Q1 2021 Treace Medical Concepts Inc Earnings Call
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Good day, and thank you for standing by and welcome to the Cheetah Medical concepts first quarter 'twenty 'twenty 1 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. That's a good question. During the session you will need to press star 1 on your telephone.
If you require any further assistance please press star zero.
I'd now like to turn the conference over to your Speaker today, Vivian Cervantes Investor Relations. Please go ahead.
Thank you Joelle good afternoon, everyone and welcome to our first quarter 2021 earnings call.
<unk> from the company today will be John Tree, Chief Executive Officer, and Mark hair, Chief Financial Officer.
During the call we will offer commentary on our commercial activity and review our first quarter financial results released after the close of the market today.
Which we will host a question and answer session.
The press release can be found in the Investor Relations section of our website at investors thought tree Dot com.
This call is being recorded and will be archived in the investor.
<unk> of our website.
Before we begin we would like to remind you that 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.
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 differently.
Materially differ from those anticipated or implied by these forward looking statements.
All forward looking statements are based upon current available information and treat assumes no obligation to update these 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.
Our prospectus filed with the Securities and Exchange Commission on April 26, 2021 in connection with our initial public offering.
With that I will now turn the call over to John.
Thank you Vivian and good afternoon, everyone and thank you for joining us on our first earnings conference call as a publicly traded company.
On behalf of the board and management team of <unk> medical we'd like to take a moment to acknowledge all who supported us and to welcome new shareholders in our journey to drive market adoption of our novel and proprietary <unk> system.
Treat medical we're just getting started we were addressing a market where there is a large unmet need.
Relatively early in our commercial efforts, we estimate we've penetrated about 2.5% share of the estimated 450000 annual finance surgical procedures in the U S and about 1% of the $1.1 billion annual surgical surgical candidates in the U S translating to a $5 billion plus opportunity. So we have a long runway.
Head of us.
In the U S bunions affect approximately 65 million individuals.
Generally increase in severity overtime.
From this population about $4.4 million patients seek medical attention for their bunions each year.
Of these about $1.1 million are considered surgical candidates.
This population often suffers from symptoms that worsened overtime, including severe and debilitating pain emotional burden and limited mobility yet.
Yet only 450000 of this group to surgery, given limitations of traditional surgical procedures.
While new surgeries performed to restore a foots natural anatomy and in doing so relief pain, so that patients can get back to their normal lives and activities.
In the past, it's been thought that bunions or simply a painful bump of bone on the side of the big toe that can be shaved off however in more recent clinical sciences demonstrated that findings are actually complex 3 dimensional deformities originating from an unstable joined in the Midfoot known as the Tarsometatarsal joined and is this unstable joint that allows the entire metatarsal bone to both shift in <unk>.
So rotate out of alignment producing the bump we associate with abundant.
In fact recent studies indicate that 87% of Bunions have this rotational component to the deformity and a failure to correct that translates to a 10 times greater risk of the bunyan returning.
And it's this rotational component that's been historically overlooked and traditional surgical procedures contributing meaningfully to the Hyatt serve recurrence rates.
Approximately 75% of Bunions surgeries today are corrected with procedures known as metatarsal osteotomy, where the <unk> bone is cut in half below the bump in the bump is shifted inward.
This is primarily a cosmetic fix and that it does nothing to address the unstable joined which again is the origin of this deformity and fails to reliably address the important rotational component.
Due to these shortcomings metatarsal osteotomy are associated with high recurrence rates, some as high as 78% and more recent clinical literature.
The alternative conventional treatment known as Lapidus fusion is performed in approximately 25% a bunion surgery today.
Lapping distribution is very different from <unk> and that it attempts to realign the entire metatarsal bone, while addressing the unstable joined as we do with lab of classic.
That said it is a much more technically challenging and sometimes even volatile freehand operation and 1 that has not historically focused on correcting the important rotational component of the deformity.
As such outcomes tend to be inconsistent from case to case and surgeon to surgeon.
Given the unstable joint is secured and elaborate as fusion. This procedure is generally associated with lower recurrence rates than osteotomy.
Lapidus recurrence rates as high as 46% have been cited in the clinical literature.
In addition, lapidus is typically a hard sell to patients as it involves a much longer and more restrictive recovery then in osteotomy.
Without the 6 to 8 weeks non weight bearing and often in a cast.
For these reasons Lapidus fusion has traditionally been reserved for only the most severe bunion patients werent osteotomy isn't a viable option.
It is against this backdrop that we developed our novel <unk> bundled and correction system, which is a combination of proprietary instruments implants and surgical methods designed to empower surgeons to consistently correct. All 3 dimensions of the binding deformity, including that rotational component and address the unstable joined.
This comprehensive approach delivers significantly lower recurrence rates and allows patients to weight bear quickly typically within just a few days to a couple of weeks post operative boot.
To provide support build awareness and drive adoption of the lap of classy procedure, we've embarked on several programs, including clinical studies that provide a body of evidence for our novel therapy.
In 2018, we initiated the aligned <unk> prospective multicenter study to evaluate for consistent and reliable correction of all 3 dimensions of the binding deformity with lab capacity as well as maintenance of the correction following a rapid return to weight bearing protocol.
The primary effectiveness endpoint of this study is recurrence at 24 months post surgery.
At the recently concluded American college of foot and ankle Surgeons annual scientific conference. We were pleased to announced positive interim data on the align <unk> study in a podium presentation.
Data on 128 patients so consistent positive radio graphic and patient reported outcomes starting at 6 weeks and maintained at 12 months.
Building on our previous clinical studies only 1 out of a total of 72 patients demonstrated a recurrence at the 12 month follow up point for an implied recurrence rate of just 1.4% in this interim analysis.
While we still have a ways to go with a primary endpoint of recurrence at 24 months post surgery and a final patient readout in the first half of 2023.
We are encouraged by this positive trend that builds upon our prior clinical dataset.
We believe the data on <unk> recurrence rate compares quite favorably to those reported in the literature relative to both osteotomy and lapidus fusion.
Importantly, aligns <unk> interim data also showed an early return to weight bearing with a boot at approximately 8 days versus 6 to 8 weeks for many traditional lapidus procedures.
The data also demonstrated significant improvements in pain reduction in quality of life measured at 6 months and maintained at 12 months.
As such we are optimistic that our lap of classy procedure satisfies the needs of patients who seek treatment to relieve the pain reduced mobility and quality of life caused by their abundant deformity.
We're encouraged by our growing body of clinical evidence. In addition to real world data for more than 28000 lateral classy procedures performed through Q1 of this year.
Early in our commercial efforts, we know traction in our patient and surgeon education initiatives, which are also benefiting from positive testimonies and word of mouth.
All combined we believe we are on solid footing to serve the unmet need of a large underpenetrated market with our <unk> system designed to comprehensively address the bunyan deformity <unk>.
Strong intellectual property, covering our surgical methods and instrumentation, creating high barriers differentiated clinical datasets and expanding direct sales team.
Active surgeon education programs impactful patient awareness initiatives and favorable reimbursement economics.
Net net we aim to deliver premium quality care with data demonstrating a more reproducible and effective surgical procedure to binding suffers.
With approximately 2.5% market penetration of the estimated 450000.
450000, Bunions surgeries performed annually in the U S. We believe we are well positioned to broaden adoption of our <unk> system and we remain cautiously optimistic as the U S returns to normalcy in 2021.
With that I'll now turn the call over to Mark to go over our financial performance Mark.
Thank you John and good afternoon, everyone and thanks again for joining us for our first quarter.
<unk> 2021 earnings review.
Revenue increased 66% in the quarter to $18.7 million up from $11.3 million, a year ago and at the high end of our $18.5 million to $18.7 million range provided is preliminary Q1 results and our.
Prospective prospectus filed with the SEC on April 26.
The increase was led by our expanded customer base and higher utilization rates, which grew the number of lack of classic procedure kits sold particularly as we exited the quarter.
In the first quarter sales of lack of classy procedure kits were 3503, a 60% increase versus the prior year's first quarter with a blended average selling price of $5340, which was a 3.7% increase over the first quarter in 2020.
The number of active surgeons performing at least 1 case on the trailing 12 months in the quarter increased 29, 7% year over year to 1354 with utilization improving 9.5% year over year to an average of 9 point to lack of plassey procedure kits per.
Active surgeon and the trailing 12 months.
In the first quarter 2021 employee sales reps representatives, our direct sales channel generated approximately 44% of total revenue in the quarter versus an average of 35% for the full year of 2020.
Gross margin increased to 82, 2% in the first quarter of 2021 compared to 78, 8% in the first quarter of 2020.
The 340 basis point gross margin expansion was due to increases in the number of lack of classy procedure kits sold blended asps and operational efficiencies.
Total operating expenses were $16.8 million in the first quarter of 2021, including sales and marketing expenses of $12.1 million research and development expenses of $1.9 million and general and administrative expenses of $2.8 million.
This compares to total operating expenses of $10.1 million.
Including sales and marketing expenses of $7.3 million.
Research and development expenses of $1.4 million and general and administrative expenses of $1.3 million in the first quarter of 2020.
First quarter net loss was $2.6 million or a loss of <unk> 7 per share compared to <unk>.
To a net loss of $1.8 million or a loss of <unk> <unk> per share for the same period in 2020.
Cash and cash equivalents were $16.2 million as of March 31, 2021 pro forma cash, including net proceeds of 100.
And $7.1 million from our initial public offering completed in April were approximately $123.3 million.
Let me turn to our outlook for 2021.
We project revenue for the full year 2021 to range from 87 million to $92 million, which represents approximately 52% to 60% growth over the companys fiscal year 2020 revenue of $57.4 million.
Our outlook assumes continued normalization of revenue trends to pre pandemic levels in the back half of the year with recent strength seen in March Q1 came in better than we anticipated. Therefore, while we typically see a step up in Q2 revenue over Q1, we now project Q2 revenue to be roughly in line.
With revenue reported in Q1, as we continue to emerge from the pandemic in the first half of the year.
As John mentioned, we believe we are well positioned to drive adoption of our <unk> system, and our 2021 outlook reaffirms our commitment to focus.
Execution and growth in our business with that let me turn the call over to the operator to open the line for your questions.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone.
Jay Your question press the pound key.
Standby will be compile the Q&A roster.
Our first question comes from Robbie Marcus with Jpmorgan. Your line is now open.
Great.
Congratulations on your first quarter public.
Hey, Ravi Thank you Hey.
So it sounds like second quarter is going better than maybe you thought.
Going into the IPO I was just hoping you could give us.
An update on what Youre seeing in the market so far in second quarter here as it relates to volume recovery.
Yes so.
As we mentioned that we're projecting Q2 to be roughly in line with revenue reported in Q1, and we believe that we're still in that transition time related to really are emerging from COVID-19. So forecasting the business is a little bit more challenging than usual you may have heard that from some others. So while we are.
We are really encouraged by the Q1.
Especially the latter part of the quarter its somewhat difficult to sort out.
Backlog from a normal demand and how those trends will play out in Q2 with all that said, we think that it's doing well and we like the activity that we're seeing so that's why we're we're thinking roughly in line with Q1.
Great and as revenues move up how are you thinking about the trend.
<unk> expenses over the balance of the year.
Thanks.
Yes.
The trend of expenses.
I think as we think about how we came in in Q1, it's going to be a similar pattern in some of our G&A expenses will continue to increase as we are a public company now, but a lot of the trends that we see in Q1, we'll continue so it's not a lot of not a lot of shifts or changes from what we reported.
Okay, great. Thanks, a lot.
Thank you. Our next question comes from Richard <unk> with SBB Leerink. Your line is now open.
Alright, thanks for taking the question.
Yes.
Maybe just to start.
Can you and thanks for the guidance.
This quarter. We appreciate that could you maybe talk a little bit about the underlying assumptions in terms of.
The surgeons.
How many you expect to hire for the rest of the year.
Utilization.
And ASP.
Yes, so there's a couple of questions. There. So you were talking about active surgeons or is it the active sales reps, you mean and how many were hiring for the year or what are some of the key assumption.
As you build up to the range or below or in the upper ends of the range. Okay.
The balance of the range.
You're talking about price and utilization.
Rep hiring.
How many accounts you expect to bring on just any of the assumptions that you use to build up there.
Yes, so yes. Thanks for the question. So a lot of this is going to come back to some of those key metrics that we've talked about in the past, which are really the increase in new surgeon customers. Our overall blended ASP.
And really that utilization rate and so we've seen that uptick in utilization, which we love across a broader base of surgeon. So as we continue to see those increases year over year, that's what's going to.
Really play a factor of whether we are on the lower high end of that range that we just talked about.
Okay.
Thanks for that and.
Sure.
Anything that you saw in the.
No.
In the first quarter and even into the.
Early part of the second quarter.
That.
It's surprising you are an interesting trend.
What you think is worth calling out just where in this recovery zone. So.
I'm just curious if theres any kind of behavior on the consumer a doctor and is it more osteotomy as more lack of diffusion that are kind of taking the baton during the recovery and then also if you could just talk to the cadence for <unk> and <unk> as you think of the think of the full year guide. Thanks.
Yes, so as far as.
We talked a little bit about.
As we emerge from the pandemic.
It's a little bit more challenging to predict what's happening out there with that said we've been encouraged with Q1 I don't know that Theres, a dramatic shift in <unk> versus <unk>.
Lapidus versus lack of classy other than we've had a nice growth year over year Q1 versus last year.
We're projecting.
What we said for Q2 to be a substantial growth year over year as well. So I don't know that were seeing any of that.
Major shifts in the marketplace.
We're not really giving specific guidance on Q3 and Q4 other than.
That we are on track and we're feeling good about the year such that we increased our overall guidance for the year. So I don't know that we have too many comments right now about Q3 and Q4, but we'll see how Q2 could you sort of unfolds.
Thank you.
Thank you. Our next question comes from drew <unk> with Morgan Stanley. Your line is now open.
Hey, drew hi, Jonathan.
Hey, John and Mark Congrats on your first.
First quarter coming out of the gate.
Public company.
Thanks for taking the question but.
Just to start just out of the recent foot and ankle meeting if you could just talk about.
The feedback that Youre getting from surgeons you presented the <unk> data the interim results, but just how is that resonating among.
Your current utilize or is that even just newer surgeons.
And how did the how does this conference maybe compared to some pre COVID-19 are you kind of getting.
Are you seeing more demand for your training and education initiatives, just any thoughts there. Thank you.
Yeah, Hey, drew its John yes.
Thanks for the question I think.
In general the aircraft conference was sort of lightly attended they had some limitations this year from a physical standpoint, but it was also offered remotely. So they did have a pretty good turn out I think the.
The news about our aligned <unk> interim results permeated through the meeting a bit and.
As the surgeon that presented the data.
Related to me just said this is just continuing to build upon your body of clinical evidence that will.
Slowly work its way towards convincing more people that this is the right treatment for more of their binding operation. So.
I think in general that it wasn't a firework display, but definitely helpful incremental data and.
That interim data looks looks very good comparatively to the other procedures.
Great. Thank you Mark this might be more for you, but just with gross margins at 82% for the quarter. They are kind of getting to pre COVID-19 levels, but can you just talk about the sustainability of gross margins through 2021, it sounds like Asps.
Should likely be stable, but what are you thinking about for gross margins going forward. Thank you.
Yes, great Great question. So we definitely have our eyes on several different factors here as we were coming into the year..1 is just the overall.
Cost of goods and materials that go into our products and so we're keeping our eyes very wide open on that that that could have an impact on gross margin. If we do have that inflation and there's a lot of inflationary concerns and we've seen a little bit of that and so there is potential that that may have some impact we've also talked a little bit about it.
We continue to penetrate and get into larger hospital networks that there could be.
Some pricing pressure from from those from.
From those customers.
But that would be the right thing for us to do so overall, we're feeling pretty good right now about our margins going into.
Going forward into Q2, and hopefully for the back half of the year as well.
Thank you.
Thank you as a reminder to ask a question you will need to pass.
1 on your telephone.
Next question comes from Rick Wise with Stifel. Your line is now open.
Good afternoon gentlemen.
Correct.
Hi, Hi, let me start off with if we could talk about.
Sales agency conversion, if I remember correctly in the fourth quarter, something like a third well over a third of revenues came from your direct reps, 65% independent sales reps and I know you've said that your goal is to have the majority of revenues over time.
So we come from the direct sales channel.
Just help us understand where are you now with that cadence that evolution.
And just remind us.
How that transition is going to unfold this year at least.
Sure Rick This is John I'll take that 1.
We ended the year last year for full year around 35% mix.
Ended Q1 at 44% and we continue we're going to continue to build upon that.
Through this year.
And then next year it'll be a progressive <unk>.
Process.
And we will have a larger percentage of our revenue coming from our direct sales channel that said as we've discussed before we have some excellent very strong.
Independent Agency partners, who we believe will be with the company for a long time, they're very supportive of our programming and.
Hitting the numbers that we need them to hit so.
That's I hope that answers your question there yes.
Yes.
Definitely.
And the yes.
The product front.
Can you just give us an update on the many incision system launch.
Obviously that may incision.
Launched in 2003.2008.
I expect more full release in 'twenty 1.
Halfway through the year.
Are we.
In terms of penetrating the existing surgeon base and.
Should we be by the end of this year and just remind us.
About pricing impact on pricing and margin is that 1 of the factors that helped pricing.
In the period.
Yes, it actually did have.
It was definitely a favorable tailwind to the pricing it didn't.
It didnt elevated in its own there were multiple factors going in there including <unk>.
More of our accessory products being sold in and just a higher average selling price of our base kits as well.
As far as the the many decisions system itself and the clinical uptake I think it continues to gain more traction and more broadened acceptance where C.
A lot of Great X rays, and clinical pictures of some very small incisions.
Surgeons enthusiastic about it so I think it's going to continue to build.
As we've communicated before expect to be more broadly available in the back half of this year.
We're still doing that progressive rollout in training more and more docs.
<unk>.
New doctors are starting to implement it in their practice.
And existing surgeons that have already been users of the minions vision system are finding more ways to apply it but it's still not a.
A swap out for our conventional lap a philosophy its a patient selective.
Application and.
That's the way, we're going to see it for the for the future.
Great. Thank you so much.
Sure.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Vivian Cervantes for closing remarks.
Thank you.
Have a truth medical thank you everyone for joining US today. This concludes our call and we'll report our next update following the close of the second quarter 2021.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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