Paragon 28, Inc.

Good afternoon, and welcome to Paragon 28's fourth 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 replay purposes, and I would now like to hand the conference over to your host today, Mr. Matthew Brinkman. Mr. Brinkman, please go ahead.

Good afternoon, and thank you for joining Paragon 28's fourth quarter 2022 financial results and earnings call. Presenting on today's call are Albert Acosta, Chairman and Chief Executive Officer, and Steve Deitch, Chief Financial Officer. 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 laws, 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 managed software Forward-looking statements include statements made as 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 material 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 will refer to the non-GAAP financial measure of adjusted EBITDA and constant currency net revenue growth. A reconciliation to the most comparable GAAP financial measure, net income, and reported net revenue growth 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 fourth quarter 2022 earnings call. Throughout this call, I will provide an overview of our fourth quarter and 2022 annual performance, followed by a business update. Steve will then provide additional detail regarding our fourth quarter and full year 2022 results, plus an overview of our 2023 financial guidance. We will then open the call to Q&A. To kick things off, total net revenue for the fourth quarter and full year of 2022 was $51.5 million and $181.4 million, respectively, contributing to a 25% constant currency growth rate for the year, which exceeded the top end of our preliminary estimates pre-announced on January 10th. We estimate our revenue growth in 2022 was well over three times the growth rate of the overall global foot and ankle market, which we estimate to be 7% and to be approaching $5 billion annually. Importantly, during 2022, which was our first full year as a publicly traded company, we made many strategic and opportunistic investments, positioning P28 for strong momentum for years to come. These included expanding research and development investments by over 50%, expanding our U.S. sales force by almost 15%, doubling the size of our international team, and putting in place scalable operating and corporate infrastructures to enable our growth and mission to improve foot and ankle patient outcomes. As we think about our future growth and capital deployment, investments in new product development and Salesforce expansion will continue to be our top priorities. These investments will drive our future commercial success and will enable P28 to increase its profitability and cash flow in 2023 and beyond. Speaking of cash, we recently completed a follow-on public stock offering, which bolstered our cash position and importantly, increased our F&A common stock liquidity. Steve will discuss each of these topics further in his prepared remarks. With that, I will share more details on our fourth quarter and full year 2022 revenue performance. To start, I continue to be impressed with our team's strong execution regardless of the environment. U.S. net revenue for the fourth quarter and full year of 2022 was $45.3 million and $158.1 million respectively, contributing to a 22% growth rate for the year. We saw improvements in all key growth indicators in the U.S., which we will discuss shortly. International net revenue for the fourth quarter and full year of 2022 was $6.2 million and $23.3 million, contributing to 34% reported growth and 47% constant currency growth compared to the full year of 2021. International revenue growth was driven primarily by our largest international markets of Australia, South Africa, and the United Kingdom. I will now share details around our key U.S. revenue growth drivers. 2022 was a great year for new products for Paragon 28 with 10 launches. Several of these products were entirely new indications or markets for our company, such as external fixation and soft tissue repair. We kick-started our external fixation business when we launched Monkey Bar's pin-to-bar and Monkey Ring's circular fixation systems, which were highly complementary to existing Fracture fixation and Charco franchises. In soft tissue, we have launched multiple products that span multiple indications in foot and ankle, including the Grappler Suture Anchor, Tenotac 2.0, Paratrooper Planner Plate, and our React Stabilization System. We're also excited to have augmented other existing product lines with launches of our Gorilla Central Column Fusion Plating System, Phantom Hindfoot TTC Nail 2.0, and Paraderm Non-Fenestrated Thermal Matrix. are incredibly proud of our innovative and broad product portfolio, hosting 75 product families across all foot and ankle market subsegments. This continues to be a key differentiator for Paragon 28, enabling deeper relationships with our existing surging customers, adding new customers, and expanding our excellent sales force. Innovation has been and will continue to be the tip of the spear of our success. In 2023 and beyond, We plan to bring a balance of new and next-generation products to market with over 25 active projects underway, many of which we expect to launch over the next 24 months. Our innovative and broad product portfolio fits nicely in the hands of our best-in-class and clinically-focused sales team. Our U.S. revenue increase during the fourth quarter of 2022 was driven equally by Salesforce productivity gains and an increase in the number of our producing sales reps. We ended the fourth quarter of 2022 with 234 producing sales reps compared to 213 in the fourth quarter of 2021 and 218 in the third quarter of 2022, representing increases of 10% year over year and 7% sequentially compared to the third quarter of 2022. As a reminder, producing sales reps log revenue in each month of the quarter and account for well over 90% of our U.S. revenue. Salesforce productivity gains in our expanded Salesforce resulted in P28 doing business with well over 2,000 U.S. surgeon customers, including almost 700 U.S. producing surgeons during the fourth quarter. Both records and double-digit percentage increases compared to the prior year. In closing, a sincere thank you to all P28 team members around the world who continue to deliver day in and day out. During 2022, we made investments that will drive our long-term growth and benefit our shareholders. I couldn't be more excited about our future together at Paragon 28. I will now turn it over to Steve. Thank you, Albert.