Treace Medical Concepts, Inc.

Good day, and thank you for standing by. Welcome to Treece Medical Concepts' third quarter 2023 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 that session, you'll need to press star 1-1 on your telephone, and you'll 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 turn the conference over to your first speaker today, Julie Dewey. Please go ahead.

Good afternoon, everyone, and welcome to our third quarter 2023 earnings conference call. We appreciate you joining us. I'm Julie Dewey, Treece's Chief Communications and IR Officer. With me today are John Treece, Chief Executive Officer, and Mark Hare, Chief Financial Officer. During the call, John and Mark will offer commentary on our commercial activity and review our third quarter financial results released after the close of market today, after which we'll 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.treese.com. This call is being recorded and will be archived in the investor section of our website. Before we begin, we'd 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 Form 10-Q for the third quarter to be filed today and our Form 10-K for the full year 2022, filed on March 8, 2023, for a detailed presentation of risks. With that, I will now turn the call over to John.

Thank you, Julie. Good afternoon, everyone, and thank you for joining us. I'm going to focus my comments today on our third quarter results, the exciting progress of our speed plate implant launch, and other growth drivers. Following my comments, Mark will cover the specifics of our Q3 results and guidance. We continue to execute on our strategic plan, resulting in year-to-date U.S. revenue growth of 36% that we believe is significantly above foot and ankle peers, encouraging adjusted EBITDA progress, and continued gains across our key operating metrics reaffirming once again that we have the right strategies in place to expand the market penetration of our differentiated technologies. 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've identified an estimated addressable $5 billion US market of an estimated 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. We believe our proprietary lapoplasty system addresses these limitations by surgically correcting all three planes of the bunion deformity and securing the unstable joint, thereby addressing the root cause of the bunion. As of third quarter 2023, we penetrated approximately 6.3% of the estimated 450,000 annual surgical bunion corrections in the U.S., up from 5% in the third quarter of 2022 and reflecting approximately 2.6% market penetration of the estimated 1.1 million annual U.S. surgical candidates that constitute our $5 billion-plus total addressable market in the U.S. In addition to the large and under-penetrated market for treating bunions, late in the quarter, we also initiated commercialization of several new technologies including our speed plate fixation platform, hammer toe system, and our Lapotome and Razortome sterile instruments. And later in Q4, we'll begin commercialization of our micro-lapoplasty instrumentation. All these new technologies are expected to meaningfully expand our addressable market opportunity and to include additional procedures that complement our proprietary lapoplasty and adductoplasty procedures and fuel strong growth for years to come without diluting our focus. We're particularly excited about the opportunity for our speed plate fixation platform. I'll cover speed plate in more detail later in my remarks, but this is an exciting launch for our company. In fact, I believe this is one of the most important launches to date for Treece. These new product introductions are expected to begin contributing to our growth profile this quarter with a more meaningful contribution expected in 2024 and beyond. Turning now to our Q3 results. Revenue in the third quarter was $40.8 million and grew 23% over prior year and was impacted by prioritized travel and vacations for our patient demographic, which led to lower than anticipated demand for our lapoplasty procedure during the quarter. You'll also recall that we grew 53% in Q3 of last year, and with one less selling day this year, this makes for a tough comp. We continue to advance our key performance metrics in the third quarter, including Substantial gains in the number of new surgeon users, ending Q3 with 2,691 active surgeon users, up 110 for the quarter, and up 21% year-over-year. A year-over-year increase in trailing 12-month surgeon utilization, with an average of 10.6 kits per active surgeon in Q3, up from 10.1 kits a year ago. Record blended average selling price of $6,311 per lapoplasty kit sold in the quarter, up 9% over prior year and driven by continued market adoption of our S4A lapoplasty plates, a ductoplasty, and our other problem-solving complementary products, such as our speed release and tri-tone sterile instruments. We also saw some fairly early impact from speed plate in our two new sterile use osteotomes in the quarter. 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. We are updating our full year 2023 revenue guidance to $182 to $186 million, which is a midpoint reflection increase of 30% over 2022 revenue. There are two main reasons that are driving this guidance change. First, our year-to-date surgeon count is lower than anticipated due to prioritized travel and vacations from our patient demographic that started in the second quarter and continued through most of the third quarter. As a reminder, we typically see a large step up in Q4 bunion procedures, which concentrate heavily at year-end, primarily due to insurance deductibles being met. Second, we also made the strategic decision to further refine our speed plate platform. extending our timeline to achieve full commercial supply until the first quarter of 2024. This decision has enabled us to make a generation two speed plate technology, which is more broadly applicable across a greater range of clinical applications, which we believe will expand our footprint in the foot and ankle market. Shifting to our commercial and market development activities. As we previously discussed, we have continued 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's 100% focused on bunion and related midfoot surgery, the only such organization that we're aware of in the U.S. medtech industry. We believe this has contributed meaningfully to our revenue and market penetration over the past years. In the third quarter, 81% of our revenue was generated by our direct sales force, up from 74% in the same period last year. We continue to see increasing productivity from our direct reps that we added during 2022. And as we discussed in the past, our historical 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 expanding offering of technologies and fully utilize our suite of corporate resources and programs. Further, over the past year and a half, we have aggressively invested in our direct sales channel. As of our last earnings call, we achieved our full year target of having 200 quota-carrying direct reps in the end of Q2, which was much earlier than originally planned. We continue to hire more additional reps to ensure that we're prudently balancing growth and delivering modest improvements in expense leverage, all while increasing revenues from our direct sales channel. Demand for our introductory and advanced surgeon education and training programs, both online and in-person, remains robust, and we look forward to executing additional training sessions that we have slated in Q4. These programs play a key role in effective onboarding of new surgeon users through introductory lapoplasty courses, and also importantly, introducing them to our complementary procedures and technology through our advanced training courses. By doing this, we are becoming a broader solution provider to our surgeon customers and expanding our footprint in the foot and ankle market. We're encouraged to see continuing growth in our active surgeon base, with 2,691 active surgeons in Q3, which is up 21% from the prior year period. Notably, new surgeon additions ramped up substantially in September, which match the company's all-time record for the highest number of monthly surgeon ads. As our surgeon base continues to develop and gain tenure, we anticipate 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 DTC initiatives. Now I'd like to turn to our new SpeedPlate fixation platform. During September, we announced that we received FDA 510 clearance for our second generation anatomic speed plate design and initiated our early launch activities. Again, our speed plate fixation technology is designed for rapid surgical insertion while providing both stabilization and dynamic compression of the prepared joint surfaces during healing. Early feedback on our Gen 2 speed plate design has been overwhelmingly positive, with users highlighting the speed of application and the dynamic bone compression as well as broad versatility across lapoplasty, adductoplasty, as well as many other common procedures involving stabilization and fusion of the bones in the foot. We believe this technology is now allowing us to attract a new audience of surgeons, those that prefer nitinol staples, which provide dynamic compression of the fusion site. I can't overemphasize how important this launch is for our company and the favorable reception that Speedplate has already garnered from surgeon users. In fact, we've had many surgeons tell us that the speed plate implant is, quote, the biggest thing from trees since lapoplasty and a, quote, total game changer. We expect the speed plate launch to begin supporting our growth in Q4 and to continue to accelerate through 2024 and beyond. We believe our speed plate platform has the ability to set the standard for fixation in bunion and midfoot corrections and over time achieve broad adoption across many other common bone fusion procedures in the foot and ankle. We look forward to bringing this exciting technology to many more surgeons and their patients in the months ahead. Next, our 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 now through a 2-centimeter incision. We anticipate the launch of our microlapoplasty instrumentation to begin late in the fourth quarter and will continue to build during the first half of 2024. We're excited about the potential benefits this microlapoplasty and speed play combination could bring to patients. As with any procedure that involves smaller incisions and less tissue dissection and trauma, we believe this could translate to even faster recovery with less pain and less swelling. We also initiated the launch of our new hammer toe fixation system. This is a sterile pack procedure kit that expands our reach into the high volume hammer toe correction space. With no prior such offering in our portfolio and approximately 700,000 US procedures per year, we believe this launch positions us positively for additional blended ASP growth, surgeon utilization expansion, and continued above peer revenue growth. Though still early in our limited launch, surgeons who have had the opportunity to use it clinically have commented on its ease of use and have expressed a clear willingness to adopt our implant in their trees cases. We estimate that approximately 30% of all bunion procedures involve simultaneous hammer-toe correction, which is why we believe this represents an important addition to our portfolio that will support continued, compelling revenue growth over time. While we're very excited about the growth opportunity that all of these product launches represent, there's even more to come from our robust product development pipeline. In fact, inclusive of the launches I've just discussed, We have 10 new innovation launches slated for over the next 12 months. We'll provide additional updates on our new product innovations as we continue to develop our pipeline centered around our core technologies and IP aimed at improving surgeon user experience, patient outcomes, and supporting continued market penetration. In closing, we've made encouraging progress in the third quarter with solid execution from our talented team of employees. We're at the beginning of what we believe will be a strong cadence of new product launches, as well as cause for real excitement with our new Speedplay platform and our other emerging growth drivers still to come in 2024. With accelerating additions to our surgeon base, increasing productivity of our direct sales channel, and several new technologies that are already starting to make a positive impact on customer demand, I'm confident that we have the right strategy in place to outpace our competitors, drive continued market penetration, and deliver strong top line growth for the remainder of this year and beyond. With that, I'll now turn the call over to Mark to review our financial performance. Mark.