Treace Medical Concepts, Inc.

Good day and thank you for standing by. Welcome to the Treece Medical first quarter 2023 earnings 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 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Vivian Cervantes, Investor Relations at Guild Martin Group. Please go ahead.

Thanks, Teresa. Good afternoon, everyone, and welcome to our first quarter 2023 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 and supplemental materials 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 other 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 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 first quarter to be filed tomorrow, And our form 10-K for full year 2022 filed on March 8, 2023, for a detailed presentation of risks. With that, I now turn the call over to John.

Thank you, Vivian. Good afternoon, everyone, and thanks for joining us on our first quarter 2023 earnings conference call. Before we begin, I'd like to take a moment to acknowledge everyone at Treece Medical for their dedication, focused execution, and passion for our business and its mission to improve surgical outcomes for bunion patients. It's our team's collective effort, along with the support of our loyal surgeon user base and the positive impact our technologies are having on the lives of the patients they treat that has supported the success and growth for our company for nearly eight years now since our first lapelplasty procedure was performed. In the first quarter, revenue increased 45% as compared to the same period in 2022, with steady gains across all of our key operating metrics. It's clear to us that the strategic investments we continue to make in our business are delivering strong returns, confirming we have the right strategies in place to expand the market penetration of our differentiating technologies. Before I go into details about the quarter, let's start with our market summary on where we stand today. The Lapoplasty solution was specifically developed to correct the root cause of the bunion and address a large and underserved market. We've identified an estimated addressable $5 billion plus U.S. market of 1.1 million annual surgical candidates, of which only 450,000 undergo bunion surgery each year, which we believe is mainly due to limitations associated with current standards of care. As of the first quarter of 2023, we have penetrated approximately 5.8% of the estimated 450,000 annual bunion surgical procedures in the US, up from 4.3% in the first quarter of 2022, and reflecting approximately 2.4% market penetration of the 1.1 million annual US surgical candidates, which constitute our $5 billion addressable market in the US. Turning to our Q1 results, revenue in the first quarter was $42.2 million, representing 45% growth over the first quarter of 2022. During the first quarter, we continued to benefit from our commercial strategies and investments, growing Salesforce productivity coupled with strong seasonal patient demand trends that decidedly extended our seasonal strength from the fourth quarter into the first quarter. Therefore, we are extremely pleased, not only with our top-line growth, but also the sustained positive trends in our key operating metrics, including our expanding direct budget-focused sales team, which accounted for 79% of our Q1 revenue mix, compared to 63% during the first quarter of 2022, strong, steady increases in the number of new surgeon users, ending Q1 with 2,499 active surgeons, up 31% year-over-year, a year-over-year increase in our trailing 12-month surgeon utilization, with an average of 10.5 kits per active surgeon in Q1, up from 10.1 kits a year ago, and strong blended average selling prices of $6,244 per laparoplasty kit sold in a quarter. representing 13% growth over a prior year as our expanding direct sales team more effectively leverages our broader portfolio of problem-solving complementary product solutions, such as a ductoplasty, our fast-take screws, and our speed release and tri-tone tissue release instruments into their lapoplasty cases. Our strategic investments and commercial focus have continued to support the growth of our business, giving us confidence that we have a well-defined, proven, and scalable commercial strategy. given these positive trends we're raising our full year 2023 revenue guidance to 190 to 196 million which reflects an increase of 34 to 38 percent over 2022 revenue we remain committed to balancing aggressive execution of our targeted commercial initiatives to maximize our growth and market penetration while delivering modest improvement in our expense leverage Shifting to our commercial and market development activities. As we previously discussed, we're continuing our targeted investments in 2023 with the goal of increasing our market penetration by expanding the footprint and coverage of our bunion-focused direct sales channel, advancing our patient awareness DTC initiatives, and driving more targeted R&D innovations into the market. 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 that we're aware of in the U.S. med tech industry. We believe this has contributed meaningfully to our revenue and market penetration. In the first quarter, 79% of our revenue was generated by our direct sales force, up sequentially from 77% in the fourth quarter and up from 63% in the same period last year. We continue to aggressively invest in our direct channel with a target of having over 200 quota-carrying direct sales reps by year-end, up from 168 at the end of 2022. We continue to see increasing productivity from the 87 direct reps that we hired during 2022. As a reminder, our historic data demonstrates that our direct reps typically scale with significant revenue and cost leverage achieved within 24 months. primarily because they're exclusively focused on our products and fully utilize our suite of corporate resources and programs. Our patient awareness DTC initiatives are a key component of our commercial strategy. As you may recall, our investment in DTC is resulting in hundreds of thousands of patients visiting our website every month and tens of thousands of patients searching for laparoplasty surgeons in their area. With one in four surgeons in the U.S. using LabClassy, we now have a larger and expanding national surgeon base that can field inquiries from a higher volume of patients. On strong momentum, we stepped up our investments and initiated our DTC efforts earlier this year compared to last year to drive greater awareness amongst the target patient population. We have a great foundation of surgeons and sales reps in place to support growing patient interest and remain focused on our patient awareness ETC initiatives that are designed to educate and steadily increase the number of potential patients visiting our website, become educated on the lapoplasty procedure, locate experienced lapoplasty surgeons in their area, and to ultimately schedule a consultation. Our surgeon education and training programs also continue to be well received. Interests and attendance by new surgeons at our training events remain strong, with many of our events oversubscribed. Likewise, our advanced training events, both online and in person, where our more tenured surgeons can acquire advanced skills and learn new approaches and procedures like adductoplasty, continue to show strong demand. Our education programs play a key role in the effective onboarding of new surgeon users and increasing the skill of our existing surgeon users, broadening their patient education. In the first quarter, we onboarded 112 new surgeon users who were trained on the safe and effective use of our technologies through these training programs. We're encouraged to see continuing growth in our surgeon user base. As of the first quarter, our active surgeon user base, which includes surgeons who performed at least one case in the trailing 12 months, has achieved approximately 25% penetration of the estimated 10,000 foot and ankle surgeons in the U.S. performing bunion surgery. As our surgeon base continues to mature, we look forward to utilization gains with increased use of our lapoplasty and adductoplasty systems, as well as further adoption of our growing portfolio of complementary products, all supported by our expanding direct sales channel, differentiating clinical data sets, and patient awareness BTC initiatives. Speaking now to our product development strategy, we have an R&D team that's 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 complementary technologies addressing other bunion-related pathologies and IP defense of our technology and innovations. As announced in April, to date we have 47 granted U.S. patents and 51 U.S. patent applications pending. We highlighted two new exciting product innovations at the American College of Foot and Ankle Surgeons this past February, namely the micro-lapoplasty system. This is an advanced instrumentation option designed to further reduce both the incision size and related tissue dissection with the lapoplasty procedure. This exciting evolution of our instrumentation allows the patented lapoplasty procedure to be performed through two centimeter incisions. and our speed plate implant fixation platform. This is a new fixation technology platform designed for rapid insertion through small two centimeter incisions, serving as both an enabling technology for the micro-lapoplasty procedure, but also with broader applicability to both our standard and mini-incision lapoplasty systems, as well as our ductoplasty mid-foot procedures. Feedback on speed play from surgeons who have received early clinical access during the quarter has been highly favorable, with emphasis not only on the time savings, but also the excellent stability and the dynamic compression benefits of the implant as well. We anticipate commercial launch of these technologies by year-end. We're excited about the potential benefits microlapoplasty and speed play combination can bring to patients. As with any procedure that involves smaller incisions and less tissue dissection, we believe this could translate to even faster patient recovery with less pain and swelling. We look forward to providing additional updates on our new product innovations as we continue to develop our pipeline centered around our core technologies and IP aimed at improving Sturgeon user experience, patient outcomes, and supporting continued market penetration. Turning to clinical data, a key differentiating driver for our business is our commitment to clinical evidence, which we believe resonates with both Sturgeons 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. Our interim clinical data is demonstrating rapid return to weight-bearing in a walking boot with low recurrence rates at 12 and 24 months, as well as positive patient-reported outcome scores following our funding correction procedure. at the 2023 american college of foot and ankle surgeons annual scientific conference this past february we announced an interim analysis from our flagship align 3d prospective lapoplasty study on 128 patients with at least 24-month follow-up which demonstrated early return to weight bearing in a walking boot at an average of 8.1 days a low recurrence rate of 0.9 percent at 24 months 80.8% reduction in pain measured using the visual analog scale, or VAS, at 24 months. 92 and 90% improvement in walking, standing, and social interaction patient-reported quality-of-life measures, respectively, using the Manchester-Oxford foot questionnaire through 36 months. And notably, 97.3% of patients reported they were satisfied or very satisfied with the overall results of the lapoplasty procedure at 36 months. The ACVAS scientific poster, which includes additional details, is available on our website. 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 the lapoplasty procedure is making on patients' lives, not only physically but socially as well, as demonstrated by the 97% patient satisfaction rating three years post-lapoplasty surgery. As a reminder, later this year, we expect to submit our primary endpoint Align3D manuscript for publication in a peer-reviewed journal. This is an exciting milestone culmination of activities that began five years ago with the first patient enrolled in 2018. Again, we believe these positive interim patient data coming from our differentiated Align3D study resonates strongly with surgeons and patient communities and is reinforcing further market adoption of the lapoplasty procedure. I'd like to highlight one additional item that occurred right after the end of the quarter. In early April, we published our inaugural Environmental, Social, and Governance Report, which outlines our focus and ongoing progress towards ESG initiatives across TRECE. We will continue to integrate ESG considerations into the ways we manage our business while carrying on our mission to improve surgical outcomes for bunion patients. In closing, I'm proud of another great quarter of execution at TRECE. Our solid execution, driven by our talented team of employees and proven strategic investments, supported by our strong balance sheet, continue to drive our momentum. We believe we have developed a specialized and scalable business model that's fueling our growth strategy and our mission to advance the standard of care in the surgical correction of bunion and related midfoot deformities. With that, I'll now turn the call over to Mark to review our financial performance. Mark?