This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good day and thank you for standing by. Welcome to the Trees Medical Concepts 4th Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 on your telephone. In addition, if you require any further assistance, please press star 0. Now, it is my pleasure to hand the conference over to your host today, Vivian Cervantes with Gil Martin, Investor Relations. Thank you. Please go ahead.
spk01: Thank you, Paul. Good afternoon, everyone, and welcome to our fourth quarter and full year 2021 earnings conference 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 fourth quarter and full year 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.trace.com. This call is being recorded and will be archived in the investors 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 risks 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 410 for the full year 2021 to be filed Friday, March 4th. With that, I will now turn the call over to John.
spk07: Thank you, Vivian, and good afternoon, everyone. Thank you for joining us on our fourth quarter and full year 2021 earnings conference call. We are pleased and encouraged by the strong fundamentals in our business in 2021. Through our team's focus and steady investments in our commercial operations, we delivered above consensus revenue growth each quarter following our April 2021 IPO. These results were led by expansion of our direct sales channel that is 100% focused on bunion surgery, the only such organization that we're aware of in the med tech industry. A disruptive technology and surgical procedure that's backed by a growing body of clinical data demonstrating both rapid return to weight-bearing and recurrence rates significantly below that of current standards of care. Positive momentum from both surgeons through our active surgeon education initiatives, as well as patients through our targeted DTC programs, and steady increases in our active surgeon count and surgeon utilization rates facilitated largely by our DTC program investments and our expanding direct sales channel. Our disruptive lapoplasty solution, specifically developed with our Surgeon Advisory Board to correct the root cause of the bunion, addresses a large and underserved market. We have identified a $5 billion-plus U.S. market of 1.1 million annual surgical candidates, of which only 450,000 undergo bunion surgery each year, primarily due to the limitations of current standards of care. Through 2021, we believe our market share stands at only around 3.8% of the estimated 450,000 annual surgical bunion procedures, up from 2.5% in 2020, and just 1.6% share of the 1.1 million annual surgical candidates. For 2022, our business fundamentals remain firm, and we see a long runway ahead of us. We believe we remain well positioned for steady growth and continued market share gains ahead. With another quarter as a public company complete, we are pleased to note continued positive market acceptance and traction with our instrumented 3D bunion surgical correction system, Lapoplasty. Our team steadily built on our momentum, continuing to invest in our strategic programs and executing to deliver on targeted financial and operational metrics. Revenue in the fourth quarter was 33.4 million, representing 55% growth sequentially, 39 percent growth over the fourth quarter of 2020, and at the top end of our previously announced revenue range expectation of 33.1 to 33.4 million. For the full year 2021, revenue was 94.4 million, a 65 percent increase over 2020, and also at the top end of our preannounced revenue expectation of 94.1 to 94.4 million. Advances made in our target growth metrics include Expansion in our customer base with continued strong increase in the number of active surgeon users. Continued year-over-year increases in surgeon utilization. Strong blended average selling prices and growth over the prior year. Benefits from our ongoing shift to direct sales exiting the year with 58% of Q4 2021 revenue from this channel. And heightened surgeon adoption of our new products such as the lapoplasty mini incision system. which we started rolling out in Q4 2020, and our adductiplasty system for midfoot correction, which we launched during the third quarter of 2021. We're excited for what lies ahead and believe we have the necessary levers to turn on or off in fluid response to any further disruptions while still investing in driving growth of our business. Therefore, as we turn to 2022, we are providing full-year revenue guidance of $125 to $130 million which reflects an increase of 32% to 38% from 2021 revenue levels. Now turning to our commercial and market development activities. As a reminder, recurrence rates reported in the clinical literature with metatarsal osteotomy, which represents 70% plus of the bunion surgeries today, are highly variable and have been shown to be as high as 78%. To address these shortcomings, we pioneered our proprietary Lapoplasty 3D bunion correction system that is designed to address the deficiencies of these traditional approaches to bunion surgery. We said in the past that a key differentiating driver for our business is our commitment to clinical evidence. To date, we believe our Lapoplasty technology is the only commercial surgical bunion solution that is supported by a strong and growing body of clinical data facilitating a steady pace of surgeon adoption and patient preference. Interim data sets from our most advanced clinical program, the Align3D Multi-Center Prospective Study, further demonstrates the durability of our surgical bunion correction. Last week on February 25th, in a podium presentation at the 2022 American College of Foot and Ankle Surgeons, or ACFAS, Annual Scientific Conference, we announced the latest interim one- and two-year aligned 3D analysis that demonstrated consistent, positive radiographic and patient-reported outcomes for patients following the lapoplasty procedure. Building upon previous interim data analysis, data on 160 study participants showed early return to weight-bearing in a walking boot at an average of just 8.5 days, significant improvement in radiographic measures of 3D bunion correction and significant improvement in patient-reported pain reduction and quality-of-life measurements at 12 months and through 24 months following the lapoplasty procedure. Return to work was an average of four weeks, and full unrestricted activity occurred within four months post-surgery, and we had a continued low recurrence rate, with only one out of 116 patients reaching the 12-month time point and zero out of 54 patients that reached the 24-month time point demonstrating a recurrence. for an implied recurrence rate of 0.9% and 0% respectively. Align3D is a powerful and sophisticated study, and although the final report out with full two-year data is not expected until 2023, it is notable that this interim manuscript received honorable mention for best manuscript at the recent ACFAS conference. We believe this indicates that our positive and differentiated outcomes are increasingly resonating with a certain community. We also note strong interest for our products at the meeting with full capacity attendance at our large scale hands-on lapoplasty and adductoplasty training events. In a similar approach to Align3D, we are conducting a mini 3D lapoplasty clinical study with our first patient enrolled in October 2021. This study utilizes patient outcomes, evaluates patient outcomes using our lapoplasty mini incision system that utilizes the small incision approach providing both surgeons and patients with another option to surgically manage bunions. Like lapoplasty, the lapoplasty mini-incision system is designed to realign the entire first metatarsal bone through a small 3.5-centimeter incision, as opposed to cutting and shifting the bony bump, which is the case with some newer mini-incision osteotomy procedures. Interest in sign-up for certain training events remains active and don't show any sign of letting up. Further, our trained surgeons received strong patient interest from our DTC patient education initiatives. We also offer evergreen learning for our surgeons through our regular calendar of advanced training events, both online and in person, where our tenured surgeons can acquire advanced skills as well as learn new approaches like our mini-incision and adductiplasty systems. During 2021, we accelerated investments in patient education DTC programs, expansion of our direct sales channel, and R&D innovations that resulted in continued revenue expansion and momentum through Q3 and Q4. We are more bullish than ever about the positive impact these investments are making on our business. We have a well-defined and proven commercial strategy that's clearly working. As such, for 2022, we intend to increase the targeted and proven investments that produce this momentum for us in 2021 in an effort to accelerate our penetration and share of this large market over the long term. Specifically for 2022, we've made deliberate and strategic decisions to invest in growth initiatives that we expect will accelerate patient awareness, surgeon education, and demand for our novel lapoplasty procedure, expand the footprint and coverage of our bunion-focused direct sales channel, and drive more R&D innovations into the market. And as previously discussed, we will continue to support our innovative products through continued investment in building a highly differentiated body of clinical evidence. Over the past several years, we've incrementally made important investments to our patient awareness and education efforts. This has resulted in a comprehensive DTC program that leverages highly targeted direct-to-patient education to help raise awareness of our products directly with prospective patients via social media, Google search, PR, and other media, including targeted TV campaigns in select markets, all of which are designed to encourage patients to seek more information and education on our patient website locate lapoplasty surgeons in their market, and ultimately schedule a surgical consultation. This initiative has played a key role in the early growth and success of lapoplasty, and it's become an integral and cost-effective component of our commercial strategy, contributing meaningfully not only to our unique customer experience, but also in increasing patient awareness and adoption and increasing surgeon utilizations. In 2022, we plan to increase our focused investments in our DTC programs to drive broader patient awareness for our innovative lapoplasty procedure. We know through both hard metrics from our lapoplasty patient website and direct surgeon feedback that our DTC programs not only increase patient awareness and access to lapoplasty surgeons, but they also motivate other surgeons to become future users of lapoplasty. As mentioned, Teresa is the only company that we're aware of with a direct expert sales channel focused solely on bunion surgery. So as we began to invest in this channel in our early years, we carefully developed performance data and metrics over time that support ROI, particularly as our direct sales reps increased productivity in their territories, which typically scales up within 24 months, helping drive market share gains. Our analytics show that on average, relative to our independent agencies, Our direct reps penetrate their markets faster, generate higher surgeon utilization levels, and sell at a higher blended ASP, primarily because they're 100% focused on Therese products and fully leverage our corporate resources and programs. With increased confidence in this commercial strategy, combined with positive surgeon and patient adoption trends, we expanded our direct sales mix from 35% of revenue in 2020 to 58% of revenue in Q4 of 2021. During 2021, we started the year with 34 quota-carrying direct sales reps and more than doubled that group, exiting 2021 with 81 direct quota-carrying sales reps. Adding in associate direct sales reps, field sales managers, and a clinical specialist to our overall quota-carrying rep count, we ended 2021 with a total fleet in the field of 144 W-2 sales employees And this is up from 66 employees in 2020. In 2022, balanced against strong contributions from our high-performing independent sales agencies, as well as our sales organization, Steadily Matures, we'll continue the strategic investment to further expand our sales team in the field with a goal of approximately 150 quota-carrying direct sales reps on board by the end of 2022. We expect that this growing direct sales channel will continue to contribute to a higher proportion of our overall revenue in 2022 and beyond. As such, with the accelerated direct channel investments initiated in the second half of 2021 and that will continue through 2022, we now expect 70% of our revenue will come from this Bunyan-focused direct sales channel by the end of the year 2022. With that said, we continue to guide for the business to be modeled with active surgeons and surgeon utilization, which reflect the commercial growth of our business. Shifting now to R&D and our product development strategy. We are committed to driving innovation with activities that include R&D programs for both next-generation bunion correction systems, as well as the development of new technologies addressing concomitant conditions, and IP defense of our technology innovations. To date, we have a global portfolio of over 40 granted patents, including 32 patents granted in the U.S. Our R&D programs have yielded advancements in the procedural aspects of lapoplasty, and our focus on the bunion pathology has highlighted other meaningful bunion-related product opportunities along the way. For example, our lapoplasty mini-incision system provides both patients and physicians a minimally invasive option for our instrumented lapoplasty procedures. And our adductiplasty midfoot correction system addresses concomitant midfoot deformities that can occur in up to 30% of bunion patients. To date, we are highly encouraged by the favorable response received from the surging community for both of these novel products. 2021 R&D investments have led to several new product innovations, some of which were announced last week at the ACFAS conference. At our booth at the ACFAS, we featured our Lapoplasty 3-in-1 Guide, which is an advanced instrument specifically designed in part of our efforts to continuously advance the speed and reproducibility of the lapoplasty bunion correction procedure. An expansion of the adductiplasty system, which adds several specialized instruments designed to improve the efficiency and expand the clinical application of the system. And a lapoplasty S4A anatomic plating system, our next generation in lapoplasty titanium plate fixation technology that provides surgeons with an additional fixation option and our speed release and tritone release instruments, which are new single-use specialized cutting instruments designed to provide a more reliable and complete surgical release of key soft tissue structures commonly addressed during the lapoplasty and adductoplasty procedures. To clarify, some of these products are under early commercial rollout today, and others we anticipate will begin rolling out in Q2 of this year. We see continued opportunities to develop additional strategic innovations for bunion and related pathologies. With our unique corporate focus on the bunion pathology, we're learning more every quarter and see more meaningful product opportunities today than we did a year ago. Our R&D teams remain closely aligned with our Surgeon Advisory Board and have solid clinical relationships with other key surgeons across the country, both MDs and podiatrists. Therefore, given the opportunities we've identified, we intend to increase our R&D investments in 2022. We believe our approach, particularly given our strong partnerships with surgeons who provide us timely and market-leading feedback, will continue to pay dividends over the coming years. In closing, we're more bullish than ever before about the opportunity ahead of us and have built an organization and plan to establish lapoplasty as a standard of care. As we thoughtfully invest in our proven growth initiatives, We remain focused on maximizing long-term share capture and top-line growth. With that, I'll now turn the call over to Mark to go over our financial performance. Mark.
spk06: Thank you, John. Good afternoon, everyone. Revenue in the fourth quarter was $33.4 million, an increase of 55% over the third quarter of 2021. And up from... over the third quarter of 2020 and up from 24.1 million a year ago, representing an increase of 39% over the fourth quarter of 2020. Revenue growth was led by our expanded surgeon base and higher utilization rates, which grew the number of lapoplasty procedure kits sold. In addition, we saw continued favorable average selling prices in the quarter compared to the prior year. In the fourth quarter of 2021, sold 6,235 lapoplasty procedure kits, a 35% increase versus the prior year's fourth quarter. Blended average selling price in Q4 was $5,363, a 3% increase over the fourth quarter in 2020, and a slight decrease from Q3 of this year. The number of active surgeons performing at least one case in the trailing 12 months in the quarter increased 40% year-over-year to 1,783, while utilization increased 13% year-over-year to an average of 9.8 lapoplasty procedure kits per active surgeon in the trailing 12 months. For the full year of 2021, revenue was $94.4 million, a 65% increase over 2020, and also at the top end of our preannounced revenue expectation of $94.1 and $94.4 million, and our prior 2021 revenue guidance range of $90 million to $95 million. We sold 17,490 lapoplasty procedure kits for the full year of 2021, a 57% increase versus the prior year, and a blended average selling price of $5,398, a 5% increase over the prior year. Gross margin increased to 81.1 percent in the fourth quarter of 2021, compared to 78.9 percent in the fourth quarter of 2020. The 2020 basis point gross margin expansion was due to increases in the number of lapoplasty procedure kits sold, increases in the blended average selling price, and operational efficiencies. For the full year 2021, Gross margin was 81.1%, up from 78.3% in the full year-ago period, with the improvement led by increases in blended average selling price and operational efficiencies. Total operating expenses were $32.7 million in the fourth quarter of 2021, including sales and marketing expenses of $22.3 million. R&D expenses of $3.4 million, and G&A expenses of $7.0 million. This compares to total operating expenses of $15.4 million, including sales and marketing expenses of $11.4 million, research and development expenses of $1.9 million, and general administrative expenses of $2.0 million in the fourth quarter of 2020. For the full year 2021, Operating expenses were $93.1 million compared with $44.0 million in the prior year period. The increase in operating expenses reflected investments to support our growing business, commercial initiatives, as well as increased costs at the public company. Fourth quarter net loss attributable to common stockholders was $6.6 million, or $0.12 per share. compared to net income of $2.4 million or $0.05 per share for the same period in 2020. Full year 2021 net loss attributable to common stockholders was $20.7 million or $0.43 per share compared to a net loss of $4.3 million or $0.12 per share in 2020. Cash and cash equivalents were $100.5 million as of December 31, 2021 We continue to evaluate opportunities to further strengthen our balance sheet, including measures that improve our liquidity and reduce our cost of capital. Before concluding, let me turn to our outlook for full year 2022. As John mentioned, we are providing full year 2022 revenue guidance of $125 to $130 million, which reflects an increase of 32% to 38% from full year 2021 revenues. We remain encouraged by the underlying strength and momentum of our business. Please note that for the first quarter 2022, consistent with prior years, we expect a sequential revenue decrease from the fourth quarter due to normal seasonality coming off our usual strong year-end performance. Turning to the middle of the P&L. As John mentioned, we remain poised for continued investments in our business in 2022 in order to help position us for growth and market share gains in coming years. We anticipate investments in sales and marketing, as well as R&D, to build upon levels seen in the fourth quarter, beginning with the first quarter 2022 and as the year progresses. With that, let me Now turn the call over to the operator to open the line for your questions.
spk00: Thank you, sir. We will now begin the question and answer session. As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, that is star 1 on your telephone keypad. However, if your question has been answered and you wish to withdraw from the queue, just press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from Robbie Marcus with JP Morgan. Please go ahead.
spk04: Oh, great. And congrats on a good quarter. Hey, thanks, Robbie. Hey. So maybe to start, you know, as we think about the guide, how do we think about you know, volume growth versus revenue per procedure growth? And then, you know, second part of that question is, once again, this is a market that's atypical for MedTech. How do we think about the phasing of it throughout the year?
spk06: Yeah, thanks, Robbie. You know, what we just showed and what we just reported was increases in a few things. One is our active surgeon base. And that's a primary focus for us. And we also reported increases in the utilization for those surgeons. And so that also remains a focus for us. And we believe that those two metrics are really key to forecasting revenue for us. So we remain focused on really both, to adding incremental active surgeons throughout 2022, as well as all of the commercial programs that John was talking about, which we believe will also have an impact on the utilization. So it's going to be both. We're going to add surgeons, active surgeons, as well as continue to have higher utilization when that comes as our surgeons become more tenured and utilize lapoplasty more frequently.
spk04: Great. And, you know, one more from me. How do we think about – we hear a lot of – Your competitors out there saying they have the latest and greatest. We saw Johnson & Johnson do a very small deal. You know, what are you seeing when you go out in the field? Are you getting pushback from doctors that are trained on lapoplasty and switching to other competitors? And is it still very much an open market against surgery versus other procedure innovations? Thanks.
spk07: Yeah, hi, Robbie. John here. Yeah, there are a couple of other competitive systems out there now. J&J acquired Crossroads. They're a company we've been familiar with. We noted them as a competitor in our S1. Not sure how much real traction they have out there or how much of their overall revenue is related to the Bunyan products, but clinical evidence would be a question. But yeah, Others, you know, we have a very large sales channel now that we've built up that 100% focuses on lapoplasty. We've had over six years of commercial fine-tuning with the procedure, a very broad patent portfolio to protect our innovations, and we're the only system out there with meaningful clinical data, and it was really rewarding to see the ACVAS Society, you know, award that podium presentation with an honorable mention for that. especially at this early stage of the study. So we feel really great about our ability to keep driving our growth over the long term and out-innovating, out-dating, and out-channeling, you know, anybody else out there that wants to try to, you know, get in and bite at our ankles. For some of those folks, the more they talk us up, the more they just validate us. So we're... We're feeling very good about our prospects for long-term growth, even with a couple or a handful of other companies trying to get in the fray here.
spk04: Great to hear. Thanks a lot. Thanks, Robbie. Thanks, Robbie.
spk00: Your next question comes from Drew Ranieri with Morgan Stanley. Please go ahead.
spk05: Hi. Thanks for taking the questions. I just wanted to talk about utilization for a moment. And I kind of remember during your IPO process, you had a chart talking about different levels of surgeon utilization over their tenure of using lapoplasty. I was just kind of curious kind of what you're seeing now towards the end of 2021 into 2022, kind of where are you seeing the most significant increases in your surgeon tenure's utilization rate Is it coming more from the experienced doc, or are you actually seeing maybe more of an acceleration and traction among the surging groups as there's been more data, as there's been more experience? Just wondering if you could help us out there. Thank you.
spk07: Yeah, hey, Drew. It's John. Thanks for the question. You know, as we track the utilization, you know, by tenure or by years that they've been performing the procedure, It's a pretty steady climb, you know, all the way from year one to year five. Some of those that I would say, you know, between year four and five, there's a pretty good jump as they reach, you know, very high levels of certification on our patient website. And they really have seen in their own practice the long-term great outcomes, you know, from the procedure or so. But it's a pretty steady climb throughout the curve from year one up to year four, and then a little bit of an extra jump in year five. That's a smaller population base of surgeons, so some really early on surgeons in that category too.
spk06: Andrew, this is Mark. Just maybe one other piece of that. The benefit of doing this for now several years is we have more and more data And so we're really not being surprised, or there hasn't been a dramatic change in, you know, the last year. So it's been somewhat predictive, and it's been very useful to us, and really no surprises there. We've had some strong, just as John said, some strong improvements year over year as that group tenures. So nothing really new or surprising from the way that continues to progress and progress nicely for us.
spk05: Got it. Thank you, Mr. Farad. Maybe just on the first quarter guidance, you talked about kind of the typical seasonality. When I kind of go back and look at our model, we only have a few years of history, but it was down 30% in 2020, down 22% in the first quarter of 2021 on a sequential basis. Just given kind of where we are with Omicron, the hospital staffing shortage, and some of the other challenges, I mean, Where should we kind of figure out first quarter in that range? Are you going to be towards more of the 33% decline or the 22% decline? Thank you.
spk06: Yeah, and thanks for that, Robbie. You know, we see that there will be a decline. As you mentioned, it's pretty standard. Fourth quarter is what we refer to as bunion season, and that's our strongest quarter of the year. So there will be a step down. You know, it's – You know, I think right now what we're guiding is for the full year. And so as you look at kind of that full year and that percentage range that we've given, I think that should be somewhat helpful as we think about Q1 as well. And so I don't think it will be as pronounced as a couple years ago, but that's set down. But maybe we can have some more conversations about that.
spk05: Thanks, Drew. Thanks for taking the questions.
spk00: Your next question comes from Danielle Antalfi with SVB Learning. Please go ahead.
spk02: Hey, good afternoon, guys. Thanks so much for taking the question. I just had one high-level and one a little bit more detailed question. Just at a high level, you're still low single-digit market share of the intervention center and then even lower than that of the program. potential total patient population here. And I'm just curious, John, where you see this going over time and what are the barriers to adoption still today? It feels like you have everything in place from a sales force to the clinical data. So what stops this from becoming, you know, standard of care in the next, call it five years for interventions that are surgeries that are being done. And then just one follow-up.
spk07: Sure. Danielle, I, I, I think all the pieces that we're putting in place, you know, we've laid a really solid foundation in place. We've been very deliberate about how we, you know, went about developing this business from the beginning, our patent portfolio, our clinical data, you know, our sales channel and DTC patient education efforts. And I think the foundation is getting really, you know, solidified now. And what we're wanting to do is increase, you know, the investments in those areas to try to accelerate that, you know, and get to that point where it can be the definitive standard of care, you know, over the next several years. So I think we're heading in the right direction. We're making a lot of progress. We're trying to overcome decades and decades of installed dogma in the teaching institutions and certain curriculum that the metatarsal osteotomy should be used for 70% or more, the majority anyway of bunions. And that takes time to change. And, I think everything we're doing through our teaching programs that we're doing with the surgeons, direct sales reps that can really stay close to these doctors and work them through that transition. You know, we're clearly seeing the impact in these utilization increases year over year. Every year that doctors use lapoplasty, incremental year they do more lapoplasty. So it's working. We're just going to try to throw some accelerators on it and see if we can push to get there quicker with these changes. investments we began in the back half of 2021. And we're going to accelerate here in 2022.
spk02: Got it. Yeah, the physician inertia thing is real. I get it. So and then just on the investment in DTC initiatives and things like that. How do you guys measure the return on that? Or is there a way to sort of quantify how impactful that is has been?
spk07: Sure, yes, and it's something we started piloting back in early 2018, so we've been very methodical about measuring the impact of these investments, starting from a small scale and incrementally ratcheting it up year after year after year. We have hard metrics we can get from our website based on visits, based on certain engagement that patients make. There is a questionnaire to determine if they may be a surgical candidate that they can take. They can also search for a doctor in their area. So we monitor those relative to our spend. And we also, on the other side, we monitor our user base, our surgeon user base, and we're able to survey them progressively and measure and monitor over time how many of their patients or what percentage of their patients are coming in pre-educated or pre-impacted by our DTC efforts. And we see that number climbing tightly correlated to our spend level. So between those two, we get a pretty good bearing on the impact it's having. And then you just go to meetings like ACTFAS, where I was in the booth the whole time, and I would run out of digits to count how many surgeons came up and said, You know, I'm ready to get trained on this. I've had so many patients coming in asking for it. It's just amazing. So I think, you know, you boil all that together and we feel great about the investment we're making in our DTC patient education.
spk00: Thank you so much.
spk06: Sure.
spk00: Once again, if you have a question, you may press star 1 on your telephone keypad. Again, please press star 1 now. Your last question is from Rick Weiss with Stifel. Please go ahead.
spk03: Good afternoon, gentlemen. I can't believe we haven't really talked about COVID on this call. I frankly was a little anxious about the fourth quarter and what you might say about 22. Did COVID present a headwind, much of a headwind? Can you quantify it in the fourth quarter? And how do we How do we think about your start to the year? A lot of companies have called out tough Januaries and Februaries, et cetera. Any incremental color there?
spk06: Yeah, Rick, this is Mark, and thanks for the question. You know, we see a lot of the same things that other companies are seeing. I think we've really just been trying to focus on those things that we can control, some things we just can't control. and the things that we can't control we feel very good about. So we did see what other companies saw in the fourth quarter and enter into Q1, but we're really focused as a whole team here as we're expanding our sales force. If there are some headwinds in one region, well, let's just push harder in another region to make up for it. So we're really just trying to have keep our pace of growth steady throughout the country and really be down to daily business each day. We do feel that the brunt of this is behind us and that we feel like we're largely clearing up. We're anxious to move ahead.
spk03: That's great to hear. Honestly, I think you did a great job in that kind of context. I wanted to talk about both the expansion of direct reps and how it might intersect with gross margins. You're going to have to be, if I heard you correctly, 70% direct reps by the end of the year, if I'm quoting you correctly. Please correct me if I'm not. But I would assume that is going to be, whatever it means for OPEX, it should mean... better gross margins, correct? And you finished really strongly. How should we be thinking about gross margins in 22 and, frankly, beyond given this increasing mix of direct sales?
spk06: Yeah, thanks, Rick, and good question. You know, with our growing sales force, what we see and what we've already seen saw in last year, as really the steady increase was underway, is that there are some increased costs related to these direct sales channel, these W-2 employees. And those costs are being reflected in the sales and marketing line as a cost of selling the product. And from a total overall cost of goods sold, we're not going to give specific guidance here on what the margin is, but we felt comfortable with what we've been able to do. There are some operating efficiencies as we get to become a larger company, and there are benefits and efficiencies, and so we've had some gross margin expansion in 2021. But looking at the trends in 2021, you can see that the OpEx line out of sales and marketing has been expanding And that's the line item that, you know, I was referring to in part of the script where I said, you know, we're looking to grow from here. So both in the DTC initiatives as well as that expanding direct sales channel, that's where you'll see that impact. But the gross margins, we feel good about our gross margins. They've been healthy and positive. Hopefully, you know, with the growing efficiencies and volumes, they'll remain healthy.
spk03: Gotcha. Maybe just last for me, you know, gosh, I know it's early and sort of a silly question in a way, but it's sort of a two-part question. Where are we in the rollout of Minilap and the ductoplasty procedure? You know, how do we imagine... if I would ask that question in a year, how would you hope and expect to answer it? And that's part A. Part B, in a way, is, you know, obviously, laboplasty continues on. You're adding these new incremental procedures. Is this part of going deeper in accounts? Is this persuading more people, more physicians to get trained? Is it opening new accounts. I'm just wondering how that all is working together as you drive forward as well, the intersection of all those things. Thank you.
spk07: Sure, Rick. We're very pleased with the uptake. I'd say it's a steady, progressive uptake of the mini-incision system into our more experienced surgeons' practices. And there continues to be more interest in that system, especially as we roll out things like the three-in-one guide that, you know, make the procedure even faster and more straightforward. I'd say we're in the, you know, third inning on that. And for ductoplasty, we're still early in the first inning. Our initial rollout, we had limited numbers of trays, and we're a little bit tray constrained. We're now getting into a situation where we're going to be able to have some some good supply out in the field here in the next few weeks, a month. And I think that's going to continue to grow really nicely. There's a lot of demand for a ductoplasty, a lot of excitement, both at the ACVAS conference and the AOFAS meeting prior to September. So we're looking forward to getting more availability of that system out there and driving that. That's going to help. Both of those are going to help push up our blended ASP trend and our ancillary products. As we get more direct reps, I think we're going to get better penetration because we have more people that don't have the other company products in their bag to offer to those cases. They've got to focus on selling our product line wholly and across the board. I don't know if I fully answered the last part of your question, but Please ask again if I missed something.
spk03: No, no, that's great. And so it's really the expanded sales force, the expanded direct sales force, with more in the bag and more tools to offer for every procedure. So it is all going to work sort of synergistically, if I'm saying it properly.
spk07: That's right. And they don't have all the products yet, but we've got a really nice pipeline, and that's where we're trying to identify additional opportunities, and that's why we're upping our investment in R&D.
spk03: Gotcha. Thanks so much.
spk07: We're still keeping tight focus on that bunion and bunion-related pathologies and staying at our home base.
spk03: Yep. Got it. Thank you.
spk07: Sure.
spk00: As there are no further questions at this time, I would like to turn the conference back over to management for closing remarks.
spk01: Thank you, Paul. On behalf of Treats Medical, we'd like to thank everyone for joining us today. This concludes our call, and we look forward to our next update following the close of the first quarter of 2022.
spk00: And this concludes today's conference call. Thank you for joining Humanities Connect. Stay safe and well.
Disclaimer