Q4 2023 Biostem Technologies Inc Earnings Call

Participants

Jeff Ramson; IR; PCG Advisory Group

Jason Matuszewski; CEO and Chairman of the Board; BioStem Technologies, Inc.

Michael Fortunato; CFO; BioStem Technologies, Inc.

Brad Sorensen; Analyst; Zacks Small-Cap Research

Greg Barton; Analyst; In Place Digital Services

Presentation

Operator

Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the BioStem Technologies' fourth-quarter and annual 2023 earnings conference call. Today's conference is being recorded. (Operator Instructions)
And I will now turn the conference over to Jeff Ramson, CEO of PCG Advisory Incorporated. You may begin.

Jeff Ramson

Good afternoon, everyone, and thank you for joining our conference call to discuss BioStem's fourth-quarter and annual 2023 financial results and corporate highlights. Leaving the call today is Jason Matuszewski, Chief Executive Officer. We're also joined by Mike Fortunato, Chief Financial Officer.
Before we begin, I'd like to remind everyone that our remarks today may contain forward-looking statements based on the current expectations of management, which involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the over-the-counter market.
You are cautioned not to place any undue reliance on any forward-looking statements, which speak only as of the date made and may change at any time in the future. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws.
This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of BioStem's website.
With that, I'm now pleased to turn the call over to Jason Matuszewski.

Jason Matuszewski

Thank you, Jeff. Good afternoon, everyone, and thank you for joining us. I'm pleased to announce that BioStem had an outstanding quarterly performance in Q4. And 2023 was an exciting year marked by significant commercial, operational, and financial achievements.
The revenue achieved in 2023, including the remarkable Q4 figures represent significant milestones for our company. During the year, we consistently delivered year-over-year revenue increases, which is a testament to the dedication and hard work of every individual on our team. I couldn't be prouder of their contributions, which enabled us to operate at such a high level.
At the beginning of '23, our aim was clear: to position the company as a strategic growth oriented and profitable leader in the MedTech industry. This required intensive efforts in product development, securing technology and product licenses, and forging key partnerships to drive our success.
Looking back at 2023, I believe it will be seen as a pivotal year for our company, which results in a strong foundation that we can build upon for years to come. I have full confidence in the talented individuals on our team and think we've only just begun to tap into the numerous opportunities ahead of us. While we're pleased with the progress made in '23, we're also aware that there's still much work to be done as we strive to achieve our strategic objectives.
Now let's dive into some of the standout accomplishments for the quarter and the full year of 2023. In Q4, our net sales grew at an impressive 1,355%, reaching $11.5 million, a significant achievement. For the entire year, sales closed at $16.7 million, marking a robust 143% increase over the previous year.
We also saw a notable improvement in gross profit margin, which reached an impressive 95% in the quarter. Our adjusted EBITDA for the fourth quarter amounted to $1.7 million, representing 14% of sales for the full year. It was near breakeven after a very slow start in the first two quarters of the year.
Our momentum persisted with the successful commercial launch of AmnioWrap2 into the private office setting. Through strategic enhancements made to our business throughout the year, we entered '24 with a significant enhanced balance sheet compared to the previous year. We believe that these achievements demonstrate our steadfast commitment to driving sustained growth and innovation within the MedTech industry.
Our core focus is to gain market awareness in the wound and surgical markets by expanding our product offerings and geographical presence and building brand awareness. In the fourth quarter, the strategic focus resulted in growth across multiple sectors. We initiated sales in hospital outpatient centers in the beginning of Q4, driven by the introduction of VENDAJE. And we're continuing to actively invest in clinical research and expand our medical affairs team to further penetrate the hospital outpatient centers, which is one of our key strategic objectives.
In the private office setting, our fourth sales surged by 95%, driven primarily by two key factors first, the launch of AmnioWrap2, the latest addition into our advanced wound care solutions portfolio, tailored for the private office market. AmnioWrap2 offers a thick trial layer configuration of amnion and chorion in the intermediate layer, processed via our BioREtain method, making it an ideal treatment option for various types of chronic wounds. We're really excited about the launch of AmnioWrap2 and remain committed to organic product development innovation with our market-leading BioREtain technology.
And second, the publication of our pricing for AmnioWrap2 in the MACs, WPS, Novitas, and First Coast. Since then, AmnioWrap2 has been given national coverage by all the MACs starting January 1, 2024. We view these milestones as essential to our future growth strategy.
With that, let me turn the call over to Mike for the review of the 2023 financials and Q4 results. Mike?

Michael Fortunato

Thank you, Jason. I will first discuss the highlights for the quarter-over-quarter results and then move on to the year over year.
Net revenue increased by $10.7 million or 1,355% in the fourth quarter to $11.5 million from $793,000 in the prior year quarter. The increase in net revenue was driven primarily by the launch of AmnioWrap2 in the fourth quarter of 2023 and the publishing of pricing for this product in certain MAC regions, as Jason discussed earlier.
Gross profit increased by $10.2 million or 1,535% in the fourth quarter of 2023 to $11 million versus $668,000 in the prior year quarter. Gross margin was 95% of net revenue for the fourth quarter 2023 compared to 84% of net revenue from the comparable prior year period. The increase in gross profit and gross margin resulted primarily from increased sales volume of higher-margin AmnioWrap2 beginning in the fourth quarter as well as an overall decrease in sales of higher-cost global products.
Operating expenses increased $6.9 million or 160% in the fourth quarter to $11.3 million compared to $4.3 million in the prior year quarter. The increase in operating expense was primarily driven by service fees owed to our distributor of AmnioWrap2.
Net loss for the three months ended December 31, '23, was $149,000 compared to a net loss of $3.7 million for the comparable prior year period. For the 12 months ended December 31, '23, net revenue increased by $9.8 million or 143% to $16.7 million compared to $6.87 million for the 12 months ended December 31, '22. The increase in sales was driven primarily by launch of AmnioWrap2 in the fourth quarter of 2023 and in publishing of a nationwide price for this product by CMS, which enabled increased national reach to patients.
Gross profit increased by $9.4 million or 157% for the 12 months ended December 2023 to $15.4 million compared to $5.9 million for the 12 months ended December 2022. Gross margin was 92% of net revenue for the year in '23 compared to 87% of net revenue for the comparable prior year period. The increase in gross profit resulted primarily from increased sales volume of higher-margin AmnioWrap2 in the fourth quarter.
Operating expenses increased by $13.4 million or 126% for the 12 months ended 2023 to $24.1 million versus $10.7 million for the comparable prior year period. The increase in operating expense is primarily driven by additional headcount, additional marketing expenses, increases in share-based compensation, and service fees owed to our distributor of AmnioWrap2.
Total other expense for the 12 months 2023 was $704,000 compared to $2.5 million for the 12 months ended December 2022, a decrease of $1.8 million or 72%. Prior year, other expenses included a one-time charge of $2 million related to restructuring of debt.
Net loss for the 12 months ended December 31, 2023, was $7.863 million, or $0.57 per share compared to $7.2 million or $0.63 per share for the comparable prior year period.
The company continues to strengthen its balance sheet. We converted [$1.1 million] of debt into common stock during the 12 months ended 2023. I will now turn the call back over to Jason.

Jason Matuszewski

Thanks, Mike. As Mike just mentioned, we delivered yet another exceptional quarter, surpassing expectations once more. Revenue experienced a notable increase of 1,355% for the quarter and 143% for the full year. Moreover, our gross profit margin rose to 95% and our adjusted EBITDA reached $1.7 million, representing 14% of revenue for the quarter.
During the year, we raised capital and converted various debt instruments to equity to enhance our overall financial standing. The full commercial launch of AmnioWrap2 beginning in Q4 is now moving full steam ahead with nationally SP pricing and access to all MAC regions in 2024.
Throughout 2023, we consistently demonstrated improved performance culminating in the strong results of the fourth quarter, as we've just highlighted. Looking ahead, we are confident that the company is exceptionally well positioned to capitalize on this success.
I'm also fully confident that we will maintain this momentum as we execute our strategic plan to build a business capable of sustaining these growth rates well into the future as a robust MedTech company. To that end, in January, added Shawn McCarrey as Chief Commercial Officer. Shawn is a proven life sciences sales leader with an extensive background in transforming care standards in diverse fields, such as regenerative medicine, wound care and pediatrics. He's a great fit for BioStem, and we're already benefiting from his contributions.
In conclusion, I would like to express my gratitude and congratulations to the entire BioStem team for their outstanding performance in closing out fourth quarter of 2023, an outstanding 2023 year. Throughout the past year, we have taken significant steps towards transforming BioStem into an exceptional company that sets the standard for our industry.
While there's still much work to be done, it's undeniable that we have made a meaningful progress thus far. Above all, our team takes immense pride in the positive impact we're making in the lives of countless individuals grappling with chronic and acute wounds. We remain steadfastly committed to our mission to manufacture products that change lives, which serves as our daily motivation to strive for excellence. I eagerly anticipate or continued collaboration as we embark on the next phase of our journey.
And with that, I invite questions from the audience. Operator, please open the line.

Question and Answer Session

Operator

(Operator Instructions) Brad Sorenson, Zacks Small-Cap Research.

Brad Sorensen

Thanks. Great quarter, Jason. Great year. Good to see. And great product, of course. But I did just have one question. (technical difficulty) if you could expand on it a little bit and I don't know that it's a big deal or anything, but the OTC has your stock flagged for stock promotions. And I've kind of looked at what's out there. And I'm just wondering if you talked to them about what their problem is with what you're doing. 1And is that a concern of yours or is it just kind of something that you see as a problem.

Jason Matuszewski

Actually, I'll hand it over to Jeff Ramson, our IR representative, on the call today.

Jeff Ramson

Sure, sure. Thanks, Jason.
Brad, yeah, we are working with OTC markets on that. There's a little bit of confusion on some content that's out there, but we should have that sorted out in the next few days, I would say. And I'm happy to interact with you separately and keep you posted.

Brad Sorensen

Okay, yeah, that would be great. Yeah, I didn't think it was any big deal. I just wondered if investors have seen it and the big red mark, I was wondering, maybe concerns.
But then, Jason, one other question real quick is just domestic market. You're making huge strides in. Is there any thought of going even further, going international at some point, I mean, maybe down the road? Or is that just too far down the road to consider at this point?

Jason Matuszewski

No, thanks for the question, Brad. We've definitely had inquiries in regard to ex-US business. We have a lot on our plate right now, currently working through US business and trying to keep up with the demand that we have in regard to AmnioWrap2 as well as VENDAJE and HOPD or hospital outpatient setting. But there is definitely an opportunity ex-US. I know our biggest peer, [Biomedics] is currently trying to commercialize product in Japan specifically, and I think there is definitely opportunity ex-US. It's just our core focus right now is really US focus right now.

Brad Sorensen

Yeah, thanks for answering. And yeah, good quarter. And yeah, nice problem to have. Too much business domestically.

Operator

Gregory Barton, In Place Trading.

Greg Barton

Hi, Jason, can you please give us further insight into your plan to expand and diversify your product portfolio? And then I have one more question after that.

Jason Matuszewski

Sure. Thanks, Greg. Appreciate the question.
As we sit in the call today, typically, what you see in regard to our stem is we're a placental regen medicine company. And we're looking to expand potential opportunities for other wound care products.
Looking at the continuum of care for a patient from biofilm all the way out to skin substitutes, there's a lot of opportunity for products to be introduced. Right now, we are really highly focused on that skin substitute side of the equation. So I think there's opportunities as we kind of grow and build our commercial team to look at either adding products to the bag for our sales team members to help contribute to that continuum of care. And then also, to offer our physicians or clinicians that work with us strategically an opportunity to have the best products at their access.
So we're actively looking for products that we can add to the bag and also expand our product portfolio more towards the MedTech side of things and just specifically in the skin substitute market.

Greg Barton

All right. That's great. Thank you for that.
My last question is what do you consider to be the risks to your current growth trajectory?

Jason Matuszewski

I think there is inherently products that continue to come on the market, in regards to CMS and a lot of the payers right now, we're heavily focused on our core patient population, which is Medicare beneficiaries. We're actively looking to enroll patients in our current DFU clinical trial to hopefully get commercial coverage. We're heavily -- right now, our sales are heavily focused on Medicare specifically. And we're going to look to expand and diversify our payer mix to hopefully get some commercial payers that cover products. So trying to deleverage risk in regard to the payer profile is probably the biggest somewhat risk currently to business.

Greg Barton

Great. That makes sense. Thank you very much for that and doing great. Thank you.

Operator

And there are no more phone questions at this time. I will now turn the call over to Mr. Jeff Ramson for any webcast questions received.

Jeff Ramson

Yeah. Thank you. We do have one question from [Ashley Paige], Proactive Capital. Mike, can you talk about -- can you provide any more clarity on the uplisting to Nasdaq?

Michael Fortunato

Sure, sure. So as everybody on the phone know, there's a lot of factors that are involved in uplisting, internal and external. And so internally speaking, from the company perspective, I think we're at a good point with the right personnel in place in all the infrastructure place to become a real -- an uplisted public company.
The second factor to look at this is really what is the market condition, right, so if it's out of our control. I feel like the capital markets are showing improvement. We're at a good inflection point with the company at this point. I feel like, you know, if I had to say my goal would be to try to get this thing uplisted sometime this year and the condition of the caveat that the market's got to be right? So some things are just out of the control of the company, but assuming the market is right for an uplist or some other type of listing, then I think it's the right time, right year. I don't know if that helps.

Jeff Ramson

That's great. That's actually the only written question we have right now. I think we're good there, unless anyone else has any more. I think that's it.

Operator

Ladies and gentlemen, this will conclude today's conference call, and we thank you for your participation. You may now disconnect.