Paragon 28, Inc.

Good afternoon and welcome to Paragon 28's third quarter 2022 earnings conference call. Currently, participants are in listen-only mode. We will be facilitating a question and answer session at the end of today's call. As a reminder, this call is being recorded for repay purposes. And I would now like to hand the conference over to your host for today, Mr. Matthew Brinkman. Mr. Brinkman, please go ahead.

Good afternoon, and thank you for joining Paragon 28's third quarter 2022 financial results and earnings call. Presenting on today's call are Albert DaCosta, Chairman and DEO, and Steve Deitch, CFO. Before we begin, I would like to remind you that management will make statements during this call that will include forward-looking statements within the meaning of federal securities law, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of future events, results, or performance. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from these forward-looking statements. All forward-looking statements are based upon current available information, and Paragon 28 assumes no obligation except as required by law to update these statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today. During this presentation, we'll refer to the non-GAAP financial measure of adjusted EBITDA. A reconciliation to the most comparable GAAP financial measure, net income, is contained in our press release issued earlier today. And with that, I'll turn the call over to Albert.

Thanks, Matt. Good afternoon and welcome to our third quarter 2022 earnings call. I will provide an overview of our third quarter and give a business update. Steve will then provide additional detail regarding our quarterly results and provide an overview of our 2022 revenue guidance. We will then open the call to Q&A. Before we kick off, we have officially eclipsed one year as a publicly traded company, and it's been a phenomenal journey for Paragon28. This has been a year of substantial growth and investment, and we are feeling great about the future. We're so grateful for our team, Surgeon customers, and all of our partners for driving Paragon 28's continued success over the last 12 months, especially considering the challenging macroeconomic backdrop. With that, I will begin with our third quarter 2022 revenue performance. We are very pleased with our third quarter results. Total revenue for the third quarter was a record $46 million, representing growth of 28% compared to the third quarter of 2021. Foreign currency headwinds reduced our third quarter net revenue and net revenue growth by approximately $800,000 and 2.1 percentage points, respectively, as compared to the prior year period. Third quarter U.S. revenue was a record $40 million, representing growth of 25% compared to the third quarter of 2021. Our U.S. growth is attributable to the success of our new product launches, as well as increased surgeon adoption and utilization driven by investments in medical education. These drivers ultimately resulted in strong increases in Salesforce productivity. We have also significantly expanded our Salesforce over the last 12 months. Third quarter international revenue was a record $6 million, representing impressive reported growth of 52% compared to the third quarter of 2021. Growth in the quarter was once again driven primarily by our three largest international markets of Australia, South Africa, and the United Kingdom, with Spain also a top driver of our international growth due to increased distribution capabilities. I will now share details around our key U.S. revenue growth drivers. Our broad and innovative product portfolio has been and will continue to be the tip of the spear of Paragon 28 success. Our exciting and consistently fresh product line enables us to build deeper relationships with existing Surgeon customers and add new Surgeon customers. And importantly, it is a key enabler for the expansion of our outstanding sales force. We have continued to innovate across the portfolio and have launched 10 products year to date in 2022. Many of these new products were in categories where we see great potential to improve outcomes and a runway for future growth. Through the third quarter of 2022, we have generated strong momentum with the launch of new products that are highly complementary to the existing products in our portfolio. We are very excited about our recent launches in external fixation and soft tissue, as these products are often used in conjunction with other procedures. So far, 2022 has been a robust year of product development, adding to our tremendous momentum over the past several years. We are approaching 80 product families launched since our inception as a company in 2011, including nearly 50 launches since the start of 2017. We are focused on driving R&D to improve patient outcomes and address complex foot and ankle cases with high complication rates. For example, in 2020, we launched our phantom hindfoot TTC nail for ankle fusion, as well as our Apex 3D total ankle replacement. In 2021, we added complementary products such as Maven patient-specific instrumentation and the Fast-Track laser alignment system, both for our total ankle replacement. Through 2022, we have also launched a line of external fixation products with monkey bars and monkey rings, as well as soft tissue solutions such as Grappler Suture Anchor, Pinotac 2.0, and our REACT stabilization system. We expect to continue this pace and focus within product development and will bring a balance of new and next generation technologies to market over the next few years. I mentioned many of these new product launches have been in complex cases like total ankle fractures and severe Charcot deformities, which have brought us more opportunities in medical education with both new and existing surgeon customers, while also attracting new sales talent with expertise in such cases. Through the rest of 2022 and going forward, our product pipeline remains as strong as ever and is expected to continue to drive future growth. Of course, our great products only get us so far without the strength and culture of our phenomenal Salesforce, which has continued to consistently execute. Once again, Salesforce productivity in the US increased on a double digit percentage basis compared to the prior year quarter, a testament to the quality of our sales team products and medical education programs. We ended the third quarter of 2022 with approximately 200 producing sales reps. And while we don't report our total Salesforce headcount, our total Salesforce headcount grew nearly 15% year over year during the third quarter. We expect productivity gains to continue and the size of our total Salesforce, including producing sales reps, to increase over time. During the third quarter, we did business with nearly 1,900 U.S. surgeon customers, including 587 U.S. producing surgeons, both records for P28 and an increase compared to the prior year period of 12% and 23% respectively. The number of surgeon customers and producing surgeon customers also both increased compared to the second quarter of 2022. With approximately 15,000 potential surgeon customers that treat foot and ankle in the U.S., we have only scratched the surface and have a long runway of growth in front of us. On to some more details regarding medical education and surgeon training. Five hundred and eighty-nine surgeons attended in-person P28 medical education events in the third quarter of 2022, bringing the total number of surgeons trained in-person at Paragon 28 medical education events to nearly 2,000 year to date. We launched our mobile lab early in the third quarter, which provides surgeons greater flexibility and convenience to access training for our innovative product line. We are excited about the results from our first quarter on the road, with well over 100 surgeons trained across 27 cities. Internationally, we recently hosted a two-day medical education event in London called Bigfoot. with 123 surgeons attending from seven international countries. During the program, leading international surgeons made 46 didactic presentations across six distinct foot and ankle clinical topics. It was an amazing event, and we are sincerely thankful for the incredible physician faculty from around the world that helped make it a great success. While we are on international medical education, this week we are hosting 45 surgeons from around the world the largest international medical education event we've held at our facility in Denver. The curriculum for this event includes a series of presentations and cadaveric lab training, allowing surgeons to learn solutions and techniques spanning our entire portfolio. We are thrilled to have such strong engagement and interest coming from our international markets and customers. Next, I wanted to touch on some of Paragon 28's clinical body of work. Since inception, We have invested heavily in non-biased clinical research to highlight opportunities for improvement in foot and ankle. To date, Paragon 28 products have been featured in 46 journal publications and scientific meetings, including nine completed since our IPO. We have also published 14 white papers and case studies on our products in collaboration with various surgeons, three of which have been published since our IPO. Each of these studies have helped verify areas of opportunity to improve foot and ankle surgery or otherwise demonstrated various benefits of our solutions. Separately, we have completed 32 clinical studies with Bizior focused on the capability of our algorithms. At this time, we have numerous additional studies underway, and we plan to continue investing in our growing body of clinical data to drive improved outcomes in our market. A lot of our clinical work feeds directly into our SMART28 initiative to increase better patient-specific solutions and drive more reproducible outcomes using various forms of enabling technologies. As we've mentioned in prior calls, SMART28 includes more tangible products like patient-specific instrumentation and guides, 3D-printed patient-specific implants, and more abstract solutions like software used for preoperative planning and diagnostics, intraoperative support, or postoperative patient tracking. With Vizior in particular, we are increasingly able to instantly make diagnoses and answer questions that previously could take months, if not years. Our growing body of clinical work, combined with the enabling technologies we are bringing to market through Smart28, has led to increased surge in interest from both existing and potential new customers, while also getting us valuable insight to advance product development. We expect the momentum we have in clinical and enabling technologies to continue in the future and allow Paragon 28 to drive further market expansion and share capture. In summary, we are more optimistic than ever about our business, and I am extremely proud of our team's execution throughout 2022. We've taken full advantage of our increased visibility since becoming a public company, which has increased our access to both surgeons and hospitals, and it has allowed us to attract great new talent throughout the organization. We have grown our business an impressive 24% year to date, despite the very challenging business environment. Further, in the last 12 months, we have made targeted investments to position the business for long-term, sustainable, and profitable growth. We are very excited about the success we've had expanding our product development efforts, expanding our sales force, and driving record levels of medical education. We've also made tremendous progress in optimizing key corporate and operational functions, including launching SAP, which we expect to drive increased effectiveness, efficiency, and profitability in our business. We also just turned the corner on our first full year as a public company. In late October, we were honored to celebrate our one-year anniversary with the closing bell ceremony at the New York Stock Exchange. I am so thankful for our employees and sales representatives around the world for their diligent efforts and dedication to fulfilling our mission to continuously improve outcomes and experiences of patients suffering from foot and ankle conditions. Lastly, after the devastating events caused by Hurricane Ian, I want to especially thank our teammates in Florida and the Atlantic Coast for their amazing commitment and resilience. Our hearts go out to all those affected both within the Paragon 28 family and otherwise. I will now turn it over to Steve.