Q2 2021 Treace Medical Concepts Inc Earnings Call
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This is the operator todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
This is the operator today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Good day, and thank you for standing by welcome to the trees medical concepts second quarter 2021earnings 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 to ask a question. During the session you will need depressed power 1 on your telephone.
Please be advised that today's conference is being recorded via webcast. If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Lisa.
And Sir Ventas from Gilmartin group you may begin.
Thank you Peter Good afternoon, everyone and welcome to our second quarter 2021 earnings call.
It disappeared from the company today will be John Tree, Chief Executive Officer, and Mark hair, Chief Financial Officer during.
During the call we will offer commentary on our commercial activity and review our second quarter financial results released after the close of the market today after 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 trace dot com.
This call is being recorded and will be archived in the Investor Relations 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.
These statements 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 the actual results or events.
Really 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.
Please refer to our SEC filings, including our form 10-Q for the second quarter filed today for detailed presentation of risks.
With that I'll now turn the call over to John.
Thank you Vivian and good afternoon, everyone and thank you for joining us on our second quarter 2021 earnings Conference call.
I begin I'd like to thank the team at <unk> medical for their dedication and drive as well as the ongoing support from our advocates in the clinical community paving the way for our announcement of another solid quarter.
On the heels of better than expected Q1 results. We are pleased to report continued strength in the second quarter with solid advancements made in several key business and operating metrics.
Revenue in the quarter totaled $20.7 million registering a 10% sequential growth over the first quarter and 167% growth over the second quarter of 2020, which was highly impacted by COVID-19 related business disruptions.
These results were driven by.
The increase in the number of active surgeon users.
Increased utilization of Wow classic and our surgeon users practices.
Increased average revenue per case.
Benefits from our ongoing shift to direct sales with over 50% of revenue from this channel coming in the second quarter.
Accelerating traction with our DTC campaigns, including a record number of visits for a patient website and find a doctor searches.
Our interim data from <unk>, <unk>, demonstrating lowered Earth's rates, along with rapid return to waiver, which was presented from the podium at the <unk> conference in May.
And finally increased surgeon adoption of our lateral class C. Many incision system, which we started rolling out in Q4.2020.
All in we are pleased to see continued growth in the second quarter and early in the third quarter, which is generally a soft quarter for elective procedures, we know an ongoing positive business traction.
However, we are closely monitoring the impact of the Delta variant, including potential changes in hospital responses and the impact they may have on electric procedures, which could affect certain regions more than others.
Notwithstanding we remain cautiously optimistic and are increasing our full year 2021 revenue guidance to $90 million to $95 million up from our prior guidance of $87 million to $92 million.
For Q3, we anticipate flat to slight increase in revenue as compared to Q2.2021 level.
Now shifting to talk to our market development activities.
We are addressing a market where there is a large unmet need and still relatively early in our commercial efforts as of the end of Q2.2021, we believe our market share is around 3.3% of the estimated 450000 annual surgeon.
Michael blending procedures and about 1.3% of the $5 billion plus market opportunity, representing approximately $1.1 million annual surgical candidates.
Armed with our proprietary <unk> system designed to provide an effective treatment with low recurrence rates, we continue to execute on executing programs aimed at increasing our market penetration.
<unk> include ongoing investments to build a highly differentiated body of clinical evidence.
Regular and active surgeon and patient education program Targa.
Targeted sales strategies, including an increased investment in the build out of our direct sales channel, while also expanding customer access by a new facility approvals.
As well as an increase in investment in our R&D programs to continue to deliver next generation lateral classy innovations to our customers.
Drilling down at the American college of foot and ankle surgeons or <unk> annual scientific conference last May we announced positive interim data on our line <unk> study podium presentation.
Data on 128 patients showed consistent positive radiographic and patient reported outcomes starting at 6 weeks and maintained at 12 months post surgery.
Building on previous interim data analysis, only 1 out of 72 patients that reached the 12 month follow up point demonstrated a recurrence for an implied returns rate of 1.4%.
This compares favorably to recurrence rates reported in the literature with metatarsal osteotomy, which still represents the lion's share of blending operations today of up to 78%.
While we still have a ways to go with a primary endpoint of recurrence of 24 months post surgery and a final patient readout in the first half of 2023, we're encouraged by this positive trend that builds on our prior published outcomes and we're pleased to note. This data is resonating in the clinical community.
Our differentiated surgeon education programs remain well received as evidenced by high demand in attendance for our in person training labs throughout the quarter.
We continue to see active patient interest.
<unk> interest in sign ups with no softening in physician requests to be trained in our procedure, particularly as we entered the third quarter.
We also saw positive results from our targeted targeted market development strategies.
During the quarter, we accelerated our investment in DTC and launch a new patient website with features that provide increased engagement from patients.
As a result in Q2, we witnessed a record number of visits to our patient website and a record number of find a doctor searches.
We also continue to add talent to our sales organization, our rapidly growing direct salespeople at a key role in this quarter's revenue performance with over 50% of our Q2 sales coming from our direct channel compared to 44% in Q1 and 35% for 2020.
We also recently bolstered our leadership team with a senior Vice President of sales who comes to us with skills and experiences that are very well aligned with our commercial strategies.
We maintain focused investments in R&D initiatives to advance both next generation lateral pot innovations as well as new technologies addressing concomitant conditions.
Our goal is to establish a <unk> procedure as a standard of care by delivering a more effective surgical treatment for binding suffers.
Particularly early in our market penetration, we are pleased with the progress of our commercial initiatives and we believe we are well positioned to drive continued market share gains with our <unk> system.
And we remain cautiously optimistic as the U S continues to return to normalcy in 2021.
I'll now turn the call over to Mark to review our financial performance.
Thank you John Good afternoon, everyone. Thank you for joining us for our second quarter 2021 earnings review.
Revenue in the second quarter was $27 million, an increase of 10% over the first quarter 2021, and up from $7.7 million a year ago, representing an increase of 167% over the second quarter 2020. The increase was led by our expanded surgeon base and higher utilization rates.
Which grew the number of lack of classy procedure kits sold. In addition, we saw continued favorable blended average selling prices in the quarter compared to the prior year. We note that 2022nd quarter results were also severely impacted by the COVID-19 pandemic, including restrictions on elective procedures.
In the second quarter 2021 sales of lateral classy procedure kits were 3789, a 147% increase versus the prior year second quarter with a blended average selling price of 5000.
$451, an 8% increase over the second quarter of 2020, and a 2% increase over Q1 of this year.
The number of active surgeons performing at least 1 case on the trailing 12 months in the quarter increased 41% year over year to 1492, while utilization increased 18% year over year to an average of 9.8 <unk> procedure kits per active surgeon and the trailing.
12 months.
Gross margin increased to 89% in the second quarter of 2021 compared to 73, 1% in the second quarter of 2027.
780 basis point gross margin expansion was due to increases in the number of lack of biopsy procedure kits sold increases in blended asps and.
And operational efficiencies gross margin for the 2020 period also reflects pandemic related disruptions.
The operating total operating expenses.
Were $28 million in the second quarter of 2021, including sales and marketing expenses of $14 million research and development expenses of $2.4 million and general and administrative expenses of $4.3 million. This compares to total operating expenses of $7.2.
Including sales and marketing.
Expenses of $4.8 million.
Research and development expenses of $1.1 million and general and administrative expenses of $1.4 million in the second quarter of 2020.
Second quarter net loss was $5.1 million or a loss of 10 cents per share compared to a net loss of $2.1 million or <unk> <unk> per share for the same period of 2020.
Cash and cash equivalents were $119.6 million as of June 32021.
Let me turn to our outlook for 2021, we are raising our guidance and now expect revenue for the full year 2021 to range from 90 million to $95 million up from our previous guidance of 87 million to $92 million and representing approximately 57% to 65% growth.
Over the company's fiscal year 2020 revenue of $57.4 million as Don noted while difficult to gauge the impact of the Delta variant and lingering effects of the pandemic going forward. We are regularly monitoring for potential changes in hospital responses to elective surgeries and remain cautiously optimistic.
Our outlook assumes continued normalization of procedure trends to pre pandemic levels in the back half of the year, we expect strength to generally persist. Despite typical seasonal softness in orthopedic elective surgeries during the third quarter and some recent regional pandemic related <unk>.
<unk> procedure delays, we now expect Q3 revenue to reflect a flat to slight increase sequentially from revenue reported in Q2, representing strong year over year growth or.
Our 2021 outlook reaffirms, our commitment to focused execution and growth in our business with that let me turn the call over to the operator to open the line for your questions.
Yes.
Operator.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone again that is star then the number 1 on your telephone somebody you already a question press the pound key.
Unbelievable, we compile the Q&A roster.
Yeah.
And your first question will come from Robbie Marcus with Jpmorgan. Your line is open.
Hi, This is actually Lili on for Robbie Thanks for taking the question.
I was hoping you could just dive a little bit deeper into what you've been seeing on the recovery.
With 1 month of third quarter under your belt have you been seeing procedures start to be deferred or canceled is the delta variant and spreader has that largely held up.
Hi, Kyle this is John.
Yes sure happy.
I'm certain that does the majority of their funding surgery doesn't osteotomy and does it.
The occasional lapidus and what they do is they start with lava class C. Addressing the typical minority patients that they treat with lapidus and then over time, what we see is they they start.
Carving into their osteotomy practice, and adopting lava class C for a larger portion of their.
Overall blinding procedures, so they're cannibalizing.
<unk> over time.
Okay. That's helpful.
Maybe just as a second question it was encouraging to see a utilization creep.
Higher sequentially. Despite the dominator of the number of active surgeons going up as well.
I'm just curious.
Within the different.
Levels of experiences or what's the technology from utilization standpoint are you seeing.
A consistent upward trend and kind of your your older classes of adopters are those who adopted in maybe 2017.2018 are are they continuing to move higher.
At a faster pace.
Any color you can give on the nature of of of your user base and how does utilization trends are moving forward.
Yeah, Greg Great question, Rich and I'll take the first stab at it.
We see every year that our surgeons are performing procedures on the average they are increasing the number of procedures done year. After year. So you made reference to 2017, we're seeing that year over year that there's an increase the longer they're with us the more opportunities that we find to do lots of plastic within there.
Our practice and so that continues to nicely step up which also helps us really think about our business going forward as we now have a more.
More mature customer base and so it's really helpful. So yes, we're really pleased with the fact that we not only have an increase healthy number of increased number of surgeons, but on average they're all doing more.
Okay. That's great. Thanks, Thanks for taking the questions.
Of course, thanks rich.
Again, if you would like to ask a question that is star 1 on your telephone keypad.
And your next question will come from Rick Wise with Stifel. Your line is open.
Good afternoon, gentlemen, nice to see the excellent quarter.
Maybe.
So I was hoping to so many questions.
Where are we in D C.
Many rollout.
Yeah.
How far how much more do you have to go out there and just remind us.
Impact if any that has on.
On price or <unk>.
Margins.
Hi, John.
We're probably in terms of supply to 2 thirds.
Supplied out there.
We have broadened the the user base adoption of the <unk> system and it does come along with a higher average selling price.
And that's.
That along with our ancillary kit broadening of our ancillary kit adoptions is kind.
Kind of giving us a little tailwind on our average case pace price or average base revenue.
And.
Sort of a similar question.
My summary question don't understand where I'm going.
Same thing same sort of question on the direct reps.
50% of Q2 sales.
Progressing really nicely how.
How do we think about that stat.
<unk> phones should.
What's a reasonable targets target for us to imagine you might hit as a percentage of sales as you exit the year again remind us the impact on sale.
Sales or growth or profitability from this direct direct Rep initiative and I'll just ask my last question out which essentially.
So taking sort of this positive.
Many mixed the direct reps, which maybe the answer is gonna be similar.
How do we think about.
<unk>.
The blended average price I think you called it.
As the year progresses. Thank you.
Sure.
Yes.
Having a Q2 just over 50%.
<unk> W..2 revenue mix.
We look out to the future, we're going to be driving that number higher.
Rick.
Our plan and we're making some significant investments to do that both in the direct reps and then the sales management team and <unk>.
Corporate accounts.
Internally to help open up new facility access for doctors and for the reps.
And overtime, we will drive that to be a strong majority of our revenue on the direct side.
Don't think we've given out exact numbers over time.
But we also have some very very excellent independent distributor partners, who are very aligned with the company and continue to co invest along with us and so we support them as well.
I think the question around the blending of the many incision mix and the ancillary kits impact on.
Our average case price.
It's helped us nicely so far.
However, going forward, we are going to be entering some larger IGN agreements potentially GPO contracts that we are going to probably have to concede some some pricing on our kits to gain that access.
It's the right thing to do to drive market share, but we're being a little cautious about.
Maintaining this high level on the C.
Asps if you will.
For too long, because we could we could get some dampening in our base kit prices, we have to provide some discounts to get into the larger.
Hospital networks.
Got you no I appreciate the color. Thank you great to see that.
Such an excellent quarter. Thank you. Thanks.
Thanks, Rick and thanks, Rick.
And your next question will come from Richard <unk> with SBB Leerink.
Hi, Thanks for taking the follow up I just wanted to go back to the guidance range I think someone earlier had asked about kind of some of the assumptions at the lower and the upper end, maybe just isolating for Covid.
How should we think about.
What's the assumption would be at the midpoint of the guidance.
Excuse me speakers I'm showing no further questions at this time I will now hand, it back over to Vivian Cervantes for any closing statements.
Thank you Peter.
On behalf of truth medical Thank you for joining US today. This concludes our call and we look forward to our next update following the close of the third quarter 2021. Thank you have a good afternoon.
This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby for a post conference.
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