178 units sold in Q2 2025. OviTex revenue was $13.3 million, up 6.6% from $12.5 million in the prior year period. Obatec's PRS revenue was $5.5 million compared to $7.3 million in the second quarter of 2025, reflecting the 23% decline in PRS unit volume that Jeff discussed. revenue which includes liquefix with half a million dollars representing growth of 39%. Gross profit was $13.9 million in the second quarter of 2026, modestly below $14.1 million from the prior year period.

Gross margin was 72% compared to 70% in Q2 2025. The increase was driven by the refund of previously paid tariffs and a lower charge for excess and obsolete inventory as a percentage of revenue. Total operating expense was $23.2 million in Q2 2026, flat to the $23.2 million of expense in the prior year period. Sales and marketing was $16.4 million, a decrease of approximately $400,000 from the prior year period, with lower commission expense partially offset by higher meeting and training costs. General and administrative cost was $4.1 million in line with the prior year period. Research and development was $2.7 million, an increase of approximately half a million dollars from Q2 2025, driven by higher compensation and benefits and study costs. Loss from operations was $9.3 million in Q2 2026 compared to $9.1 million in Q2 2025, and a sequential decline of 12% from Q1 2026.

Net loss was $11.3 million in Q2 2026 compared to $9.9 million in Q2 2025. The increase was primarily due to higher interest expense of $2.1 million associated with our new upsized credit facility that we put in place in November of 2025 versus $1.2 million in the prior year period under the previous facility. We entered the quarter with $30.4 million in cash and cash equivalents. Before I turn the call back to Heather, let me touch on the remainder of the year. As a result of the lower-than-expected results in the first half of the year and the longer-than-expected ramp time for our new sales team, we will be taking steps to meaningfully reduce the overall cost structure to bring it more in line with our top-line performance and expectations. Since the year has come, we will be taking steps to reduce the overall cost structure Since Heather just joined the organization, we will need time to finalize the overall plan. As such, we believe it is prudent for us to withdraw our prior full-year revenue guidance. provide an update after the plan is finalized.

I'll now turn the call back to Heather for some closing remarks.

Thank you, Roberta. I want to reiterate my excitement for the opportunity to lead the Telebio team. We have a differentiated portfolio, a strong commercial foundation, and a clear commitment to improving outcomes for patients and surgeons. We're excited to partner with our talented employees, leadership team, customers, and board to build on that momentum, accelerate commercial execution, strengthen our customer relationships, and expand our impact. Together, we have a tremendous opportunity to advance the company's mission and create long-term value for all of our stakeholders. to the team for your continued focus and effort. Operator, please open the line for questions.

Thank you. If you would like to ask a question, please press star 1-1 on your telephone. You will hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, press star one again. ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question will be coming from the line of Kaitlyn Roberts of Canna Quadranuity. Please go ahead.

Hi, thanks for taking the questions and welcome, Heather. Just a quick one on the Salesforce. We'd love more of an update there. How many team members did you end the quarter with? And you noted it's taking a little bit longer for the reps to hit break even versus the six months you noted prior. How much longer is it taking for.

them. Sure. Hey, Caitlin, it's Jeff Blizzard. We're on pace with our hiring plan. And with the focus shifting on onboarding, training and productivity, it's making sure that we have the right team in place. importantly our growth and headcount reflects our deliberate commercial expansion not turnover this is an investment of us building the right team right people and right roles and our our newest cohort is already outperforming its predecessors in that same stage of tenure.

Hey, Caitlin, it's Jim. I like the color on your second half, around the six-month productivity timeline. I think we're definitely seeing it long in the future where reps come up. We know tenure in our field force is the biggest indication of sustainable success for us. So we're really looking at that nine to 12 month ramp for reps to get up to a really strong productivity level. The positive sign is a lot of them are getting there in terms of maturity and tenure and role. We've added more resources to our training team, both in house and in the field. and within our medical office. So I think I'm feeling really good that that group will get up to the productivity levels we need by,.

the end of Q3 into Q4. And just on the PRS business, I think you called out last quarter, you know, just some issues with the concentration of the customers there. I mean, is that still an issue? Is that confounding with the Salesforce focus in PRS and the shifting of that and maybe a little bit more color on what's really driving the results there? Well, the pilot was the one that probably got the most attention in the organization. We thought in those six key markets we would see lift, and the rest of the organization would keep PRS.

part of their focus in their bag and a bit of that was starting to fall off when we realized the pilot wasn't growing as fast as we wanted to in that pilot so that's why we pivoted quickly and stopped it PRS2 is not a systemic issue I Jim maybe you can pull this up but ultimately we've seen in key programs key surgeons it's in less than 10 sites that we we ultimately have to get back on board so again not a systemic issue isolated based on surgeons leaving programs one who is a new mother some of our key users had the first half of this year has been some changes in life and career patterns.

So to your concentration point, Caitlin, that's still real for us. We have a smaller cohort of surgeons implanting PRS that make up a larger percentage of our revenue. Disproportionately, there was a number of those surgeons who were out in the first half of the year. Most of them are coming on, as Jeff said, there's been a couple life changes for some of them. They're out. Part of the PRS pilot, one of the hypotheses was, with dedicated focus, we can drive deaths at hospitals with more implanters to broaden the, or kind of lessen the concentration on a critical few. has now shifted to the broader field team it's still one of our efforts we know we have to diversify our infrastructure to protect from these shocks going forward.

Understood. Thanks for taking the questions. Thanks, Caitlin. Thanks, Caitlin.

Thank you. One moment for the next question. And our next question is coming from the line of Sam Knapp of Lake Street Capital Markets. Please go ahead. Thank you.

Hi, this is Frank Tocna from Lake Street. Thank you for taking the questions. Hoping to start with one on the competitive landscape, I heard the comment a few times throughout the call, maybe helping to characterize what a account looks like where you are competing fairly and then what are the priorities related to the barriers you need to hit down in order to have more accounts replicate what a fair account looks like.

In the southeast, as an example, we've got an organization, a buying group, that has brought us in, and we have a a fair share of our contract responsibility. And that's gone to about 13 or 15 sites with full product rollouts, getting surgeons on board, doing patient selection conversations, and then cases to follow. And that's what GREAT looks like. We've actually had that happen over the last six weeks or so. The inverse is true in a medical setting system out west where we exceeded our percentage of share allotment. And the competitor went in and threatened a price increase to the tune of $400,000. And we were asked to leave the program.

So we're seeing both sides and it felt a little bit more ramped up in Q2 versus prior quarters.

Okay, that's helpful. And then related to the comment on cost structure in the second half of the year, where should we think about the costs coming out of the model?.

So, Frank, we're still working on this. I've spent some time with the team and it's evident that there's opportunity to take some meaningful costs out, but the specifics of the plan have not been yet finalized. What we will do is protect our top line. and are critical functions within the organization that protect patient safety. Okay, that makes sense. Thank you. I will update you as soon as we have a finalized plan.

Makes sense. Thanks. Thanks, Frank. Thank you. One moment for the next question. Our next question is coming from the line of Matthew O'Brien of Piper Sandler. Please go ahead.

AFTERNOON. THANKS FOR TAKING THE QUESTIONS, REBECCA. DID I HEAR YOU RIGHT THAT THE SECOND HALF OF THE YEAR IS GOING TO BE AS FAR AS REVENUE GOES BETTER THAN THE FIRST HALF? AND THEN FOR I KNOW WE DON'T WANT TO GET INTO 27 TOO MUCH, BUT THERE'S NO REASON I THINK YOU WON'T GROW 27 VERSUS MAYBE 25 THIS YEAR BEING MORE OF AN ADJUSTMENT HERE.

I have a follow up. Thinking of Jeff, who his voice is almost as deep and resonant as mine. He was the one who was talking about the revenue growth in the second half of the year, so I'll let him answer that. So we are optimistic that PRS is going to be one of our growth drivers in the back half of this year, given that it's back in as a large percentage of our focus with a training plan for the commercial organization and re-engagement with those key users. And just again, noting the seasonality of PRS in one way or another. we see it hit the most is the back half of this year. So that's where you're hearing our optimism. And Jeff, that's just on PRS or is that for the whole business? No, the whole business too is we're expanding on our hernia business too with with focus on larger pieces. So going after complex ab wall and ultimately, what we see in our trends for our volumes growing up as high as 12% is keeping that now with larger pieces which drives higher ASPs.

Okay. And then this one is for Roberto. Just talk about the cash position of the company at this point, Roberto. I know there's going to be some cost structure adjustments, but, you know, just given where you are from a cash perspective, you know, how do we think about, you know, how do we.

funding the business going forward needs there. Thanks so much. Sure. So as Heather mentioned, you know, we're at the beginning of the evaluation process for reducing the cost structure as As we mentioned in the prepared remarks, we have $30.4 million as of the end of the second quarter. Our goal in that review of cost structure, in addition to preserving our revenue growth, will be to extend the cash rush runway as much as possible to make any sort of additional fundraising a last resort. So this is all a working process and as Heather mentioned, as soon as we have final results on it, we'll be reporting out on it.

Thank you. Thanks, Matt. Thank you. One moment for the next question. Our next question will be coming from the line of Michael Sarkon of Jefferies. Please go ahead.

Good afternoon, and thanks for taking the questions. And Heather, welcome aboard. Just some clarification questions for me. Just around the PRS unit volume headwinds, it sounded like you cited two sources of pressure. One was the pilot program that kind of changed focus or selling focus among the organization, and then some. lifestyle or behavioral changes from some of the surgeons. I guess, you know, is that right? You know, which one is the more important factor? And are you expecting changes to both of those headwinds as we get through 2H or just kind of a change around the refocus of the sales org?.

Yes, thanks. It's Michael, right? Yes, that's right. Hey, Michael, it's Jeff. So a couple things. One is, Simplifying the message in our Salesforce playbook so that our team stays focused on really two to three key initiatives a quarter. That's evident. There's so many challenges in the role, we have to constantly simplify it so that they stay focused on the things that drive the business. Secondarily, within PR specifically, since we noted It's not systemic and it's on key programs. There's two things I'd like to add. One is one of our key contributors with PRS in the year of 2025 left us in January and he just came back in July.

This was one of our top performers and our business already in that market is starting to take off with his presence alone. And what I'd like to note too, without using surgeons' names, given that there's been some competitive challenges with product that's published with high recurrence rates, we're starting to see surgeons that are well-published, regarded, they're on podiums and also in speaking bureaus for a competitor are starting to contact us about using our product. So in the future we hope to share those names and discuss their positive outcomes, but the good news is we're starting to see a shift in some of those loyal, allegiant programs.

and doctors to look at our product now as another solution. Okay, thanks Jeff, that's helpful. And then, on the hernia side, you guys had mentioned a focus on some larger pieces that come with higher ASPs. Just trying to understand the messaging there. Do we expect that the shift toward robotic hernias and smaller pieces is still going to kind of to outweigh and be a price-mix headwind for the foreseeable future, or is the message that we could start to see some of these larger pieces more than offset that and see, I guess, a stabilization or growth in price?.

Hey Michael, it's Jim. As both things are true, the market itself and procedurally, you are seeing more cases move robotically as we launched IHR into our portfolio in 2024 and we've improved our LPR products within our portfolio you do see those as the fastest unit growth within our hernia portfolio because we're capturing more of those procedures What's also true, and we referenced our data points throughout the call, the Obatex hernia portfolio has the best matchup for the most complex patient that's out there. Those are naturally performed open procedures. You're not really going to do those robotically. We have a right to win in that patient population and we're going to kind of put the foot on the gas there in the second half I think naturally, we're starting to see some kind of slowdown in the price of the revenue and unit growth gap. So we should start to see that start to normalize to 27, but we we can alleviate some of that ASP degradation by getting back to really what's core to us, which is treating the most complex patient out there with overtax.

Great. That's really helpful. Thanks a lot. Thanks, Michael. Thank you. One more moment for the next question.

Our next question is coming from the line of David Caracolio of Citizens. Please go ahead.

hey good evening this could be for Heather or Joe but like the bundling commentary given that the recurrence rates are ten times higher for some of the competitors like I guess I just like to know like how do you combat that if it's that much better and I know there's a lawsuit involved but I think I guess that you could just walk us through, you know, how you think you can, slow that down or stop that given that you have what appears to be a better product. I was going to say, I'll let Jeff take that one. Hey, it's Jeff. Okay.

One is, a lot of times, surgeons get to that decision on their own, right? So as much as we've put the product in a lot of physicians' hands, using cases, and the peer-to-peer network is growing, they're going to these major conferences reading data, seeing recently published publications, and realizing that a lot a lot of time recurrence isn't necessarily their patient. And what I mean by that is when a surgeon uses a product and has an outcome and maybe it's not favorable, they tend not to always see that patient back. So that recurrence is usually in the hands of another surgeon. as you probably would seek a procedure if you didn't have a great case to begin with. So what we're trying to do ultimately is get the word out. We're at all the key forums. We're headed to the American Hernia Society at the end of this month, which is a big one for us to be present with some of these surgeons and share our data, share our wins over the past year. And then ultimately continue to grow with this device and those key procedures, which Jim said, we have the right to win.

And that's some of the product that's out there that has high recurrence rates, is where those patients aren't necessarily thriving with their outcomes. So we're doing it the right way.

ultimately letting these surgeons arrive at that decision without necessarily pointing the data out to them, they're well versed in it. Just to say it, I think in these more complex cases where physicians may have had poor outcomes before, they're more likely to go to bat for the Obatex product with the administration where some of these competitive dynamics exist. So that's part of how we get.

in there and get through these contracting challenges we have. Did you want to add to that? Yes, David, I'll put a final bow on it. We referenced in the call, we're upgrading talent. We're then a key part of our team that owns our contracting strategy. Especially in hernia, we do see the pendulum swing in terms of decision making authority moving more towards the administration. Having a relationship there and team members who understand what they value, being able to tell an economic value story derived from our clinical outcomes is critical to us. So we believe we have the people on the team now who know how to do that better.

That's part of that top down way we have to attack this. And as Heather and Jeff alluded to, need presence and building clinical champions from the bottom up. So all of that competitive pressure that's out there, which is again the basis of our lawsuit that's there, is the friction that we We referenced the time to productivity for our reps. That's some of the friction that's in our reps' way to getting to productivity because from the bottom up, they have to create all of those networks and relationships across the hospital system just to be able to advocate up the clinical and economic value of overtaxed. But we are aware of some of those structural barriers. We're making the moves internally. So in the market we compete in now and how it's structured, we're not going to give up. We're just going to put different effort to it and overcome that friction.

Thank you for that. Thanks, David. Thanks, David. Thank you. And there are no more questions in the queue. I would like to turn the call back over to Heather for closing remarks. Please go ahead.

Okay, thank you. I want to again acknowledge and thank the entire Telebio team for the warm welcome and express my excitement to work alongside you as we position the company for sustainable growth. We are taking decisive action to extend our cash runway by better aligning our cost structure with our top line while preserving high value customers and critical capabilities to protect revenue and ensure patient safety. I look forward to updating you on our progress in the future. Thank you for joining the call.

This concludes today's program. Thank you so much for joining. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good day, everyone, and welcome to TELA's First Quarter 2026 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the call over to Louisa Smith. Please go ahead.

Thank you, Carmen, and good afternoon, everyone. Earlier today, TELA Bio released financial results for the first quarter ended March 31, 2026. A copy of the press release is available on the company's website. Joining me on today's call are Tony Koblish, Chief Executive Officer; Jeff Blizard, President; Roberto Cuca, Chief Operating Officer and Chief Financial Officer; and Jim Hagen, SVP of Strategic Operations and Marketing.

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 quarterly reports on Form 10-Q, which identify the specific risk 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, pipeline opportunities, sales and marketing strategies and the impact of various additional risk factors as identified in our regulatory filings.

With that, I'll now turn the call over to Tony.

Thank you, Louisa. Good afternoon, and thank you for joining TELA Bio's First Quarter 2026 Earnings Call. I'll open with a summary of what we accomplished in the first quarter and our perspective on the road ahead. Jeff will then walk through some updates on progress in the commercial organization and our continued execution against the plan we laid out last quarter. Roberto will review our financials, and then we will open it up for Q&A.

Last quarter, we laid out a framework detailing the decisive steps we have taken to reset our commercial strategy, and Q1 results show early proof points that our strategic plan is working. We currently have the largest, most effective field team in the company's history and have achieved the hiring targets necessary to deliver against our operating plan.

Our sales territories are fully staffed with exceptional talent and new hires are ramping up to productivity levels on expected time lines. The remainder of '26 will be about executing on our redefined strategy and the task ahead is to translate our U.S. commercial reset into measurable success. The foundational work is behind us, and we are at an inflection point that should become increasingly visible in our results through the remainder of the year.

Beyond upgrading our U.S. field team, there are several favorable tailwinds that gives me confidence in delivering a strong second half of 2026. To start, on April 1, we initiated the full U.S. commercial launch of the OviTex long-term resorbable reinforcement portfolio, which we are calling OviTex LTR. This product is one of the only fully resorbable tissue-based hernia repair solutions on the market.

Surgeons and patients are increasingly demanding solutions that deliver durable long-term outcomes while minimizing exposure to permanent synthetic materials. With OviTex LTR, surgeons now have a full suite of products that offer the critical structure and strength required in the early phases of healing while avoiding the long-term risk of residual plastic material in the body.

We believe OviTex LTR will be instrumental in attracting new surgeons who have yet to adopt OviTex by offering them and their patients a more effective, fully resorbable solution. We have priced OviTex LTR comparably to the rest of our hernia portfolio, preserving the value proposition for both surgeons and hospital administrators. Early feedback in the field has been overwhelmingly positive, and we believe that LTR will be a meaningful contributor to this product portfolio.

Second, we saw breakout performance in our European business with revenue growth of 41%. And as a reminder, this growth is driven entirely by our hernia portfolio as we are still in the regulatory process of bringing PRS to the market in Europe. We saw exceptional performance in the U.K., where we continue to deepen our presence, win new accounts and gain clinical administrative buy-in, driven by our value proposition and product efficacy.

As we start to scale within Continental Europe, we have found distinct unmet needs in those countries, the most pronounced being the demand from government-run health care systems seeking novel ways to optimize costs and patient outcomes. TELA is well positioned to win in these market dynamics. A strong validation of TELA's value proposition came through the NHS Supply Chain's value-based procurement evaluation, which selected OviTex for use in complex ab-wall procedures.

Through independent analysis, the NHS found that OviTex has the potential to reduce the need for revisional operations for hernia recurrence, lower the prevalence of postoperative complications, improve patient well-being and generate cost savings compared with other biologic mesh options. We believe these findings are transferable across health systems and see a clear opportunity for our products to perform just as well in additional EU markets.

Finally, the quantity and quality of evidence supporting OviTex continues to grow. Most recently, a meta-analysis was presented at SAGES comparing OviTex with other mesh options for ventral hernia repair. The authors were highly respected surgeons, well-known thought leaders in the space, and they concluded that OviTex is a safe and effective option for ventral hernia repair with significantly lower recurrence rates.

These data emerged alongside the publication of results from a large real-world European registry evaluating a resorbable competing product, which showed recurrence rates exceeding 20%, consistent with several other studies of that product and nearly 10x the recurrence rates observed across the OviTex portfolio.

Before turning it over to Jeff, I'd also like to address the strategic Board changes we announced in late April. Four of our long-serving directors, Doug Evans, Kurt Azarbarzin, Vince Burgess and Freddie O'Brien will be stepping down following our Annual Shareholder Meeting on June 9. We are deeply grateful for their contributions and the strong foundation they helped establish for TELA Bio.

Coming on to the Board will be Joe Capper, who is expected to serve as Chairman; Guy Nohra, Guido Neels and Paul Thomas. Each of them has deep industry experience in scaling medtech companies and navigating strategic transformations. Bill Plovanic and Betty Jo Rocchio will stand for reelection at the annual meeting and will provide valuable continuity as we reset our Board composition. I am looking forward to working with this new Board and believe that it will position TELA to execute with greater speed and focus as we advance our commercial strategy and drive towards sustained profitability.

We exit Q1 with a strong foundation from which we can deliver against our commitments in 2026. To summarize, we have a fully staffed U.S. commercial team and expanded portfolio that includes one of the only fully resorbable tissue-based hernia portfolios on the market, continued evidence supporting the significant benefits of OviTex, a European business that is driving exceptional performance and a reconstituted Board of Directors to help us achieve our next phase of growth.

With that, I'll turn it over to Jeff for a more detailed look at commercial execution. Jeff?

Thanks, Tony. On prior calls, I laid out a detailed overview of the steps we've taken to recalibrate the commercial organization. And I'd like to spend some time providing updates on our progress. As Tony mentioned in his comments, our U.S. commercial organization is fully staffed now at our expected 2026 levels.

Our attention shifts from recruiting and onboarding to development and execution. I mentioned in our last call that 40% of our field team was hired between the start of Q4 and the end of Q1. By the end of Q2, nearly 3/4 of those new hires will have reached their 6-month tenure at TELA.

This is an important milestone as 6 months is when we typically see territory managers break even and cover their costs. Also, it's around the same time that we see productivity inflection points when territory managers generate revenue momentum after building relationships, establish clinical credibility and work through procurement processes while training the clinical team so that patients can be treated with OviTex.

I'm very encouraged by the early results from our recent hires as they're performing well ahead of any prior class and early-stage indicators, including account conversations and clinical engagement scores. The profile that we're recruiting and training for is working. Their output will follow, and we expect them to contribute at an increasing rate in the second half of this year 2026.

Previously, I also discussed how we were realigning territories to enable our field team to increase their presence in more densely populated regions with high-volume potential. We're prioritizing deeper relationships within the hospital, leveraging the entire portfolio to treat more patients across the institution. We see signs of success already in selling the full bag strategy, especially in hernia.

OviTex IHR and OviTex LPR are our fastest-growing subsegments within our portfolio. This product mix shift is driven by U.S. market dynamics that are moving towards a less invasive procedure, especially those performed robotically. Our year-over-year unit growth rate of 16% in OviTex shows that we're gaining market share and demonstrates that surgeons recognize TELA as the best in hernia products.

We are primed and well positioned to capitalize on procedural trends, whether they're shifting from robotic procedures as in the U.S. or towards open procedures as remains the predominant approach in the U.K. The launch of a long-term resorbable option across the entire hernia portfolio gives us even more optimism that we can continue to capture procedural share. We have only fully resorbable -- we have the only fully resorbable tissue-based product line that can compete in an open, laparoscopic and robotic repair across the entire spectrum of hernia procedures.

Additionally, LIQUIFIX, with its greater than 50% year-over-year growth has been a meaningful addition to our field team as it offers our reps a non-penetrating fixation solution that helps engage surgeons who may not have previously been familiar with OviTex. Our U.S. sales strategy pivot to deepening our presence and expanding our implanter base in target accounts was validated by observed dynamics within OviTex PRS Q1 unit volume.

The utilization of PRS declined in the quarter, driven by the absence of several of our highest volume implanters who are not performing surgeries due to various personal and professional reasons. This is precisely the concentration risk for our new commercial focus was designed and we need to address. We're incentivizing our sales force to mitigate these future risks like these by training additional surgeons within the same practice to use OviTex, thereby reducing our dependence on any one single implanter to help build a broader, more durable foundation for OviTex adoption.

Finally, I want to highlight our European business and its 41% year-over-year growth. Several of the changes that we're making in the U.S. are modeled off the success that we saw within our European team. Notably, routine presence in the operating room, developing believers in the OviTex product line across multiple surgical specialties at target hospitals and leveraging peer-to-peer networks to educate surgeons on the unique mechanism of action within OviTex.

Our European team continues to be an example of what is the right talent with enough tenure and what they can do with the product as effective and novel as OviTex. Surgeons want a product that provides early strength, delivers a durable repair, leaves nothing behind and is supported by our robust clinical evidence. The OviTex portfolio meets these needs. We now also have a commercial engine to get the product into more surgeons' hands. I'm confident that the outcomes we see in Q1 validate these changes that we implemented. We have an incredible team, and we're approaching the market in a more strategic, focused manner that will unlock significant opportunities for us. I look forward to updating you on our continued progress in the months ahead.

And with that, I'd like to turn it over to Roberto for the financial review.

Thank you, Jeff. Revenue for the first quarter of 2026 was $19.1 million, an increase of approximately 3% compared to $18.5 million in the first quarter of 2025. Growth was primarily driven by our international business with international sales of $3.7 million, representing a 41% increase over the prior year period.

OviTex revenue was $12.6 million, up from $12.1 million in the prior year period. OviTex unit volume increased 16% year-over-year with 5,800 units sold in the first quarter compared to 5,000 units in the first quarter of 2025. Dollar growth was partially offset by product mix. The proportion of smaller-sized units increased, compressing ASP for that line. We view this as positive, demonstrating our hernia portfolio has the breadth and clinical efficacy to meet surgeons' changing procedural needs. OviTex PRS revenue was $5.9 million compared to $6.0 million in the first quarter of 2025. Other revenue, which includes LIQUIFIX, was $600,000.

Gross profit was $12.5 million in the first quarter of 2026, in line with the prior year period. Gross margin was 66% compared to 68% in the first quarter of 2025. The modest decline was driven by a higher charge for excess and obsolete inventory as a percentage of revenue.

Total operating expenses were $23 million in the first quarter of 2026, essentially flat with $23 million in the first quarter of 2025. Sales and marketing was $16.5 million, down modestly from $16.6 million in the prior year, with lower commission expense partially offset by higher meeting and training costs. General and administrative was $4.2 million, up from $3.8 million, primarily due to higher professional fees. Research and development was $2.3 million, down from $2.5 million.

Loss from operations was $10.5 million in the first quarter of 2026 compared to $10.5 million in the first quarter of 2025, essentially flat year-over-year. As we signaled last quarter, Q1 typically reflects a step-up in operating loss relative to Q4 due to seasonal revenue and spending patterns. Additionally, the first quarter of this year included certain compensation-related costs associated with the completion of our hiring build-out. We expect operating loss to improve markedly as revenue grows throughout the year.

Net loss was $12.3 million in Q1 2026 compared to $11.3 million in Q1 2025. The increase was primarily due to higher interest expense of $2.1 million, reflecting our new larger Perceptive credit facility that was put in place in November 2025 versus $1.2 million in the prior year period under our prior MidCap facility. We ended the quarter with $39.5 million in cash and cash equivalents.

As for our full year 2026 outlook, we are reiterating guidance of at least 8% revenue growth over 2025 with Q2 2026 revenue of approximately $20.0 million.

I'll turn the call back to Tony for some closing remarks.

Thanks, Roberto. As we've done in prior quarters, I'd like to close with a patient story that grounds us in the purpose behind everything we do. A female patient presented to a trauma center in Liverpool, U.K. following the fall from a height, the patient experienced severe multi-organ trauma, required damage control surgery, stage reconstruction and careful management within a challenging surgical field, where traditional solutions were limited.

The local TELA Bio representative helped the surgeon identify the appropriate use of OviTex 1S to support the required reconstruction in a challenging anatomical and clinical environment. Due to the timely use of OviTex and the product's unique mechanism of action, the patient underwent a successful abdominal wall reconstruction despite a highly complex presentation. 11 months out, the patient has no wound or mesh-related complications, thus avoiding additional surgeries and a prolonged recovery.

This story is a great example of how OviTex when selected and appropriately used as the first mesh in a patient's treatment, helps achieve positive patient outcomes and reduces the future burden on health care resources. Before we open the line for questions, I want to take a moment to recognize the TELA team. Amid much change, we solidified our commercial foundation, launched a portfolio expansion that will benefit many patients for years to come, enrolled more patients in our clinical studies, saw our belief in OviTex reaffirmed through more published evidence and reconstituted our Board of Directors.

That does not happen without a team that is fully committed to the patients and the surgeons we serve. I truly believe that we are set up for the next phase of our growth, starting with a strong second half of 2026. I look forward to what's ahead for TELA.

Carmen, please open the line for questions.

[Operator Instructions] Our first question is from Caitlin Cronin with Canaccord Genuity.

Congrats. Would love some more color on your guidance philosophy for the Q2. Just given your new commercial strategy emphasizing density, was that disruptive in the Q1 as you expected? And do you expect this to have an impact in the Q2?

So, we used the first quarter to roll out not only a new strategy. We also had expanding territories, a revised compensation plan. So we threw a lot at our commercial organization and then still resulted in a quarter over -- prior year growth. As we sit inside here at TELA Bio, from what we went through changes in 1 quarter alone, not many commercial companies experienced that same amount of internal organization change. So we were very fortunate that the team really stayed focused on the patient and the outcomes and also prepared us for launching a brand-new product with LTR.

So I think as we look at our training, our training has been redesigned for our onboarding classes, trying to ramp up that speed faster for the return on really them coming and joining the team, but ultimately, getting into these programs and establish relationships and being bedside. So we are at that critical mark now, between the 6- to 9-month onboarding time frame where we actually see that rate of return and feel really good about the second half.

And I'd highlight one thing that Jeff said in the prepared remarks, which is that we're coming up now on a pretty substantial portion of our sales force hitting the 6-month period that hit or will be shortly hitting breakeven. And as Jeff said, there's an inflection point in their productivity at that point. So we expect towards the end of the second quarter, beginning of the third quarter for that traction to begin exhibiting itself and generating pretty significant revenues in the third and fourth quarters.

Great. And you noted last quarter that the competitive environment in Europe differs a bit from the U.S., just given the pricing and bundling dynamics. Maybe just more color on that and how that's potentially helping the European momentum?

Yes, I'll cover that, Caitlin. So Europe is a different structure, right, tend to have socialized medicine, for the most part. That would be a good description. A lot of what is done there is based on tender offers where the product is evaluated by a central agency for a value proposition. That would be both an economic and clinical value proposition.

So it's a fairly straightforward assessment of all the different product opportunities, the data, how they're supported and what they cost. It's a much more complicated picture in the U.S. where there are cross-category bundles. There may even be wraparound rebate strategies and bundles, tiered pricing and just the mechanism that's put in place through the IDNs that roll up to GPOs and then the complex contracting strategies that large companies tend to use, it tends to make for a much more difficult and complicated situation and system, right?

And believe it or not, in Europe, it's very understandable. And it's a wide-open market, if you've got the right product with the right data at the right price point, and I would classify that as value proposition, and we certainly have that. So I think that is a perfect representation of what's possible in the U.S. market once we start working through and have our restructured commercial strategy to break through some of those barriers and some of those opaque processes that are in place, right? That means smaller regions, smaller territories, more focus, more depth, not being as spread out as we used to be. So it's critical that we get more focused and tighter in our alignments, and that's really the main reason.

Our next question comes from Frank Takkinen with Lake Street Capital Markets.

This is Ian on for Frank. Congrats on the quarter. First for me, on the Q4 call, you guys had said that the 40% new cohort had stepped up nicely in Q4. And I was just wondering, did -- in Q1, did the productivity from that group continue stepping up at the same pace? Or did you see a more pronounced inflection in Q1? And how does that change how you're thinking about time to break out for that cohort relative to the 6- to 9-month benchmark?

Ian, it's Jim. I'll take that one. So you're right, in Q4, when we were talking about the new hire cohort, we talked really about a leading indicator of testing scores that they were testing faster or higher than previous cohorts. And we have seen that translate in Q1 in terms of ramp time and productivity in their first 30, 60, 90 days enroll. From the metrics we look at internally, those are trending higher than previous cohorts, which gives us, again, that bullishness that these are the right people that we hired.

We have continued to add additional people in Q1. So we are at our staffing levels for 2026 now. So just like the other cohorts, they're going to need time to ramp. We still believe that 6-month inflection point is real, like breakeven, as Roberto talked about. And from beyond 6 months, you start to see a nice upward slope in productivity. And so that's why all the points you heard from Tony, Jeff and Roberto, we are confident that the back half for us is set up strongly.

Yes, that 40% of new reps will be through their 6-month bed-in period or start-up phase by the end of Q2, right? So we're not seeing the full benefit of that cohort yet, but we see some good signals.

And Ian, this is Jeff. Just maybe for some further clarification. When we bring in a new hire, for the first 3 months, they're not in their territory. So we ship them all around the country, both in-house training, out with field sales trainers, across different regions so they can experience multiple procedures from different users before they ever step foot in at month 4 within their territories. So you figure 3 months just to understand the geography, the maps of the hospitals, how to get in, get access. So that takes a good 3 months to establish that.

And then around month 6 or after 3 months of understanding their role within those hospitals is where we see that inflection point. So I just want to make sure that everybody understood that that's a typical...

Yeah, and by that time -- our training process completes as well.

Okay. Got it. And then just one more for me. Can you guys provide an update on the items you called out as factors of safety related to the 8% growth rate, specifically the contract execution timing, new rep maturation and territory splits and kind of how those are tracking?

So a couple, and I'll have Jim maybe look for some metrics as I maybe explain what makes us confident in that 8% is I think there's 4 main reasons, right? It's our current U.S. sales hiring and effectiveness being fully staffed at greater than 90 territory managers. We have 19 greenfield territories, so brand-new markets where we weren't even in, identified around key programs in key cities.

Our EU performance, where they've come in quarter-to-date at 41%, but they're going to continue to trend above plan, especially given the fact that we've got a new sales leader there, one retired. We brought in an excellent sales leader there who's shoulder to shoulder with his team. We've got an OviTex LTR launch, which is really the Goldilocks device in its category, as we say here. And then finally, the evidence that's being published about some other competitive products in the space that we play in. So, we're bullish around that 8% number.

Yes. The profile for our product is rising in the U.S. And I think we meet that opportunity with a fully staffed sales force with 19 or 20 new greenfield territories, right? So these are some of the elements that we've layered together to give us confidence.

And maybe the last comment I'd add too is, with what was not mentioned in our comments was the investment in medical education. And we continue to do that with adding labs, getting active programs built, peer-to-peer programs. And that's been -- that's where really the rubber hits the road in med device when surgeons can see this used up close and be in settings outside of their programs to ask questions and see how the supplies to patients.

Yes, we got 40 surgeons coming together this weekend, and we've done several of these programs this year. So that's also loading the pipeline as well.

Our next question comes from Michael Sarcone with Jefferies.

Just to start, I wanted to ask on guidance maybe a in different way. You've elaborated a lot on the drivers you've got at TELA and what gives you confidence, and that's really helpful color. I appreciate that. I guess, can you speak to the level of visibility into customer demand trends that you've got in the business as it stands today and just trying to attack that 8% from a different way here.

Yes. Michael, it's Jim. I'll take that one. So, we referenced not just the revenue performance, but the unit performance. And so in the hernia portfolio alone, we're seeing a 16% unit growth. So I think that hits the demand side of the equation you're talking about. Surgeons are voting with their procedures and they're selecting us more often.

Now, that's also in the context of a U.S. market where we do see a trend towards less invasive procedures. We fortunately have the portfolio that's set up to adapt, whether surgeons want to go open, laparoscopic or robotic. With that drive towards laparoscopic and robotic, we do see our OviTex LPR and OviTex IHR side of the portfolio continue to grow.

And we still see growth in 1S and Core. But that product mix shift is changing, I would say, kind of the overall picture of the revenue story. So units continuing to grow. So demand, we believe, is truly there. The mix shift will continue for the rest of '26. And so we do expect unit growth to outstrip revenue growth for the rest of the year. But it's what's giving us confidence to say market -- we're taking market share and surgeons are more and more adopting OviTex in these procedures.

Yes. We're perfectly aligned with the robot, which is where the bulk of these hernias are going. Certainly, the simple inguinals, hiatals, simple ventrals, they're all there already. And more and more complicated procedures are going in that direction. So we have a product portfolio that can function and be highly compatible with the robot for each of those type of procedures.

And at the end of the day, we want to be a full hernia supplier, which means we've got to be in 600,000, 700,000, 800,000 inguinals and all the simple procedures. That's where the volume is. And so we're very gratified to see the unit growth continues to be strong, right? Eventually, things will balance out and revenue growth and unit growth will catch up with each other. But right now, we're very happy to see unit growth strong. That means our IHR inguinal and our LPR, which stands for low-profile robotic are leading the way, which is the way it should be given the way the architecture of the market is setting up right now.

Okay. Really helpful. And then just on PRS, I think in the prepared commentary, you mentioned utilization declined due to the absence of some of your high-volume implanters. Can you talk about what's baked into the guidance for the PRS side of the business? Are you expecting to recapture some of that utilization through the year? And any color there would be great.

I'll start, and this is Jeff. Our ASP is really high in these products, but it's also comprised of a smaller percentage of our implanters. And when a few went out, maternity leave; for a few, vacations; oral boards were also during this first quarter, which we saw a drop in our PRS business. This is why we knew we had to reconstitute our strategy around building a user base and not dependent on these key users.

So we'll see some of that in Q2 as we've done a sales force realignment by adding a bit more focus on PRS and expanding the bag here for our sales team. So that will give us more depth in these accounts, more users per site and ultimately, why we rescoped again our commercial organization efforts. We need these downturns to stop and not be reliant, especially if there are critical events that we didn't account for.

Yes. We've got to overcome the rule of small number of implanters and high ASP on that product, Michael. So that's the way the design of the sales force is set up, right, deeper, more users per site versus what we've had in the past. That's the only way through that phenomenon.

[Operator Instructions] Our next question comes from the line of Matthew O'Brien with Piper Sandler.

I'm sorry to beat this dead horse on the guide, but the back half ramp is steep. You guys have talked a lot about how you're going to get there. But if I look at 2023, when you had pretty stable sales force, especially beginning of the year. It definitely increased throughout the course of the year, but you had the same number of reps back then. And you did about 55% of revenues in the second half of the year back then. That's what you're calling for here in '26 with a sales group that's maybe a little bit more green than what you had back then. So what are you seeing maybe April, May, if you can talk about that at all, that gives you so much confidence? And then rep retention, obviously, is something that's fluctuated a little bit over the year, but tell us why the confidence in being able to retain this group? And then I do have a follow-up.

Yes. This is Jeff, and thanks, Matt, for this question. And I refer back to prior years of really from my perspective, I don't have that history. One is, I can assure you that there was not great data at that point, which we now have. We didn't have much process instilled and discipline, which we now have and a bit of a territory alignment organization, great key leadership and field leaders right now, which we didn't have and now we have.

So if you're looking at prior years to current, again, I'd tell you that we're set up for success even versus what our goals have been, we've been really aggressive to do this quick over the last 2 quarters. Again, I don't think many commercial organizations would have implemented and sustain the amount of change we've implemented. So to me, I am confident in the back half of the year. Our training programs internally support this. So not only do we do medical education for our customers, but we also do it for our teams. We're giving them the right resources and tools. So Jim?

Yes. Matt, I would say the 2 other parts, and Jeff mentioned the clinical evidence. In Jeff's remarks, he mentioned the data that came out in SAGES. I think it's not just the evidence, it's who's publishing the evidence. From 2023 until now, as we go up the adoption curve, we're seeing more influential and bigger named surgeons with large peer networks in the hernia space start to adopt our product. That peer network is a critical part of momentum build that we didn't have in 2023 that we're gaining now.

And we also just launched OviTex LTR, which really is the matchup in the fully resorbable category, which is the largest growing category in hernia, which we didn't have in 2023. So I would say between the talent we brought in, the new part of the portfolio, the market dynamics, kind of more influential surgeons publishing data on us and adopting us are the tailwinds we didn't have in 2023, and that's kind of what gives us confidence for the back half of this year.

And Matt, maybe just to close was your question on retention. And our recruiting efforts have become streamlined through Jennifer Armstrong, our Senior Vice President of HR here. We have panel interviews that ultimately end with Jim and I doing the finals. And what we have found in our last about 30 hires is it feels as though and communicated to us that we're becoming a destination that a lot of people want to be on this team, given where -- what we have for innovation pipeline trajectory and the leaders that are in the field. So we've been very lucky that people are doing the research on us and these interviews are them wanting to be here. So a bit of that retention starts within the interview process.

And Matt, I'd add just one additional thing, which is that in 2023, what you saw is a sales force that was pretty -- that was sized pretty similarly to that in 2022. So the growth that you saw over the course of the year in 2023 was with an in-place sales force. And so you got that 55% growth or 55% split of revenue in the second half versus the first half.

The difference in 2026 is that we've added a number of sales reps at the end of the fourth quarter and the beginning of the first quarter who will begin to get traction, who will hit that inflection point that Jeff talked about right around the midpoint of the year, so the end of the second quarter, beginning of the third quarter, and we'll be adding to that growth and further producing disproportionately in the second half versus the first half.

So it's that growth in the sales force that was completed at the end of last year and beginning of this that makes us comfortable with the, call it, skew between the second versus the first half in our guidance.

Okay, appreciate that. And then a question for Tony. Tony, the Board changes are notable. I mean you're losing some really good executives, but you're adding some seasoned executives. I mean it's a pretty illustrious group with a long history in the space. How can they influence TELA over the next several years with their experience to help sell what's still the best product on the market by far?

Yes. I think that's a great question, and I appreciate the lead-in for that. So look, our -- it's customary to refresh your Board, right? We're 5, 6 years post IPO, which is really when this Board came together, and we had some Board members on much longer than that.

But I think it makes sense to refresh as the company develops and gets to a new phase of demand. And our previous Board served us exceptionally well, bringing us through those earlier phases. But I've got some experience with the new team coming in, and what's important about this new team is that they have a tremendous amount of experience in implant-based medical device biologic biomaterial products, right?

Everybody that's coming in has really relevant experience, whether it's in hernia, whether it's in plastic and reconstruction or whether it's any implant-based biologic that has a mechanism of action, has a contracting profile, right? It's just a very tightly aligned group of new Board members that have the exact experience to guide us through this next phase. The alignment couldn't be better. And like I said originally, I do have experience with several of these folks working with them in past in different capacities as well. So to me, it's a very good fit for what we need going forward.

Thank you. And this will conclude our Q&A session. I will pass it back to Tony Koblish for closing remarks.

All right. Thank you very much, Carmen. This is an exciting time for TELA. We have a full complement of highly skilled commercial team members in the U.S. and U.K., one of the only fully resorbable tissue-based hernia portfolios on the market, more clinical evidence that clearly demonstrates the significant benefits of OviTex, a European business that is overperforming and can be a very good model and direct indicator of what's possible in the U.S. given time and pressure and development, and we have a new Board of Directors that's highly aligned with our mission and has the exact experience that we need to achieve our next phase of growth.

So with that, I also want to thank the TELA employees whose dedication and commitment to patients, which is most paramount that we serve has created a strong foundation from which we can sustainably grow for years to come. Thank you very much. Have a great night.

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

Good afternoon, ladies and gentlemen, and welcome to the TELA Bio Fourth Quarter and Full Year 2025 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Louisa Smith from Investor Relations.

Thank you, Jonathan, and good afternoon, everyone. Earlier today, TELA Bio released financial results for the fourth quarter and full year ended December 31, 2025. A copy of the press release is available on the company's website. Joining me on today's call are Tony Koblish, Chief Executive Officer; Jeff Blizard, President; Roberto Cuca, Chief Operating Officer and Chief Financial Officer; and Jim Hagen, Senior Vice President of Strategic Operations and Marketing.

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 risk 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, pipeline opportunities, sales and marketing strategies and the impact of various additional risk factors as identified in our regulatory filings.

With that, I'd now like to turn the call over to Tony.

Thank you, Louisa, and good afternoon. Thank you for joining TELA Bio's Fourth Quarter and Full Year 2025 Earnings Call. For today's call, I'll open with a summary of what we accomplished in 2025 and thoughts on our forward-looking strategy. Jeff will then walk through the foundational changes we implemented in the commercial organization and how we anticipate they will impact our future performance. Roberto will review our financials, and then we will open it up for Q&A. 2025 in the third and fourth quarters, in particular, were periods of meaningful strategic change across the entire organization. Following Jeff Blizard's appointment as President, in June, we undertook and executed a significant rebuild of TELA Bio's commercial foundation while maintaining our commitment to improve our operating discipline and continuing to advance our pipeline strategies.

We made meaningful changes to the U.S. commercial organization while delivering 16% full year growth and achieving record fourth quarter revenues. The ability to maintain that momentum while executing such fundamental change in the organization is a testament to the caliber of our team and the value proposition of the OviTex product portfolio. We enter 2026 with the largest, most effective field team in the company's history and the commercial strategy designed to drive durable, predictable growth. Demand for our products remain strong and the opportunity in hernia repair and plastic reconstructive surgery has not diminished.

The foundational changes we undertook in 2025 were aimed at ensuring we have the commercial infrastructure to consistently and effectively capture that demand. Revenue growth in 2025 was fueled by strong performance in our European business, further adoption of our IHR, LPR and LIQUIFIX product lines and the continued contribution of our tenured reps in the U.S. The strategic investment we have made in high-caliber candidates with the right profile has been an underlying tenet of the commercial rebuild.

A meaningful portion of our approximately 90-person sales force is still early in their tenure with 40% of the reps having joined TELA in the last 6 months. This has not been a function of rep turnover, but rather an investment in commercial expansion and in recruiting talent with the right profile for the sales model we are building.

We already see the newest reps meaningfully outperform their predecessors in the early stages of their onboarding, and we are encouraged by their promise to execute our commercial strategy more effectively. In the fourth quarter, we accelerated efforts to bolster our U.S. commercial team by advancing recruitment to meet our sales headcount target and by putting the infrastructure in place to support those new hires. That included investing in training, rolling out new sales enablement tools, launching a new U.S. sales leadership structure and redesigning the 2026 compensation plan to align with our growth strategy and expectations.

Heading into 2026, we are focused on 2 strategic growth priorities. First and most importantly, we are committed to sustaining the momentum we achieved in 2025 and achieving further U.S. and European sales growth through improved talent, processes and commercial leadership. Jeff and his team have made incredible progress so far, and this will continue to improve as the new commercial organization matures and tenured sales reps begin to hit their stride.

Again, I'll let Jeff provide further detail on the specifics, but I'm confident in the new commercial foundation we have laid. And second, we have been and will remain hyper-focused on offering the best soft tissue reconstruction product portfolio in the market. Product innovation is at the core of TELA's identity, and we anticipate announcing additional product launches throughout the year to drive greater share gains in the expansive U.S. market. Demand for our innovative solutions is there, and I believe we have built a commercial infrastructure supported by an expanding portfolio that can consistently capture that demand.

To that end, we were pleased to announce the promotion of Dr. Howard Langstein to Chief Medical Officer effective March 1. Howard joined TELA nearly 2 years ago and has been instrumental in how we engage the surgical community. With over 30 years in plastic and reconstructive surgery, he understands this market from the inside out, the procedures, the unmet needs and what surgeons are looking for. As TELA's CMO, he will drive surgeon awareness, support clinical education, and help generate, disseminate and translate growing body of data behind OviTex into a broader market understanding and acceptance.

On the European side, our teams are stable, tenured and delivering above plan. The competitive market in Europe differs from the U.S. with pricing and the bundling dynamics, and we are encouraged to see rapid adoption of OviTex in the U.K. and the Netherlands. We are winning share based on patient preference and the efficacy of our products in these markets, not because of pricing discounts or volume requirements set by hospital administrators.

Moving forward, we have a purposeful investment plan to expand our presence within Continental Europe and see it as a meaningful contributor to growth in the coming years. Overall, Q4 results reflected a commercial organization in transition, but we remain proud of all this team has and will continue to accomplish. We executed a major commercial upgrade in the back half of 2025 while simultaneously achieving several other key milestones for the company. In that 6-month period, we launched OviTex LTR, a new addition to our portfolio that offers durable support during healing and provide surgeons with a tissue-based alternative to synthetic mesh. We enrolled the first patients in our hiatal hernia trial, [ ECHO ], which will strengthen our clinical evidence space and deepen our access to alternative surgeon call points in a primarily robotically performed procedure. We reinforced and upsized our debt facility, strengthening our balance sheet for the road ahead. And finally, we upgraded our Board of Directors with new expertise.

In summary, 2025 was a year of a deliberate foundational change that required discipline and conviction. That is behind us, and we entered '26 with our eyes towards the future. With that, I would now like to turn the call over to Jeff for a more in-depth review of our commercial strategy and restructuring. Jeff?

Thanks, Tony. As Tony laid out, I don't want to lose sight of the fact that a mid-transformational reorganization, we grew revenue by 16% and delivered our third straight quarter of sequential growth. We exceeded $80 million in total sales for the full year 2025, all while maintaining operating discipline and improving our operating leverage. The changes that we undertook since coming on board last June could have created significant disruption in productivity and growth in any organization. That didn't happen here. It speaks volumes to the commitment of the entire TELA team and the dedication to the patients and customers we serve. I'd like to take some time to provide a detailed review of the specific changes in our commercial organization that Tony referred to. I'll also highlight the progress we made year-to-date because of these changes and how they set us up for meaningful inflection moving forward.

Number one, we upgraded and redesigned the U.S. commercial leadership team. By implementing a new sales general manager structure, we brought on decision-making closer to the customer and empowered teams to respond to customer needs in real time; two, concurrently, we addressed silos within the commercial organization that had been slowing across team collaboration. We strengthened our sales leadership bench by upgrading 5 key senior roles. These changes were implemented to increase accountability in the field, improved coordination across our hernia and PRS segments and drive more consistent execution across our commercial footprint. Three, we've rolled out formal promotion pathways within the commercial organization, creating vertical career mobility that rewards our top performers and incentivizes meaningful contribution within the organization.

Four, we redesigned the sales talent profile in the U.S. and accelerated our hiring. We hit our 76th territory manager target back in the third quarter. And as of today, we have 88 quota-carrying territory managers in the U.S. with 1 additional hire imminent and 5 open positions that we're actively sourcing. This means we won't require any further incremental hiring for the remainder of the year. The team that we need to hit our 2026 targets are largely in place. Tony touched on how we evaluate our field teams by distinct cohorts and how we assess their performance by tenure and productivity ramps.

Roughly 40% of the U.S. field team have joined us in the last 2 quarters. They are in the early phases of their ramp up, and we expect that they'll contribute incrementally each quarter of this year as they build out account relationships and gain clinical familiarity. An additional cohort, those who've been with us between 6 and 18 months have gained meaningful traction and the vast majority have reached a productivity inflection point. They're actively building account relationships while improving clinical acumen. We expect their contribution to ramp meaningfully each quarter. And finally, we've maintained a very solid base of tenured reps who, on average, deliver over $1 million per year and consistently meet our -- or exceed targets on a monthly, quarterly and annual basis. This cohort accounts for approximately 35% of our current rep count.

Five, as part of the redefinition of our sales talent profile, we've shifted our approach to recruitment. We've been very successful not only in our ability to retain top performers, but then in our ability to attract and hire strong candidates. We increased our investment and focus on sales training, and with the goal of reducing time between hiring and commercial effectiveness.

The candidates we're bringing in demonstrate stronger performance and higher scores on all evaluation criteria versus any prior cohort. The profile we're recruiting combines high intellect, perseverance, the ability to build deep and lasting relationship and develop strong clinical acumen over time. This is a change from our previous recruiting strategy, which place greater emphasis on years of soft tissue sales experience.

The caliber of our newest reps is beyond anything TELA has ever seen. We're becoming a destination now for candidates to fit a clear profile for success in the commercial model that we're building. Naturally, as we place less emphasis on prior soft tissue experiences a ramp-up period while new hires come up to speed through our clinical education programs. What we're seeing, however, is that our investment in sales training, this new profile of rep gains clinical proficiency quickly. And once they do, their drive and hustle translate into a higher level of contribution than prior cohorts. While we're still expecting most new hires to reach full productivity within 6 to 9 months, we believe their impact to maturity will be greater.

Six, we've developed and rolled out a new sales enablement technology that draws on better market insights to help our sales leaders and reps better prioritize and target their activity.

Seven, we have designed and implemented a new 2026 compensation program that incentivizes deeper penetration in target accounts. This represents a change in our geographic coverage where we are now matching rep density with high-volume institutions to cultivate multiple users per site. Instead of a wide and shallow approach, we're going deeper to generate sustainable recurring revenue opportunities. Our new comp plan is now explicitly aligned around that strategy.

Additionally, this philosophy expands beyond the comp plan itself. It also minimizes the geographical areas that reps need to cover, maximizing efficiency, and supporting better operating expense optimization. As part of this renewed approach, we're also ensuring meaningful executive presence in the field. Tony was calling on strategic accounts as recently as last week and others and I are doing the same. It's a signal in the organization to our customers, what about our priorities lie, building deeper, more meaningful physician relationships.

Eight, we've adjusted our sales and marketing focus to center on the mechanism of action of OviTex and the science that fundamentally differentiates our portfolio. Surgeons have embraced our data and the long-term patient outcomes it demonstrates. The source material of OviTex and the way it integrates within the body differentiates us from any Gen-1 biologics synthetics or biosynthetics and it's foundational to the why surgeons adopt OviTex. We also increased our sales and marketing focus on LIQUIFIX. With great support from our partners at AMS, LIQUIFIX is not only a better fixation solution. We've seen it open doors with hernia surgeons who may not yet be familiar with OviTex.

And finally, number nine, we've been still spending discipline within the organization, which has allowed us to fund more customer education and training events. This helps us meet customers where they are in their adoption life cycle, while simultaneously improving operating margins. So how does this all come together with respect to driving revenues. For full year 2026, with each of the 3 cohorts performing as expected, we're confident that we will grow revenue over 2025 by at least 8% and for the first quarter, to which much is already completed, we expect that we'll deliver revenue of approximately $18.5 million.

The breadth of change that we executed in 6 months was significant and we recognize what it takes to sustain this level of momentum going forward. Our goal is to have everything in place by the end of Q1 so that the second half of 2026 reflects this full benefit. We are well on pace. And as of today, all significant material changes have been implemented across the entire organization. We've set our revenue guidance to account for some of the inherent variability that may arise given the scope, scale and speed of changes I've just laid out. We believe that, particularly in the second half of this year, the annualization of our commercial restructuring and the ramp of our newest cohort, combined with the pipeline and clinical investments position us to be able to deliver achievable, and sustainable results moving forward. I'll now turn the call over to Roberto for further details on the fourth quarter and full year financial results.

Thank you, Jeff. Revenue for the fourth quarter of 2025 increased 18% year-over-year to $20.9 million and grew 16% for the full year to $80.3 million with revenue from OviTex growing 12% and OviTex PRS growing 20% for the year. The growth was primarily due to the addition of new customers, growth in international sales and the U.S. launch of larger PRS units. Growth was partially offset by a mix shift in our hernia product line as we saw an increased share of smaller-sized IHR units. OviTex unit sales grew 20% for the quarter and 22% for the year while PRS unit sales grew 12% for the quarter and for the year. LIQUIFIX revenue more than tripled over the fourth quarter of 2024 reflecting early commercial traction as we expand adoption alongside our core OviTex portfolio. European sales accounted for 15% of total revenue or $12.1 million in 2025, a 17% increase from $10.3 million in 2024, reflecting the traction we are seeing in key markets and our continued investment in expanding access globally.

Gross margin was 66% for the fourth quarter and 68% for the full year compared with 64% and 67% for the prior year periods, respectively. The improvement was driven by lower excess and obsolete inventory expense as a percentage of revenue. Sales and marketing expenses were $14.5 million in the fourth quarter and $63.2 million for the full year compared to $14 million and $64.6 million for the prior year periods, respectively.

This was mainly due to commissions rising with stronger revenue in both periods offset by lower compensation, severance, consulting and travel costs for the year. General and administrative expenses were $3.8 million for the fourth quarter and $15.7 million for the full year compared with $3.6 million and $14.7 million for the prior year periods, respectively. R&D expenses for the fourth quarter were $2.1 million and for the full year were $9.2 million compared to $2 million and $8.8 million for the prior year period. Loss from operations was $6.6 million in the fourth quarter of 2025 and $33.8 million for the full year compared to $8.4 million and $34.1 million in the prior year period. Net loss was $9 million in the fourth quarter and $38.8 million for the full year compared to $9.2 million and $37.8 million in the prior year period.

We ended 2025 with $50.8 million in cash and cash equivalents, having further strengthened our financial flexibility by refinancing our debt facility and raising incremental equity capital. As Jeff described earlier, for 2026, we anticipate revenue growth of at least 8% over 2025 with Q1 2026 revenue of approximately $18.5 million. We expect that operating loss and net loss will continue to decline for both the year and over the quarters of the year, although there is likely to be some step-up from the just past fourth quarter to the first quarter particularly in light of the revenue progression that we typically see over this period.

With that, I'll hand the call back to Tony for closing remarks.

Thank you, Roberto. As we have done in prior quarters, I'd like to end with a patient story to ground us in the impact of our mission. A 57-year-old patient actively being treated for chemo required treatment for hernia repair in the intercostal region. The surgical team concerned about where the hernia was located because it was near chest tubes decided that OviTex's Core with the 4 layers being thin enough, unlike a traditional biologic would provide less seroma and was the best choice because of Core's resorption profile and its optimal size. The patient underwent an underlay procedure. The surgeon said that the patient is doing great and is extremely pleased to have OviTex Core available for this very sick patient.

The surgeon commented in quotes, "We believe that OviTex is the only product that can be used in conjunction with the use of chemotherapy due to the way it rapidly incorporates its porous nature and its functional remodeling of healthy tissue. This is another great example of how OviTex can be used in the most complex of cases with excellent outcomes." Before we open the line for questions, I want to take a moment to recognize the entire TELA team.

In the back half of 2025, this organization undertook a fundamental rebuild of our commercial structure while continuing to grow revenue, serve customers and maintain operating discipline to sustain momentum through the transition of this magnitude reflects the quality of the team and the strength of the products. The changes we made in 2025 were difficult but necessary. And we entered 2026 with the strongest commercial team in the company has ever had, and I look forward to what's ahead for TELA. Jonathan, please open the line for questions.

And our first question for today comes from the line of Caitlin Roberts from Canaccord Genuity.

I guess starting off with the fiscal year top line guidance for at least 8%. Just a little bit more color on why it was below what you guys noted on the Q3 call. And if you could provide some cadence to that guidance for the year, that would be great.

Yes, I'll start it off, and then I'll turn it over to Roberto. So our thought here is given the change that we've implemented -- wholesale change, right, across almost every dimension that we thought it would be prudent to set the guidance where we did. There's so many new reps and new moving parts that are in place right now, we want to give ourselves the best chance to do a great job this year. And given that our Territory Manager breakeven point remains about 6 months to 9 months, and we've hired so many new reps that we're sort of scaling into, cascading into the year, we just think there's a lot of variables, and we wanted to make sure that we're giving ourselves plenty of room to allow these reps to mature and drive.

We really like the contribution from the 40% new reps so far. It looks like they've stepped up quite a bit as a percent contribution over Q4, but we want to make sure that we're giving ourselves that time and flexibility. There are some other factors that we have in place, I think, that give us confidence to do a good job this year. And that is the fact that for the first time in the company's history, we are right on the mark with the number of reps we wanted to hire and at the right time, right? In the past, we've sort of been stuck between 63 to 68 reps. I feel like that was where we were stuck. No matter where our target is, but this new commercial leadership team has done a great job of getting those folks in place.

We've got a product that we think is powerful that's going to launch April 1 fully. It's been in limited release. It's our long-term resorbable OviTex product, which should give us a great match up with the leading biosynthetic out there Phasix. And I do think that's going to be mostly additive to the portfolio, along with some cannibalization from our permanent portfolio. I think one of the foundational drivers that we can rely on going forward is European performance. This has been very consistent, and I do think that they're going to allow us to allow themselves to grow consistently over time, and we very much look forward to adding PRS to their portfolio for sales, hopefully, by the end of this year or early next year.

One of the big factors that we have here, Caitlin, in this guidance set is contract conversion, right? Our sales force has been very focused on getting contracts in place. And we haven't done as well as executing into those agreements. So we're going to shift that focus towards contract execution. And we do know that there's a high degree of contracting complexity, right, which does affect timing, which is another factor of safety of why we built the guidance the way we did, right? Contract implementation varies from hospital to hospital. Even if you have a GPO contract in place, we're learning that every day. And the way contracts are written in the U.S. further complicates things with a market share and a cross product portfolio bundling and rebate structure.

So there is some complexity there. We want to make sure that we give ourselves the time to execute into the contract footprint that we already have in place. So hopefully, that gives you a flavor of what we're trying to do here on a bigger picture. We have a lot of factors of safety built in and a lot of potential upside, but we want to be prudent.

And let me just add 2 things, Caitlin, you asked about cadence for the year. So we do expect the cadence for the year to be similar to that in prior undisrupted years where you see a step-up from the first to the second quarter, a smaller step up from the second to the third and then a bigger step up again from the third to the fourth quarters. The step up in the second and third being smaller is driven primarily by the summer holidays. And we expect to see that pattern slightly amplified by the addition of all the sales reps that have come in over the course of the end of the fourth quarter and through the first quarter, we'll begin becoming productive in about 6 months. So we do still see that the most recent cohorts of sales reps hit breakeven just under 6 months and then what Jeff and Jim called breakout between 6 and 9 months, so become more than just breakeven positive -- profitable.

And all of these factors, Caitlin, they also add to the frustrations that everybody has had including us in the past about our forecasting accuracy, right? So we want to make sure -- again, the word is prudent, to make sure that as we're going through all of this, we feel very confident that we'll come out the other side with a much more predictable and forecastable business. But until we get there, we think it's best to be prudent.

Understood. And maybe just one more for me. I think, Tony, you touched on the contracting, how many IDNs or GPOs have you transferred to really recategorize OviTex. You talked about that the last couple of quarters. What are your expectations to continue doing that this year?

Caitlin, it's Jim. I'll take that one. I think as Tony just said, our contracting focus while we continue to drive a focus on the RTM category, especially into site level agreements, the team has done a really nice job in 2025 of getting many of those agreements signed, 2026 is an execution year. We have to translate that, move it through the hospital processes, where we have a lot of surge in advocacy. We have to work it through the admin process and translate that signature now into patients and revenue.

Yes. I think as new opportunities present themselves, such as Vizient, that's been delayed. We're certainly going to go for that, but we have more than enough footprint that we have to start executing on, as Jim said, before we just continue to drive agreements. I mean we'll continue to do both, but we have to focus on execution within the agreements we have.

[Operator Instructions]

Our next question comes from the line of Frank Takkinen from Lake Street Capital Markets.

I wanted to follow up on the Q1 guidance a little more. Obviously, I heard all the comments about the structural changes you've made with the commercial organization and the disruption that has caused. But I was just curious if there was anything else specific to call out with Q1. I know typically, the seasonality is kind of up a few percent or down a few percent in some instances depending on the year, but just the double-digit down quarter-over-quarter, curious if there's anything beyond the sales force comments you've made going on Q1?

I'll start, Frank. I think my whole monologue on prudence for the year is transferable to Q1 as well. I think we have one dynamic that I think has added to the general slow start that you see in hernia and plastic and reconstruction, which is typical in January and February. And that is -- which I didn't mention before, is part of what Jeff and Jim has done is the territories have been restructured to be smaller, right, to go deeper, which means there's been some splitting of territories. And what we're encouraging is sales force efficiency, right, which will help from time spent selling to T&E expense. And we are going to concentrate density of reps in smaller areas, preferably adjacent to high population areas that are already successful with us.

So that means we may abandon a little bit of the hinterlands and the smaller hospitals that are out in the perimeter, not fully abandoned, but deemphasize a little bit. So that's going to cause a little bit of -- a little bit of loss as we go through these shifts of splitting territories and creating more efficient density in the network. So we wanted to make sure that we gave ourselves some room to work through that, which should mostly be taken care of through the end of the first quarter, and we should start to see some signals that we're coming out of that transition phase in Q2. Does that make sense, Frank? That's in addition I think.

Yes. That's perfect. I appreciate that. And then...

This is Jeff Blizard. I just want to add one more point on to Tony. And the word disruption is something we've avoided here. And we didn't call this a reorganization. Really the focus has been on restructuring, right people and right roles and making sure that we can have a focus on these key customers in key cities and also those academic programs that are hub in key cities. What we found in not only the challenges in January that most companies were facing was over 1,000 square miles of geography in the U.S. was impacted by that blizzard, and we saw a number of electric procedures be impacted by that. So we've heard that from other programs and other companies that have had similar situations.

Yes, that's helpful. And then as we think about exiting this period where we're maybe returning to a steady state growth rate, how do you view the steady-state growth profile of TELA over a longer period of time?

Yes. Well, I think the markets that we serve are kind of mid-single digits. We've been above market rate growth since inception. And I think we anticipate that we will be able to significantly outgrow the market. And the other interesting thing, I think, as you look at the data that we're presenting here is that our units for both PRS and hernia are high, right? Our growth rate on the hernia units, I think, is 20% or 22%? 22%, right? So that's a very good sign for the long haul, given that, that's the bulk of the procedure. So making inroads into those smaller piece procedures is super important.

It does have an impact with mix shift and top line revenue, but that should straighten out as well. We certainly believe that once we get to steady state, we should be back into the double-digit growth or beyond. This is the way for us to give ourselves -- to clear the decks, we've never done a change this comprehensive that affects territory planning, compensation plans to drive that this is so comprehensive. We're just giving ourselves the room to get back to that double-digit plus growth. I think we have a great shot at getting there in the second half of this year, hopefully.

Got it. That's helpful. And then if I could just squeeze one more in. As it relates to your point on unit growth, that's been really solid, obviously, in both product categories. What's your latest thought on how we should think about when ASPs and hernia could start to flatten out and stabilize?

Yes, that's a good question. I'm just looking -- I was looking at that before the call to prepare. And one of the metrics I look at is what type of hernia procedures we're doing, right? I think for the longest time, we were about a 70% ventral company. And that is shifting. And I think we always had about 10% to 15% of inguinal. But right now, I'm just thumbing through it, I'll go by memory, and Jim can correct me if I'm wrong, but I think we're at about 50% of our business right now is ventral. And 25% of our business is inguinal. 14% is hiatal. So we were really a 10% to 14% company on both inguinal and hiatal when we -- in the past before this shift of getting more involved in the fat part of the bell curve of hernia procedures. But now we're already up to -- we're down to 50% from 70% on ventral, and we're up from 10% to 12%, inguinal up to 25%. So it's hard for me to say where that balance goes. There's almost 1 million inguinals done a year. So we're going to keep mining that until we hit some kind of a steady state, right? So it's going to have to do with the mix between inguinals and ventrals.

The other comment I would say on this one, Frank, is not just the type hernia but the modality of the procedure as we see procedures moving away from opens into laparoscopic and robotic procedures. We're well positioned. That's also why you see our LPR portfolio outpacing much of our growth, along with IHR. So I do think surgeons are voting with their preferences using us more where procedures are going, which is laparoscopic and robotic for us. So that ASP shift to Tony's point, is going to continue. We're going to continue to see more of our volume moving to those lower pieces with an ASP, that's a bit lower than we've historically had been with the large opens. But as I think Roberto will continue to remind everyone, that does not impact gross margins.

Yes, just to put a little finer point on it, Frank. What we're seeing is we're seeing the start of robotic surgery starting to make more and more inroads into the open complex cases. And so we're there, ready to serve those cases beautifully with our LPR product, right? And certainly, our inguinal product is robot compatible as well. So we're well positioned for how the hernia market is evolving. How long that takes? It's hard to say. But I do think the future is going to be higher unit growth volume, more procedures, but smaller pieces.

And I think you're going to start to see our 1S, 2S and Core start to give way to inguinal and LPR. And hopefully, in the future, LIQUIFIX as being the main unit drivers going forward. But we'll certainly get all the opens that we can with our older portfolio. And one more thing to add. I'm sorry, a little stream of consciousness here, but the long-term resorbable hernia product has 0 permanent polymer in it. And a lot of these old time surgeons do have analogy to putting anything permanent.

I mean our product works beautifully in these cases and many, many surgeons do. But there's just some category of surgeon that wants nothing permanent. So our long-term resorbable product, I think, has a shot of opening up some of those more difficult complex trauma, complex ab wall cases down the line in the future, but that remains to be seen. But I think the global trend is towards robotic for everything and smaller pieces, which favors our LPR product portfolio.

And our next question comes from the line of Michael Sarcone from Jefferies.

Just a follow-up on one of the first questions and not to belabor this, but when you provided that kind of at least 15% directional outlook in mid-November. You mentioned there was some built-in cushion in there. Just trying to get a better sense for what changed to understanding you're trying to be even more prudent and you want to derisk the guide. But did anything else change over the last 3 months around expected rep productivity ramp or anything like that? Just trying to get a bridge from the 15% to the 8%.

Yes. Michael, it's Jim. I'd say one of the biggest thing is really the tenure Jeff and I had in role. We started in June. We had that call in the fall. We were in the midst of the change. I think what we've learned since then is it was a sizable change. There were multiple things we put on the field organization at the same time, while we concurrently we're hiring rapidly into the organization. So I would say our assumptions changed from when we had the Q3 call to now, just appreciating the change curve it takes to move an organization through all of that is a bit longer and more complex.

I think that when we originally planned it out, it's not saying it's not going well. It's actually going very well. But the prudent point to Tony is we are going to give ourselves some more time to work through that change curve, get new reps up to speed and up to efficiency where we need them through and get our legacy team in the U.S. kind of through that change curve of new leadership, new comp plan, new territory alignments, so everyone is then hitting full stride hopefully, in the second half of the year.

Got it. That's very helpful. And then maybe just one on the new kind of account targeting strategy, you talked about deeper penetration in existing accounts. Can you talk to us about some of the methods that you plan to use to broaden out that penetration in existing accounts?

Sure. It's Jeff. So with the problem statement that we analyzed over the last few months was too many reps were dependent on one surgeon in one location. And for us to, we talk about terms like stickiness to our business. In order to do that, especially larger programs that have anywhere from 3 to 7, sometimes even 9 general surgeons or multiple plastic surgeons per site, we couldn't rely on just 1 user. With the way that the comp program was set up and the goals and objectives in 2025, the need for our territory managers to be spread far and thin was so that we could gain distribution and they could work their comp program to the best of their ability.

And we realized that was a limiting factor. That meant product was in hospitals without patients being covered. And that meant users were identified without another person on staff that had bought into the product or the proposal that this was a better device or product than the ones they were using.

Having this as a focus point allows us to do better in servicing teaching and training programs, how to handle the product, being present and being bedside so the patients can receive optimal outcomes. And then compensation plan was built around that specifically, smaller geographies as opposed to we have reps that were driving in the car, 3 to 5, sometimes even 6 hours in the great state of Texas, that they found themselves racing across the state to deliver product to be present for that 1 physician and that 1 program. So we know that this density rule will work as well as having in those -- many of those large cities, as I mentioned earlier, an academic hub, where now we can put people in to help support our fellows and our residents that are being trained in this next-generation surgeons.

Michael, the only thing I'll add to that in terms of how we're doing this is leveraging the full portfolio. As we just talked about on Frank's conversation, we grew historically through large open procedures of 1S and 2S. As we think about building depth within a hospital, we're talking about more users within that specific site. LIQUIFIX, as an example, gives us a new opportunity to engage a surgeon who may not fully believe in OviTex but wants an alternate fixation technique. That's a new in for us. Driving IHR and LPR, go after those surgeons who are more proficient on the robot or focusing on the robot.

So our portfolio allows us to engage with more users within a specific hospital, and that's what we're asking our field team to do is leverage the full bag, drive more users per site, and that's one of the key metrics we're going to measure them on this year, that creates the stickiness for us and that it allows us to go after the higher ceiling accounts and drive a deeper share within those accounts, which for us, to Tony's point, that ability to have a more predictable top line revenue, that's part of that formula.

Yes. And I'll just put a fine point on the end of Jim's comment. If you're wide and shallow and you got 1 surgeon 4 hours away, who's using your product, it's pretty easy to dislodge that surgeon, right, from his usage habit and patterns when you're not present fully and you got competitive reps looking to lever you out with contracting and rebates, we have to get 5 and 6 users in a smaller geography. That is really what we're setting ourselves up to do. You become much harder to knock down.

And our next question comes from the line of Matthew O'Brien from Piper Sandler.

I don't know, Roberto or if somebody else can maybe talk a little bit about the impact of weather in Q1 because the number is so low versus what we were kind of expecting. And I get it's Q1 and everything and you're still going through this transition. But it's just so low that it requires you to start putting up some numbers in the -- especially in the back half of the year that we haven't seen out of the company, it requires a lot of faith that you can be able to do that. So maybe just talk about those 2 components there, the weather impact in Q1 and then what you're seeing that gives you confidence that should give investors confidence that the back-end loaded guide is achievable? And then I do have a follow-up.

Matthew, it's Jim. I'll take the first half of that. So the it's 2 variables external to us in Q1. We're trying not to focus on external variables, but they are real sometimes. One, feedback from our field team is just volumes in January were low, right? So I think there was just a market low coming out of the holidays with -- I'd say, interest premiums resetting. That was a real impact.

And as Jeff talked about, the impact of the storms on the East Coast with major population density did shuffle some elective procedures, some were lost, rights were not happening. Some others got deferred out past Q1. We don't have, I would say, firm guidance for you on kind of what percentage impact that had to us.

Now what we are trying to focus on is more of what our controllables were in Q1, which is really where we spent that time on hiring, getting new people into the organization, getting them trained up and going along with what we just talked about is that mix shift from shifting accounts from lower ceiling accounts and kind of lower density areas to higher ceiling accounts in more populous areas. I would say that probably had a more material impact for the performance in Q4 to Q1. Those are the things we can control, and that's where I think where our focus is.

Yes. And Matt, we have snapped back quite well after 4 quarters, right? I think it was Q4, right, we had a little bit of a [ rate ] on our sales force, and we snapped back very effectively in Q1 of '25. So I think we've got enough factors of safety built in with the new product launches, having a fully staffed sales force at 90 reps -- or a little over 90 reps in the next couple of weeks here. We've never been at that scale, and we've never been fully to our hiring plan this early in the game and that's by design. And then I think the talent of the reps, getting them through that 6 months bed-in period where they get productive. There's a lot of factors that are going to help us and give us tailwind in the second half of the year.

And Matt, with regard to the back half versus first half and confidence with that -- with regard to that, we have always grown quarter-to-quarter across the year. We have built our quotas and expectations for our existing reps, our tenured reps and for new reps based on that sort of growth. So even if we have not added the number of reps we did in the first quarter, we would have expected to see growth across the year that would have led to that step up from the first half to the second half, that will be amplified by the addition of these new reps who are going to hit breakeven in about 6 months and then start breaking through and becoming meaningfully productive in that second half.

Yes. You have to remember, it's 40% of our sales force has been on board for less than 6 months. So -- and these are high-quality reps that we've hired, and we're going through the process now of getting them bedded in and up and running.

Okay. Appreciate that. And then a follow-up is on -- and I'm just -- I'm trying to square all the different numbers here between the LIQUIFIX and the OUS growth in the quarter was actually really good. I want to start to carry that forward. I start to get some softer OviTex numbers for the full year kind of versus what you've been doing? And not sure that makes a lot of sense just given the sales force expansion. And yet, I know you want to be conservative. It just -- it leads you to the conclusion that there's something else going on that isn't quite squared away yet. So I don't know if there's a way you can kind of walk us through what you're expecting OviTex versus PRS versus other revenue in OUS, but just help me understand how this -- how the different product lines are going to play out here in '26?

I'll start and -- it's Roberto. I'll start and I'll let Jeff and Jim jump in and Tony. So one thing to remember is that Europe is purely OviTex sales, purely hernia sales. So as we get solid growth from Europe, that's going to -- that's all going to be dropping to the "hernia bottom line." We do expect to see PRS sales grow over the course of the year. in part from the launch of larger pieces and potentially new technologies. So it's not that we see either one of those softening up and we expect to see LIQUIFIX continue to grow strongly, although it's going from a much smaller base, so it will have a smaller revenue line impact. But I'll let Jeff and Jim add anything to that.

Yes. I think we're blessed with AMS' focus on us as a partner. They've made a huge investment in their clinical team to help us with product evaluations and trials. They have done -- they've matched us as fast as we're trying to get our organization set so have they. I would say that with this focus we have, and we teased a little bit about it in our last quarter earnings, that we're headed towards an academic program. That's brand new to us in 2026. So having the right leader, who we have in Marissa Conrad focused on that, having a partner with AMS.

That drives that product adoption in the general surgery residency and fellowship program as well as the plastics. That's all, again, new and then considering what the back half of this year, it looks like for new product launches as well as not necessarily any more organizational disruption that came earlier from you guys, but more as nuance changes always adapting and changing with the business that when they identify needs we solve for it.

Yes. Matt, I think what you're saying is you're looking at all the potential growth drivers and it doesn't make sense that our OviTex business would grow less. So I'm just going to sum it up and just stick with the word prudent, give us a chance to metabolize these territory changes, the new reps, the new products, all of it prudence. I don't see the hernia or PRS business collapsing in any way.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Tony Koblish for any further remarks.

Thank you, Jonathan. Yes. Thank you. So the changes we made were thorough. I hope you got a sense of that. We've never cleared the decks to this level, right? I think in the past, the changes have been a little from this place, a little from that piece, incremental because we're striving to go wide and make numbers, right? So we're taking a step back from that to recast this in absolutely the right way across every dimension, whether it's comp, focus, population density, rep density, everything. And I think we had it set up correctly for the long haul. There's going to be much less disruption from this point forward. We have it locked in the way we want it now, the way Jeff and Jim want it. And now we just got to operate the machinery in the right way. So we really appreciate your interest, stay patient, and we look forward to what's ahead.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good afternoon, ladies and gentlemen, and welcome to the TELA Bio Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to Louisa Smith, Gilmartin Group. Please go ahead.

Thank you, Kelvin, and good afternoon, everyone. Earlier today, TELA Bio released financial results for the third quarter 2025. A copy of the press release is available on the company's website.

Joining me on today's call are Tony Koblish, Chief Executive Officer; Jeff Blizard, President; 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 Form 10-Q, which identify the specific risk 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 volumes, the regulatory environment, sales and marketing strategies, capital resources or operating performance.

With that, I'll now turn the call over to Tony.

Thank you, Louisa, and good afternoon. Thank you for joining TELA Bio's Third Quarter 2025 Earnings Call. Q3 '25 marked another important step forward in TELA Bio, as we continue to execute on expanding our commercial footprint, improving our operating discipline, and strengthening our patient-centric culture.

We reported revenue of $20.7 million for the quarter, representing 9% growth over the prior year. Growth was fueled by stronger adoption across our existing customer base and augmented by the addition of new accounts. This reflects growing demand for our OviTex reinforced tissue matrix and OviTex PRS portfolios, and contributions from our expanding commercial presence in Europe. International sales grew 9% over the prior period, driven by increased traction in the U.K. and early progress from the commercial launch of the OviTex IHR in Europe.

Over the last few months, we have placed deliberate focus on strengthening our operational foundation. We invested in our sales organization, from which we expect stronger commercial performance going forward. We continue to demonstrate financial prudence in our sales and marketing spend, which improved as a percentage of revenue from 89.7% in Q1 to 83.5% in Q2, and further to 73.6% in Q3. Additionally, we have strengthened the capabilities and expertise of our Board to provide valuable strategic insights through our next phase of growth. And finally, as announced this evening, we have reinforced our balance sheet to eliminate any concerns around financing and allow us to focus squarely on execution and growth. With these foundational elements now in place, we're poised to reaccelerate under the right leadership and the right playbook.

Before turning the call over to Jeff, to review upgrades in the commercial organization, I'd like to point out some key highlights and milestones we reached in the third quarter that detail TELA's expanding presence in the soft tissue restoration market.

As mentioned on our last call at the American Society of Plastic Surgeons -- Plastic Surgery meeting, OviTex PRS, was featured in 3 scientific abstract publications. These presentations contributed to a growing and meaningful body of clinical evidence, now more than 50 published or presented works on OviTex and 10 on OviTex PRS, representing over 1,100 patients in peer-reviewed publications and ongoing data collection in more than 2,500 patients. I'm also pleased to share that 2 sites have now been activated and the first patient has been enrolled in our hiatal study, Evaluating Clinical Hiatal Hernia Outcomes using OviTex or ECHO. Together, these milestones reflect the continued expansion of our real-world data, which strengthens surgeons' confidence and support and broader adoption and reinforces the clinical validity of our technology.

In the third quarter, we achieved a significant commercial milestone surpassing 100,000 implantations of OviTex and OviTex PRS combined globally. This achievement further underscores our growing impact and continued progress across the soft tissue repair and reconstruction market. We continue to expand our market presence both in the U.S. and abroad.

In Europe, we advanced awareness through the targeted surgeon engagement, including a July Cadaver lab with 30 key surgeons, and made meaningful progress with the U.K. NHS value-based procurement initiative, securing NHS finance sign-off in September.

In the U.S., we further strengthened our national reach through new and expanded contracts that made our portfolio available across a diverse range of health systems from some of the nation's largest and most innovative networks to community hospitals, broadening our market access in the quarter by an additional 835 hospitals.

We recently announced 2 additions to our Board of Directors, welcoming Betty Jo Rocchio and Bill Plovanic. Betty Jo will provide critical insights into our market access strategy given her decades of experience in advancing clinical excellence and supply chain optimization at large health care systems and group purchasing organizations. We are also fortunate to have Bill on board. His experience as an investor, combined with his direct experience running publicly held MedTech companies, will help drive long-term shareholder value and enhance communication with our investors.

I would now like to turn the call over to Jeff, who transitioned from our Board to serve as President in June. Since that time, he has been instrumental in refining our commercial strategy and building a more patient and results-focused culture within our sales organization. Jeff brings the exact combination of operational expertise and strategic vision needed for this moment. He will provide commentary on our third quarter and our optimism for the future. Jeff?

Thanks, Tony. I'm pleased to report on the important progress we've made in strengthening our commercial organization and executing against the strategic priorities that we outlined on our last earnings call.

While our Q3 results came in lower than we hoped, we still achieved a new global quarterly revenue record of $20.7 million, which marks TELA's third consecutive quarter of sequential growth in 2025. This momentum reflects the durability of demand for our product lineup of soft tissue repair solutions. Q3 was a quarter dedicated to building a stronger foundation, and we've now positioned TELA for sustainable long-term growth.

Over the last 3 months, we revamped our commercial field leadership, and we recruited some of the top medical device representatives across the U.S. These individuals bring strategic business acumen, deep clinical expertise, and a shared commitment to our mission of improving patient outcomes. With these hires in place, we closed the quarter having reached our 2025 budgeted commercial headcount target of 76 territory managers. Another key highlight in Q3 was our continued alignment with our strategic partner, Advance Medical Solutions and their LIQUIFIX fixation technology.

AMS expanded its clinical support team in the field. They worked side-by-side with our representatives to drive patient identification, utilization, and surgeon adoption through multiple evaluations. Their investment, combined with our commercial focus, led to our best revenue quarter ever with LIQUIFIX, highlighted by 126% growth year-over-year with the user base. This reinforces the value of our partnership and the opportunity ahead.

As we enter Q4 and look ahead to 2026, I'm increasingly confident in the strength and capability of the team that we're building. Since joining TELA in June, we've been committed to equipping our commercial organization with the best tools, resources, incentives, and compensation structures needed to fully unlock our team's potential. At the same time, the investments that we're making in medical education, market access and data analytics are expanding our competitive advantage and positioning us to become a market leader in hernia and plastic and reconstructive surgery. We now have the right leadership in place. We are attracting high-quality talent, and we are winning by being present at the bedside, supporting our surgeons to help them drive optimal clinical outcomes for their patients.

With that, I'd like to turn the call over to Roberto, to review our financial results.

Thanks, Jeff. Revenue for the third quarter of 2025 increased 9% year-over-year to $20.7 million, with revenue from OviTex growing 6% and OviTex PRS revenue growing 12% from the prior year period. OviTex unit sales grew 22% for the quarter, while PRS unit sales grew 3% for the quarter.

Gross margin was 68% for the third quarters of both 2025 and 2024. Gross profit was $14 million in the third quarter of 2025, compared to $12.9 million in the same period in 2024. Sales and marketing expenses were $15.2 million in the third quarter compared to $16.5 million for the prior year period. This decrease was mainly due to lower compensation costs, consulting, and travel expenses, which were offset by higher commission expense on an increased revenue base.

General and administrative expenses were $3.9 million for the third quarter compared to $3.7 million in the prior year period. R&D expenses for the third quarter were $2.3 million compared to $2.1 million in the prior year period. Total operating expenses were $21.5 million in the third quarter compared to $22.2 million in the prior year period, and $23.2 million in Q2 2025. Loss from operations was $7.6 million in the third quarter compared to $9.4 million in the prior year period. Net loss was $8.6 million in the third quarter compared to $10.4 million in the prior year period. We ended the third quarter with $29.7 million in cash and cash equivalents, reflecting cash consumption of $5.7 million in the quarter.

For the reasons that Jeff just outlined, we now expect revenue for the full year 2025 to grow at least 16% over 2024. While we don't typically provide color on the coming year this early, since we are in the middle of budgeting for 2026, we did want to provide investors with directional expectations for next year revenues. Specifically, we are confident that revenue in full year 2026 will grow at least 15% from 2025. After we've completed our budget process, we will update our expectations and provide appropriate additional information at the latest on our 4Q '25 earnings call.

Finally, let me touch on some enhancements to our balance sheet that we made today. First, this afternoon, we announced the refinancing and upsizing of our debt facility from $40 million to $60 million. A second tranche of $10 million is available in the future on a payment of trailing 12-month revenues of $100 million. Second, we also completed a $13 million equity offering. Between the 2 transactions, we will add approximately $26 million in incremental net cash to our balance sheet and have access to an additional $10 million debt tranche in the future. This is a significant bolstering of our financial resources that we believe provides us with more than enough financial firepower to reach profitability.

With that, I'll hand the call back to Tony, for closing remarks.

All right. Thank you, Roberto. Before we move to questions, I wanted to share another patient case that exemplifies the transformative impact of our OviTex platform and our mission to move the soft tissue repair market beyond traditional synthetic mesh.

A recently published case report underscores the real-world impact of OviTex reinforced tissue matrix in a challenging abdominal wall reconstruction scenario. A 48-year-old man suffering from severe pancreatitis and abdominal compartment syndrome was initially treated using a standard of care temporary abdominal closure device. However, he failed to decompress, which necessitated multiple returns to the OR over an 8-week period. At that time, his surgical team believed that without attempting a different intervention, the patient would not recover. They then introduced OviTex in combination with negative pressure therapy to support a staged abdominal closure and the patient decompressed in a period of 1 to 2 weeks. The reinforced tissue matrix demonstrated early tissue integration and remodeling with minimal inflammation. At 44 weeks, full abdominal wall reconstruction was successfully completed with remarkable functional and cosmetic results. The patient is now 4 years post reconstruction and leading an active lifestyle with no evidence of recurrence.

This case exemplifies how OviTex can help achieve life-changing outcomes for high-risk patients, reinforcing the value of our technology in addressing even the most complex soft tissue challenges. Stories like this illustrate exactly why we do what we do and why our confidence in the long-term potential of our portfolio remains so strong. Each successful patient outcome reinforces the strength of our clinical foundation and validates the strategy and execution that are driving our momentum.

As I reflect on Q3 and our progress this year, I'm encouraged by the trajectory we're on. We've taken decisive steps to position TELA for durable growth and an opportunity to meet or exceed expectations. We have new executive leadership in place who are initiating key strategic changes to our commercial organization and are backed by a strong record of execution at their prior organizations. We have added experienced strategic thinkers to our Board, who bring deep expertise in clinical and GPO access, corporate governance and street-facing communication support for the next phase of our growth. Across the organization, we have instilled a culture of operational efficiency that is already showing evidence of its impact and improvements to OpEx leverage and cash burn reduction. And finally, we have strengthened our balance sheet through a comprehensive financing initiative that will eliminate uncertainty about our runway and allow us to focus purely on delivering consistent execution and capturing growth opportunities.

With these foundational elements in place, we are positioned to move forward and drive results. I'd like to thank the entire TELA Bio team for the incredible dedication and passion they bring every day to drive our mission.

I also want to recognize our surgeon and hospital partners and most importantly, the patients who are at the center of everything we do who inspire us to keep redefining what's possible in soft tissue repair and reconstruction. This is a pivotal time for our company and our industry, and I'm energized by what we're building together.

With that, I'll now ask Kelvin to open the line for your questions.

[Operator Instructions] Your first question comes from the line of Caitlin Roberts of Canaccord Genuity.

Maybe just to start through the rationale for the debt refinancing and the equity raise at this time. I mean, how comfortable do you guys feel now with your cash runway?

Thanks for the question, Caitlin. We feel super comfortable about our cash runway. The rationale for the debt refinancing was that the previous facility would have begun amortizing in June of 2026. And so we wanted to get ahead of that and replace it and if possible, upsize it. And as part of that process, we got some inbound requests from investors who wanted to support the company. And so we provided some access to a small size equity raise, which we completed today as well.

So between the 2, on top of the $30 million that we ended the quarter with, we're adding about $26 million in net capital. And we believe that with the addition of the potential $10 million tranche on hitting our revenue target is much more than enough to get us to profitability.

Just talk through the lower guidance for 2025, and then also the early 2026 growth expectations and what you've really baked into the 15% for next year.

Sure. So let me start with next year. As I mentioned in the prepared remarks, we don't usually provide color on the coming year this early since we're really in the middle of the budgeting process. But we understood that with the resetting of the fourth quarter expectations, we needed to provide some base for investors. So we took a look at our expectations for additional hiring of reps and the pacing of that built in some cushion in case things don't go quite the way we're expecting to and felt confident that, that 15% growth number for the full year of 2025 is something attainable for us. The goal is to improve on that, but that's what the budgeting process, the internal budgeting process will help us understand.

Your next question comes from the line of Frank Takkinen of Lake Street Capital Markets.

Congrats on all the progress and congrats on the financing. I was hoping to start with maybe some more details around the sales force. Happy to hear you guys hit, I think, your hiring goal already at 76 territory managers. I think, Roberto, you were touching on some hiring next year, but maybe going a little bit deeper into kind of sales force hiring for next year would be helpful context.

Jeff?

Thank you, and I appreciate the question. So as we were budgeted for 76, we are continuing to fill our pipeline. Our goal is that we'll be at 90-plus in Q1. Our time to hire has shortened. We've opened up our recruiting philosophies, our criteria. Our national recruiters now know the candidates we're looking for and top-tier medical device representation. We're looking for sound clinical adaptability as well as really the strategic thinking that we ask our territory managers to have.

This time to hire has been shortened in some markets to 1 day. We put a full panel interview together, get candidates in and by day's end, we actually have an offer, and we have candidates signed by close of day. This has found us some of the best people to help support our organization to grow. So our priority is to constantly add and continue to have a bench between our account specialist team that's in place now. We promoted one last quarter to get to the 76 total, and we will constantly focus on that team as part of our bench.

[00:20:23]

Yes, Frank, what gives us confidence here is that even if you look at the third quarter and you assess the reps, the cohort of reps that have been with us for a minimum of 6 months, that group of 50, 52 reps performed very well in Q3 and hit virtually 100% of what their targets and quotas are. So where we fell short was in those regions that were struggling to hire. Those positions and leadership roles have been upgraded already. We have dynamite new leaders in place, as Jeff discussed already, and that's really propelled us forward to fill in that 76.

You recall, our plan was to have that 76 on board by around Q2. So now that we've got this momentum, we've got leadership that's solidified across all of our selling regions, it makes sense to continue on and drive towards that 90 to 95, low 90s for next year. And that cohort of 50, 52 reps is driving about $1 million on an annualized basis. Even with the criteria of being on board for 6 months. So the faster that we can get a bigger cohort of reps on board, the faster we can drive them to that $1 million annualized target, it allows us to have confidence in driving growth for next year. That probably circles back a little bit to Caitlin's question as well.

Maybe just one more on the breakeven profile in light of some of these investments as well as the financing. Roberto, maybe it would help to kind of refresh how you guys are thinking about breakeven. I think you were previously in that kind of high $20 million per quarter to support that. Maybe any color on that would be helpful. And then I'll hop back in queue.

Sure. Thanks, Frank. So yes, we continue to think that high 20s is the place where we can achieve breakeven. The goal is to keep OpEx reasonably flattish, notwithstanding the growth in the sales force. One of the ways we expect to do that is by drawing for that growth from our account specialist ranks such that there's not as much of an incremental expense for the additional PMs. But we'll be revising all of our expenses, and Jeff and his team have been digging in on pretty much every dollar that supports the sales force and the selling process and thinking how we can be more efficient with those dollars.

Yes, Frank, there's been a massive improvement in sales force efficiency down from almost 90% of sales to a little over 70% of sales just in the 3 quarters of this year. So we expect that efficiency to continue as well.

Your next question comes from the line of Michael Sarcone of Jefferies.

I guess can you provide a little more color if you're talking about roughly flattish growth in '26 or consistent growth in '26 versus '25, but you're also talking about increased productivity for reps. So I guess, can you talk about kind of the moving pieces there as we're looking out to '26?

Yes. Well, I think it's all dependent on having the heads filled, right? That's what's best to us this year and last year. So I think we're giving ourselves some room to operate to make sure that we get the right talent in the right seats at the right time. And like Roberto said, we will reevaluate and have an update for you on all things related to '26 on our next earnings call.

Tony, I guess, just a follow-up on the sales force. You've implemented some enhanced training programs and you're expecting a faster ramp to productivity. Can you give us any update on what you're seeing for newer classes of reps in terms of kind of the ramp curve versus older classes?

Yes. Sure, Mike. I'm going to introduce a new player here in the Q&A. Jeff's #2 man, Jim Hagen, has joined us for some Q&A, and this is a good opportunity for you to get to know him.

Mike, yes, to your question on what are we doing with recruiting class, the enhanced training program and time to competency. Step one is we -- as Jeff talked about in his opening remarks, we refined the hiring profile with our recruiters. And so we're actually getting candidates more in the mold of what we want to drive our growth faster on the top line.

Our training team has taken them in, has built a support network around them to drive them deeper clinically. And I think part of the early proof point we had for our latest class coming through, we test everybody ahead of coming in-person for training. Collectively, that group, which really represented the first wave of new hires under our new profile, had the all-time highest scores in our classes. I think the next wave of recruits coming in are just as impressive to us. So I think the infrastructure we're putting in place around our field team, the number of people we're bringing in with high caliber gives us confidence that next year is set to that minimum growth target that Roberto referenced.

Your next question comes from the line of Matthew O'Brien of Piper Sandler.

This is Samantha on for Matt. I guess, first, we wanted to touch on guidance as well, but more of the 2025 focus. It kind of implies a minimal, maybe a little upside sequentially in Q4, which I think you've talked about historically has been a stronger sequential growth quarter. So I guess if could you just talk a little bit about what's baked into Q4 specifically?

Sure. So we said that we expect that growth will be at least 16% year-over-year. We are -- Jeff and Jim have been getting up to speed on the sales force and moving them forward, getting some efficiencies in place. There's some potential upside from that, particularly with the hiring of the reps up to 76, which finally took place. And some of the hiring for next year is going to be taking place this year to put ourselves in place for a strong next year. So that also can be an additional source of growth.

So there has been a little bit of turnover in the sales force, and so this accommodates for that as well. But we expect that we feel comfortable that we'll be hitting that 16%. And as I said, there is some room for upside from that number.

Yes. And I think we're giving ourselves a little bit of room, right? In Q3, there was a heck of a lot of strengthening and upgrade work done within the commercial leadership team. So at the regional director level and those types of players, we wound up upgrading 3 or 4 of those positions.

So I'm not going to say that's disruption because it's improvement, but we definitely have to make sure that those guys are allowed to get their people in place. That's where a lot of the rep shortfall in terms of hiring did reside in those weaker regions, which have been upgraded. So we're just giving ourselves some room to make sure that we get the right people in place and that we continue to transition towards a stronger and stronger organization, which our main focus being around starting '26 with the best possible team.

I'll close that question around the sales team sentiment. This is the most excited I've seen in the commercial organization. We have an incentive for quarter close in Q4 that touches all the right buttons for -- not only for them and their individual franchises, but also for the physicians, the programs and the patients they serve.

We've put programs that really mirror the business and where we're headed and optimizing outcomes, making that key focus. So for us, selfishly, this is the most excited I've been as a leader of the sales organization to come to year-end, and we'll hopefully have a strong Q4 announcement that reflects really the energy and pace that we're going to attack the business.

There are no further questions at this time. And with that, I will turn the call back to Anthony Koblish, CEO, for closing remarks. Please go ahead.

All right. Thank you, Kelvin. I really appreciate the efforts of our team. I want to thank them for jumping in and embracing this patient-centric culture. I see the difference. It's working. And I want to thank all of our supporters, both in the financing and in the investor community and all those who have an interest in seeing us succeed in bringing next-generation technologies that are woefully needed to the soft tissue reconstruction space. So with that, thank you, and we'll see you next time.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.