Paragon 28, Inc.

Good afternoon and welcome to the Paragon 28's fourth quarter and full year 2021 earnings conference call. Currently participants are in listen only mode. We'll be facilitating a question and answer session at the end of today's call. As a reminder this call is being recorded for replay purposes. If you would like to register a question during the presentation you may do so by pressing star followed by one on your telephone keypad. I'll now pass the call over to your host Matt Baxo, Gill Martin Group to begin. Matt please go ahead.

Joining me from Paragon 28 are Albert DaCosta, Chairman and CEO, and Steve Deitch, CFO. Earlier today, Paragon 28 released financial results for the quarter ended December 31st, 2021, and filed its 2021 Form 10-K. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including but not limited to those relating to our operating trends and future financial performance, including our revenue guidance for the first quarter and full year 2022, the impact of COVID-19 on our business, expense management, expectations for hiring, growth in our organization, market opportunity, revenue guidance, commercial expansion, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and certainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. All forward-looking statements are based upon current available information and Paragon 28 assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. For a list of descriptions of the risks and uncertainties associated with our business, please refer to the risk factors section of the public filings with the Securities Exchange Commission, including our 2021 annual report filed on Form 10-K with the SEC earlier this morning. This conference call contains time-sensitive information and is accurate only as of the live broadcast on March 8, 2022. Paragon 28 disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. During this presentation, we will refer to non-GAAP financial measures, adjusted EBITDA, a reconciliation of adjusted EBITDA to net income, the most comparable GAAP financial measure is contained in our press release issued this morning. And with that, I will now turn the call over to Albert.

Thank you, Matt. Good afternoon, and thank you for joining Paragon 28's fourth quarter 2021 investor earnings call, which is our second quarterly call as a publicly traded company. I will provide an overview of our fourth quarter and 2021 revenue performance, plus provide a business update highlighting new product development, commercial initiatives including medical education, and finally SMART28 and our recently announced acquisition of Vizior. Steve will then provide additional detail regarding our fourth quarter and full year 2021 financial results, plus provide an overview of our initial 2022 guidance. We will then open the call to Q&A. Beginning with our fourth quarter in full year 2021 revenue performance, total revenue for the fourth quarter was $42.8 million, just above the high end of the revenue range from our pre-announcement on January 10th, representing growth of 22% compared to the fourth quarter of 2020. U.S. fourth quarter revenue was $38 million, a 19% increase over the prior year, despite accelerated COVID-19 headwinds late in the quarter. U.S. revenue growth was driven by the continued expansion of our sales force combined with an increase in the average revenue per surgeon customer. Our U.S. sales force will continue to expand and it's the destination of choice for passionate, exclusively focused foot and ankle sales specialists. Our comprehensive and innovative product line is also the output of our singularly focused mission and true passion for foot and ankle. Revenue per surgeon customer has and will continue to increase driven by our product suite combined with our best-in-class medical education programs. We trained over 800 U.S. surgeons in the second half of 2021 at our headquarters in Denver and around the country. Our success in the quarter was not limited to the U.S., as international fourth-quarter revenue was $5 million, representing growth of 51%, and was also up $700,000 sequentially compared to the third quarter. Despite increased COVID-19 headwinds in our largest international markets, Full year 2021 revenue was $147.5 million, representing growth of 32.9% compared to full year 2020. Given the numerous challenges resulting from the pandemic throughout the year, I am extremely proud of our 2021 performance, which continues to be driven by our amazing team. Moving to product development, in the fourth quarter of 2021, we received FDA approval of three exciting new products, our Monkey Rings external fixation system, a patient-specific titanium talus spacer, and our REACT syndesmotic stabilization system. We launched the Monkey Bars pin-to-bar external fixation system for trauma surgery in December of 2021. Monkey Bars is our first external fixation system, and we expect it to nicely complement our comprehensive internal fixation product line. The device can be used on fractures where soft tissue injury or infected fracture site may preclude the use of other fracture fixation treatments. Early market response to the system has been strong, and we expect this product to be successful. In December, we received approval for our patient-specific titanium talus spacer, originally approved on February 17th of 2021 by the FDA under a humanitarian device exemption for treatment of avascular necrosis of the ankle joint in cobalt chromium metal alloy. The implant is now available in titanium with a titanium nitride coating. which provides an additional option allowing the surgeon to select which material is best suited for the patient. Patient-specific talus spacer remains the first and only patient-specific total talus replacement implant authorized for use in the United States. The implant is designed to replace the talus, an ankle bone that connects the leg and foot, providing patients access to a novel joint-sparing alternative to amputation or traditional ankle fusion therapies. Finally, we received FDA clearance in late December for our REACT syndesmotic stabilization system, which I believe is one of our most innovative products we have brought to market. The addition of the REACT syndesmotic stabilization system bolsters our ankle fracture and soft tissue product offering, which includes the Gorilla Ankle Fracture Plating System, Gorilla Pilon Plating System, Mini Monster Screw System, and Release Stabilization System. With this comprehensive portfolio, we now offer customers a broad array of innovative solutions for fracture fixation and soft tissue stabilization. We are very excited about the eight products we launched in 2021, in addition to the assets acquired from Additive Orthopedics. We bolstered our growing total ankle portfolio with the Maven PSI guides and Fast-Track laser alignment system, added multiple biologic options to our already robust portfolio, added straddle, span, and many open plates to our silverback ankle fusion plating system, and launched a comprehensive ankle fracture system in ankle fracture 360. We expect to build on this momentum over the next 12 months with an even more robust wave of product launches. Specifically, we will expand our soft tissue offering with novel product launches such as the recently cleared REACT syndesmotic stabilization screw, which will greatly bolster our trauma portfolio. Additionally, soft tissue products will become a larger focus for P28 with multiple planned product launches in 2022. Lastly, we are excited about our next generation TenoTac product, which is a novel device to correct hammer toe deformities. Overall, we have more than 30 products currently in the pipeline and expect to launch 26 of them in 2022 and 2023. Moving to U.S. commercial initiatives, including medical education. We ended the year with 206 producing sales reps, up from 192 at the end of 2020. As a reminder, our US sales force consists primarily of independent sales representatives, the majority of which are exclusive. While the number of producing sales reps has increased significantly over the years, the percent of US revenue generated by these reps has consistently been above 90%. We entered 2022 with a strong commercial platform and will continue to expand the sales force to further deliver strong and sustainable growth in 2022 and beyond. In the U.S., we believe there are approximately 2,400 orthopedic surgeons who specialize in foot and ankle, approximately 2,300 pediatric and trauma surgeons that treat foot and ankle, and approximately 18,000 podiatrists, of which about half we believe are performing foot and ankle surgery. During the fourth quarter of 2021, approximately 1,800 U.S. surgeons, including 575 producing surgeons, performed surgeries utilizing P28 products. We define producing surgeons as those surgeons who utilize P28 products each month of the quarter. With an estimated 15,000 surgeon call points in the U.S., we have a tremendous runway to add new customers and expand our relationships with existing customers. During 2021, we also expanded our international sales and commercial leadership team to take advantage of the large international foot and ankle market opportunity. Since we began operating outside the US in 2016, we have grown our international annual revenue base to over 17 million. However, we have great opportunities to gain more market share in our existing and new markets. Medical education events for existing surgeon customers and potential new surgeon customers have been and will continue to be a key strength and driver of growth for Paragon 28. Our medical education team and infrastructure are best in class, highlighted by our 250-person auditorium and a 40-station cadaveric lab at our Denver headquarters, which opened late in 2019. This facility is now used almost every week for hands-on training and learning with physicians and our commercial team. In the fourth quarter, we trained over 200 U.S. surgeons. As a reminder, the fourth quarter has fewer medical education events compared to the third quarter, given the heavy concentration of foot and ankle procedures performed at the end of each calendar year. Finally, transitioning to our SMART28 initiatives and the DSYOR acquisition, we kicked off 2022 by acquiring DSYOR. a cutting-edge three-dimensional modeling and preoperative planning software company. Dizior advances SMART28 in our previously communicated strategy to target unique technologies designed to modernize all aspects of foot and ankle surgery and improve patient outcomes. Dizior's foot and ankle surgical modules will provide surgeons the objective data needed to better measure and visualize each patient's deformity. Through further development, we aim to incorporate the use of patient-specific surgical plans to ensure selection of an optimal implant for each patient and better prediction and evaluation of patient outcomes. The initial focus of the DSIOR integration into SMaR28 will be to accelerate internal research and development efforts to expand and enhance surgical preoperative planning capabilities. Following this phase, our plan is to launch the DSIOR platform to the broader surgical community. which we believe will lead to future revenue synergies. Our goal and the reason for the DSIOR acquisition is to improve patient outcomes by providing surgeons with more information about the patient's anatomy and measuring planned to actual surgical outcomes. Using this data, we plan to continuously refine preoperative plans, perform surgeries with optimal implants for the patient, and perform post-surgical evaluation through further enabling technologies. including artificial intelligence. Dizior and Smart28 are critical components of our plan to improve patient outcomes. We believe that Dizior acquisition will bolster our producing surgeon base, drive further commercial productivity, and ultimately improve patient outcomes, expanding the foot and ankle market and P28's market share. In summary, I am thrilled with the team's execution in 2021, including receiving approvals for eight new products, expanding our commercial teams and customer base, answering the strong demand for more surgeon education by training a record number of surgeons, and building critical corporate infrastructures to scale with our growth. We also completed two important acquisitions in the past year and also went public and listed our F&A common stock on the New York Stock Exchange. However, the best is yet to come. I will now turn it over to Steve. Steve?