Treace Medical Concepts Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 11 speakers on the call.

Operator

Good day

Speaker 1

and thank you for standing by. Welcome to Tris Medical Concepts Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer 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.

Speaker 1

Please go ahead.

Speaker 2

Good afternoon, everyone, and welcome to our Q3 2023 earnings conference call. We appreciate you joining us. I'm Julie Dewey, Treese's Chief Communications and IR Officer. With me today are John Treese, Chief Executive Officer and Mark Hair, Chief Financial Officer. During the call, John and Mark will offer commentary on our commercial activity and review our Q3 financial results released after the close of market today, after which we'll host a question and answer session.

Speaker 2

The press release and supplemental materials can be found in the Investor Relations section of our website at investors. Trees.com. This call is being recorded and will be archived in the Investors 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.

Speaker 2

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 Therese 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 Q3 to be filed today and our Form 10 ks for the full year 2022 filed on March 8, 2023 for a detailed presentation of risks.

Speaker 2

With that, I will now turn the call over to John.

Speaker 3

Thank you, Julie. Good afternoon, everyone, and thank you for joining us. I'm going to focus my comments today on our Q3 results, The exciting progress of our SpeedPlate 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.

Speaker 3

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 $5,000,000,000 U.

Speaker 3

S. Market of an estimated 1,100,000 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 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 Q3 2023, We've penetrated approximately 6.3% of the estimated 450,000 annual surgical bunion corrections in the U. S, up from 5% in the Q3 of 2022 and reflecting approximately 2.6% market penetration of the estimated 1,100,000 annual U.

Speaker 3

S. Surgical candidates that constitute our $5,000,000,000 plus total addressable market in the U. S. In addition to the large and underpenetrated market for treating bunions, Late in the quarter, we also initiated commercialization of several new technologies, including our Speed Plate fixation platform, hammertose system and our lapitome and razertome sterile instruments. And later in Q4, we'll begin commercialization of our microlapoplasty instrumentation.

Speaker 3

All these new technologies are expected to meaningfully expand our addressable market opportunity and to include additional procedures that complement our proprietary and adductoplasty procedures and fuel strong growth for years to come without diluting our focus. We're particularly excited about the opportunity for our Speedplate fixation platform. I'll cover Speedplate 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 Treese. 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.

Speaker 3

Turning now to our Q3 results. Revenue in the 3rd quarter was $40,800,000 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 lapelasty 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 continued to advance our key performance metrics in the 3rd 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 and 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, adductoplasty and our other problem solving complementary products such as our Speed Release and TriTone sterile instruments.

Speaker 3

We also saw some very early impact from Speed Plate and our 2 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 $182,000,000 to $186,000,000 which at the midpoint reflects an 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 Q2 and continued through most of the Q3.

Speaker 3

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. 2nd, we also made the strategic decision to further refine our Speed Plate platform, extending our timeline to achieve full commercial supply until the Q1 of 2024. This decision has enabled us to make a generation 2 Speedplay 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 bone and focused direct sales channel, advancing our patient awareness DTC initiatives and driving more targeted R and D innovations into the market.

Speaker 3

We have a highly specialized team at Treese, 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 Q3, 81% of our revenue was generated by our direct sales force, up from 74% in the same period last year.

Speaker 3

We continue to see increasing productivity from our direct reps that we added during 2022. And as we've 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 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.

Speaker 3

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 on boarding 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 matched the company's all time record for the highest number of monthly surgeon adds.

Speaker 3

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 datasets 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 2nd generation anatomic Speedplay design and initiated our early launch activities. Again, our Speedplate 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 Speedplate 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.

Speaker 3

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 the favorable reception that SpeedPlate has already garnered from surgeon users. In fact, we've had many surgeons tell us that the SpeedPlate implant The biggest thing from Triste since lapoplasty and a total game changer. We expect the Speedblade launch to begin supporting our growth in Q4 and to continue to accelerate through 2024 and beyond. We believe our Speedplay platform has the ability to We look forward to bringing this exciting technology to many more surgeons and their patients in the months ahead.

Speaker 3

Next, our microlappoplasty 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 microlappoplasty instrumentation to begin late in the Q4 and will continue to build during the first half of twenty twenty four. We're excited about the potential benefits this microlappoplasty and Speedplay combination could bring to patients.

Speaker 3

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 hammertoe fixation system. This is a sterile pack procedure kit that expands our reach into the high volume hammertoe correction space. With no prior such offering in our portfolio and approximately 700,000 U. S.

Speaker 3

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 Trese cases. We estimate that approximately 30% of all bunion procedures involve Simultaneous hammertoe 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.

Speaker 3

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 Q3 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.

Speaker 3

Mark?

Speaker 4

Thank you, John. Good afternoon, everyone. Revenue for the 1st 9 months of 2023 was $124,900,000 representing 36% growth over prior year. 3rd quarter revenue was $40,800,000 a 23% increase compared to prior year. Growth in the Q3 was driven by increases in procedure volumes and increases in blended average selling price.

Speaker 4

In addition to the tough comp from last year that John mentioned, this quarter included one less selling day than Q3 2022. We sold 6,459 lapoplasty procedure kits in the 3rd quarter, a 13% increase compared to the same quarter last year and was impacted by prioritized travel and vacations for our patient demographic, which led to lower than anticipated demand for our laparoplasty procedure in the quarter. Blended average selling price in the 3rd quarter was a record $6,311 up 9% over the Q3 of 2022. This blended average selling price is driven by lapoplasty and the additional contribution from our expanding portfolio of complementary products, Such as our ductuplasty system, sterile single use instruments and some very early impact from Speed Plate and Hammertoe. As our direct sales channel continues to increase their procedure access across our surgeon customers.

Speaker 4

Gross margin was 80.4% in the 3rd quarter of 2023 compared to 81.6 percent in the Q3 of 2022. The 120 basis point decrease was primarily due to changes In product mix, an increase in inventory provisions and an increase in overhead due to headcount to support the growing business, partially offset by lower royalty rates. Total operating expenses were $50,600,000 in the 3rd quarter of 2023 compared to total operating expenses of $38,300,000 in the Q3 of 2022. The increase in operating expenses reflects strategic investments in our expanding direct sales channel, investments in product innovation, increased capacity requirements as well as support for other commercial initiatives. 3rd quarter net loss was 17,500,000 or $0.28 per share compared to a net loss of $12,100,000 or $0.22 per share for the same period of 2022.

Speaker 4

Adjusted EBITDA was a loss of $9,200,000 in the Q3 of 2023 compared to a loss of $8,600,000 for the same period in 2022. Cash, cash equivalents, marketable securities and investment receivable totaled 128,200,000 as of September 30, 2023. Our total available access to liquidity, including our debt facility is Approximately $214,000,000 We believe we have a lengthy runway in terms of our current cash level with sufficient balance sheet strength and flexibility to continue aggressively executing on our strategic investments and growth initiatives as well as a clear pathway to achieve positive adjusted EBITDA. Before concluding, let me turn to our outlook for full year 2023. We are updating our full year 2023 revenue guidance to $182,000,000 to $186,000,000 which at the midpoint reflects an increase of 30% compared to 2022 revenue.

Speaker 4

With less than 2 months remaining in the year, This is realistically where we expect the year to land and feel comfortable at the midpoint of the range. As John mentioned, this guidance reflects our year to date surgeon count and our extended timeline to achieve Supply of our Gen 2 Speedplay technology in Q1 of 2024, both of which are expected to affect our revenue as we enter the 4th quarter, which is historically our highest volume quarter for bunion surgery. Also keep in mind that this year, the 4th quarter has one less selling day And specifically, the month of December, which is typically when we generate our highest average daily sales of the year has 2 less selling days. Moving to the rest of the P and L. We are starting to see leverage down the P and L and expect R and D and G and A expenses in Q4 to be roughly in line with Q3 and expect positive adjusted EBITDA in the Q4 of 2023.

Speaker 4

For the full year 2023, we continue to Expect to show modest improvements in adjusted EBITDA compared to 2022. One final item. I'd like to provide some directional comments on 2024. As is our normal mode of operation, we will provide formal 2024 guidance on our Q4 call. However, I wanted to provide you with some thoughts to keep in mind as you begin to develop your 2024 models.

Speaker 4

Overall, We expect our expanding commercial capabilities, continued adoption of lapelplasty and multiple new product launches will drive strong growth, while we also advance our pipeline opportunities. We believe our product portfolio differentiated and protected technologies and focused sales force provide us with the advantages that will enable us to grow significantly faster than market and our foot and ankle peers for multiple years. As we look specifically to 2024, we expect to benefit from a positive contribution from a full year of recent new product launches, including Speedplate, microlapoplasty and hammertoe, continued market adoption of the adductoplasty technology, as well as Increased contribution from the sales rep additions that were made throughout 2023. In addition, in the back half of 2024, We anticipate adding preoperative planning and patient specific instrumentation from our acquisition of Redpoint Medical. We also look forward to launching a significant new product platform that we believe will expand our market opportunity, accelerate our penetration and further advance our leadership position in the bunion market.

Speaker 4

We believe both opportunities will complement our business strategy and bolster our multi year growth plans without losing focus on our core bunion and related midfoot procedure growth. Our blended ASP has historically grown mid single digits and given ongoing surgeon adoption of lapelplasty, Complementary products and procedures and future pipeline opportunities, we expect this trend to persist. With regard to new surgeon additions, We believe adding approximately 250 to 300 active surgeons annually is a reasonable baseline over the next few years, With utilization increases expected to drive higher procedure penetration and the tightening sales rep to surgeon ratio should support increased Case coverage and adoption. These new surgeon additions and training, our large active surgeon base on new procedures is expected to expand utilization and drive blended ASP increases. We expect elective orthopedic procedure seasonality trends for next year to include the typical seasonal step down in revenue from Q4 to Q1 and a softer Q3 followed by seasonally strong Q4, which is historically the largest revenue quarter of the year.

Speaker 4

Turning to the middle of the P and L. We expect operating leverage to continue to improve in coming quarters with potential for adjusted EBITDA breakeven for full year 2024 and positive cash flow in 2025. We will be able to provide more information on our Q4 earnings call. In closing, we made good progress in the 3rd quarter and remain on track to drive strong growth and scale profitability in our business in the years ahead. We believe we are in a great position strategically with best in class bunion, midfoot and related complementary technologies and expanding TAM with the addition of new technologies such as adductorplasty, hammertoe and Speedplate and more innovation to follow.

Speaker 4

Backed by differentiated clinical data and a strong focused commercial organization, We look forward to aggressively attacking these significant opportunities to drive the performance of the business the rest of the year and believe we have all the elements in place for a successful 2024. With that, let me turn the call over to the operator to open the line for your questions.

Speaker 1

Thank you. Our first question comes from the line of Danielle Antalffy with UBS. Your line is now open.

Speaker 5

Hey, good afternoon, everyone. Thanks so much for taking the question. Happy to be back covering Therese. So I guess my first question is on the guidance cut by $10,000,000 at the midpoint. And I was just wondering, Mark, if you could give any color on what's the impact of the fewer surgeons versus how you were thinking about it entering the year Versus delay in speed plate versus the patient travel that you called out.

Speaker 5

Is there any way to sort of quantify what each of those components make up of the 10,000,000

Speaker 4

Yes. Hi, Danielle. It's good to hear your voice again. We've talked about in the prepared remarks Both of those elements had an impact in Q3 and both of those impact will have an impact into Q4. So we're not providing specific detail on which And how much that was in Q3 and Q4.

Speaker 4

But candidly we were surprised by that summer seasonality. It was more pronounced than we had expected. And it's why the case volumes were down in Q3 and why the surgeon adds were down in Q2 and Q3 as well.

Speaker 5

Okay. All right. That's fair. And then maybe my second question or not maybe, my second question is actually on that point And the summer seasonality, I mean, is there a way to give us comfort, the investor community comfort on the sort of rebound in your modeling 45% sequential growth in Q4. I appreciate the seasonality normally, but this was a more Meaningful seasonal impact from Q like in the summer.

Speaker 5

So what gives you the confidence that the rebound is coming in Q4? Is there something in the in your conversations with your treating surgeons that you could point to? I guess just How do you build that level of confidence that there's not something else going on here? Thanks so much.

Speaker 4

Yes, great question, Danielle. So I think there's a couple of things. First of all, September of the 1st month post summer, John mentioned that we had a record for our highest surge in ads. And so we wanted to be thoughtful as we're thinking about Q4, but we've Seeing that strength in September and we've had continued strength into October as well. When you think about the fundamentals of our business, They really remain strong and we've had really nice continued advancements in a lot of our key metrics.

Speaker 4

So it doesn't seem like That is at all an issue. It's really a strength as we go into Q4. This step up that we have in Q4 is really consistent with prior years. Q4 has always been our highest revenue quarter every year. And so We also have accelerating additions to our surgeon base, increasing productivity over our direct sales channel and several new technologies that are already starting to make a positive impact.

Speaker 4

So with all that in mind, we considered our new updated guidance very appropriate and we believe we have accounted for all the puts and takes that That are coming into Q4. So we feel really comfortable at the midpoint of that range.

Speaker 5

All right.

Speaker 3

Thanks so

Speaker 2

much. Sorry.

Speaker 3

No, Danielle, hi, this is John. I just wanted to add a little bit on top of that. We've gone through this 8 years now of concentrated procedures in Q4 and significant step ups and I can tell you as we sit here today halfway Through what we refer to as bunions season each year, it feels right and we're glad to see it again.

Speaker 5

Got it. Thank you.

Speaker 3

Sure thing.

Speaker 1

Thank you. Our next question comes from the line of Robbie Marcus with JPMorgan. Your line is now open.

Operator

Hi, this is actually Lilly on for Robbie. Thanks for taking the question. So the 250 to 300 new surgeon adds It's a lot lower than what we were thinking for next year and lower than what you've done in the past. So are you expecting that same sort of seasonality with stock adds to continue into next year? And if stock adds are going to be a lot lower, I would think that would imply a big step up in utilization.

Operator

So What's giving you that confidence to see that step up next year? Thank you.

Speaker 3

Hi, Lily, it's John. Thanks for the question. The $250,000,000 to $300,000,000 that we think that's a reasonable level. We the past couple of years, if you go back, we added 500 2 years ago, 600 A year ago, both of those years, we more than doubled the size of our sales force, creating a lot of surgeon contact. We grabbed a lot of low hanging fruit And we're very thankful for that.

Speaker 3

We've got a lot of loyal customers now because of that. This year, we Expanded the sales force size by about 20%, and we continue to add docs at a pretty nice pace here. As with any market, the larger the customer base you try to get, you get the low hanging fruit and then you have to climb up higher in the tree And reach for that tougher to get fruit and that's what we're doing here. One of the pieces that gives us confidence is We're still continuing to build the customer base at a really nice level through this year despite a not as large of a Sales rep increase. The other thing we're doing is we found that we need to be able to appeal to a broader range of surgeons And Speedplay plays a very important role in that.

Speaker 3

There's a whole group of surgeons out there that have not come to lapoplasty, not come to a duct Because they believe in a different fixation philosophy, compression, Nitinol staples specifically. Speedplay gives us an avenue into some of those docs that we've never had before. And frankly to the record New surgeon counts we added in September. Speedplay did play a role even though it was out in limited supply and bringing on some of those new docs. So For a lot of reasons, we're really confident in our ability to continue to add new surgeons.

Speaker 3

It's just that it may not be at the blistering pace That it was in the days where we were more than doubling our sales channel.

Operator

Got it. Thank you. Can you just talk a little bit more about the decision to push out the full launch of Speedplate? Is that a supply challenge, regulatory or is it really just to focus on getting that 2nd generation product ready? Thank you.

Speaker 3

Sure, Lily. Yes, that's really the thing. We got out there in our limited market release, had several doctors using it and very quickly Identified things through their feedback and through our observations that we could do, that would make this product more broadly appealing to A larger range of surgeons and also be able to treat a larger number of foot and ankle conditions, not just lapoplasty and a ductoplasty procedure. So We found that opportunity so attractive that we did extend our timeline. We incorporated these adjustments, worked with our vendors, Filed a new 510 with the FDA.

Speaker 3

It cost us a little time, but I think we stand by that decision. It was the right call. We saw the opportunity to make a really great product awesome and we took it. And we will be Very excited and glad that we did that as we enter 2024.

Speaker 2

Great. Thank you. Sure.

Speaker 1

Thank you. Our next question comes from the line of Rich Newitter with Truist Securities, your line is now open.

Speaker 6

Hi, thanks for taking the questions. A couple from me. Maybe just Thinking about the 2024 commentary and where you're jumping off from 4Q, I'm getting to About 11% to 12%, 4Q implied lapoplasty procedure growth rate, about mid single digit, ASP growth and call it something in that run rate to get to 250 to 300. So call it somewhere in the 70 to 100 surgeon adds. If I just kind of apply that throughout 2024, I'm getting to about a 20% growth rate With about low teens lapoplasty growth, mid single digit ASP growth.

Speaker 6

I guess, is that the right way to Think of the business right now, broad strokes or directionally. And do we think of the weighting of the year With Speedplay coming next year, is that going to be a slow ramp and it's really not until 3Q and 4Q that we see the contribution?

Speaker 4

Hey, Rich. Hey, great question. This is Mark. Let me try to respond to that. And if I've missed anything, maybe John can help fill in.

Speaker 4

So with regards to 2024 guidance, As I mentioned in my prepared remarks, we feel like we're positioning ourselves for really successful 2024 with our growing sales channel all the new product launches. But We're not going to provide specific guidance on 2024 right now, although we can talk about a couple of things that you mentioned. When You mentioned something about the surge in adds and how we should be thinking about that. Again in my prepared remarks I was saying as a baseline $250,000,000 to $300,000,000 We've already added over $300,000,000 year to date this year. So that's one thing.

Speaker 4

And as we think about next year, We'll have a much, much larger active surgeon base. And so our growth can really come a lot from our existing surgeon base and it's As reliant on adding the incremental surgeons. Now of course, we will continue to look for And add those important incremental surgeons, but on a larger base, we're going to make sure that all of our new products get into the hands of that existing Customer surgeon base. I don't know if I hit any

Speaker 3

all the points. Rich, John here. I think you're asking a little bit about when will Speed Plate hit its stride or

Speaker 6

Yes, that's one of the questions. The other 2, I do think it would be helpful just Thinking about mid single digit ASP increases, you kind of level set off an active surgeon adds. I guess That would imply that you're looking at a low teens kind of lapoplasty procedure growth rate. Is that correct? And then yes, How should we think of the ramp for Speedplay?

Speaker 6

Thank you.

Speaker 3

Okay. Yes. And maybe I'll answer them in reverse order, if that's okay, because I usually go to Mark On forward guide questions. But the speed plate ramp, as we exit Q4, we'll be getting into very good supply. And as we go through Q1, we'll be at full stride within the quarter.

Speaker 3

So we'll be able to satisfy all the customer demand and that's got us really excited about how we're going to exit this year and ramp next year because it's a real blockbuster product for us. This is a big deal And it's very meaningful on both on blended ASP, attracting new customers and aggregating additional Foot and ankle procedures that are outside of lapoplasty and adductoplasty, but don't defocus our sales channel.

Speaker 4

And with regard to leproplasty growth in next year, we look forward to providing additional details and guidance in our 4th quarter call. So we're just not giving too much there other than giving you an overview of some things to come.

Speaker 6

Okay. Thanks.

Speaker 1

Thank you. Our next question comes from the line of Brick Wise with Stifel. Your line is now open.

Speaker 7

Good afternoon, gentlemen. You were absolutely right last quarter when you cautioned that you were concerned about seasonality and vacation times. But I want to make sure that I'm understanding how we're starting the 4th quarter. I mean, we're obviously a month and a week or so in. Are you seeing the same kind of Slower trends from July, August, September now into November with little change.

Speaker 7

Is that the major driver Of the $10,000,000 midpoint cut, I'm just trying to understand how the pieces all fit together and that's making you more cautious. I mean, the only reason that I can't believe it's the one less selling day, you knew that before and The sales force has been expanded. If I remember correctly, Speedplate is delayed, but microlathoplasty and some of the other new products are I think in full launch this quarter. So I'm just trying to make sure I'm understanding what's driving what and to what degree that the $10,000,000 cut at the midpoint is conservatism. Sorry for the long question.

Speaker 4

No. Thanks, Rick. This is Mark. And let me respond to a couple of those things. Just First, I think there's a question about some of the other products that have been available.

Speaker 4

Microlapoplasty is going to come in the Q4, so it's not been launched And that will utilize Speedplay. And so that is to come. A couple of things that I just wanted to mention and it's what I've said a little bit before is, is we were cautioning about What we're seeing in the summer seasonality, it was much more pronounced than what we had expected. And we were surveying a lot of our surgeon customers asking them What are you seeing as far as your volumes, case count and your patient demographic? And just As a reminder, we have a much more narrow specific patient demographic than a lot of other companies.

Speaker 4

And so We were asking a lot of those questions. A lot of our guide going into Q3 was based on anecdotal what we were hearing from our customer surgeon base with hopes and views that some of this softness in the summer was going to turn. Well, just in turn as quickly as we had hoped, but the positive that we take away from it is like what John said, we've had this really strong September new surgeon adds that means they're doing cases for the first time in September. So that was very helpful and beneficial and some of that strength has continued October from a surgeon ad perspective. So we think that's very beneficial.

Speaker 4

But as we also think about Not having the number of surgeons as you go into the Q4, it was a little bit of a challenge because As we think about it, we want to have the full team, the full complement of the team going into our busiest quarter. And so of course, Not having as many surgeons on the team and using laparoplasty will definitely have an impact. And same thing With not having launched in as aggressive of a way Speedplay in the 3rd quarter, so that has pushed in To the Q4 and so both of those things are really informing the way we're looking at the Q4. And we feel confident in the midpoint of that guide given everything that we know so far.

Speaker 7

Okay. And Mark, maybe you'd expand on your comments by gross margin. It was less than we thought and I'm guessing less than you expected. And talk about the specific mix Drivers and the greater overhead, and I think there's a third one, which I'm Not remembering right this second, but to what extent does that continue into the Q4? And maybe just Help us think in general about your gross margin thinking and how you would frame our gross margin thinking going forward?

Speaker 4

Yes. Great question, Rick. And so it was 80.4% in the quarter and it was impacted by product mix, some inventory provisions. And when I say increased overhead, we have a growing business and employees to handle the growing volume that we have. And that was partially offset by some lower royalty rates.

Speaker 4

And so those were all the puts and takes. This is not I would not view this as uncommon. Our gross margin will fluctuate quarter to quarter depending on some of the mix. As we introduce new products, Rick, Not only Speedplay, but we have some other sterile instruments and other things. What we've tended to see is when at the beginning of our launches that we may not fully have all the efficiencies in our manufacturing processes available.

Speaker 4

And so it may take 1, 2, 3 quarters before we get all those efficiencies. And so it's And so it's somewhat of a mix. Are we selling some of the new products or which products are being sold Or preferred by our customers. Again, we think anything north of 80% is really strong and we feel really good about that. And we've mentioned previously that we have relatively few sellable SKUs.

Speaker 4

We have less than 50 Sellable SKUs. So a mix does have an impact when you're talking about so few SKUs. But we continue to focus on our gross margins And we plan to remain at these high levels near or above 80%.

Speaker 7

Great. Thanks, Mark.

Speaker 1

Thank you. Our next question comes from the line of Drew Ranieri with Morgan Stanley, your line is now open.

Speaker 8

Hi, John and Mark. Just maybe to start on my end, just What essentially gives you the confidence that this is truly a seasonality aspect? And I appreciate that it might be picking up Into the Q4. But why are you so confident that it's seasonality and not any competitive entry or changes in the landscape being Becoming more of a problem in capturing surgeon mind share or any incremental procedures. And I know that we're all trying to get at Maybe what utilization could look like in 2024, but maybe just help us better understand what you were seeing in terms of same surgeon utilization

Speaker 3

Hey, Drew, John here and thanks for the question. I'll try to get to the first one first and then Mark can remind me of the other parts. What's giving us the confidence is we did a lot of work, a lot of surveying, a lot of Work with our surgeons during these summer months to figure out what the root cause of what was going on in the softness in surgery demand And that affected new surgeons coming on. We can train tons of doctors, but if patients are coming in At a normal rate asking for a surgery, they don't get counted as a new active doctor. So we're certainly going into Q4, which is our bunion season With a different trajectory, combining the bit of delay on the speed plate, full availability and that lower doctor count.

Speaker 3

But again, we've been through 8 years of this bunion season in Q4. It is very real. And as we sit here today, I can tell you it's back and we're feeling it in the activity. And that's Kind of what's got us confident that that midpoint is doable and comfortable. So It's a tough point for me to not express my extreme enthusiasm because I can see The other side of this as Speedplay comes into full availability and that continuing ramp on surgeons and utilization and what's going to come, But that's what happened during the summer and that's what how it's affecting Q4.

Speaker 4

And Drew, I think there's another part of your question with regards to Customer utilization, that was 10.6%. That's a strong utilization number. It's up 4 More than 4% over the prior year at the same time. So it really isn't that it's The lack of utilization per se, it was really what John talked about is there was a different patient demand for our patient demographic And that caused a few things. And then with the decision of Speedplay as well, pushing that out just a little bit And which was the right decision, but the combination of those 2 just had an impact in Q3.

Speaker 4

And then that's going to set us up for Q4. So that's why we felt That it's an appropriate guide for Q4 understanding those two items.

Speaker 3

And Drew, I think I missed another component of your question about competition. And we've had competition for the last several years in this space. We kind of expected it. We created a very exciting market. The market is very big, over $5,000,000,000 in the U.

Speaker 3

S. We're way out ahead and we've got the best technology. New entrants will continue to come into the market, but we've got a pretty powerful offense. Our rapid innovation, our focus, our direct sales channel and then this patient advocacy that we drive through our DTC. So Will competition be there and continue to be there?

Speaker 3

Yes, it has been and it will continue to, but that's not what was driving this shift. That's not what's driving the softness in the summer months. This was a real and dramatic shift in the way our patient demographic, The 30 to 60 year old female in the U. S. Behaved this year.

Speaker 3

And The headlines you can see it all over the place. International travel, my wife was quite upset with me because I think we're the only We don't know that didn't go to Europe at least once this year. And it was bottled up 4 years of Pre COVID plans that all came piling into this year once the COVID restrictions left and that demographic behaved differently probably than other companies' demographics.

Speaker 4

And I think the final piece on that, Drew, is we stayed really close to our surgeon customer base and we continue to ask them these questions. So that's What we're telling you is also what we're hearing from them, the same things.

Speaker 8

Got it. And just on Speed plate for a moment, John. You were mentioning in your earlier remarks that this could appeal to a broader range of surgeons that believe in Different fixations system. So when you do think about SpeedPlates going into next year, Will these surgeons adopt and also more broadly adopt the Treest portfolio? Or do you expect them to be more siloed in one particular area of your portfolio with Speedplate?

Speaker 8

Thanks for taking the questions.

Speaker 3

Yes. Great question. Thank you. And Yes. It very quickly, in its limited availability found its way to be the now preferred plating system for or fixation system for Lapoplasty and adductoplasty cases for the doctors that have access to it right now.

Speaker 3

And right now only a small fraction of our doctors have access to it. And we're going to work on that quickly. But pretty quickly, we started hearing comments like I can use this all over the foot. There are 5 or 6 other procedures that I do very commonly and routinely with your cases and outside of your cases Where your rep can be there or not even have to be there. I love this fixation technology.

Speaker 3

This is a home run and This is the next big thing beyond Nitinol Technology. The combination of stability and strength of a titanium Plate with the dynamic compression capabilities of a Nitinol staple is an extremely attractive combination And it's a unique and first and only for TRIZ again. And that's why we took the extra time with it to get it As great as it possibly could be. So when we go out there with this product, our customers say, wow, lapoplasty, a ductoplasty first and only And now another first and only awesome product from Treece. So I think it will be adopted over time more broadly across the foot and ankle outside of our core procedures.

Speaker 1

Thank you. Our next question comes to the line of Ryan Zimmerman with BTIG. Your line is now open.

Speaker 9

Thank you. I was on a few calls tonight, so I apologize if this has been asked guys. But I didn't hear as much on your prepared remarks around your DTC investment priorities. And I'm just wondering kind of how you think about that in the context of driving more operating profit or adjusted EBITDA, I should say, and leverage in the model and kind of what needs to be done to continue to maintain your position Well balancing maybe on some of those more profitability oriented metrics.

Speaker 3

Sure. Hey, Ryan, it's John. Thanks for the question. You're right. We kind of cut to the core on this script in prepared remarks and thought we'd follow-up with a more detailed DTC catch up In our Q4 call.

Speaker 3

But in a nutshell several months ago we brought on a new Head of Marketing with strong expertise in consumer DTC And he's very quickly come in and been able to look at the programs we're running, fast wins, ways to optimize them, reduce even our Spend and get higher output. So we're seeing some really great efficiencies on the DTC side. With less spend, we're getting higher levels of deep patient engagement and customer contact through our website and surgeon locator and call center. So We're really pleased with what's going on here. We're also right now very actively sponsoring the National Pickleball Championship down in Dallas.

Speaker 3

So if you're watching ESPN, you may see some

Speaker 9

I saw that, Sean. I saw that as a buddy pickleball player. Thank you.

Speaker 3

Yes. Well, this is Nathan is very savvy and very quickly dialed in That demographic, which is right up our wheelhouse and a very efficient low cost way to get a lot of exposure and impact. So These are the kinds of things that Nathan's working on already and I have to say 3, 4 months in, he's really on a roll and it's going to bring a lot of value to our DTC initiatives.

Speaker 4

And Ryan, I think you talked a little bit about profitability. And I don't think There was a portion in my prepared remarks that talked about a potential of adjusted EBITDA breakeven in 2024. And perhaps even positive cash flow in 2025 the following year. So We've definitely started seeing leverage on the P and L already. And for full year 2023, we continue to expect to show modest improvement in adjusted EBITDA compared to last year.

Speaker 4

So we expect operating leverage to continue in the coming quarters and into 2024.

Speaker 9

Got it. And again, apologize, I'm juggling through calls. So if this question has been asked, just stop me. But John, as you think about the HAMRTOE product and you're kind of expanding outward beyond lapoplasty, Is your view in terms of strategy changed at all to be more expansive in the foot and ankle space Relative to maybe your prior views around kind of really being focused on Bunyan and then adding some complementary products. I mean, It almost seems like you're following this natural pathway, but I'm wondering if kind of your aperture has opened up a bit as you get deeper into the Bunyan segment and look for new markets and opportunities for growth?

Speaker 9

Thanks for taking the questions.

Speaker 3

No, no, great question and very timely. We're we have a high focus still on penetrating the bunion market and we will continue to For future years. That is our sweet spot. That's where we built our direct sales channel. That's where we built our initial surgeon base and loyalty from.

Speaker 3

But now we're in a wonderful position to leverage this large direct channel that we have and start to lay in some complementary product technologies that fit into the bunion case or overlap with the bunion case to a high degree. Our sterile osteotomes, our hammer toe, our speed plate that It can provide fixation in other areas while they're in the case that they didn't want to use a plate. So you will continue to see us expand our footprint More broadly across the foot and ankle market, but keep laser focused on penetrating the bunion market as our spear point and just building around that over time.

Speaker 9

Fair enough. Thank you for taking the questions.

Speaker 3

Sure.

Speaker 1

Thank you. Our next question comes from the line of George sellers with Stephens. Your line is now open.

Speaker 10

Hey, good afternoon and thanks for taking the question. Could you maybe just help clarify the Speedplate launch Commentary, should we read into those comments as it's still sort of a more targeted rollout of Speedplay here in the 4th quarter With full commercialization in the Q1 of 2024 or is the 1Q 2024 full commercialization comment referring to Gen 2 Speedplate? And then how should we think about that relative to micro launching this quarter?

Speaker 3

Sure. Hi, George. Thanks for the question. So Speedplay, the only Speedplay we will market is the Gen 2 Speedplay, just clarify that, I know it is a little confusing. That is the refined product that we've decided to Build large supplies up.

Speaker 3

We will be ramping our production levels as we go throughout this quarter and then achieving full Market availability within the Q1. So we're working very hard with our vendors to get this done quickly. Just to clarify, this is not a supply chain issue. This is a change in the product configuration that we decided to make, and we had to work with our vendors to figure out how to get it Achieve quickly and try not to lose too much of our revenue trajectory that we had planned for the Speedplay platform.

Speaker 10

Okay, okay. Understood. That's really helpful. And then maybe for the 10 new technologies that you talked about Launching over the next 12 months, could you give some additional color on how many of those are maybe New devices that are attacking new foot and ankle deformities versus improving on and updating some of the existing devices that you currently have in your portfolio?

Speaker 3

Yes, George, I would say The majority of them are new significant impact products, significant innovations. Redpoint Technology, That's one of them. Something that's coming beyond that in the back half of the year that we Mark alluded to will We believe help us expand and increase penetration into the bunion market. That's a major significant platform. And then we have a handful between call it now and the first half of the year that we'll be introducing as well.

Speaker 10

Okay, great. Thank you all again for the time.

Speaker 3

Sure. Thanks, George.

Speaker 2

I think that's it for today everybody. Thank you for joining us. We appreciate your time and interest. If you have more questions, please reach out and we'll look forward to talking to you next quarter. This concludes our call.

Powered by Quartr

Key Takeaways

  • During Q3 the company reported $40.8 M in revenue, up 23% Y/Y, driving 36% YTD U.S. growth and updating full-year 2023 guidance to $182 M–$186 M at the midpoint for ~30% Y/Y increase.
  • Tris’ proprietary Lapoplasty has penetrated ~6.3% of the 450,000 annual U.S. bunion surgeries (2.6% of a $5 B TAM), and Q3 saw launches of SpeedPlate, hammertoe fixation, and new sterile instruments, with microlapoplasty slated for late Q4.
  • Its specialized direct sales force—now over 200 quota-carrying reps—generated 81% of Q3 revenue, growing active surgeon users 21% to 2,691 and utilization to 10.6 kits per surgeon in the trailing 12 months.
  • The FDA-cleared SpeedPlate Gen 2 platform garnered “total game changer” feedback for its rapid insertion, dynamic compression, and versatility across lapoplasty, adductoplasty, and other foot fusion procedures, with full commercial supply expected in Q1 2024.
  • For 2024, Tris anticipates contributions from its full lineup of new product launches, adding 250–300 active surgeons annually, mid-single-digit ASP growth, continued operating leverage toward adjusted EBITDA breakeven, and positive cash flow by 2025.
A.I. generated. May contain errors.
Earnings Conference Call
Treace Medical Concepts Q3 2023
00:00 / 00:00