Q1 2022 Treace Medical Concepts Inc Earnings Call
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Good day, and thank you for standing by and welcome to the trees medical concepts first quarter 2022.
It does.
This time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
I would now like to hand the conference.
Today, Vivian Cervantes Gilmartin group Investor Relations. Please go ahead.
Thank you Ken good afternoon, everyone and welcome to our first quarter 2022 earnings Conference call.
<unk> from the company today will be John <unk>, 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 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 <unk> com.
This call is being recorded and will be archived in the investors section of our website.
Before we begin.
I'd like to remind you that it is our intent that all forward looking statements made during this call will be protected under the private Securities Litigation Reform Act of 1095.
These statements that relate to expectations or predictions of future events.
End 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. Please.
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 currently.
Available information and <unk> 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 first quarter to be filed later today and our Form 10-K for the full year 2021 filed on March four 2022 for a detailed presentation of risk.
With that I will now turn the call over to John John .
Thank you Vivian and good afternoon, everybody and thank you for joining us on our first quarter 2022 earnings conference call.
We're off to a solid start in 2022 with strong execution on our commercial strategies and initiatives aided further by improving trends in procedure volumes, resulting in a 55% increase in revenue in the first quarter over prior year.
We're pleased to report yet another strong quarter of growth, adding to our positive momentum since our IPO.
Our business is drop is driven by our disruptive technology and surgical procedure, which we believe is fundamentally changing bunion surgery today.
From what we can see in the marketplace. We are the only industry participant that has a growing body of clinical evidence demonstrating both rapid return to weight bearing and low recurrence rates.
In fact, this morning, we announced a peer reviewed publication in the journal liquid nasal surgery on our interim data from the aligned <unk> clinical study demonstrating continued positive radiographic and patient reported outcome scores at 12 and 24 months following the lap of philosophy procedure.
We continue to be pleased with the sustained enthusiasm and positive momentum from surgeons through our active surgeon education initiatives as well as patients through our targeted DTC program.
We're also encouraged to see the steady increases in our active surgeon users and surgeon utilization rates supported by our expanding direct sales channel as well as our patient education and awareness activities, which we believe help patients learn about our procedure and connect them with knowledgeable surgeons in their area.
Of note our direct sales channel is 100% focused on bunion surgery, the only such organization that we're aware of in the med tech industry today.
The expansion of the specialized sales team has contributed meaningfully to our revenue and market share growth and we will continue to invest in this channel and transition to a higher mix of direct revenue over time.
In the first quarter, 63% of revenue was through our direct sales channel.
Sequentially from 58% in the fourth quarter and up from 44% just a year ago.
Our disruptive <unk> solution was specifically developed to correct the root cause of the bunyan and address a large large and underserved market with.
We have identified a $5 billion plus U S market of $1 1 million annual surgical candidates.
Which only 450000 undergo bunion surgery, each year, mainly due to limitations with current standards of care.
As a reminder, recurrence rates reported in the clinical literature with metatarsal osteotomy, which represents 70% of the bunyan surgeries per day are highly variable and have been shown to be as high as 78%.
In the first quarter of 2022, we believe our market share stands at approximately four 3% of the estimated 450000 annual bunion surgical procedures in the U S.
Up from three 8% in the first quarter of 2021.
And representing approximately one 7% share of the $1 1 million annual surgical candidates in the U S.
Our team is driven by a positive feedback we received from our surgeons are patients and the clinical community reinforcing our conviction that we are well positioned for sustained growth and continued market share gains.
Turning now to our Q1 results.
Revenue in the first quarter was $29 million, representing 55% growth over the first quarter of 2021.
Building on strong companywide execution to deliver on our targeted financial and operating metrics.
During Q1, we continued to benefit from the impact of our strategic commercial investments complemented by deferred procedures from Q4 2021 that were realized in the back half of the quarter.
All told continued momentum from the strategic commercial programs I discussed earlier led to steady market acceptance and traction of our technology fueling strong Q1 revenue growth.
Yes.
We're extremely pleased by not only our topline growth, but the continued positive trends in our underlying growth metrics, including our.
Our expanding direct focus London sales team, which accounted for 63% of our revenue mix in Q1.
Strong increases in the number of new surgeon users ending Q1 with 1901 active users up 40% year over year.
Continued year over year increases in surgeon utilization with $10 one kits per surgeon used in Q1 up from $9 two kits a year ago, representing an approximate 10% increase.
Strong blended average selling prices of $5 $503 per case, which represented 3% growth over the prior year.
And positive uptake of our newer innovations such as our lack of plassey, many incision system and our <unk> system for Midfoot correction.
Okay.
Our continued investments in patient education, DTC programs expansion of our direct sales channel and R&D innovations have consistently supported our revenue expansion and momentum.
We remain excited about the positive impact these investments, we're making on our business and our confidence that we have a well defined proven and scalable commercial strategy, that's fueling our growth.
Given these positive trends, we are raising full year 2022 revenue guidance to $128 million to $133 million, which reflects an increase of 36% to 41% from 2021 revenue.
This is up from our prior full year guidance range of $125 million to $130 million.
Turning now to our <unk> commercial and market development activities.
A key differentiator and driver for our business is our commitment to clinical evidence.
As mentioned earlier, we are pleased to have announced this morning, our first peer reviewed publication on the interim results from our aligned <unk> study in the journal of foot and ankle surgery.
This comes on the heels of a podium presentation of interim one and two year aligned <unk> data at the February 22022 American College of foot and ankle Surgeons annual scientific conference.
As announced the interim data from this new publication demonstrated consistent positive radio graphic and patient reported outcomes for patients following the lap of classy procedure.
Data on a total of 173 study patients, including 117 patients with at least 12 months and 40 patients with at least 24 month follow up demonstrated.
Early returned to weight bearing walking boot at an average of just seven eight days.
Returned to work within 25 days and the full unrestricted activity within four months post surgery on average.
And significant improvement in radio graphic measures of three dimensional bunion correction from pre surgery to six weeks and maintained at 12 months for 108 reporting patients and 24 months for 38 reporting patients post surgery and.
And with one recurrence report reported up to 12 month time point post surgery for a <unk>, 9% recurrence rate.
Additionally, this interim published data demonstrated statistically significant improvement in patient reported outcome scores across three validated scoring systems, including the visual analog pain scale or bass, the Manchester, Oxford foot question, Eric or marks FQ and the patient reported outcomes measurement information systems.
Known as promised 29.
For example at 24 months post surgery 40 reporting patients noted a greater than 80% reduction in pain versus pre surgery levels per both vas and Marc <unk>, scoring systems.
In addition, 87% improvement in walking standing as well as social interaction was observed using <unk>.
Further statistically significant improvement in physical metal and social health scores were reported using the promised 29, scoring system.
And a similar approach to align <unk>, we have an ongoing many three D lateral class a prospective multicenter clinical study utilizing our many incision lap a classy system, which offers a much smaller three five centimeter incision option to realign the entire first metatarsal bone and <unk>.
Dress the root cause of the bunyan.
First is just cutting and shifting the bony bump which is the case with newer minimally invasive osteotomy procedures.
During the quarter, we continued to treat additional patients and onboard new clinical sites for this study and we look forward to providing future. Our interim report outs on the mini <unk> dataset as we have done with the align <unk> study.
Our many infusion lap applies to the approach continues to resonate with growing interest from both physicians and patients.
And we continue to see a steady adoption of our minions vision system with positive contributions to our blended average selling price.
On the strength of our positive clinical body of evidence and differentiated surgical approach interest and attendance at our surgeon training events were strong through Q1, and we have many more national and local level events plan with continued strong participation expected for the remainder of the year.
As mentioned before we also offer evergreen learning for our surgeons through our regular schedule of advanced training events, both online and in person throughout the year or our tenured surgeons can acquire advanced skills as well as learn new approaches like our many incision in the Dr policy procedures.
As we mentioned last quarter, we're making additional targeted investments this year to accelerate our market penetration and drive share gain share gains in the long term.
These growth investments are expected to accelerate patient awareness surgeon education and demand for our lap of classy procedure.
To expand the footprint and coverage of our bunion focused direct sales channel and drive more R&D innovations into the market.
We're very pleased to report positive early feedback on all three of these initiatives.
Our DTC patient awareness initiatives are a key component of our commercial strategy.
Over the past several years, we've made important investments that leverage targeted direct to patient awareness campaign designed to educate patients on the bundled deformity and our differentiated solution.
We successfully employed social media, Google search public relations and other media, including targeted television campaigns.
All of which are designed to encourage patients to seek more information and education on our patient website.
Locate lap of plastic surgeons and their market and ultimately schedule a consultation.
Our DTC strategy works with strong metrics and performance data that show active patient engagement further supported by feedback from regularly conducted surgeon surveys.
We have a strong conviction in our direct salesforce strategy.
Our channel analytics show that on average relative to our independent agencies are direct sales reps penetrate their markets faster generate higher surgeon utilization and sell at higher blended asps.
These reps typically scale with cost leverage within 24 months, primarily because they're 100% focused on treat products and fully utilize our corporate resources and programs.
In the first quarter.
Our 55% revenue growth was led in part by strong contribution from this direct sales channel, which represented 63% of revenue up from 58% of revenue in Q4 of 2021.
Our goal of approximately 150 quota carrying direct sales reps by the end of this year stands.
With this growing direct sales channel contributing a higher proportion of our overall revenue in 2022 and beyond.
We expect that over 70% of our revenue will come from are bunion focused sales channel by the end of this year.
Turning now to our product development strategy.
We have an R&D team committed to driving innovation to maintain our industry leadership with programs for both next generation Bunion correction systems as well as the development of new technologies addressing concomitant conditions.
And IP defense of our technology and innovations.
At the end of Q1, we had 34 granted U S patents and over 40 U S patent applications pending.
We featured several of our new product innovations at our booth at the AC Fas Scientific conference last February .
These included the.
The lap of class a three in one guide.
Instrument designed to advance the speed and reproducibility of the lap of classy procedure.
We've been receiving excellent feedback on this product, including our recent surgeon user survey reporting an average of 10 minutes in case time stayed using this new three in one <unk>.
This translates to a very meaningful 15% to 20% reduction in time, depending on certain proficiency to perform a complete lack of biopsy procedure.
We also featured an expansion of our adductor plastic system.
Adding several specialized instruments designed to improve the efficiency and expand the clinical application of the system.
As I mentioned before Dr policy system uniquely offers a reproducible instrumented system to address complex mid foot deformities that can occur in up to 30% abundant patients.
<unk> is a complementary system during our lap of plastic surgeries.
And finally, the lap of plots the S. Four anatomic plating system, our next generation and lap a policy fixation technology, providing an advanced anatomic plate designed to better address variability in TMT join anatomy.
<unk> is currently in early clinical release, and we are receiving excellent early feedback on the system.
We look forward to providing additional updates on our new product innovations as we continued to develop our pipeline focused on our core technologies and IP.
So in closing I'd, just like to say, despite what's going on in the stock market. Today, we are more excited than ever before about the future of this great company one built from scratch here in Palm Beach, or Florida, starting eight years ago.
Since our first live surgery in late 2015, we sold nearly 50000 lap a classy procedure kits and helped improve the lives of so many patients suffering from painful lifestyle limiting bunion deformities.
I am so very proud of what this team has accomplished and from such humble beginnings.
Today, we have a rapidly growing highly talented team of over 300 employees all with a crystal clear vision of where we're going in with a shared passion for our mission to improve surgical outcomes for <unk> patients.
With a targeted investments, we're making in our proven DTC programs direct sales channel and R&D innovations.
Reported by our newly announced access to growth capital and strong clinical evidence, we are better equipped than ever to deliver upon our goal of establishing <unk> as the standard of care in bunion surgery.
With that I'll now turn the call over to Mark to review our financial performance.
Mark.
Thank you John good afternoon, everyone.
Revenue in the first quarter was $29.0 million up from approximately $18 7 million a year ago, representing an increase of 55% over the first quarter of 2021 and.
In the first half of the quarter procedure volumes were in line with our expectations.
And we saw particular strength in the back half of the quarter, which we believe reflects the recovering elective procedure environment as well as the realization of some rescheduled procedures from Q4 2021 into Q1.
These dynamics further demonstrate that surgeons and patients understand the differentiating benefits of we'll have to platform and continue to choose our funding correction system, even when faced with scheduling challenges.
Q1 revenue growth metrics include an expanded certain base.
And higher utilization rates, which grew the number of lateral classic procedure kits sold.
In addition, we saw an increase in our blended average selling price in the quarter compared to the prior year.
With our many incision and Dr. <unk> systems as well as other ancillary products, providing continued average pricing support.
In the first quarter 2022, we sold 5278 lap a classic procedure kits.
51% increase versus the prior year's first quarter.
Blended average selling price in Q1 was $5503 a 3% increase over the first quarter of 2021, and a 2% increase from Q4 of last year.
The number of active surgeons performing at least one case on the trailing 12 months in the quarter increased 40% year over year to 1901.
While utilization increase approximately 10% year over year to an average of $10. One lateral classic procedure kits purchased per active surgeon and the trailing 12 months.
Gross margin was 81.0% in the first quarter of 2022 compared to 82, 2% for the first quarter of 2021.
Actually first quarter gross margin was consistent with the 81, 1% recorded in the fourth quarter of 2021.
On a year over year basis for 117 point.
Variance in gross margin was attributable to increases in royalty expense, resulting from our increased revenue and a modest increase in depreciation expense related to incremental surgical instruments.
Total operating expenses were approximately $31 6 million in the first quarter of 2022.
Including sales and marketing expenses of $21 9 million.
Search and development expenses of $3 1 million and general and administrative expenses of $6 7 million.
This compares to total operating expenses of approximately $16 8 million, including sales and marketing expenses of $12 1 million.
Research and development expenses of $1 9 million.
General and administrative expenses of $2 8 million in the first quarter of 2021.
As previously noted the increase in operating expenses, reflecting investments to support our growing business and commercial initiatives.
First quarter net loss was approximately $9.0 million or <unk> 16 per share compared to a net loss of approximately $2 $6 million or <unk> <unk> per share for the same period in 2021.
Cash and cash equivalents were $98 5 million as of March 31, 2022.
Earlier this week, we announced the refinancing of our existing debt for a new non dilutive $150 million loan arrangement that favorably reduce our cost of capital strengthen our balance sheet enhanced our financial flexibility.
And provided us with non dilutive liquidity that we believe is adequate to fund the company through profitability and to fully fund our planned commercial market and product development initiatives.
One last week's closing of our new loan agreement, we receive advances totaling $54 million consisting of $50 million under our new term loan and an additional $4 million under the revolver.
Following the payment of fees and expenses related to financing and repayment of the $30 million.
Our debt outstanding under our previous credit facility, we added approximately $18 $3 million of cash to our balance sheet.
Before concluding let me turn to our revised outlook for full year 2022.
As John mentioned, we remain encouraged by the underlying strength and momentum in our business and are raising our full year 2022 revenue guidance to 128.
Two $133 million, which reflects an increase of 36% to 41% over 2022 revenue.
This is an increase from our prior full year guidance of $125 million to $130 million.
For the second quarter 2022, we continue to see our business tracking to expectations and expect revenue to be sequentially flat with the first quarter that had the catch up impact of reschedule to Q4 procedures that I noticed.
Noted previously.
With that let me turn the call over to the operator to open the line for your questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press to Cowen.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Robbie Marcus with Jpmorgan. Your line is now open.
Hi, This is lilly on for Robbie Thanks for taking my question.
I was hoping I could just get some color on how youre thinking about your momentum over the rest of the year.
Is there anything holding you back right now in terms of stopping staffing hospital capacity anything like that at this point or is it basically back to normal.
Okay.
No. That's a great question and from our perspective, it's pretty consistent with what we talked about last time is we're very comfortable with with what we're able to do in the current environment.
We have a lot of confidence in our growing sales team and a lot of our commercial initiatives.
But with respect to the rest of the year.
The guidance range that we provided really supports what we're seeing and what we believe is affordable here and it's being only.
Early may is probably a little early to get into the back half of the year, but we feel very comfortable with the range. We provided on this call.
Great that's helpful and.
Then.
Is there anything.
New that Youre seeing on the competitive front I know there is some.
Me too products out there.
One of your competitors was recently acquired Joe what are you hearing about adoption of these products and have you seen any sort of tangible headwinds.
Hi, Lily it's John .
Yes.
Been competing alongside a couple of these products for a couple of years now.
Stryker as a system and.
The.
Crossroads systems.
System that was acquired by J&J.
We haven't seen any real change in the competitive dynamics on that front, we continue to.
Kind of run our offense and build our business and.
Nothing seems to be really getting in the way of us achieving the growth rates that were.
We're committed to at this point so.
Again, we have a very refined system a lot of great intellectual property around it and a huge head start in the market.
Direct sales channel and the only product with clinical data and.
You just have a lot of things.
Through the focus of this business being solely on on lap a classy. It just it helped us a lot.
Great. Thank you.
Our next question comes from the line of drew Ranieri with Morgan Stanley . Your line is now open.
Hi, John and Mark Congratulations on the quarter maybe.
Maybe just to piggyback on that last question about the competitive landscape, but just curious how youre thinking about building your portfolio.
Is the focus going to remain on foot.
Essentially moving to Angola, just curious how youre thinking about it, especially with building direct sales channel.
Yes, Hi drew John Thanks for the question then.
I think the way we're going to approach it is.
Ongoing like the way, we've been approaching it and Thats looking at this this bunion problem and.
Continuing to advance <unk> to be.
Quicker easier less invasive.
And then we're also going to be looking at other opportunities that are related to the bunyan pathology in coming up with new innovative solutions around those like we did with like we do with the Dr. <unk>. So.
With only four 3% of the annual U S. Bunion procedures penetrated we've got such an enormous runway in this $5 billion market. We just think that staying tight and focused on this bunion call point with our sales channel with our R&D innovations in design teams is the right way to go for this company.
Got it thank you and maybe just on the backlog for a moment I get that.
In your prepared remarks that there was a catch up in the first quarter from delayed procedures. Just curious if you can maybe help us size that so we can get a better sense of maybe what your normalized sequential growth will be in the second quarter.
And just with.
With the first quarter performance I mean, even being so strong just curious if there were maybe still any issues or.
Got it.
On the company's ability to maybe get more surgeons involved in using a lack of capacity.
Yes.
Thanks Shar this is mark.
I think theres a couple parts so make sure I get both parts of that question.
With respect to some of those procedures that came through in Q1.
No.
As I mentioned, we're actually really encouraged.
Because.
From our perspective, it really shows that.
Both surgeons and patients are really understanding the differentiated benefits that are coming from lack of plastic so to the extent there were some challenges in scheduling procedures. In Q4, we did we did feel them, we noticed that in the back half of Q2.
We also had a survey with our surgeons and they commented on the same thing that they are definitely rescheduled procedures that came into Q1.
With respect to sizing.
We would estimate that it's probably about half the size of the beat in the quarter.
Great. Thank you.
Sure.
Our next question comes from the line of Daniel and Kelsey with SBB. Thank you reduced your line is now open.
Hey, good afternoon, guys. Thanks, so much for taking the question and congrats on a strong quarter.
If I could John asked a question about the stickiness of the law.
Lack of classy procedure, just in the context of new competition coming to market. Once you get a surgeon going sort of what's the what's the most important part of the surgeon's journey that makes that surgeon.
Sure.
Sticky and more likely to stay with lab with velocity versus convert.
You guys have kind of a first mover advantage here real differentiated clinical data.
Anything you can any context, you can provide there.
Sure No. It's a great question Hi, Danielle.
I think there are several factors our whole commercial strategy is wrapped around producing that stickiness.
And from.
From the way that we.
Initially train the doctors, we hold their hands very closely provide clinical specialists experts that go into their first few cases and make sure that everything goes smoothly. They follow the steps to the direct salespeople that theyre handed off to who do nothing but but this product day in day out.
And what backwards forwards upside down and this is a very it's a technical procedure, we're changing the way that doctors had performed bunion surgery completely and having that expert and that expertise.
Alongside of these doctors is really important.
And having a product that really works.
Patiently and effectively in the surgeon fan at the patient's level lap of plasma delivers that we've had six five years of live clinical use and very speedy refinement and iteration to make it easier to use.
More reproducible more effective and.
I think the doctors appreciate that and we provide a lot of ongoing education for them and then we're making a lot of patients are aware out there about <unk> and its differentiated.
Solution versus standard of care. So I think I think our doctors just really see us as is true experts and they are loyal and they appreciate not only everything we're doing for them and the true clinical evidence, we're providing and the sales expertise.
But the ongoing education and support structure that the company provides to take them to those next level evolutions lap a flat fee or a ductile <unk>. These are procedures and products that never existed before that we're developing so.
It's multifaceted, but all of that kind of dialogue together into this great ecosystem that.
Once they have adopted lap of plasma and gone through the learning curve makes it very sticky.
Yes, yes, that's what I, that's what I was getting at so that was super helpful. Thank you for that and then congrats on the <unk> line Treaty.
Can you talk about.
How that could impact new users coming to lack of policy or is that more just.
<unk>.
Reaffirming existing users are going deeper into existing accounts or is that something that you think will get more surgeons on.
The board or how should we think about the impact for you.
This publication, then I think we're going to get the full cohort in mid 'twenty, three so that as well thanks.
So much.
Yes, great great follow on I'd say, its going to incrementally help.
Both.
Supporting.
Onboarding, new surgeons, and it's going to further reinforce with our existing customer base the results that they're seeing in their own clinical practice.
We know that each year that a surgeon uses lots of philosophy. The following year they use more lab atlassian.
That's largely attributable not only to all of these programs, we're talking about but the effectiveness that they're seeing.
In their own patients locally.
And when they see.
Our sophisticated clinical study like align three D showing results like they are seeing it sort of reconfirmed with them.
And.
This is data that we can now take the facilities and a product approval committees and really differentiate us and say yet another peer reviewed study multicenter prospective highly sophisticated.
Product deserves to be approved at these accounts.
So we can use this and a lot of ways and we look forward to more such report out.
That will occur before the final report out in late 2023.
Thank you.
Sure.
Once again, if you'd like to ask a question you can press star one on your telephone to withdraw your question you can press the pound key.
I'm showing no further questions at this time I would now like to turn the call back to Vivian.
Thanks Kim.
On behalf of James Medical Thanks, everybody for joining US today. This concludes our call and we look forward to our next update following the close of our second quarter.
2022 results. Thank you have a good evening.
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