Treace Medical Concepts, Inc.

Good day and thank you for standing by. Welcome to the Trees Medical Concepts First Quarter 2022 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 during the session, you will need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Vivian Cervantes, Gil Martin, Group Investor Relations. Please go ahead.

Thank you, Kim. Good afternoon, everyone, and welcome to our first quarter 2022 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 first 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.trees.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 this 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 or 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 Form 10-Q for the first quarter to be filed later today and our Form 10-K for the full year 2021 filed on March 4, 2022 for a detailed presentation of risk. With that, I will now turn the call over to John. John?

Thank you, Vivian, and good afternoon, everybody, and thank you for joining us on our first quarter 2022 earnings conference call. We're off to a solid start in 2022 with strong execution on our commercial strategies and initiatives, aided further by improving trends and procedure volumes, resulting in a 55% increase in revenue in the first quarter over prior year. We're pleased to report yet another strong quarter of growth, adding to our positive momentum since our IPO. Our business is driven by our disruptive technology and surgical procedure, which we believe is fundamentally changing bunion surgery today. From what we can see in the marketplace, we are the only industry participant that has a growing body of clinical evidence demonstrating both rapid return to weight bearing and low recurrence rates. In fact, this morning we announced a peer-reviewed publication in the Journal of Foot and Ankle Surgery on our interim data from the Align3D clinical study demonstrating continued positive radiographic and patient-reported outcome scores at 12 and 24 months following the lapoplasty procedure. We continue to be pleased with the sustained enthusiasm and positive momentum from surgeons through our active surgeon education initiatives, as well as patients through our targeted DTC programs. We're also encouraged to see the steady increases in our active surgeon users and surgeon utilization rates supported by our expanding direct sales channel, as well as our patient education and awareness activities, which we believe help patients learn about our procedure and connect them with knowledgeable surgeons in their area. Of note, our direct sales channel is 100% focused on bunion surgery, the only such organization that we're aware of in the medtech industry today. The expansion of this specialized sales team has contributed meaningfully to our revenue and market share growth, and we will continue to invest in this channel and transition to a higher mix of direct revenue over time. In the first quarter, 63% of revenue was through our direct sales channel, up sequentially from 58% in the fourth quarter, and up from 44% just a year ago. Our disruptive Lapaplasty solution was specifically developed to correct the root cause of the bunion and address a large and underserved market. we've 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, mainly due to limitations with current standards of care. As a reminder, recurrence rates reported in the clinical literature with metatarsal osteotomy, which represents 70% of the bunion surgeries today, are highly variable and have been shown to be as high as 78%. In the first quarter of 2022, we believe our market share stands at approximately 4.3% of the estimated 450,000 annual Bunyan surgical procedures in the US, up from 3.8% in the first quarter of 2021, and representing approximately 1.7% share of the 1.1 million annual surgical candidates in the US. Our team is driven by the positive feedback we receive from our surgeons, our patients, and the clinical community, reinforcing our conviction that we're well positioned for sustained growth and continued market share gains. Turning now to our Q1 results. Revenue in the first quarter was $29 million, representing 55% growth over the first quarter of 2021. Building on strong company-wide execution to deliver on our targeted financial and operating metrics, During Q1, we continued to benefit from the impact of our strategic commercial investments, complemented by deferred procedures from Q4 2021 that were realized in the back half of the quarter. All told, continued momentum from the strategic commercial programs I discussed earlier led to steady market acceptance and traction of our technology, fueling strong Q1 revenue growth. We're extremely pleased by not only our top line growth, but the continued positive trends in our underlying growth metrics, including our expanding direct focus bunion sales team, which accounted for 63% of our revenue mix in Q1. Strong increases in the number of new surgeon users ending Q1 with 1,901 active users, up 40% year over year. Continued year over year increases in surgeon utilization. with 10.1 kits per surgeon used in Q1, up from 9.2 kits a year ago, representing an approximate 10% increase. Strong blended average selling prices of $5,503 per case, which represented 3% growth over the prior year, and positive uptake of our newer innovations, such as our lapoplasty mini incision system and our adductoplasty system for midfoot correction. Our continued investments in patient education DTC programs, expansion of our direct sales channel, and R&D innovations have consistently supported our revenue expansion and momentum. We remain excited about the positive impact these investments are making on our business and have confidence that we have a well-defined, proven, and scalable commercial strategy that's fueling our growth. Given these positive trends, we are raising full year 2022 revenue guidance to $128 to $133 million, which reflects an increase of 36 to 41% from 2021 revenue. This is up from our prior full year guidance range of $125 to $130 million. Turning now to our commercial and market development activities. A key differentiating driver for our business is our commitment to clinical evidence. As mentioned earlier, we're pleased to have announced this morning our first peer-reviewed publication on the interim results from our Align3D study in the Journal of Foot and Ankle Surgery. This comes on the heels of a podium presentation of interim one- and two-year Align3D data at the February 2022 American College of Foot and Ankle Surgeons Annual Scientific Conference. As announced, the interim data from this new publication demonstrated consistent, positive, radiographic, and patient-reported outcomes for patients following the lapoplasty procedure. Data on a total of 173 study patients, including 117 patients with at least 12 months and 40 patients with at least 24-month follow-up demonstrated early return to weight-bearing in a walking boot at an average of just 7.8 days, returned to work within 25 days and to full unrestricted activity within four months post-surgery on average, and significant improvement in radiographic measures of three-dimensional bunion correction from pre-surgery to six weeks and maintained at 12 months for 108 reporting patients and 24 months for 38 reporting patients post-surgery and with one recurrence reported at the 12-month time point post-surgery for a 0.9% recurrence rate. Additionally, this interim published data demonstrated statistically significant improvement in patient-reported outcome scores across three validated scoring systems, including the Visual Analog Pain Scale, or BAS, the Manchester-Oxford Foot Questionnaire, or MOX-FQ, and the Patient-Reported Outcomes Measurement Information Systems, known as PROMIS-29. For example, at 24 months post-surgery, 40 reporting patients noted a greater than 80% reduction in pain versus pre-surgery levels per both VAS and MOX-FQ scoring systems. In addition, 87% improvement in walking, standing, as well as social interaction was observed using MOX-FQ. Further, statistically significant improvement in physical, mental, and social health scores were reported using the PROMIS 29 scoring system. In a similar approach to Align3D, we have an ongoing mini 3D lapoplasty prospective multicenter clinical study utilizing our mini incision lapoplasty system, which offers a much smaller 3.5 centimeter incision option to realign the entire first metatarsal bone and address the root cause of the bunion versus just cutting and shifting the bony bump, which is the case with newer minimally invasive osteotomy procedures. During the quarter, we continue to treat additional patients and onboard new clinical sites for this study, and we look forward to providing future or interim report outs on the mini 3D data set, as we have done with the Align 3D study. Our mini-incision lapoplasty approach continues to resonate with growing interest from both physicians and patients. We continue to see a steady adoption of our mini-incision system with positive contributions to our blended average selling price. On the strength of our positive clinical body of evidence and differentiated surgical approach, interest and attendance at our surgeon training events were strong through Q1, and we have many more national and local level events planned with continued strong participation expected for the remainder of the year. As mentioned before, we also offer evergreen learning for our surgeons through a regular schedule of advanced training events, both online and in person throughout the year, where our tenured surgeons can acquire advanced skills as well as learn new approaches like our mini-incision and the ductoplasty procedures. As we mentioned last quarter, we're making additional targeted investments this year to accelerate our market penetration and drive share gains in the long term. These growth investments are expected to accelerate patient awareness, surgeon education, and demand for our lapoplasty procedure, expand the footprint and coverage of our bunion-focused direct sales channel, and drive more R&D innovations into the market. We're very pleased to report positive early feedback on all three of these initiatives. Our DTC patient awareness initiatives are a key component of our commercial strategy. Over the past several years, we've made important investments that leverage targeted direct-to-patient awareness campaigns designed to educate patients on the bunion deformity and our differentiated solution. We successfully employ social media, Google search, public relations, and other media, including targeted TV campaigns, 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 consultation. Our GT strategy works with strong metrics and performance data that show active patient engagement, further supported by feedback from regularly conducted surgeon surveys. We have a strong conviction in our direct sales force strategy. Our channel analytics show that on average, relative to our independent agencies, our direct sales reps penetrate their markets faster, generate higher surgeon utilization, and sell at higher blended ASPs. These reps typically scale with cost leverage within 24 months. primarily because they're 100% focused on Treece products and fully utilize our corporate resources and programs. In the first quarter, our 55% revenue growth was led in part by strong contribution from this direct sales channel, which represented 63% of revenue, up from 58% of revenue in Q4 of 2021. Our goal of approximately 150 quota carrying direct sales reps by the end of this year stands. with this growing direct sales channel contributing a higher proportion of our overall revenue in 2022 and beyond. We expect that over 70% of our revenue will come from our bunion-focused sales channel by the end of this year. Turning now to our product development strategy. We have an R&D team committed to driving innovation to maintain our industry leadership with 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 and innovations. At the end of Q1, we had 34 granted U.S. patents and over 40 U.S. patent applications pending. We featured several of our new product innovations at our booth at the ACFAS Scientifer Conference last February. These included the Lapoplasty 3-in-1 Guide, an instrument designed to advance the speed and reproducibility of the lapoplasty procedure. We've been receiving excellent feedback on this product, including a recent surgeon user survey reporting an average of 10 minutes in case time saved using this new three-in-one cut guide. This translates to a very meaningful 15% to 20% reduction in time, depending on surgeon proficiency, to perform a complete lapoplasty procedure. We also featured an expansion of our adductaplasty system, adding several specialized instruments designed to improve the efficiency and expand the clinical application of the system. As I mentioned before, our adductaplasty system uniquely offers a reproducible instrumented system to address complex midfoot deformities that can occur in up to 30% of bunion patients, serving as a complementary system during our lapoplasty surgeries. And finally, the Lapoplasty S4A anatomic plating system, our next generation in Lapoplasty fixation technology, providing an advanced anatomic plate design to better address variabilities in TMT joint anatomy. S4A plating is currently in early clinical release, and we're receiving excellent early feedback on the system. We look forward to providing additional updates on our new product innovations as we continue to develop our pipeline focused on our core technologies and IP. So in closing, I'd just like to say, despite what's going on in the stock market today, we are more excited than ever before about the future of this great company, one built from scratch here in Ponte Vedra, Florida, starting eight years ago. Since our first live surgery in late 2015, we've sold nearly 50,000 lapoplasty procedure kits and helped improve the lives of so many patients suffering from painful, lifestyle-limiting bunion deformities. I am so very proud of what this team has accomplished and from such humble beginnings. Today, we have a rapidly growing, highly talented team of over 300 employees, all with a crystal clear vision of where we're going and with a shared passion for our mission to improve surgical outcomes for bunion patients. With the targeted investments we're making in our proven DTC programs, direct sales channel, and R&D innovations, Supported by our newly announced access to growth capital and strong clinical evidence, we are better equipped than ever to deliver upon our goal of establishing lapoplasty as a standard of care in bunion surgery. With that, I'll now turn the call over to Mark to review our financial performance. Mark?