Thank you for standing by, and welcome to TELA Bio's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Louisa Smith from the Gilmartin Group. Please go ahead.

Thank you, Latif, and good afternoon, everyone. Earlier today, TELA Bio released financial results for the second 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 Blizzard, 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 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. Good afternoon, and thank you for joining TELA Bio's Second Quarter '25 Earnings Call. I'll begin the call with the usual quarterly review covering key performance drivers, followed by Jeff Blizzard, our recently appointed President, sharing his initial observations from his first few months and outlining his objectives for TELA Bio's future commercial strategy. Roberto will then provide more detailed financial analysis and our outlook for the remainder of the year. Finally, I'll provide some closing remarks before opening the floor for questions. Turning to our results for the quarter. Q2 set a new high watermark for TELA as the first quarter to exceed $20 million in revenue. stemming from the highest global unit sales in the quarter across all product categories. Our OviTex reinforced tissue matrix portfolio for hernia repair and abdominal wall reconstruction continues to scale with over 73,000 units sold across the U.S. and Europe from launch through July. The OviTex PRS portfolio for plastic and reconstructive surgery has scaled to more than 16,000 units sold in the U.S. from the launch through July. We're also accelerating our progress in driving greater adoption and brand recognition in minimally invasive procedures, particularly within the inguinal hernia repair market. In '23, we began our partnership with Advanced Medical Solutions to bring their Class III FDA PMA-approved LIQUIFIX non- penetrating fixation technology to the U.S. market. As of the end of Q2, we have secured contracts with 3 major national GPOs to further improve market access for LIQUIFIX. Notably, 2 of these GPO contract awards recognize the unique profile and patient benefits of LIQUIFIX by awarding it an innovative technology designation. We saw year-over-year LIQUIFIX revenue growth of 121% this quarter and expect increased market access to contribute to further growth in the future. Similarly, OviTex IHR…

Thanks, Tony. Let me start by saying that my first few months at TELA Bio have been productive and highly encouraging. I was attracted to the position believing that the company had key elements in place for success, and I can now confirm that is the case. We have exceptional products, outcomes with clinical data and a very skilled sales organization. In these first few months, I've traveled every region and met our full field team. That exercise further reinforced my belief that our sales force is capable of substantially growing OviTex. I've also identified specific areas where immediate adjustments could unlock our true potential. One of these key shifts is that we'll implement a cultural level at -- that we will implement at a cultural level at TELA is to lean into more building of a patient and outcome-centric partnership with our health care providers. Until now, our approach to selling has been transactional in nature. And while it sounds counterintuitive, our sales teams are, of course, focused on revenue generation. We want our teams to be far more focused on emphasizing patient outcomes and fostering surgeon engagement and education across our total portfolio. Earlier this year, we rolled out a territory manager and account specialist model, and this will remain our best structure to support our shift in priorities. It allows our strongest performance to focus on opening new accounts while maintaining consistent clinical support in established territories. What we need to build our sustainable recurring business relationships rather than relying on one-off sales cycles that don't create value for patients, surgeons or for TELA. We are optimizing our field organization to improve resource allocation and management oversight. There were certain territorial inefficiencies that were limiting our clinical presence and sustained engagement efforts, and we've addressed those head…

Thanks, Jeff. Revenue for the second quarter of 2025 increased 26% year-over-year to $20.2 million, with revenue from OviTex growing 12% and OviTex PRS revenue growing 53%. OviTex unit sales grew 17% for the quarter, while PRS unit sales grew 40% for the quarter. Gross margin was 69.8% for the second quarter compared to 68.8% for the prior year period. The increase was primarily due to a lower charge for excess and obsolete inventory as a percentage of revenue. Sales and marketing expense was $16.9 million in the second quarter compared to $16.7 million for the prior year period. This increase was mainly due to higher commission expense on an increased revenue base, which offset lower compensation costs from a decrease in headcount and lower consulting and travel expenses. General and administrative expense was $4.1 million for the second quarter compared to $3.6 million in the prior year period. R&D expense for the second quarter was $2.2 million compared to $2.3 million in the prior year period. Loss from operations was $9.9 million in the second quarter compared to $11.6 million in the prior year period. Net loss was $9.9 million in the second quarter compared to $12.6 million in the prior year period. We ended the second quarter with $35 million in cash and cash equivalents. We are reiterating our full year 2025 guidance, anticipating revenue to be in the range of $85 million to $88 million, representing growth of 23% to 27% over the full year 2024. With that, I'll hand the call back to Tony for closing remarks.

Thank you, Roberto. Before we move to take your questions, it's important to understand the truly exceptional real-world performance and impact of our OviTex platform. As such, we plan on sharing with the investment community a patient case each quarter that exemplifies the tangible progress we're making toward our vision of a world moving past traditional synthetic mesh. A recent case highlights the importance of this mission following a catastrophic workplace accident resulting in a complete loss of the abdominal wall domain and a double leg amputation, a patient in their mid-30s was left in a state where they could not be fitted for prosthetics and could not lie down comfortably to sleep. The treating surgeon, a first-time OviTex user, performed an abdominal wall reconstruction with OviTex 1S using a bridging technique. Today, 8 months later, the patient is walking on prosthetic legs and has reported to a surgeon that he is sleeping comfortably and living an active life. For his part, the surgeon has stated that no other material previously utilized or considered in his practice could have delivered such a result, achieving this level of improvement in the quality of life for this patient. This case represents the essence of our mission, bringing innovative solutions to market that can translate directly to improved patient lives and clinical outcomes. In closing, I'm pleased with our Q2 performance and the trajectory we are on. I'm confident the steps we have taken to further our sales organization will have a meaningful impact. Jeff's successful track record of scaling commercial organizations and delivering results, combined with our superior products and unparalleled clinical data positions us to drive towards our vision of a world moving beyond permanent plastic synthetic mesh while delivering sustainable and predictable growth in a growing market. I'd like to extend a heartfelt thank you to every member of our committed TELA Bio team and the many valued partners who've helped us make so much progress over the past few years. The momentum we've built is just the beginning. There's so much more ahead. There's never been a more exciting time to be part of TELA Bio. With that, I'll now ask Latif to open the line for your questions.

[Operator Instructions] Our first question comes from the line of Caitlin Cronin of Canaccord Genuity.

I guess just starting off relating to sales force headcount. Just would love an update on how many territory managers and account specialists you guys ended the quarter with? And any changes to the expectations of where you'll end 2025?

Yes. Given that Jeff has been on board for about 10 weeks now, I'll take the first part of this time frame. So there were 69 territory managers and 25 account specialists in place. And that really has been a steady number. We've really had one in and one out, un- regrettable, I would say. And the plan going forward is to attain rapidly our stated target previously of 76 territory managers. We are at the place that we want to be for account specialists. And with that, I'll ask Jeff to comment.

Thanks, Tony. Right now, as Tony said, we have in place 69, and we're actively recruiting for the '25 budget. We have 4 new candidates that are in their final interviews next week. So we are continuing to actively recruit.

Yes. So we have 7 to fill, and we have 4 that are very close.

That's great. And then just an update on the guidance. I understand it's reiterated, but any changes to the cadence of revenues and OpEx this year?

So the cadence will be similar to our historical cadence, excluding last year where we had some disruptions. So the way to think about it, we've mentioned this before, we tend to see flattish growth from the fourth to the first quarter of the year. We then see a step-up from the first to the second quarter as we did just see. We then see slightly flatter growth from the second to the third quarter because of the holidays -- the summer holidays in North America. And then we see a bigger step-up from the third to the fourth quarter. So the arithmetic of all those quarters coming together is that the second half tends to be heavier than the first half. But if you look at our historical performance, you see that we have delivered that multiple years in the past. OpEx, we expect to be largely flattish from quarter-to-quarter. So you'll see some leverage dropping to the bottom line from that revenue growth on top of it.

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

Maybe I'll start with some follow-ups related to some of Jeff's commentary. I think I heard towards the end of your script, eliminating some of the less effective spending and reinforcing accountability with focus on a patient-centric culture. Can you maybe bring us a little bit deeper into what this means? What are some of the areas where you may pull back spending a little bit more? And then what are some of the areas that you might specifically invest in to focus on a patient-centric culture?

Yes. Great question, Frank. I appreciate that. So one of the things we came in initially and did is we revised the T&E policy to get in line with Abiomed guidelines, ensuring that everybody in our organization knew the rules of the road as well as what we had for budgets. That is a bottom line spend that we want to control, and we made everybody then take an SOP, revised SOP as to signing off on the new T&E guidelines. Other areas we're looking at is trunk stock and consignment, making sure that we are constantly on our expiration dates and knowing that, that's waste at the end of the year that we don't have to write off. And I'm sorry, the second part of the question again?

Just more -- where might you invest more to focus on that patient-centric culture?

So it's really around -- it's recruiting. It's getting the right hires in the right location. So it's -- a big thing we feel in this role is making sure our sales team mirrors the call point and has the clinical capability to hold their own at the operating room table and bringing in best practices and sharing other cases with their current physicians and surgeons to show them how a patient will benefit from another experience.

Got it. Very helpful. And then maybe just one more. I think, Tony, we've talked about in the past having some more established reinforced tissue matrix contracts to kind of make sure that TELA has its own area for contracting at the hospital level. Can you maybe talk a little bit more about those? I think we've had a couple of recent successes in that category. How has that translated in the field to growth and adoption within those accounts?

Yes, that's right. I'll answer that question. Thanks, Frank, and I'll just add a little bit to that. So obviously, as Jeff's comments, we're agile and nimble and can adjust. So we've done a great job so far of rolling out the reinforced tissue matrix category. We have approximately 25 of these contracts in place right now. And this falls at the feet more of the larger IDN systems, but we are actively working with the larger GPOs as well on this. And so far, the reception has been super positive. So you recall that the reinforced tissue matrix will give us a stand-alone product category given our intellectual property protection and the uniqueness of our product portfolio, we'll have the ability to get outside of whatever tiered pricing and bundling structures with this RTM strategy. But really, I think it gets back to this patient-centric approach. If there is a view that we have the best product, not just from published clinical data, but anecdotal evidence, evidence in the hands of every surgeon and their patients, I think the supply chain is going to have to acknowledge that we have an excellent product. And I think this patient-centric effect that we're implementing will absolutely allow us to transcend whatever bundling strategies or tiered pricing agreements are out there. And so we have a two-pronged approach now. I think we're adding this patient-centric element as a way to move beyond this constrained bundling situation that's been in place for the last several quarters.

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

I guess first to start for you, Jeff, and congrats on the new role. You're going to be making some changes to the selling strategy in the organization. I guess, could you elaborate some more on how you plan to mitigate any risks of commercial disruption that could come from the changes?

Not many changes. It's subdued. This team possesses a lot of the right skill sets. The only change that we've been focused on now is getting that patient-centric mentality versus the transaction. Instead of hitting metrics, we did drift away from what the business is all about. It's about a patient and their outcomes. And ultimately, the user experience is our annuity stream. So we have to change that mindset a bit, but nothing from an overhaul or even a cultural or a line in the sand change. It really is -- it's just reminding people what their why is here.

Yes. And Michael, I'll just add a little bit. Remember, Jeff was on the Board for about a year and was certainly, although not in an operating role in the details, was advising us on best practices and structures and definitely is a supporter of the TMAS model. And so the good news here is that we're just going to work with what we have and upgrade any open territories that we have, but we have a good foundation in place to work from.

Got it. That's really helpful. And then maybe, Tony, just on performance in the quarter, really good strong growth from PRS. I know you're humming there, and you also had some pretty easy comps. I was wondering on the OviTex side, it looked like unit volume growth [indiscernible] pretty significantly despite having an easier comp in 2Q of last year than 1Q of last year. I was wondering if you can just update us on demand trends for OviTex through the quarter.

Sure. Yes. I think with OviTex, we are slowly, but surely transitioning ourselves from a company that got its start first in the most complex brutal abdominal wall reconstruction, then moving down into the more complicated and moderate ventral reconstructions and then down into the simple ventral and now we're a full-service hernia portfolio provider. We started in hiatal and developed robot-compatible capabilities around hiatal and then most recently with inguinal, right? So I think we're in the process of transitioning our hernia business from one that's focused on the very high-end complex to a broad portfolio provider. And we just got to work through the process of getting the lower ASP yet super high incidence volume procedures like inguinal moving, which we're doing quite well, while maintaining and growing that ventral moderate to complex and complex AB wall business. Now, once we get through, this shift from niche player to broad player, I think we're going to see a situation where the whole portfolio rises, right? If you have the shelf space, if you have the patient-centric focus on the surgeon helping the patient, we will get more surgeons pulling the product off of the consignment stock, and it should raise all hernia types across the spectrum. So I'd say we're just in that transition phase from complex to broad, and we feel very good about where we're heading there. And I think the IHR growth is looking fairly strong. And LIQUIFIX certainly is a great companion to that inguinal portfolio as well. So we have a great solution now that makes us a broad provider. We've just got to make that transition to execute across the whole hernia spectrum.

Our next question comes from the line of David Turkaly of JMP Citizens.

This is actually Dan on for Dave. I just had one follow-up on OviTex PRS. So really good growth during the quarter, but I was just hoping to get a little bit more color on what really drove the positive results there. And then with that, volume growth was 40%, which is really great. But just curious where the ASP lift came from. Is that more so newer configurations?

Yes, excellent, good question. Yes. So we've got a very nice new product development cadence that's going to be rolling out between this year, I would say, right through to '27. And the first product launch there is the large long-term resorbable PRS products. These will be the largest tissue matrices available for PRS in the industry. This mates exceptionally well with the simultaneous launch by one company and maybe there's more coming of large-sized implants, which previously were custom and now are becoming more off the shelf. So although we really had 1 quarter of these large PRS products on the market, we did see a very nice uplift in the final month, which helped to drive that PRS growth and also raise the ASP a little bit. So that product is going to continue to gain traction throughout the year. The other massive difference for the PRS portfolio is we really have not had published clinical data to work with until very recently. So in the last quarter or so, we are somewhere between 350 and 400 PRS patients in either published or society presentations that detail exceptional results and offer a very nice clinical value proposition story that's emerging around the PRS portfolio. So yes, we had a couple of -- we had 3 surgeons, I think, in Q2 of last year that were high-volume users that retired, which was part of that. But really, it's the advent of the clinical data that's now propelling us forward and these large sizes, I think, are going to be very good for us going forward. Now there's more PRS products coming, I would say, in the back half of '26 and early '27. We will have an exceptionally broad product portfolio there, just like we have on the hernia side. That's our goal is to have an exceptional utility based on the product range. So there's more coming on the PRS side as well.

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

This is Samantha on for Matt. I guess I just quickly wanted to touch on guidance again. Thank you for the cadence that you outlined. It does apply an acceleration, particularly in Q4. Just wondering if you could speak to what gives you the confidence in reiterating the sales level, maybe the productivity of the sales team or anything else you want to call out?

Sure. So there's a natural reason for the back weighting in the fourth quarter of our sales. So it's a combination of people who have co- pays for their surgeries tend to try to use up their health savings accounts in the fourth quarter is one driver. Second, both our sales reps and physicians will have numbers they're trying to make for the year. So they will do or support more surgeries in the fourth quarter. And then we understand that people who are scheduling surgeries often try to schedule them around the holidays, so they have family who are home to help look after them. So the fourth quarter just has a natural heaviness to it compared to the prior quarters. Added to that, with the high productivity of the sales reps that we have in place that helped us to get the solid second quarter number with the new reps that Jeff is going to be bringing in over the course of the next couple of quarters, who should be ramping up over those 2 quarters, we feel very good about hitting our guidance number and continuing to deliver good sequential revenue growth.

Yes. I will just add one extra color. The sequential growth required is not dissimilar to what we just delivered on sequential growth. So we feel confident that we can make that happen.

Great. And then just one more on the teaching hospitals. That was, I guess, outlined in Jeff's commentary about the educational initiative. Could you just talk about, I guess, the split of centers you're now, whether how many are teaching hospitals versus non- teaching hospitals and maybe how penetrated or how much runway there is in each of those groups?

That's a great question. We've actually -- we started consulting with a third party called MedScout which is helping us identify those key programs. So it's -- they're big. There's a lot of them across the U.S. and outside the U.S. So we'll have a roster refined in the Q3 time line to implement our strategy against. So right now, we're relying on a third party to get us the most accurate and up-to-date info.

Thank you. We've reached the end of our Q&A session, and that does conclude today's conference call. Thank you for participating. You may now disconnect.