Treace Medical Concepts, Inc.

Good afternoon and welcome. Thank you for standing by. Welcome to the Tree's Medical Concepts Second 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'll need to press star 1-1 on your telephone, and you'll then hear an automated message advising that your hand is raised. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Vivian Cervantes. Please go ahead, Vivian.

Thank you, Kathy. Good afternoon, everyone, and welcome to our second quarter 2022 earnings conference call. Participating from the company today will be John Tree, Chief Executive Officer, and Mark Hare, Chief Financial Officer. During the call, we will offer commentary on our commercial activity, and review our second quarter financial results released after the close-up to 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 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 risks and uncertainty 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 TREES 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 second quarter and our Form 10-K for the full year 2021, filed on March 4, 2022, for detailed presentation efforts. With that, I will now turn the call over to John. John?

Thanks, everybody. We're pleased to report a 45% annual revenue increase in the second quarter and a 50% increase for the first half of 2022 with steady gains in our key operating metrics driven by the underlying strength of our business and solid execution of our commercial strategies. We are also encouraged that our investments and initiatives laid out earlier this year are starting to pay dividends with our operations poised to scale. Our business is driven by our focus with a disruptive technology and surgical procedure that we believe is fundamentally changing bunion surgery today. And we're building around this with complimentary technologies that address bunion related deformities, such as those in the midfoot. Our continuing commitment to invest in programs to build clinical evidence and become the standard of care for bunion surgery. From what we can see in the marketplace, we're the only industry participant with a growing body of clinical data demonstrating rapid return to weight bearing in a walking boot with low recurrence rates at 12 and 24 months, and interim data demonstrating positive patient-reported outcome scores following our bunion correction procedure. Therefore, we're pleased with the sustained enthusiasm and positive momentum from surgeons through our active training initiatives, as well as patients through our targeted DTC programs. Of note, our surgeon education and training programs continue to be well received with strong demand, and our regional and national seminars book to capacity for new surgeons, as well as our advanced courses. As such, we're encouraged to see steady gains in our active surgeon user base. As of the second quarter, our active surgeon base, which includes surgeons who performed at least one case in the trailing 12 months, has now reached 20% penetration of the estimated 10,000 foot and ankle surgeons who perform bunion surgery in the US. As our surgeon base continues to mature, we look forward to surgeon utilization gains, not only with increasing use of lapoplasty technology, but also our adductoplasty system and the adoption of our growing portfolio of complimentary ancillary products supported by our expanding direct sales channel, as well as our patient education and awareness initiatives, which we believe help patients learn about our procedures and connect them with knowledgeable surgeons. We have a specialized team here at Treece, including a rapidly expanding direct sales force, one that is 100% focused on bunion and related midfoot surgery, and represents the only such organization that we're aware of in the med tech industry. This has contributed meaningfully to our revenue and market penetration. We continue to invest in this channel and transition to a higher mix of direct revenue over time. In the second quarter, 68% of revenue was generated by our direct sales force, up sequentially from 63% in the first quarter and up from 51% just a year ago. We end the second quarter with 123 quota-carrying direct sales reps. a 52% increase from the 81 direct reps we had at the end of 2021. Including associate sales reps, clinical specialists, and sales management, our employee fleet in the field increased 40% to 202 employees in the second quarter compared to 144 employees at the end of last year. We continue to have great success building our sales team here at Treece. And we believe these new reps are joining our team because of our unique growth profile driven by our innovative technologies that are backed by strong clinical evidence and supported by our market leading patient and surgeon education programs. Our success not only lies with recruiting new experienced reps, but also in converting some of our successful independent sales agents into W2 employee reps. Having ended the quarter with 68% of sales coming from our direct channel, We are already trending above our previously announced year end goal of 70% early on here in the third quarter. In addition, given strong interest from candidates to join our employee sales team, we now expect to exceed our year end goal of 150 quota carrying sales reps. Our disruptive lapoplasty 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 associated with current standards of care. As a reminder, recurrence rates reported in the clinical literature with the metatarsal osteotomy procedure, which represents 70 plus percent of bunion surgeries today, are highly variable and have been shown to be as high as 78%. In the second quarter of 2022, we believe we have penetrated approximately 4.6% of the estimated 450,000 annual bunion surgical procedures in the US, up from 3.3% in the second quarter of 2021, and representing approximately 1.9% market penetration of the 1.1 million annual US surgical candidates, representing our $5 billion total addressable market. We are encouraged by our momentum with positive market feedback and strong execution supporting our conviction for sustained growth and market penetration. Based on our continued rapid growth, we're pleased to note that for the fourth time in the company's history, we are once again in the process of relocating to a larger headquarters facility, which will allow us the capacity to meet our increased requirements for surgeon and Salesforce training, R&D product innovation, as well as warehousing and other infrastructure needs. Turning now to our Q2 results. Revenue in the second quarter was $30 million, representing 45% growth over the second quarter of 2021. During Q2, we continue to benefit from our commercial strategies and investments. With improving demand trends as the quarter progressed, we're extremely pleased not only with our top line growth, but also sustained positive trends in our key operating metrics, including Our expanding direct bunion-focused sales team, which accounted for 68% of our Q2 revenue mix. Strong, steady increases in the number of new surgeon users, ending Q2 with 2,047 active surgeons, up 37% year-over-year. Continued year-over-year increases in surgeon utilization, with 10.1 kits per surgeon in Q2, up from 9.8 kits a year ago, and strong blended average selling prices of $5,711 per case, representing 5% growth over the prior year due to positive uptake of our newer innovations, such as the lapoplasty mini-incision system and our adductiplasty system for midfoot correction, and as our direct reps leverage their position in the OR and increasingly displace competitive forefoot products with our complementary ancillary products. Investments in our patient awareness DTC programs, expansion of our direct sales channel, and R&D innovations consistently support our revenue expansion and momentum. We remain excited about the positive impact these investments are making on our business, giving us confidence that we have a well-defined, proven, and scalable commercial strategy that's fueling our growth. Given these positive trends, we are raising our full year 2022 revenue guidance to $130 to $134 million, which reflects an increase of 38% to 42% from 2021 revenue. Shifting now to our commercial and market development activities. A key differentiating driver for our business is our commitment to providing peer-reviewed clinical evidence to support the safety and efficacy of our products, which we believe resonates well with both surgeons and patients. In May, we announced our 21st peer-reviewed publication supporting our lapoplasty technology. This recent article, published in the Journal of Foot and Ankle Surgery, reported on our positive interim one and two year results, including both radiographic and patient reported outcome scores on 173 patients treated in our flagship Align3D multi-center prospective study. With our extensive and growing clinical dossier, combined with over six and a half years of clinical use and refinement, and over 50,000 patients treated as of Q2, We continue to believe that we are setting a new standard of care for bunion surgery. As mentioned last quarter and consistent with our commitment to provide meaningful clinical evidence to support our innovations, we continue to make steady progress with our mini 3D lapoplasty multicenter prospective clinical study. As a reminder, this study utilizes our mini incision lapoplasty system, which offers a much smaller 3.5 centimeter incision approach 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 osteotomy procedures. During Q2, we continue to treat additional patients and onboard new clinical sites for this study, and we look forward to providing future interim report outs on the Mini3D dataset. Our mini-incision lapoplasty approach continues to resonate with growing interest from both surgeons and patients. We continue to see steady adoption of our mini incision system with positive contributions to our average blended selling prices. Interest and attendance by new surgeons at our training events were strong during the second quarter, supporting our plans for additional national and local events with expectations for continued strong participation for the remainder of the year. In addition, our advanced training events held both online and in person where our tenured surgeons can learn new skills and approaches, such as our mini-incision and adductoplasty procedures, are on schedule with strong demand throughout the year. As noted, we've been making additional targeted investments this year to accelerate our market penetration by advancing patient awareness, surgeon education, and demand for our lapoplasty and other related procedures, expanding the footprint and coverage of our bunion focus direct sales channel, and driving more R&D innovations into the marketplace. With our sites aimed at driving long-term market penetration, we're very pleased to report increasing traction and early momentum from these initiatives. Our DTC patient awareness initiatives are a key component of our commercial strategy, designed to educate patients on bunion deformities and our differentiated solution encourage these patients to seek more information and locate lapoplasty surgeons in their market, and ultimately to schedule a surgical consultation. We employ social media, Google search, public relations, and other media, including targeted TV campaigns with strong metrics and performance data that show active patient engagement further supported by feedback from regularly conducted surgeon surveys. We believe we have a highly effective DTC strategy in place. We also have strong conviction in our direct sales force strategy and continue to make focused investments to grow our highly specialized direct field sales team. Our channel analytics continue to show that on average relative to our independent agencies, our direct sales reps penetrate their markets faster, generate higher surgeon utilization levels and sell at higher blended ASPs. These direct reps typically scale with cost leverage demonstrated within 24 months. primarily because they're 100% focused on Therese products and fully utilize our corporate resources and programs. As our direct sales force matures, we look forward to driving expense leverage over time. Turning 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 ancillary products addressing common conditions and IP defense of our technology and innovations. At the end of Q2, we had 36 branded U.S. patents and over 40 U.S. patent applications pending. On August 3rd, we announced the full nationwide commercial release of several new product innovations previewed at the ACFAS Scientific Conference last February. These include 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 that reported an average 15% reduction in time to perform a lapoplasty procedure when using this new three-in-one guide. The Lapoplasty S4A anatomic plating system. This represents our third-generation lapoplasty titanium plate fixation technology and provides an advanced anatomic design to address variabilities in the TMT joint anatomy. and the speed release and tritone release instruments. These new sterile packaged specialized cutting instruments are designed to provide a more accurate and complete surgical release of key soft tissue anatomy commonly involved in the lapoplasty and adductoplasty procedures. Proper soft tissue releases are important in achieving consistent corrections of the bones involved in both bunion and midfoot deformities. We look forward to providing additional updates on our new product innovations as we continue to develop our pipeline centered on our core technologies and IP aimed at improving surgeon user experience, patient outcomes, and supporting continued market penetration. Speaking briefly to reimbursement for our products, CMS has recently released its proposed 2023 Medicare payment rates for hospital outpatient and ASC services to cover facility costs for surgical procedures which includes supplies and implants used in the surgical case. As a reminder, our products are used in procedures covered by well-established existing CPT codes. And we're pleased to note that the reimbursement rates for these particular codes are slated for mid single digit increases in the year 2023. Assuming the proposed 2023 rates are affirmed, this will continue a multi-year trend of low to mid single digit increases and facility reimbursement rates for CPT codes associated with our procedures. In closing, I'm proud of the great execution delivered by our focus team here in Ponte Vedra, Florida, and throughout the country. Based on continued positive feedback we're receiving from the clinical community, we know that we're helping improve the lives of patients suffering from painful, lifestyle-limiting bunion and related midfoot deformities. We are executing to plan, supported by a strong balance sheet that we believe is adequate to take us into profitability and to fully fund our planned commercial, market, and product development initiatives. We have technologies backed by strong clinical data sets and positive reimbursement trends that are advancing the standard of care in the surgical management of bunions. A commercial strategy of proven DTC and direct sales programs that are poised to scale. and a talented team of over 330 employees with a shared passion for our mission to improve the surgical outcomes of bunion patients. With that, I'll now turn the call over to Mark to review our financial performance. Mark.