Executive Summary / Key Takeaways

• Sanara MedTech is executing a dual-pronged growth strategy, leveraging its established Sanara Surgical segment's strong product portfolio and expanding market penetration while investing heavily in the transformative Tissue Health Plus (THP) value-based wound care platform.
• The Sanara Surgical segment continues to deliver robust revenue growth (26% in Q1 2025) and improving profitability, driven by expanding distribution, increasing facility penetration, and adoption of differentiated products like CellerateRX Surgical and BIASURGE.
• The THP segment represents a significant investment phase aimed at disrupting the non-acute wound care market with a value-based model, with the technology platform recently released and the first pilot program on track for launch in Q2 2025, followed by a payer pilot in H2 2025.
• Key technological differentiators, including proprietary collagen processing, antimicrobial solutions, advanced biologics, licensed peptides, and the integrated THP technology platform, provide competitive advantages aimed at improving clinical outcomes and reducing costs.
• While the company is in an investment cycle, particularly for THP, management believes existing capital resources, expected cash generation from Sanara Surgical, and available debt capacity are sufficient to fund strategic initiatives for at least the next 12 months, with a focus on achieving future profitability through scale and leverage.

Setting the Scene: A Dual Strategy in a Dynamic Market

Sanara MedTech Inc. is positioning itself at the intersection of surgical, chronic wound, and skincare markets, driven by a core mission to improve patient outcomes while simultaneously reducing healthcare expenditures. Operating through two distinct, yet strategically aligned, segments – Sanara Surgical and Tissue Health Plus (THP) – the company is pursuing a dual-engine growth strategy in a competitive and evolving landscape.

The Sanara Surgical segment represents the company's established commercial presence, focusing on selling soft tissue repair and bone fusion products primarily for use in operating rooms. This segment has been built over time through a combination of in-house development (via the Rochal Technologies R&D team) and strategic licenses and acquisitions, such as the initial Rochal license for antimicrobial products in 2019 and the acquisition of Scendia Biologics.

Complementing this, the Tissue Health Plus (THP) segment is Sanara's ambitious play in the non-acute wound care market. This segment, formalized as a distinct reporting unit in Q2 2024, is dedicated to developing a first-of-its-kind value-based wound care program. The strategic shift to emphasize THP reflects management's view of the significant opportunity to disrupt the estimated $100 billion+ non-acute market, which currently suffers from low healing rates (40%-66%) and high costs, particularly in hospital-adjacent settings.

The competitive landscape is populated by larger, diversified players like Smith & Nephew (SN) and 3M (MMM), as well as specialized companies such as Integra LifeSciences (IART), MiMedx Group (MDXG), and Organogenesis Holdings (ORGO). These competitors offer overlapping product portfolios, but SMTI aims to differentiate itself through a combination of innovative technologies and a unique service delivery model via THP. While larger rivals benefit from scale and established global distribution, SMTI seeks to leverage its agility, focused R&D, and integrated care approach to gain market share in specific niches and address unmet needs in the value-based care space.

Technological Edge: The Foundation of Differentiation

Sanara's strategy is underpinned by a portfolio of differentiated technologies designed to enhance healing and improve efficiency.

At the core of the Sanara Surgical offering is CellerateRX Surgical Activated Collagen. This product utilizes a proprietary process to create a hydrolyzed Type I bovine collagen that supports the natural wound healing process by providing a moist environment. While specific quantifiable metrics on healing speed versus alternatives were not detailed, the emphasis on a "proprietary process" and its use in complex surgical wounds suggests a focus on enhanced biological activity or handling characteristics compared to standard collagen products.

Another key product is BIASURGE Advanced Surgical Solution, a sterile, no-rinse wound irrigation solution containing an antimicrobial preservative. This product is designed for mechanical cleansing and debris removal, including microorganisms, from surgical wounds. Its antimicrobial properties offer a tangible benefit in infection prevention, a critical factor in surgical outcomes. Management noted that BIASURGE sales saw increased demand following disruptions in the supply of standard saline solutions in late 2024, highlighting its role as a valuable alternative.

The bone fusion portfolio includes products like BiFORM (an osteoconductive, bioactive implant) and ALLOCYTE Plus (a human allograft cellular bone matrix). These products provide structural and biological support for bone repair, competing in a market segment with established players.

Beyond currently marketed products, Sanara is actively investing in its R&D pipeline and leveraging strategic licenses to bring forward new technologies. The exclusive license agreement with Tufts University covers 18 unique collagen peptides. While early stage, the strategic intent is clear: to develop new products based on these peptides for wound and skin conditions. One specific focus is on radiation dermatitis, a significant unmet need, which management sees as highly complementary to their joint venture with InfuSystem (INFU) due to shared call points. The goal is to develop a solution that is both preventative and therapeutic for this condition.

A significant recent addition is the exclusive U.S. distribution rights to OsStic Synthetic Injectable Structural Bio-Adhesive Bone Void Filler and the adjunctive ARC technology from Biomimetic Innovations Limited (BMI). OsStic, having received Breakthrough Device Designation from the FDA, is designed to manage periarticular fractures by reducing fragments, achieving provisional fixation, and filling voids. Its stated benefits include the ability to flow into bone defects, interlock, and adhere firmly, offering "exceptional structural integrity and mechanically enhanced Bio-Adhesion." This technology is expected to enhance Sanara's bone fusion portfolio and target the trauma market, with an anticipated U.S. introduction in Q1 2027, assuming regulatory clearance.

The investment in ChemoMouthpiece, LLC and the subsequent exclusive U.S. distribution agreement via the SI Healthcare Technologies JV with InfuSystem brings a de novo oral cryotherapy device to the portfolio. This product directly addresses chemotherapy-induced oral mucositis, a severe skin condition that can disrupt cancer treatment. The availability of health economics and clinical study results "very shortly" is expected to support efforts to secure commercial payer coverage.

Finally, the THP Technology Platform is central to the value-based care strategy. The first release of this platform, including THP CoPilot, became available on May 1st, 2025. Developed on the acquired CarePICS technology stack, THP CoPilot integrates software as a medical device, clinical decision support, and administrative automation. Its features are designed to standardize wound care, reduce clinician administrative burden (e.g., EMR integration to eliminate charting), optimize billing, and manage supply orders. The platform is expected to leverage AI/machine learning in the future. This technological infrastructure is critical for scaling the THP care model and enabling the delivery of high-touch, coordinated care across various non-acute settings. The goal is to improve healing rates significantly beyond the current market average, potentially reaching 90%, which would represent a substantial clinical and economic benefit for payers and patients.

For investors, these technological differentiators are crucial as they form the basis of Sanara's competitive moat. Proprietary processes, unique product formulations, exclusive licenses, and integrated platforms can support premium pricing, drive adoption by offering superior outcomes or efficiencies, and create barriers to entry for competitors. The focus on evidence-based solutions and addressing specific, high-cost conditions like chronic wounds, periarticular fractures, oral mucositis, and radiation dermatitis aligns with market demands for value and improved patient care.

Operational Execution and Financial Performance

Sanara's recent financial performance reflects the execution of its dual strategy, showcasing strong growth in the established Surgical segment while absorbing significant investment in the emerging THP business.

In the first quarter of 2025, Sanara reported net revenue of $23.4 million, a 26% increase compared to $18.5 million in Q1 2024. This growth was primarily fueled by the Sanara Surgical segment. Sales of soft tissue repair products grew by 28% year-over-year to $20.5 million, while bone fusion products increased by 18% to $2.9 million. Management attributed this performance to increased market penetration, geographic expansion, and the continued buildout of their independent distribution network, which grew to over 400 partners by the end of Q1 2025. The commercial team's focus on adding new facilities (selling into over 1,300 in the trailing 12 months) and increasing surgeon penetration within existing accounts are key operational drivers of this revenue growth.

Gross profit in Q1 2025 rose to $21.6 million, a 30% increase from $16.6 million in the prior year period. The gross margin expanded by approximately 240 basis points to 92% of net revenue, primarily driven by increased sales of higher-margin soft tissue repair products and lower manufacturing costs for CellerateRX Surgical. This high gross margin profile for the surgical products provides a strong foundation for funding investments and driving future profitability as scale increases.

Operating expenses saw a significant increase, rising by 30% to $23.7 million in Q1 2025 compared to $18.2 million in Q1 2024. This was largely driven by a 32% increase in Selling, General, and Administrative (SGA) expenses, which included $2.4 million in higher direct sales and marketing costs supporting the Surgical segment's expansion, $1.7 million in SGA specifically for the THP segment buildout, and $0.7 million related to corporate infrastructure development. Research and Development (R&D) expenses also increased, reflecting ongoing product enhancements and investments in the pipeline, including the capitalization of approximately $1.7 million in development costs for the THP technology platform during Q1 2025.

The increased operating expenses, particularly related to the THP investment, resulted in an operating loss of $2.1 million in Q1 2025, wider than the $1.5 million loss in Q1 2024. Other expense also increased significantly, from $0.3 million to $1.4 million, primarily due to higher interest expense and fees associated with the CRG Term Loan. Consequently, the consolidated net loss for Q1 2025 was $3.5 million, or $0.41 per diluted share, compared to a net loss of $1.8 million, or $0.21 per diluted share, in Q1 2024.

Analyzing performance by segment reveals the distinct financial profiles. The Sanara Surgical segment generated operating income of $0.8 million in Q1 2025, a substantial improvement from an operating loss in the prior year. Its Segment Adjusted EBITDA was a positive $2.7 million in Q1 2025, more than double the $1.2 million in Q1 2024. This demonstrates the underlying profitability and operational leverage within the core surgical business. In contrast, the THP segment, being in its development phase, incurred a net loss of $2.9 million and a Segment Adjusted EBITDA loss of $2.0 million in Q1 2025, reflecting the planned investment ahead of commercial launch.

Management emphasizes Segment Adjusted EBITDA as the primary profitability measure for resource allocation, as it excludes non-core items like interest, taxes, depreciation, amortization, non-cash compensation, earnout changes, equity investment losses, and acquisition costs. The consolidated Segment Adjusted EBITDA for Q1 2025 was $0.7 million, an increase of 111% year-over-year, indicating improving overall operational performance despite the THP investment.

The THP Growth Engine and Future Outlook

The Tissue Health Plus (THP) segment is central to Sanara's long-term vision, aiming to capture a significant share of the non-acute wound care market through a value-based model. The strategy involves orchestrating high-touch, comprehensive wound care delivered in community and home settings, leveraging a network of third-party providers (MSO Network) and supported by the proprietary THP Technology Platform (Care Hub and CoPilot).

Significant progress has been made in building out the THP infrastructure and capabilities. The THP Technology Platform, including THP CoPilot, was released on May 1st, 2025, as planned. This platform integrates wound assessment software-as-a-medical device, clinical decision support, and administrative automation, designed to standardize care, reduce clinician burden, and improve efficiency. Implementation of the platform is currently underway with a wound care provider group in preparation for the first pilot program launch.

The timeline for THP commercialization involves a phased approach. The first pilot program with a wound care provider group is on track for launch later in the second quarter of 2025. This pilot will focus on validating clinical and operational metrics, such as adherence to protocols, reduction in post-encounter documentation time, documentation quality, staff productivity, billing capture, and inventory management. Following this, the company intends to launch a pilot program with a payer during the second half of 2025. The goal is to demonstrate the program's ability to generate significant savings for payers (expected 2x-5x THP fees) by improving healing rates and reducing costly hospitalizations.

Executing the THP strategy requires substantial investment. Management expects the total cash investment in THP during the first half of 2025 to be approximately $7.5 million to $8.5 million, excluding the $3.65 million paid for the CarePICS acquisition on April 1st. This implies cash investments of approximately $4.0 million to $5.0 million in the second quarter of 2025. A key component of the funding strategy is actively pursuing financial partners, including strategics and venture capitalists, who can provide both capital and strategic advantages to accelerate the THP rollout and help offset the investment burn.

Looking ahead, management's outlook is focused on continued execution in both segments. For Sanara Surgical, the expectation is for continued net revenue growth in 2025, driven by the commercial initiatives discussed, and improvements in segment profitability. For THP, the focus is on successful pilot launches, demonstrating the value proposition, and securing initial contracts. While the THP segment is expected to require a ramp-up period to reach profitability after commercial launch, management believes it can achieve early success once contracts are awarded.

Overall, management expresses confidence in the company's capital position to fund its strategic growth initiatives for at least the next 12 months. This confidence is based on existing cash on hand ($20.7 million at March 31, 2025), expected cash generation from the profitable Sanara Surgical segment, and the available borrowing capacity under the CRG Term Loan. The CRG facility, amended in March 2025, provides access to up to $55.0 million in senior secured debt, with $12.25 million available for future borrowing on or before December 31, 2025. Proceeds from recent borrowings are earmarked for potential acquisitions and general corporate purposes. The company was in compliance with all debt covenants as of March 31, 2025. Management does not anticipate a material impact from tariffs on 2025 results, as most products are manufactured domestically.

Competitive Dynamics and Strategic Positioning

Sanara operates in markets characterized by intense competition. In the surgical space, it competes with larger, more established players offering broad portfolios. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, SMTI's TTM Gross Profit Margin of 89.41% is notably higher than some larger, more diversified competitors like 3M (41%), but comparable to or slightly higher than specialized players like MiMedx Group (83%) and Organogenesis Holdings (76%). This suggests that SMTI's product mix and potentially its proprietary manufacturing or licensing agreements allow for favorable product economics within its niche.

However, SMTI's TTM Net Profit Margin of -12.48% trails most competitors (3M 17%, MiMedx Group 12%, Organogenesis Holdings 0.18%, Integra LifeSciences -0.43%), reflecting its current investment phase, particularly in the non-revenue-generating THP segment, and higher relative operating expenses compared to larger, more scaled companies. SMTI's TTM P/S ratio of 2.73 is within the range of its peers (3M 2.89, Integra LifeSciences 1.08, MiMedx Group 4.05, Organogenesis Holdings 0.87), suggesting the market values its revenue growth potential relative to its current scale. The TTM Debt/Equity ratio of 1.22 indicates a higher reliance on debt financing compared to some peers like MiMedx Group (0.10) and Organogenesis Holdings (0.11), which is a consequence of funding growth and the THP investment through the CRG facility rather than equity dilution.

Sanara strategically positions itself by focusing on differentiated technologies and a unique service model. In the surgical market, its technological advantages, such as the proprietary collagen process and antimicrobial solutions, aim to provide superior clinical outcomes that resonate with surgeons and facilities, driving adoption despite competing with broader portfolios. The focus on expanding the distribution network and increasing penetration is a direct response to the scale advantage of larger competitors, seeking to gain access and share incrementally.

In the non-acute wound care market, THP's value-based model and integrated technology platform represent a direct challenge to the status quo, which is characterized by inefficiency and poor outcomes. By targeting payers and risk-bearing entities with a program designed to generate quantifiable savings and improve healing rates (aiming for 90% vs. the current 40-66%), Sanara is attempting to create a new market dynamic based on value rather than just product sales. This strategy differentiates it from traditional wound care product companies and positions it against the inherent inefficiencies of the current system and potentially against emerging value-based care providers. The acquisition of CarePICS and development of THP CoPilot are critical steps in building the technological infrastructure needed to execute this complex service model at scale.

Risks and Challenges

While Sanara has demonstrated strong execution and has a clear strategic vision, several risks and challenges could impact its trajectory.

A primary risk is the successful execution and commercialization of the Tissue Health Plus (THP) strategy. This involves not only completing the technology platform and launching successful pilots but also securing commercial contracts with payers and large provider groups. The value-based care model is complex, and achieving the projected savings and clinical outcomes in a real-world setting, at scale, is unproven. Failure to secure sufficient contracts or demonstrate compelling value could jeopardize the significant investment being made in this segment.

Capital requirements are substantial, particularly for the THP buildout and potential future acquisitions. While management believes current resources are sufficient for the next 12 months, continued investment and growth beyond that period may require additional financing. The ability to raise further capital on favorable terms, whether through debt or equity, is not guaranteed and could be influenced by market conditions and the company's performance.

Maintaining compliance with debt obligations under the CRG Term Loan is critical. The loan includes financial covenants, including minimum liquidity and annual minimum revenue targets ($75 million for 2025, $85 million for 2026, etc.). Failure to meet these covenants could trigger an event of default and accelerate repayment obligations.

The intense competition in both the surgical and wound care markets poses a continuous challenge. Larger competitors have greater resources, established relationships, and broader portfolios. SMTI must continue to innovate and demonstrate the superior value of its products and services to gain and maintain market share.

Regulatory and reimbursement changes can significantly impact the business. The disruption in chronic wound care reimbursement, such as changes affecting CTPs, highlights the volatility of the market. While the THP strategy is designed to align with payer goals for savings, changes in reimbursement policies could still affect the adoption and profitability of products and services.

Finally, risks associated with new product development and commercialization, dependence on licensed technologies (including potential disputes or inability to renew licenses), and the ability to retain and recruit key personnel are inherent to the medical technology industry and could impact Sanara's ability to execute its growth plan.

Conclusion

Sanara MedTech is pursuing a compelling growth narrative built on the foundation of its expanding Sanara Surgical segment and the transformative potential of its Tissue Health Plus value-based wound care strategy. The Surgical segment continues to demonstrate robust revenue growth and improving profitability, driven by effective commercial execution and a portfolio of differentiated products. This segment provides the financial strength to support the significant investment in THP.

The THP segment represents a bold strategic move to address inefficiencies in the non-acute wound care market through an integrated technology platform and value-based model. While currently a drag on consolidated profitability, the successful launch and scaling of THP pilots in 2025 could unlock a substantial new growth engine and fundamentally change Sanara's market position. Investors should monitor the progress of the THP pilot launches, the company's ability to secure financial partners for this initiative, and the continued operational execution and profitability improvements within the Sanara Surgical segment as key indicators of the investment thesis unfolding. The company's technological differentiators and strategic focus on value creation provide a basis for optimism, provided it can effectively navigate the complexities of commercialization and the competitive landscape while managing its capital resources.