Shoulder Innovations, Inc.

Please stand by. Welcome, ladies and gentlemen, to the third quarter of 2025 earnings conference call for shoulder innovations. At this time, all participants have been placed in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference is being recorded and will be available on the company's website for replay shortly. I would like to turn the call over to Sam Bensinger, Vice President of Investor Relations at Gilmartin Group, for a few introductory remarks. comments. Please go ahead.

Good afternoon, and thank you for participating in today's call. Joining me from Shoulder Innovations are Rob Ball, Chief Executive Officer, and Jeff Points, Chief Financial Officer. Earlier today, Shoulder Innovations issued a press release announcing financial results for the quarter ended September 30, 2025. A copy of the press release is available on the investor relations section of the company's website. Before we begin, I'd like to remind you that this conference call is being recorded and that management will make remarks during this call that constitute forward-looking statements within the meaning of federal securities laws and that these are being 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. 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. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our most recent quarterly report on Form 10-Q and in our other filings with the Securities and Exchange Commission. Additionally, during this conference call, the company will discuss certain financial measures that have not been prepared in accordance with GAAP. This non-GAAP information should not be considered in isolation or as a substitute for or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release for reconciliation of these measures to the most directly comparable GAAP financial measure. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 11, 2025. Shoulder Innovations disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements with whether it's because of new information, future events, or otherwise. With that, I will now turn the call over to Rob.

Thank you, Sam. Good afternoon, everyone, and thank you all for joining us for our first earning call as a public company. We're very excited to share the results, the details of our exceptional third quarter performance today and review our progress against key priorities driving continued commercial momentum. On the top line, revenue in the third quarter was $11.8 million, an increase of 58% year-over-year and over 7% sequentially. We're very pleased with this performance, which was driven by continued market adoption of our anti-flank systems across a growing base of surging customers. Q3 gross margin of 76.2% was also strong and reflects our commitment to enhancing profitability. We continue to take intentional actions to drive further improvement in gross margin and believe there is additional opportunity for expansion going forward. From a balance sheet perspective, we significantly strengthened our cash position, ending the third quarter with over $137 million in cash and marketable securities, following our convertible notes financing and our initial public offering in July, which raised a combined $115 million in gross proceeds. Our performance and accelerating business momentum exiting the third quarter, leaving us incrementally confident in our ability to sustain our commercial progress through 25, 26, and beyond. As a result, we are raising our revenue guidance for the full year to a range of 45 to 46 million, representing growth of 42% to 45% year over year. For the remainder of this call, I will provide a brief introduction to shoulder innovations for those who may be newer to our story and review our third quarter performance and key growth priorities in greater detail. Jeff will then walk through our full third quarter financial results and discuss our outlook for the remainder of 2025. At the highest level, Shoulder Innovations is exclusively focused on transforming the shoulder surgical care market with an initial focus on shoulder replacement or arthroplasty. We find ourselves in the enviable position of being the only public, well-resourced company with this narrow focus in this highly attractive market. We estimate shoulder arthroplasty currently represents a $2.8 billion annual global market with almost two-thirds of that opportunity in the United States. Within the U.S. specifically, we estimate that approximately 250,000 shoulder arthroplasty procedures will be performed in 2025. Today, our product portfolio of advanced implant systems covers approximately 85% of those procedures encompassing both anatomic and reverse shoulder arthroplasty. This comprehensive portfolio includes various specifically designed components capable of different modes of operation optimized for patient-specific needs. More importantly, all our systems leverage consistent surgical techniques, our foundational inset glenolite technology, and the same efficient two-tray instrumentation system. The remaining 50% of procedures represent adjacent indications in fracture and revision, which we intend to fully enter in the near future with several additional products currently in our pipeline. I'll share an exciting update on this front later in the call. Our product portfolio serves as the foundation for what we refer to as shoulder innovations broader ecosystem. In addition to our implant products, this ecosystem also includes best-in-class enabling technology, differentiating efficient instrumentation systems, specialized support, and a surgeon-to-surgeon collaboration model. Together, these elements are designed to address the long-standing clinical and operational challenges in the shoulder surgical market by improving outcomes, simplifying procedures, and increasing efficiency across all sites of care and our own operations. As mentioned, we are primarily known for our foundational technology, the inset glenoid, a technology that addresses glenoid loosening, the primary complication with anatomic shoulder arthroplasty. With the inset glenoid, published data shows an 87% reduction in the mechanism of action leading to failure, namely galvanic loosening. Long-term results published in multiple peer-reviewed publications demonstrate zero surgical complications, zero loose implants, and 100% implant survivorship at nearly nine years that follow. These outcomes represent significant improvement over the standard of care design. We are also focused on enabling technology as a key driver of our improved outcomes in the future. Preoperative planning plays a vital role in improving workflow and patient outcomes, thereby supporting market adoption. To that end, we view our ProVoyance platform, which is integrated with all of our products, as a key element of our success. ProVoyance, which we believe to be the first AI-enabled preoperative planning solution in the market, allows the surgeon to virtually perform procedures before operating using a CT-based 3D model of each patient's anatomy. I'll note specifically that within our ability to measure, virtually all our implants incorporate provolence, making it a routine part of surgeon workforce. Finally, we continue to benefit from the shift in procedures from hospitals to ambulatory surgery centers, or ASCs, following CMS's decision to approve ASC reimbursement for shoulder arthroplasty in early 2024. Our early anticipation of this shift enabled us enabled us to offer a distinct advantage in the ASC setting with a two-tray instrumentation system compared to the eight to 10 traits typically required by competitors. As a result, our ASC procedures grew from about 10% in December 2023, just prior to the reimbursement decision, to over 30%, positioning us well to benefit from the ongoing transition toward ASCs as a preferred site of care in this space. Holistically, we believe our unique ecosystem, combined with being the only company with a singular focus on the shoulder specialist, has supported our financial and operational performance today. To sustain our above-market growth and drive continued commercial momentum, we are focusing on three key strategic priorities, which in the near term include driving adoption among new surgeons, increasing penetration in our existing surgeon customer base to increase procedural volume, and adding products to our portfolio to address the remaining unmet needs of patients and surgeons. This includes both expanding indications and continued enabling technology. We are executing well across each of these priorities with clear progress demonstrated in the third quarter, which I'll touch on now. I'll begin by reviewing our efforts to drive adoption among new surgeons. For context, our commercial model We sell all our products through a network of independent distributors. To that network, we then overlay a dedicated W2 commercial leadership team with a primary focus of identifying high-volume surge in targets. To enable this, we leverage a proprietary business intelligence platform, allowing us to precisely target our efforts to where we can make a difference and understand our effectiveness in making conversions. In total, there are about 15,000 surgeons in the US performing at least one shoulder arthroplasty each year, with roughly 1,800 high volume shoulder specialists accounting for the majority of procedures. These shoulder specialists perform 35 or more procedures annually. Interestingly, while on average these surgeons perform around 80 arthroplasties annually, shoulder replacement typically represents less than half of the surgical volume for these surgeons. We segment this group of 1,800 high volume surgeons into three categories by the way they interact with shoulder innovations. Prospects, who perform one to two procedures per quarter, contenders, who perform three to eight, and core surgeons, who perform nine or more. Combined, our core and contender surgeons generate approximately 95% of our total revenue This stickiness contributes to our revenue projectability and is validation that positive outcomes is fueling continued uptake among surgeons. We have consistently expanded our base of these core and contender surgeons each quarter through 2025 and have done so at a rapid pace. For instance, last quarter we announced a nearly 50% year-over-year increase in our core and contender surgeons. These increases have primarily been driven by enhanced awareness of the SI brand, supported by the targeted efforts of our commercial leadership team in identifying and converting high volume surgeons. While we intend to provide our core and contender surgeon count on an annual basis moving forward, I'll share that we again increased the number of core and contender surgeons at the same pace during the third quarter and expect that trend to be durable moving forward. Once we win new surgeons and they become integrated into our ecosystem, our second priority is to drive increased procedural volume. To achieve this, we seek to transition surgeons over time from prospect to contender and from contender to core by increasing penetration and utilization. In Q3, our core and contender customers skewed more towards core surgeons, highlighting our ability to increase utilization into this critical high-volume cohort. A key driver of this is our surgeon-to-surgeon education program facilitated by our customer experience and medical education team, the third component of our broader commercial organization. We are committed to fostering a collaborative community among shoulder surgeons where expertise is shared, new ideas are exchanged, and best practices are disseminated to enhance clinical outcomes. By facilitating these peer connections, we strengthen engagement within our ecosystem and reinforce its real-world success. As surgeons share their positive experiences with our ecosystem and the impact on patient outcomes, we believe this organic advocacy further accelerates adoption, positioning us to benefit from the natural network effects within the shoulder surgical care community. As an example, just this past weekend, our team facilitated our second national Shoulder Symposium this year focused on learning and education around our ecosystem. This event was by far the largest in our history and included wet lab surgical training as well as robust didactic sessions, all designed, written, proctored, and driven by surgeons. Of note and unsolicited from the podium, a number of surgeons highlighted the particular value SI provides in creating this community and the positive impact it's having on their practice. This has been a highly intentional effort by our team, and we take great pleasure in hearing the impact of tagging. We continue to believe it's a clear differentiator that's helping to drive results. Results in Q3 demonstrate the benefit of our commercial model. Total implant volume increased 53% year over year to 1,584 units across our prospect, contender, and core surgeon customer base. This performance was driven by a couple of factors. Consistent with prior quarters, implant volume continued to rise as utilization ramped among existing surgeons, particularly those added late last year and early in 2025. In addition, newly onboarded surgeons are ramping more quickly and becoming more productive sooner, which particularly supported the increase in implant volume on a sequential basis, which grew 5%. As an elective procedure, shoulder arthroplasty typically experiences a summer slowdown. Consistent with prior years, this trend was present in Q3 as average procedure volume among our early cohort core surgeons was down slightly on a sequential basis in Q3 versus Q2. However, we're particularly excited to know that we overcame this normal seasonal downtrend through deeper penetration in later serving cohorts as well as new customer additions to drive meaningful sequential quarter-to-quarter growth. Looking ahead, we believe our commercial model is well optimized to ensure we can continue to add the appropriate resources to aggressively grow our customer base. Importantly, we expect to make further significant investments in our sales force as we scale from these early market share positions, driving greater predictability of our business. Leveraging our independent network will create a clear opportunity for operational leverage as we scale, a factor we consider critical to our success. To ensure we continue to equip our growing surgeon customer base with a comprehensive, best-in-class suite of shoulder surgical care solutions, our third strategic priority is focused on developing and launching new technologies to address the remaining unmet needs of patients and surgeons. As part of these efforts, in the third quarter, we launched our INSET70 Humeral Stem, the latest expansion of our I-Series Humeral Stem product line. The INSET70 is indicated for both anatomic and reverse shoulder arthroplasty, addressing a broad range of clinical needs. Featuring the same reliable fixation and streamlined work flow as the longer INSET95, It also provides the added benefit of a bone-sparing nature, being the shortest possible stem indicated for reverse arthroplasty. It also maintains the special biomechanics we're known for, with customer feedback strongly suggesting differentiating improvements in the postoperative motion compared to other products and techniques. This bone-sparing approach is gaining traction in the marketplace, and the launch of I-70 further strengthens our commitment to innovation, improved patient outcomes, and meaningful value for surgeons. We executed a robust, limited user release in Q2 and Q3 with 100% successful customer response. We are pleased with the commercial uptake we have seen so far in the marketplace with this new product. We're also focused on expanding our product portfolio and capabilities with the goal of providing a comprehensive suite of solutions that cover 100% of shoulder procedures performed We have several new applications planned in the near term, including fracture, revision, and mental sensitivity. These new applications will enable us to capture the remaining 15% of shoulder procedures that our product portfolio currently does not cover. The first of these efforts focuses on an indication expansion. We are pleased to share that we recently received FDA 510 clearance that expands our I-series tumor implant product line to include certain fracture indications. We plan to initiate a limited market release in the coming weeks while we simultaneously seek to advance the full breadth of indications with FDA through the remainder of 2025 and into early 2026. Separately, we also remain on track to launch a new line of humeral and glenoid technologies for the portion of the population who have metal hypersensitivity and may experience adversity associated with allergic reactions from metal implants. We expect to receive FDA clearance and subsequently launch these technologies in the coming weeks, and we look forward to sharing additional updates as we're able to. Importantly, these new products and applications are associated with higher ASPs, making them constructive to gross margin and providing double benefit to our near-term market growth. Finally, in parallel to new implant development and indication expansion, we believe we can further extend our competitive position by introducing complementary enabling technologies to support the full continuum of care in shoulder surgery. As I shared recently, we've made significant progress in this area and couldn't be more excited about the opportunity. We're looking forward to sharing more on this front in the coming weeks. Looking beyond the near term, we see significant opportunities to further broaden our impact and extend our leadership position From a longer term perspective, we plan to evaluate entry into attractive international markets over time, which we currently do not have a presence in, and expand into adjacent markets beyond shoulder arthroplasty. With adjacent markets, particularly among the 1,800 high volume surgeons that we're targeting, shoulder arthroplasty typically represents less than half of their case volume. The rest of their surgical volume is commonly comprised of sports medicine and shoulder trauma procedures, both of which are highly relevant markets for us to target moving forward. Sports medicine, driven largely by rotator cuff procedure, is a market with a similar size and growth rate to shoulder arthroplasty. This creates a meaningful opportunity to expand our TAN within our existing customer base. I'll continue to update you on our progress on these initiatives as we move forward. With that, I'll now turn the call over to Jeff Point, our CFO, to review our third quarter results in more detail and provide our outlook for the remainder of 2025.