Tenon Medical, Inc. (TNON) Earnings Call Transcript & Summary

Thanks, Joe, and good afternoon to all of you. It's a pleasure to welcome everyone to the conference call today covering Tenon Medical's third quarter 2026 financial results and corporate update. Revenue for the third quarter came in at $1.4 million, which is up 22% versus the third quarter of last year and up 12% sequentially from the second quarter. Gross profit reached $1 million, a 23% increase over the prior year period. Gross margin stood at 66.3%, which represents an improvement of 0.4 percentage points from the 65.9% recorded a year ago. That expansion came even as we reduced operating costs compared with both Q3 of 2025 and Q2 of this year, which narrowed our operating loss for the period versus each of those earlier periods. Across the first nine months combined, revenue came to $4.1 million, a 66% increase over the $2.5 million booked during the same stretch of 2025. Gross profit reached $2.7 million, better than twice the $1.3 million reported a year earlier, and gross margin stood at 66.2% compared with 54.4%. The revenue gains reflected growing uptake of our Catamaran and SImmetry platforms. During the quarter we completed more cases with a larger number of physician users than we did in the third quarter of 2025 and in Q2 of this year. Physician and distributor training continues to serve as a leading indicator for us, and 36 combined training activities were completed in the quarter. Two factors primarily drove the gross margin improvement: first, higher revenue, which keeps absorbing fixed costs, and second, the benefit of lower cost of sales in our Catamaran platform, stemming from the 510(k) clearance announced in early Q3 that reclassified certain instrumentation as reusable. We believe both of these factors will keep having a positive effect on gross margins as we continue growing. Past the numbers, a handful of quarter items deserve mention. To start, regarding commercial efforts, our spending is focused on that side of the business. Accordingly, a new commercial head has joined the company. Mr. Thomas Batton Jr. came aboard Tenon as Chief Revenue Officer, effective October 1, 2026. Tom brings deep background in assembling commercial teams and in corporate positions, plus time spent as an independent distributor, with standout know-how in the sacro-pelvic area; going forward we plan to keep growing our commercial organization under Tom through recruiting direct sales representatives and bringing independent distributor partners on board. This change additionally allows other colleagues to focus their efforts on the key product releases scheduled across the first six months of 2027. On September 30, we announced the complete commercial launch of our new titanium 3D-printed lateral screw for the SImmetry+ SI joint fusion system, which followed a successful limited launch—an alpha launch—that brought in approximately $1.2 million in revenue between late Q4 2025 and Q3 2026. This new screw represents the initial component of our next-generation lateral SI joint fusion system. Our two-platform offering continues to progress according to plan, and physicians are assessing Catamaran and SImmetry+ as complementary instruments that deliver inferior-posterior and lateral approaches to the same anatomy. Turning to the pipeline, we're moving forward on the launches we outlined three months ago. Following the close of the quarter on October 28, we shared that the first alpha cases involving our new Quickstep Decorticator are now finished; the tool is built to make SI joint decortication more efficient and to ease the SImmetry+ surgical workflow. Our target is a full commercial launch of Quickstep during the first quarter of 2027. In addition, we anticipate filing in early December 2026 for a highly differentiated upgrade to the SImmetry+ implant. We believe the SImmetry+ platform will offer distinctive advantages in lateral and oblique procedures by combining integrated decortication and grafting with threaded implant technology and anti-rotation features. Moving to item three, regarding intellectual property: as we said on October 15, the U.S. Patent and Trademark Office has granted the company eight additional patents during 2026 thus far, taking our holdings to 38 U.S. patents issued plus nine international ones, while 31 applications remain pending in the U.S. and abroad; system and method claims covering the Catamaran System are included in these patents, and in our view they reinforce our standing as an innovator within the sacro-pelvic fusion market. On item four, capital: our balance sheet got considerably stronger over the quarter. Across several transactions completed during the quarter, we brought in roughly $15.6 million in aggregate gross proceeds. Thanks to the prepayments we made in August and September, our convertible notes were repaid in full before the September 11 maturity date. We also got back into compliance with Nasdaq's stockholder equity requirements and its minimum bid price requirements after our 1-for-35 reverse split this year, and we closed the quarter with $8.3 million in cash and cash equivalents. Looking at the rest of the year, our priorities haven't changed: we're focused on broadening physician training and adoption across both platforms, moving our product pipeline forward, and staying disciplined about our spend. Now that the convertible notes are behind us, our full attention is on growth. We see several paths to success in this market, and we're eager about what lies ahead. With that said, I'll hand things over to Kevin, who will walk us through the financials.

Thanks, Steve. I'll now walk you through a summary of how we performed financially. The full details are available in the press release issued over the wire this afternoon. Starting with the top line, third-quarter revenue was $1.4 million, representing a 22% increase from $1.2 million in the prior-year period and a 12% sequential gain over this year's second quarter. For the nine months ended September 30, 2026, revenue totaled $4.1 million, up 66% from $2.5 million for the nine months ended September 30, 2025. Quarterly growth was driven by continued adoption of our Catamaran and SImmetry systems. In the quarter, procedure volumes and the number of physicians using our products exceeded both Q3 2025 and Q2 of this year. We anticipate continuing to build on that momentum via recent and planned sales force growth, stronger engagement with physicians and distributors, and upcoming product launches. Third-quarter gross profit came to $1 million, equal to 66.3% of revenue, compared with $0.8 million, or 65.9% of revenue, in the prior-year period — a 23% rise in dollar terms. Margin-wise, we improved roughly 0.4 percentage points versus the same period a year ago. Gross profit for the nine months came to $2.7 million, representing 66.2% of revenue, up from $1.3 million, or 54.4% of revenue — that's a 102% gain in dollars and about 11.8 percentage points of margin improvement. The higher gross margin for both the quarter and the year-to-date periods was mainly the result of increased revenue absorbing more of the fixed costs embedded in our cost of goods sold. In addition, the third quarter got a lift from better Catamaran per-procedure costs, which followed the 510(k) clearance the company announced it received on July 2nd; that clearance reclasses certain instruments as reusable. Going forward, we expect our gross margin to continue expanding as revenue grows and absorbs more fixed costs. Third-quarter operating expenses came in at $4 million, versus $4.2 million in the same quarter of 2025. Across the nine-month period, operating expenses reached $12.4 million, up from $11.3 million a year earlier. The drop on a quarterly basis stemmed mainly from reduced G&A costs, largely driven by lower fees for professional services, partly offset by greater sales and marketing spending tied to higher revenue, along with increased R&D expenses as we keep pursuing future product additions. Operating loss for the third quarter narrowed by $0.3 million, landing at $3.1 million compared with $3.4 million in the prior year period. Looking at the nine-month stretch, our operating loss came in at $9.7 million, which is a $0.2 million improvement over the $9.9 million loss recorded a year earlier. Turning to the third quarter, the net loss stood at $6.6 million, equal to $5.39 per share, versus a net loss of $3.3 million, or $14.17 per share, in the third quarter of 2025. Across the nine months, the net loss reached $14.2 million, or $22.48 per share, compared with a net loss of $9.7 million, or $51.72 per share, during the same period last year. As a reminder to everyone, all of the per-share figures we've presented reflect the 1-for-35 reverse stock split that was completed on August 10, 2026. The bigger net loss came mainly from non-cash items sitting below the operating line, and those include $3.1 million of expense tied to warrants issued as inducement consideration under our September warrant inducement transaction. There was also $0.7 million of non-cash interest expense stemming from amortization of debt discount on our convertible notes, and we paid those notes off entirely during the quarter; we closed the quarter holding $8.3 million in cash and cash equivalents, up against $3.8 million on December 31, 2025. Over the quarter, we brought in roughly $15.6 million in aggregate gross proceeds and fully repaid our senior convertible notes, whose aggregate principal amount came to approximately $5.16 million, doing so ahead of their September 11, 2026 maturity date. That means we carried no outstanding debt when the quarter ended. Also, after the quarter closed, we expanded our ATM capacity to roughly $7.1 million of availability, and we expect that to help meet our capital needs going forward. Overall, we believe the financial and strategic moves we made during the third quarter—most notably paying off our convertible notes and strengthening our cash position—have improved our capacity to continue generating growth while keeping a lean, disciplined cost structure as we finance our commercial, clinical, and development priorities. With that said, I'll hand the call back to Steve for his closing remarks.

Thanks, Kevin. In closing, Tenon is generating top-line growth, supported by a stronger balance sheet and a cost structure kept under discipline, which we expect will drive efficiencies as we broaden what we offer. The money we put into R&D is now turning into product launches, and we're aiming for the full commercial release of our 3D-printed SImmetry+ lateral screw and Quickstep in Q1 of 2027, along with further launches we have planned in the quarters ahead. With our emphasis on commercial expansion and execution, we think Tenon is positioned to carry this momentum forward and create meaningful value for patients, providers, and shareholders. I appreciate everyone attending, and at this point I'll turn things back to our Operator so we can begin the question-and-answer session with the covering analysts. Joe? Great, thank you, Joe. I want to thank all of you for being on our earnings conference call today, and we look forward to keeping you updated on our continued progress and growth. Should we not have gotten to any of your questions, please contact our IR firm, MZ Group. We'll be glad to help. Thank you.

Thank you. That brings today's conference to a close. You're welcome to disconnect your lines now, and we appreciate your participation.