Treace Medical Concepts, Inc.

Welcome to the Treece Medical Concepts Third Quarter 2021 Earnings Conference Call. My name is James, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the Q&A session, if you have a question, please press star 1 on your phone. And now I'd like to turn the call over to Sam Bensinger. Sam, you may begin.

Thanks, James. Good afternoon, everyone, and welcome to our third quarter 2021 earnings call. Participating from the company today will be John Treese, Chief Executive Officer, and Mark Hare, Chief Financial Officer. During the call, we will offer commentary on our commercial activity and review our third quarter financial results released after the close of the market today, after which we will host a question and answer session. The press release can be found in the investor relations section of our website at investors.treese.com. This call is being recorded. and will be archived in the investor section of our website. Before we begin, we would like to remind you that it is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends, as well as our estimated results or performance, are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risk and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and Teresa assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to our SEC filings, including our Form 10-Q, for the third quarter to be filed later today, and our prospectus filed on April 26, 2021 for a detailed presentation of risks. With that, I will now turn the call over to John.

Thank you, Sam, and good afternoon, everyone. Thank you for joining us on our third quarter 2021 earnings conference call. The team at Tree's Medical has made key business and operating advancements during the quarter in spite of Delta-related headwinds. With another quarter behind us as a public company, I'm encouraged once again by strong underlying business fundamentals that we believe positions us well for future growth. Our team continued to build on our momentum, executing on several key financial and operating metrics. Revenue in the quarter totaled $21.6 million, representing 4.7% growth sequentially and 52% growth over the third quarter of 2020. Despite pandemic-related headwinds, including elective surgery delays and cancellations, as well as typical Q3 seasonal softness and orthopedic elective procedures, our business continues to perform exceptionally well with solid execution across multiple initiatives, including steady expansion of our customer base and the increase in number of active surgeon users, continued increase in surgeon utilization, increased average revenue per case, benefits from our ongoing shift to direct sales with over 53% of revenue from this channel in the third quarter, and increased surgeon adoption of our lapoplasty mini incision system, which we started rolling out in Q4 of 2020, as well as early positive feedback from our adductoplasty system for midfoot correction, which we launched during the third quarter. As for the remainder of 2021, given our business trends and COVID related uncertainties, we are reaffirming our prior guidance of 90 to 95 million, which reflects an increase of 57% to 65% over our 2020 annual revenue. Turning now to discuss our market development activities. Our addressable market remains large and underserved, with a long runway ahead of us. As of the end of Q3 2021, we believe our market share is around 3.5% of the estimated 450,000 annual bunion surgical procedures, which is an increase of 20 basis points sequentially, and about 1.4% share of our $5 billion total addressable market, representing approximately 1.1 million annual surgical candidates. A key differentiating driver for our business is our commitment to evidence-based medicine. At the 2021 annual meeting of the American Orthopedic Foot and Ankle Society, which was held in Charlotte in September, we announced new interim data from the Align3D clinical study demonstrating consistent positive radiographic and patient-reported outcomes starting at six weeks and maintained at 24 months post-surgery for patients following a lapoplasty procedure. Building upon previous interim data analysis, data on 151 study participants showed early return to weight bearing in a walking boot at an average of 8.3 days. Significant improvements in radiographic measures of three-dimensional bunion correction and patient reported pain reduction and quality of life measurements at 12 months and through 24 months following the lapoplasty procedure. Return to work within four weeks and to full unrestricted activity within 4.1 months of surgery and continued low recurrence rate with only one out of 104 patients that reached the 12-month follow-up time point demonstrating a recurrence for an implied recurrence rate of 0.9%. As a reminder, recurrence rates reported in the literature with metatarsal osteotomy are highly variable and have been shown to be as high as 78%. With our primary endpoint being recurrence at 24 months post-surgery and a final patient readout in the first half of 2023, We are encouraged by this interim data set that continues to demonstrate successful procedural and patient outcomes from lapoplasty surgery, reinforcing our belief that we're advancing the standard of care in bunion surgery. Further, in October, we announced our first patient treated in our mini 3D lapoplasty clinical study. The study, which evaluates patient outcomes using our lapoplasty mini incision system, builds upon our ongoing Align 3D study. but utilizes a mini-incision approach, providing both surgeons and patients another option to surgically manage bunion deformities. Our mini-incision system has been adapted from our standard lapoplasty system to enable the same three-dimensional correction that addresses the root cause of the bunion, but through a small 3.5 centimeter incision, providing a more minimally invasive option with lapoplasty for patients. The Lapoplasty Mini Incision System is designed to realign the entire metatarsal bone to alleviate pain and improve cosmetic appearance, as opposed to cutting and shifting the bony bump, which is the case with traditional metatarsal osteotomy procedures. We look forward to advancing the Mini 3D study, treating up to 200 patients at up to 20 centers across the U.S., and reporting on long-term outcomes following the procedure, with a primary effectiveness endpoint being radiographic recurrence at 24 months. Building on the success of our proprietary lapoplasty system, in September, we were very pleased to announce the initial launch of our adductoplasty midfoot correction system designed for reproducible correction of the midfoot, providing additional support for bunion patients. Relatively early in our adductoplasty system rollout, we were encouraged by the favorable response received from the certain community. Midfoot deformities may occur in up to 30% of bunion patients. and studies have found that the recurrence rates following bunion correction to be meaningfully higher when the deformities of the midfoot are also left uncorrected. The adductiplasty system is designed to address that issue, and we believe there's a real opportunity here to improve the outcome for many patients. Just as our lapoplasty system has provided an instrumented and reproducible approach for bunions, we are confident that our adductiplasty system similarly offers enabling technology designed to convert another historically challenging freehand operation into one that's now instrumented for reproducibility. Turning to surgeon initiatives, we're pleased to note that our education and training programs remain well received. We recently welcomed large groups of surgeons to our live lapoplasty advanced training symposiums held in Dallas and Las Vegas for hands-on training sessions led by experienced lapoplasty and adductoplasty surgeons. The feedback we received from these events was quite favorable, reinforcing that surgeon education and training is a top priority for the company. Certain interests and sign-ups for our training events remain active and do not show any signs of letting up, and we look forward to several additional live training events around the country to be held before the end of the year. Finally, we're committed to driving innovation with R&D initiatives aimed at advancing both next-generation systems as well as development of new technologies addressing concomitant conditions and diligently protecting those innovations with a robust portfolio of intellectual property. To this point, we recently announced our 30th granted US patent and yet another that builds off our pioneering work dating back to 2014 related to instrumentation and surgical methods for 3D bunion correction. This recent patent complements coverage obtained by another patent granted to us in March of this year. Our R&D and IP innovations in the space of 3D bunion correction have been prolific since 2014 and we continue to identify and pursue opportunities to expand our intellectual property portfolio. And on a final note, before I turn the call over to Mark, our executive leadership and board are pleased to welcome two new members to our board of directors effective October 1st, Betsy Hanna and DP Jane. With decades of combined experience in the healthcare leadership between them, both Betsy and DP have already made an impact and will help guide us through our next phase of growth as we continue to drive a paradigm shift in the surgical management of bunions and related midfoot deformities. With that, I'll now turn the call over to Mark to go over our financial performance.