Treace Medical Concepts, Inc.

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Good afternoon everyone and welcome to our third 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 third quarter financial results released after the close of 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 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 10Q for the third quarter and our form 10K for the full year 2021 filed on March 4, 2022 for a detailed presentation of risks. With that, I will now turn the call over to John.

Thank you, Vivian. Good afternoon, everyone, and thank you for joining us on our third quarter 2022 earnings conference call. In the third quarter, we continued to execute on our strategic plan with positive momentum carried through, resulting in sustained strong revenue growth and steady gains in our key operating metrics. Revenue in the quarter increased 53% and increased 51% in the first nine months of 2022. With our investments clearly delivering on our growth, our operations are poised to scale beginning in Q4. Before I go into details about the quarter, let's start with our market summary on where we stand today. Our disruptive lapoplasty solution was specifically developed to correct the root cause of the bunion and address a large and underserved market. We have identified an addressable $5 billion US 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. In the third quarter of 2022, we penetrated approximately 5% of the estimated 450,000 annual surgical bunion procedures in the US, up from 3.5% in the third quarter of 2021, and reflecting approximately 2% market penetration of the 1.1 million annual US surgical candidates. Turning to our Q3 results, revenue in the third quarter was 33.1 million, representing 53% growth over the third quarter of 2021. During Q3, we continue to benefit from our commercial strategies and investments with improving demand trends as the quarter progressed. Therefore, 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 focus sales team, which accounted for 74% of our Q3 revenue mix, coming in well ahead of our 70% target for the year. Strong steady increases in the number of new surgeon users, ending Q3 with 2,218 active surgeons, up 39% year-over-year. A year-over-year increase in trailing 12-month surgeon utilization, with 10.1 kits per surgeon in Q3, up from 10.0 kits a year ago. And strong blended average selling prices of $5,794 per case representing 6% growth over the prior year due to continued adoption of our lapoplasty mini-incision system complemented by increasing utilization of our adductoplasty mid-flip correction system and from early benefit from our very recently commercialized technologies, specifically our S4A anatomic plating system and speed release and tritone tissue release instruments. Speaking to our S4A plating system for a moment, we've been very pleased with the early response we're seeing in the market. Specifically, we're seeing that surgeons are converting from our conventional plating kits to the S4A system because of its advanced anatomic fit and design advantages. As adoption trends continue, we believe this has the potential to positively contribute to our blended ASP over time as S4A carries a premium price versus our conventional plating systems. Investments in our patient awareness DTC programs, expansion of our direct bunion focus sales channel, and targeted R&D innovations have supported our revenue growth 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 fueling our growth. Given these positive trends, we're raising our full year 2022 revenue guidance to $135 to $138 million which reflects an increase of 43% to 46% over 2021 revenue. Shifting now to our commercial and market development activities. As previously discussed, we've been making targeted investments this year with the goal of increasing our market penetration by advancing patient awareness, surge in education, and demand for our lapoplasty and other related procedures, expanding the footprint and coverage of our bunion-focused direct sales channel, and driving more targeted R&D innovations into the marketplace. Our DTC patient awareness initiatives are a key component of our commercial strategy and are designed to educate patients on bunion deformities and our differentiated solution, encourage patients to seek more information and locate laparoplasty 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 and more patients have been asking for lapoplasty while visiting their physicians. Our surgeon education and training programs also continue to be well received. Interest and attendance by new surgeons at our training events have been strong during 2022. Likewise, our advanced training events, both online and in-person, where our tenured surgeons can acquire advanced skills and learn new approaches, such as our mini-incision and adductoplasty procedures, continue to show strong demand. Our education programs play a key role in the effective onboarding of new surgeon users and increasing skills of existing surgeons, broadening their patient indications. Through the first nine months of 2022, We added 435 active surgeons compared to 317 surgeons in the same period last year. This represents a 37% increase. We continue to experience high turnout as evidenced by our most recent national training event in New Orleans, which was heavily oversubscribed. We're encouraged to see steady gains in our surgeon user base. As of the third quarter, our active surgeon base, which includes surgeons who performed at least one case in the trailing 12 months, has now achieved 22% 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 utilization gains, not only with increased use of lapoplasty, but also our ductoplasty system, as well as further adoption of our growing portfolio of complimentary ancillary products, all supported by our expanding direct sales channel and patient education and awareness initiatives. This past weekend, we held a master's level educational event for our Centurion surgeons. The Centurion group of surgeons represents some of our most experienced lapoplasty surgeons in the country. The event was held at our new company headquarters in Ponte Vedra, where we now have expanded didactic and hands-on lab space designed for larger group training events. This first of its kind educational event focused on advanced lapoplasty and adductoplasty techniques, pre and post-op patient management, interactive reviews of challenging cases and clinical research, and also included hands-on training with some of our future technologies, including our microincision and speed plate systems. We are pleased to see the high level of interest and attendance for this meeting, as well as the enthusiasm expressed by the attendees for the unique evergreen learning programs we provide the lapoplasty surgeon community. This community is a growing network of surgeons across the country, all with a shared passion for lapoplasty and with a desire to keep advancing their knowledge and honing their surgical skills in an effort to continuously improve the care they provide to their patients. We look forward to hosting additional surgeon training events at our new state-of-the-art training facility in the future. Turning now to our direct sales channel. We have a highly specialized team at Treece, including a rapidly growing direct sales force. one that is 100% focused on bunion and related midfoot surgery and represents the only such organization we're aware of in the med tech industry. We believe this has contributed meaningfully to our revenue and market penetration. We continue to invest in our direct sales team and transition to a higher mix of direct revenue over time. In the third quarter, 74% of our revenue was generated by our direct sales force, up sequentially 68% from the second quarter, and up 53% from just a year ago. This also came in well ahead of our previously communicated 70% year-end target, and we now anticipate exiting the year approaching 80% direct revenue mix. We ended the third quarter with 143 quota-carrying direct sales reps, a 77% increase from the 81 direct reps we had at the end of 2021. On strong interest from candidates to join our employee sales team, we continue to expect to exceed our year-end goal of 150 quota-carrying sales reps. We believe these new reps are joining Treece because of our unique growth profile and our culture, driven by innovative technologies that are backed by strong clinical data sets and supported by our market-leading patient and surgeon education programs. Including associate sales reps, clinical specialists, and sales management, our employee fleet in the field increased 63% to 234 sales employees in the third quarter compared to 144 employees at the end of last year. We continue to experience the beneficial impacts from our direct sales team. Our analytics show that our direct reps on average penetrate their markets faster, generate higher surgeon utilization levels, and sell at higher blended ASPs. Our direct reps typically scale with significant revenue and cost leverage achieved within 12 to 24 months primarily because they're exclusively focused on our products and fully utilize our full suite of corporate resources and programs. Speaking now to our product development strategy, we have an R&D team committed to driving innovation to maintain our industry leadership with programs for next generation bunion correction systems, as well as the development of new ancillary products addressing other bunion related pathologies and IP defense of our technology and innovations. At the end of Q3, We had 38 granted U.S. patents and over 45 U.S. patent applications pending. We highlighted two new exciting product innovations at the American Orthopedic Foot and Ankle Society, or AOFAS, annual meeting in September, including the Lapoplasty Microincision System. This is an advanced instrumentation option designed to further reduce both the incision size and related tissue dissection with our procedure. This evolution of our instrumentation allows our patented lapoplasty procedure to be performed through two centimeter or smaller incisions. And our speed plate implant fixation platform. This is a new fixation technology platform designed for rapid insertion through small incisions, serving as both an enabling technology for the microlapoplasty procedure and with broader applicability for adductoplasty midfoot procedures as well. As a reminder, the speed plate is currently under 510K review with the FDA and is not available for sale in the U.S. We anticipate initial commercial availability of both of these technologies within the first half of 2023, pending FDA clearance. We're excited about the potential benefits this microlapoplasty speed plate combination could bring to patients. As with any procedure that involves smaller incisions and less tissue dissection, We believe this can translate to even faster recovery with less pain and less swelling. In terms of reimbursement for our products, CMS recently released its final rule for 2023 Medicare payment rates for hospital outpatient and ASC services to cover facility costs for surgical procedures, which includes implants used in the surgical case. As a reminder, our products are used in procedures covered by certain well-established DPT codes. And we are pleased to note that the 2023 reimbursement rates for these codes have been finalized with mid single digit increases effective January. This continues a multi-year trend of low to mid single digit increases in facility reimbursement rates for the codes associated with our procedures. 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. Turning to our clinical data, a key differentiating driver for our business is our commitment to clinical evidence, which we believe resonates well with both surgeons and patients. From what we can see in the marketplace, we believe 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. At the 2022 Annual AOFAS Conference, we announced new interim data from the Align3D Multi-Center Prospective Clinical Study demonstrating positive radiographic and patient-reported outcomes on patients with at least 12-month follow-up following the lapoplasty procedure. Building upon previous interim data analysis, data on 159 study participants demonstrated early return to weight-bearing in a walking boot at an average of 8.3 days, a low recurrence rate defined as loss of radiographic correction with loss of correction observed in 1.4% of patients, and an 81% reduction in pain by visual analog scale, or VAS, and an 82% and 84% improvement in walking, standing, and social interaction scores, respectively, based on the Manchester Oxford Foot Questionnaire, or MOCS-FQ, reported at 24 months post-procedure. We believe we're the only company to offer this level of clinical evidence on a commercial surgical bunion product, and it's rewarding to see the meaningful impact that lapoplasty is making on patients' lives, not only physically, but socially and mentally as well, through quantifiable interim data from validated scoring systems. Again, we believe the positive interim data coming out of our differentiated Align3D study resonates strongly with surgeon and patient communities and is reinforcing further market adoption of lapoplasty. I'd now like to highlight two additional developments within the quarter. On September 20th, we held our first surgeon advisor event at the NASDAQ market site in New York. The event included presentations from five leading lapoplasty and adductoplasty surgeons highlighting the significant synergies of these two complementary surgical procedures, given that up to 30% of bunion patients present with a coexisting deformity of the midfoot, known as metatarsus adductus, and that the clinical literature demonstrates a higher rate of bunion recurrence in patients where the bunion is corrected, but this midfoot deformity is left unaddressed. I want to expand on the significance of our adductoplasty innovation. Just as a lapoplasty system transformed a challenging freehand bunion operation into an instrumented reproducible procedure, facilitating the potential for broad adoption by the foot and ankle surgeon community, we believe a ductoplasty follows the same model. We again are the first to offer an innovative instrumented system designed to deliver reproducible results for yet another technically challenging freehand operation of the midfoot that has been largely left unaddressed until now. We're excited about the long-term opportunity that adductaplasty offers to surgeons, their patients, and for our business. Early surgeon feedback has been very positive. A recent surgeon user survey indicates that on average, they anticipate using adductaplasty in up to 15% of their lapoplasty procedures. Contributing approximately $4,000 of additional revenue to lapoplasty cases Adductiplasty represents a significant incremental market opportunity that we are focused on penetrating, applying our formula of rapid design innovation, surgeon training, clinical data, and direct-to-patient awareness activities, all promoted and supported through our Bunyan-focused direct sales force and fleet of expert clinical specialist employees. Adductiplasty is driving increased interest in treat medical products in our training programs, and is also helping us gain new account approvals. And finally, I'm pleased to introduce and welcome two new board members, Lance Berry and Jane Kiernan. Lance and Jane bring decades of combined experience leading medical device companies to our board. Their perspectives will be valuable as we accelerate our strategic execution into our next phase of growth. In closing, we're executing to a plan supported by strong balance sheet that we believe is adequate to fully fund our planned commercial, market, and product development initiatives, and take us into profitability. We've developed a specialized and scalable business model centered around our disruptive first mover technologies backed by strong IP, clinical data sets, and positive reimbursement trends that are advancing the standard of care and the surgical correction of bunions and related midfoot deformities. A differentiated and proven commercial strategy driven by industry's only bunion-focused direct sales channel and DTC patient awareness and education initiatives, all supported by a talented team of over 375 Therese Medical employees, all with a shared passion for our mission to improve the surgical outcomes for Bunyan patients. With that, I'll now turn the call over to Mark to review our financial performance. Mark.