Q1 2022 Paragon 28 Inc Earnings Call

May 9, 2022

our past. We will continue to make disciplined and opportunistic investments in commercial expansion, surgeon medical education, and technology advancements to achieve our mission of improving foot and ankle patient outcomes and expanding our market share.

Continue to make disciplined and opportunistic investments in commercial expansion surgeon medical education, and technology advancements to achieve our mission of improving foot and ankle patient outcomes and expanding our market share.

On another note, my co-founder and dear friend Frank Bono has decided to retire at the end of 2022 after a career in orthopedics spanning several decades. As co-founder and CTO of Paragon 28, Frank has been an integral part of the success of our company for the last decade. I want to personally thank him for all he has done for Paragon 28 and wish him all the best in his retirement.

On another note my cofounder and Dear friend, Frank Bono has decided to retire at the end of 2022 after a career in orthopedics spanning several decades.

As co founder and CTO of Paragon 28, frankly has been an integral part of the success of our company for the last decade I want to personally thank him for all he has done for Paragon 2008, and wish him all the best in his retirement.

To ensure a smooth transition between now and the end of the year, Frank will continue to be involved in the day-to-day operations of the company and partner with our newly hired chief technology officer, Jason Ede. Jason has been a leader in med tech research and development for over 20 years and has a track record of success in foot and ankle. We would like to welcome Jason to the team.

To ensure a smooth transition between now and the end of the year frankly will continue to be involved in the day to day operations of the company and partner with our newly hired Chief Technology Officer, Jason <unk>.

Jason has been a leader in Med Tech research and development for over 20 years and has a track record of success in foot and ankle we would like to welcome Jason to the team.

Moving to our foot and ankle sub-segment revenue trends. During the first quarter, Paragon 28 experienced very strong growth in the two largest market sub-segments of Fracture Fixation and Hallux Valgus, or Bunion.

Moving to our foot and ankle subsegment revenue trends during the first quarter Paragon 28 experienced very strong growth in the two largest market sub segments of fracture fixation, and hallux valgus or bunions fractured.

Fracture fixation and bunion growth was driven by recent product launches and continued strong commercial execution. Additionally, we continue to see strong momentum and growth across our entire ankle product portfolio, which remains a strategic focus for the company as it is one of the fastest growing markets with opportunities for significant improvements in patient outcomes.

<unk> fixation and <unk> growth was driven by recent product launches and continued strong commercial execution. Additionally.

Additionally, we continue to see strong momentum and growth across our entire ankle product portfolio, which remains a strategic focus for the company as it is one of the fastest growing markets with opportunities for significant improvements in patient outcomes.

I will now provide an update on a few of our key strategic initiatives, starting with the expansion of our commercial team and surgeon training.

We ended the first quarter of 2022 with 197 producing sales reps in the United States. As a reminder, our U.S. sales force consists primarily of independent sales representatives, the majority of which are exclusive.

We ended the first quarter of 2022 with 197, producing sales reps in the United States.

As a reminder, our U S. Sales force consists primarily of independent sales representatives, the majority of which are exclusive.

revenue per producing sales rep increased an impressive 20% in the first quarter.

Revenue per producing sales rep increased an impressive 20% in the first quarter.

Growth in our US surgeon customer base was also impressive, increasing 15% during the quarter to over 1,800 customers.

Growth in our U S surgeon customer base was also impressive increasing 15% during the quarter to over 800 customers.

Paragon strategy of developing and putting innovative technologies in the hands of our clinically oriented sales force and providing best in class medical education to foot and ankle surgeons is working.

Speaking of medical education, over 600 surgeons attended in-person medical education events in the first quarter of 2022. The first quarter is a seasonally strong period for medical education.

Speaking of medical education over 600 surgeons attended in person medical education events in the first quarter of 2020 to the first quarter is a seasonally strong period for medical education.

These specialized events are designed to enhance surgical skills and ultimately improve patient outcomes.

Medical education events are also a great opportunity to showcase our innovative product line to both new and existing surgeon customers.

We expect to continue to optimize our medical education programs throughout 2022.

Moving to recent product development, in mid-April, we launched our REACT Syndesmotic Stabilization System, which I believe is one of the most innovative products we have brought to market. With an estimated 20% of all ankle injuries requiring implants for soft tissue healing, we believe REACT will be a nice complement to our entire ankle fracture portfolio.

Moving to recent product development in mid April we launched our react <unk> stabilization system, which I believe is one of the most innovative products, we brought to market with an estimated 20% of all ankle injuries, requiring implants for soft tissue healing, we believe react will be a nice complement to our entire ankle fracture ports.

Folio the.

The addition of REACT bolsters our ankle fracture and soft tissue product offering, which includes the Gorilla Ankle Fracture Plating, Gorilla Pilon Plating, Mini Monster Screws, and Release Stabilization System.

The addition of react bolsters, our ankle fracture and soft tissue product offering which includes the gorilla ankle fracture plating gorilla Pilon plating mini monster screws and released stabilization system.

With this comprehensive portfolio, we now offer customers a broad array of innovative solutions for fracture fixation and soft tissue stabilization.

Additionally, we recently launched Paratrooper Planter Plate System for Hammertoe, a low-profile, all-suture implant offering surgeons a new and innovative approach for planter plate repair and forefoot deformities.

Additionally, we recently launched the paratrooper planner plate system for Hammertoe, a low profile all suture implant offerings surgeons, a new and innovative approach for planar plate repair and four foot deformities.

Repair of the plantar plate has historically been one of the more challenging pathologies within the hammertoe subsegment. We are thrilled to have developed an all suture-based, low-profile, and versatile implant capable of treating a variety of plantar plate conditions.

The repair of the plan are played has historically been one of the more challenging pathologies within the hammertoe Subsegment. We are thrilled to have developed an all suture based low profile and versatile implant capable of treating a variety of planar play conditions.

The paratrooper planter plate system adds to our growing portfolio of soft tissue and hammertoe products, which remains a strategic focus for the company, as it is one of the fastest growing markets with opportunities for significant improvements in patient outcomes.

The paratrooper planar plate system adds to our growing portfolio of soft tissue and hammertoe products, which remains a strategic focus for the company as it is one of the fastest growing markets with opportunities for significant improvements in patient outcomes.

Also the acquisition of <unk> in January accelerated our smart 28 initiatives by providing us a cutting edge three dimensional preoperative planning technology. We are very excited about putting this technology into the hands of surgeons around the world in the coming years.

Also, the acquisition of Dizior in January accelerated our smart 28 initiatives by providing us a cutting edge three dimensional pre operative planning technology. We are very excited about putting this technology into the hands of surgeons around the world in the coming year.

In summary, we have made considerable progress on all key strategic initiatives and will continue to invest in the business to drive long term durable growth.

In summary, we have made considerable progress on all key strategic initiatives and we will continue to invest in the business to drive long term durable growth we.

We are grateful for the trust our physicians and patients have for Paragon 28. I would also like to thank our sales representatives and employees around the world for their diligent efforts and dedication to fulfilling our mission to continuously improve outcomes and experiences of patients suffering from foot and ankle conditions. I will now turn it over to Steve.

We are grateful for the trust, our physicians and patients have a paragon 2008.

I'd also like to thank our sales representatives and employees around the world for their diligent efforts and dedication to fulfilling our mission to continuously improve outcomes and experiences of patients suffering from foot medical conditions.

I will now turn it over to Steve Steve.

Steve.

Thank you Albert.

Thank you, Albert. Moving to our first quarter 2022 financial results.

Moving to our first quarter of 2022 financial results.

Paragon's revenue for the first quarter of 2022 was $41.4 million, representing growth of $8.3 million, or 25% compared to the first quarter of 2021.

<unk> revenue for the first quarter of 2022, with $41 4 million representing growth of $8 $3 million or 25% compared to the first quarter of 2021.

U.S. revenue for the first quarter of 2022 was $36 million, representing growth of $6.9 million, or 24 percent, compared to the first quarter of 2021.

U S revenue for the first quarter of 2022 with $36 million, representing growth of $6 9 million or 24% compared to the first quarter of 2021.

International revenue for the first quarter of 2022 was a record $5.4 million, representing growth of $1.4 million, or 35% above the first quarter of 2021, and with $700,000, or 15% higher than the fourth quarter of 2021.

International revenues in the first quarter of 2022 was a record $5 4 million representing growth of $1 4 million or 35% above the first quarter of 2021 and was $700000 or 15% higher than the fourth quarter of 2021.

Growth in the quarter was driven primarily by strong performances in South Africa and the United Kingdom, two of our largest international markets.

In the quarter was driven primarily by strong performances in South Africa, and the United Kingdom, two of our largest international markets.

Yes.

Gross profit margin for the first quarter of 2022 was 83.6% compared to 80.5% in the first quarter of 2021. The improvement was primarily due to lower excess and obsolete inventory expense in the first quarter of 2022 as compared to the prior year period.

Gross profit margin for the first quarter of 2022 was 83, 6% compared to 85% in the first quarter of 2021.

The improvement was primarily due to lower excess and obsolete inventory expense in the first quarter of 2022 as compared to the prior year period.

Research and development expense was $5.8 million or 14% of revenue for the first quarter of 2022 compared to $3.6 million or 10.7% of revenue in the first quarter of 2021.

Research and development expense was $5 $8 million or 14% of revenue for the first quarter of 2022 compared to $3 6 million or 10, 7% of revenue in the first quarter of 2021.

The increase in research and development is primarily due to additional investments in new product development, primarily smart 28, including the acquisitions of additive orthopedics in May 2021 and dizzy or in January 2022.

The increase in research and development was primarily due to additional investments in new product development, primarily smart 28, including the acquisitions of additive orthopedics in May 2021, and <unk> in January 2022.

Selling general and administrative expense was $37 2 million for the first quarter of 2022 compared to $23 4 million in the first quarter of 2021.

selling general and administrative expense was $37.2 million for the first quarter of 2022 compared to $23.4 million in the first quarter of 2021.

The increase was driven primarily by very high demand for in-person U.S. marketing and medical education events.

The increase was driven primarily by very high demand for in person U S marketing and medical education events.

increased variable sales representative commission expense related to revenue growth, investments and commercial team expansion both in the U.S. and in our international markets, busier acquisition related costs, and increased costs related to becoming a publicly traded company.

Increased variable sales represented commission expense related to revenue growth.

Investments in commercial team expansion, both in the U S and in our international markets.

<unk> acquisition related costs and increased costs related to becoming a publicly traded company.

Compared to the fourth quarter of 2021, SG&A expense increased $2.1 million, primarily driven by more in-person medical education events, increased investments in commercial team expansion, timing of trade shows, which are generally more concentrated in the first quarter of each year, and approximately $800,000 of DysEOR acquisition-related costs.

Compared to the fourth quarter of 2021, SG&A expense increased $2 $1 million, primarily driven by more in person medical education events increased investments in commercial team expansion timing of trade shows which are generally more concentrated in the first quarter of each year and.

$800000 or does your acquisition related costs.

Our cash on hand at March 31st, 2022 was $93.7 million.

Our cash on hand at March 31, 2022 was $93 $7 million.

This cash on hand, combined with our ability to borrow an additional $40 million via our senior credit facility, puts P-28 in a position of financial strength.

This cash on hand, combined with our ability to borrow an additional $40 million via our senior credit facility puts <unk> 28 in a position of financial strength.

Next I will speak to the macroeconomic topics of Covid related surgical deferrals supply chain constraints and inflation.

Next, I will speak to the macroeconomic topics of COVID-related surgical deferrals, supply chain constraints, and inflation. With respect to COVID-related surgical

With respect to Covid related surgical deferrals we.

We exited the fourth quarter of 2021.

and began the first quarter of 2022 experiencing headwinds associated with the Omicron variant in January and early February .

And began the first quarter of 2022 experiencing headwinds associated with the <unk> variant in January and early February .

As noted in our fourth quarter 2021 earnings call on March 8th, headwinds decreased beginning in mid-February.

As noted in our fourth quarter 2021, earning.

Earnings call on March eight headwinds decreased beginning in mid February .

Since March 8, COVID headwinds have decreased, and absence of resurgence in headwinds, we expect the elective procedure environment to continue to improve.

Since March as Covid headwinds have decreased and absence of resurgence in headwinds, we expect the elective procedure environment to continue to improve.

With respect to the supply chain, the environment has become incrementally more difficult, but we are confident in our team and vendors that they will continue to effectively manage the challenge.

With respect to the supply chain the environment has become incrementally more difficult, but we are confident in our team and vendors that they will continue to effectively manage the challenge.

Consistent with remarks from our past earning calls, we may opportunistically increase inventory and instrument purchases to ensure that we have product on hand to meet demand.

Consistent with remarks from our past, earning calls we may opportunistically increase inventory and instrument purchases to ensure that we have product on hand to meet demand.

Yes.

Regarding inflation, at the moment we are not experiencing material price increases from our inventory and instrument suppliers.

Regarding inflation at the moment, we are not experiencing material price increases from our inventory and instrument suppliers and.

And we do not expect gross margins to be significantly impacted in 2022.

Turning to our full year 2022 revenue guidance, which takes into account the current level of COVID headwinds and supply chain constraints.

Turning to our full year 2022 revenue guidance, which takes into account the current level of COVID-19 headwinds and supply chain constraints.

We have increased our 2022 annual revenue guidance range to 171 to $175 million, representing growth of approximately 16 to 19%.

We have increased our 2020 to annual revenue guidance range to $171 million to $175 million representing growth of approximately 16% to 19%.

While we will not be providing specific adjusted EBITDA or cash flow guidance for 2022, we expect to continue to report positive annual adjusted EBITDA, and given this fact, combined with the strength of our balance sheet, we do not expect to raise additional capital to fund operations.

While we will not be providing specific adjusted EBITDA or cash flow guidance for 2022.

We expect to continue to report positive annual adjusted EBITDA and given this fact combined with the strength of our balance sheet, we do not expect to raise additional capital to fund operations.

That is the end of our prepared remarks. Operator, please open the lines for questions.

That is the end of our prepared remarks, operator, please open the lines for questions.

Absolutely. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your touchtone key.

Absolutely.

Now begin the Q&A session. If you would like to ask a question. Please press star.

<unk> followed by one on your Touchtone keypad.

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As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow.

As a reminder.

Using a speaker phone please remember to pick up your handset before asking your question.

Policy briefly to allow questions to generate in Q.

The first question is from the line of Matthew O'brien with Piper Sandler You May proceed.

The first question is from the line of Matthew O'Brien with Piper Schindler.

Great, thanks for taking the questions. I guess maybe a multi part one here to start with on the Q1 performance, you know, Albert, Steve, you guys mentioned a lot of the

Great. Thanks for taking the question I guess.

Maybe a multipart one here to start with on the Q1 performance.

Albert did you guys mentioned a lot of.

a lot of the characteristics that drove that strength, but the productivity in the quarter per rep was great. Can you talk about, you know, where that's coming from as far as, you know, is it reps that have been around for a year, you know, how they're starting to gain steam, and then kind of same thing goes with new accounts in the international. And then on top of that, Steve, just the SG&A spend was quite a bit higher than we were modeling, and I think you talked about it.

A lot of the characteristics that drove that strength, but the productivity in the quarter per rep was great could you talk about where that's coming from as far as you know is it.

Reps that have been around for a year.

They are starting to gain steam and then kind of same thing goes with new accounts in the international and then on top of that Steve just the SG&A spend was quite a bit higher than we were modeling and I think you've talked about it to some extent but.

To some extent, but, you know, just if you can break down, you know, some of the medical education costs or current investments and new a new Salesforce channel, I think that would be helpful as well. And then I do have 1 quick follow up. Thanks.

Just if you can break down some of the medical education costs or investments in new.

Our new Salesforce channel I think that would be helpful. As well and then I do have one quick follow up thanks.

Yes, Matt Thanks for that question and we were really pleased with the performance in the first quarter.

Yeah, Matt, thanks for that question. And we were really pleased with the performance in the first quarter. We saw terrific strength, as you mentioned, in our rep productivity growing 20%. And there were really a handful of drivers there, probably the most significant being.

We saw terrific strengths as you mentioned in <unk>.

Our rep productivity growing 20% and there were really a handful of drivers there probably the most significant being.

the new products that we've launched over the last two or three years. Really having the ability to train on those as we got into the second part of twenty one and those surgeons becoming comfortable and our reps becoming comfortable selling those products, things like our total ankle replacement, like our fracture product for the ankle. So had a really terrific quarter in both of those franchises. Also had a terrific quarter in Alex Valgas. So really excited about that.

The new products that we've launched over the last two or three years really having the ability to train on those as we got into the second part of 'twenty, one and those surgeons, becoming comfortable and our reps, becoming comfortable selling those products things like our total ankle replacement like our fracture products for the ankles, So had a really terrific quarter and both of them.

<unk> franchises.

Also had a terrific quarter and hallux valgus, so really excited about that.

We also continue to add reps and we were having quite a few opportunities.

We also continue to add reps.

We are having quite a few opportunities driven we think by the high visibility to our company since our public offering and the size of our company and the full product line, we've never had more opportunities to hire experienced reps and bring them into the company and so that's been actually one of our key drivers of our investment.

driven, we think, by the high visibility to our company, since our public offering and the size of our company and the full product.

We've never had more opportunities to hire experienced reps and bring them into the company. And so that's been actually one of our key drivers of our investments increasing in the first quarter as well. As we mentioned in the prepared remarks.

<unk>, increasing in the first quarter as well.

As we mentioned in the prepared remarks, we also had opportunities driven by incredible demand honestly for our medical education programs. So we try and again over 600 surgeons in the first quarter in person and that compares to last year in the first quarter, where we had very few in person training because of Covid so over the <unk>.

We also had opportunities driven by incredible demand, honestly, for our medical education programs. We trained again over 600 surgeons in the first quarter.

And that compares to last year in the first quarter where we had very few in-person trainings because of COVID. So over the last three quarters, we've trained 600 in Q3, 200 in Q4 and then 600 plus again in the first quarter. So big opportunities there. We're excited about those. And, you know, we spend money where it matters and we don't spend money where it doesn't matter. And when we have opportunities to hire top tier reps.

Last three quarters. We've trained 600 in Q3 200 in Q4, and then 600 plus again in the first quarter. So big opportunities. There. We're excited about those and we spend money, where it matters and we don't spend money, where it doesn't matter and when we have opportunities to hire top tier reps.

And also trained surgeons.

and also trained surgeons who are demanding opportunities to see our products. We'll continue to do that and and drive some of those opportunities. The other thing that I would say about our first quarter expenses, it's more of a.

Who are demanding opportunities to see our products, we'll continue to do that and and drive some of those opportunities. The other thing that I would say about our first quarter.

Expenses.

It's more of a trade show heavy quarter and last year, we didn't have any trade shows in the first quarter So double AOS.

And last year we didn't have any trade shows in the first quarter, so AAOS.

some of our specific foot and ankle society meetings. We had our first national, or not our first, the first in-person since I've been here, national sales meeting where we had our entire sales force together for the first time and really worked on strategic initiatives for the rest of this year and did some training at that as well. So it was an exciting quarter, not just from the performance we put up on the revenue side, but also the investments that we've been making for the first time.

Some of our specific foot and ankle society meetings, we had our first Nash not our first the first in person since I've been here National sales meeting, where we had our entire sales force together for the first time and really worked on strategic initiatives for the rest of this year and did some training at that as well so.

It was an exciting quarter not just from the performance we put up on the revenue side, but also the investments that we've been making for the future.

Got it. That's very helpful. Makes total sense. And then the second one is you beat by $4 million in the quarter, you raise the bid point of the range by $4 million. What's implied in guidance at the low end versus the high end? Thank you.

Got it Thats very helpful makes total sense and then the second one is you beat by $4 million in the quarter you raised the midpoint of the range by 4 million Bucks, what's implied in guidance at the low end versus the high end. Thank you.

That's a great question, Matt. So as you as you noted, and our first quarter was really strong, and it was really fundamentally driven by the strength in our business.

That's a great question Matt.

You noted in our first quarter was really strong and it was really fundamentally driven by the strength in our business and.

And some element of backlog recapture, you know, it's kind of difficult to say exactly how much backlog recapture was in there. But most of the growth in our first quarter was driven by the strength of our business. And as we enter Q2Q, we continue to see strong volume.

And some element of backlog recapture.

It's kind of difficult to say exactly how much backlog recapture was in there, but most of the growth in our first quarter was driven by the strengthening of our business and as we entered Q to Q.

We continue to see strong volumes not as high as we saw in March which was a record month, but thats really due to normal seasonality and when you think about second quarter year over year, typically we would be typically flat to down slightly in a normal year.

Not as high as we saw in March, which was a record month, but that's really due to normal seasonality. And when you think about second quarter year over year. Typically, we would be typically flat to down slightly in a normal year. And coming out of a very strong first quarter. That's a consideration to take into mind as we as you model out the year, but I would tell you at our high end of the range 175 million our second half of the year guidance.

Out of a very strong first quarter and Thats, a consideration to take into mind as you model out the year, but I would tell you that our high end of the range.

$175 million or second half of the year guidance.

uh, implies approximately 20% growth in both the third and the fourth quarter.

Implies approximately 20% growth in both the third and the fourth quarter.

Got it thank you so much.

Got it thanks, Matt Thanks, Matt.

Thank you.

The next question is from the line of Dave Perkley with JMP Securities, you may proceed.

Next question is from the line of Dave <unk> with JMP Securities You May proceed.

Hey, great, thanks. I know you gave a comment on the customer base. I think you said it grew over 15%. But did you specifically highlight producing reps for those total train? I know you said 600 train, but the producing number was did you

Hey, great. Thanks.

I know you gave a comment on the customer base I think you said it grew over 15% but did.

Could you specifically highlight.

<unk> reps versus the total trend I know you said 600 trained but.

The producing number what did you make a comment on that.

Hey Dave, Steve here. So our producing, I think you're asking about producing surgeons. So our producing surgeons during the quarter was about 525, approximately 13% ahead of the prior year. And we did business with over 1,800 customers in the first quarter.

Hey, Dave Steve here, so are producing I think youre asking about producing surgeon. So are producing surgeons during the quarter was about 525, approximately 13% ahead of prior year and we did business with over 800 customers in the first quarter.

Got it and then yes.

Thank you for that. And you mentioned sort of an all time record. I think you said it was March a record month for the company for revenues of all time. Was that the comment that you made?

Thank you for that and you mentioned sort of an all time record I think you said it was March a record month for the company for revenues of all time was that the comment that you made.

It was, yeah, it was a terrific month of March and all-time record. And then our European business, excuse me, our international business had a record first quarter. So two records, March for the total company and then internationally for the first quarter.

Yes, it was a terrific month of March.

All time record and then our European excuse me our international business had a record first quarter. So two record March for the total company and then internationally for the first quarter.

And I guess you mentioned some of the strengths, you know, across some of the sub-segments.

And I guess, you mentioned some of the strength across some of the sub segments.

I'm just curious, you know, the cagers that we talked about.

I'm just curious.

The CAGR that we've talked about.

maybe being 10% in some of the subsectors.

Maybe between 10% and some of the Subsectors.

<unk>.

Maybe a little lower in fracture, but it sounds like you did really well there. Ankle may be stronger.

Maybe a little lower in fracture, but it sounds like you did really well there ankle maybe stronger.

as you look back at some of those, you know, five, 10, 9% were sort of what we were looking at, at the IPO time, when you think those markets are actually now growing faster, are you taking share? Thank

As you look back at some of those five to 10, 9% where sort of what we were looking at at.

At the IPO time, when do you think those markets are actually now growing faster or are you taking share. Thank you.

We think we're taking share.

We think we're taking share in those franchises. We specifically called out Ankle with the launch of those products, and specifically maybe calling out the Total Ankle. That really has been a nice share driver for us.

Where are those.

Those franchises, we specifically called out ankle.

With the launch of those products.

Specifically, maybe calling out the total ankle that really has been a nice share driver for us fracture fixation, we've launched new products in that area as well.

Fracture fixation, we've launched new products in that area as well. And we're clearly growing above the market rate there. And also in Hallux-Valgus as well as Hammertoe, which we think are closely related, we're growing faster than the market and taking share.

We're clearly growing above the market rate, there and also and hallux valgus as well as hammertoe, which we think are closely related we're growing faster than the market and taking share.

Thank you so much in that ankle just to add to that. You know the ankle portfolio is doing well and we mentioned on previous calls that that.

Thank you so much.

Just just to add to that the ankle portfolio is doing well and we mentioned on previous calls that thats.

a slightly newer product line for us and that includes Ankle Fusion which is doing really well. The nail and the plating systems around Ankle Fusion in addition to the Total Ankle which is seeing some really nice momentum there. On the fracture fixation side we're seeing really nice growth in...

Slightly newer product line for us that includes ankle fusion, which is doing really well, but now the plating systems around ankle fusion.

In addition to the total ankle, which is seeing some really nice momentum there.

On the fracture fixation side, we're seeing really nice growth in.

ankle fracture plating system, and the complementary products that we're launching to support that, like the syndesmotic devices and some of the soft tissue, that's really demonstrating how complementary it is to that portfolio. So we're seeing some nice momentum there with new products, some of those products being younger in their growth cycle, etc.

Henkel fracture plating system.

And the complementary products that we're launching to support that like the cintas monarch devices and some of the soft tissue.

It's really demonstrating how complementary it is to that portfolio. So we're seeing some nice momentum there.

With new products some of those products being younger in their growth cycle et cetera.

Thank you.

Thank you Sir.

Thank you. The next question is from the line of Mike Maxson with Needham & Company. You may proceed. Yes.

Thank you.

The next question is from the line of Mike Matson with Needham and company you.

You May proceed.

Yes, thanks for taking my questions.

I guess I, Steve, I wanted to go back to your comments on the inflation supply chain.

I guess Steve.

Steve I wanted to go back to your comments on the inflation in the supply chain.

You know, you're sounding a little bit more optimistic about inflation impact and some of your peers. Admittedly, they're they're larger in some cases, but, you know, I guess.

You're sounding a little bit more optimistic about inflation impact in some of your peers admittedly there they're larger in some cases, but.

I guess titanium prices do seem to be up quite a bit I don't know to what degree that is used versus other materials and your products, but can you maybe just talk to your confidence there that you will see prices increasing over the next couple of quarters.

titanium prices do seem to be up quite a bit. I don't know to what degree that is used versus other materials in your products, but can you maybe just talk to your confidence there that you won't see prices increasing over the next couple of quarters?

Sorry costs increasing.

Yes, yes, thanks, Mike and we just haven't seen it.

Yeah, yeah, thanks, Mike. And we just haven't seen it at the level that some of our publicly traded peers have been.

The level that some of our publicly traded peers have been reporting and commenting on in.

reporting and commenting on. And, you know, I can't speak to exactly what they're experiencing. But, you know, Albert and I are very involved with the supply chain and meet meeting actively with our suppliers. And, and they they are they're telling us they're able to deliver at the prices that we've been buying for the last couple of quarters. So, you know, at this point in time, we're pretty confident that, you know, that's going to continue. And, you know, without a crystal ball, it's hard to say exactly what's going to happen. But we're

Can't speak to exactly what they are experiencing but Albert and I are very involved with the supply chain and meet meeting actively with our suppliers.

And there they are telling us they are able to deliver at.

At the prices that we've been buying for the last couple of quarters. So at this point in time, we're pretty confident that that's going to continue.

Without a crystal ball, it's hard to say exactly what's going to happen, but we're.

we just haven't seen it and you see it in our margins again for the first quarter.

Confidence and we just haven't seen it and youll see it in our margins again for the first quarter.

even without the inventory obsolescence adjustment driven, which was really driven by the higher product growth that we've had the last two quarters, 22 and 25% growth that triggers uses of inventory that in some cases were previously reserved.

Even without.

Inventory obsolescence adjustments, driven which was really driven by the higher product growth that we've had the last two quarters, 22% and 25% growth that triggers.

Uses of inventory that in some cases were previously reserved so.

strong margins and no expectations or visibility that those are going to be dropping any time In the future that we have visibility

Strong margins and no.

Patients are visibility that those are going to be dropping any time.

In the future that we have visibility to.

Okay got it.

Okay, got it. And then just looking at your cash flow statement, I mean, it looks like, you know, $9.5 million was used in operating activities, and then you had $23 million for PP&E.

And then just looking at your cash flow statement it looks like.

$9 5 million.

With used in operating activities and then $23 million.

For PP&E.

or I guess CapEx. So, can you maybe just comment on, you know, what the outlook there is? I heard a comment earlier about maybe trying to stock up on some inventory. So, I don't know if you pre-bought certain things in that you're working capital up. And then on the CapEx, can you maybe just, I don't know if you're willing to break out the portion that's for, you know, instrument sets.

And I guess capex so.

Can you maybe just comment on what the outlook there is.

I heard a comment earlier about maybe trying to stock up on some inventory.

I don't know if you pre bought certain things.

That drove working capital up and then on the peak.

The Capex can you maybe just I don't know if youre willing to breakout the portion of that Thats for instrument sets.

Yeah, yeah, happy to do that. So maybe starting with the investing activities, we had 41.6 million of investing activities for the quarter. And this is in the 10-Q as well. So you could it's there. So we acquired dizzy or $18.2 million. And we also bought our office.

Yes happy to do that so maybe starting with the investing activities, we had $41 $6 million of investing activities for the quarter and this is in the 10-Q as well so it's.

It's there.

So we acquired Disney or $18 $2 million and we also bought our office building.

$18.3 million with a very, very attractive mortgage that we put in place with our partners.

$1 $3 million with a very very attractive mortgage that.

We put in place with our partners.

And so those were the two largest elements of investing activities. And then we also had surgical instrumentation of approximately 4.7 million. That's a pretty normal, maybe a little bit higher than normal on the surgical instrumentation. We saw some of that come in this quarter that it took a little bit longer than we had seen in the past. And so some of that trickled in from orders last year.

And so.

Those were the two largest elements of investing activities and then we also had surgical instrumentation of approximately $4 7 million.

That's a pretty normal maybe a little bit higher than normal on the surgical.

Surgical instrumentation, we saw some of that come in this quarter that it took a little bit longer than we had seen in the past and so some of that trickled in from orders last year.

uh... and you know typically will spend twelve to fifteen million dollars a year on surgical instrumentation

And typically we will spend $12 million to $15 million a year on surgical instrumentation.

We don't have any other major CapEx items planned. Our office building, as I mentioned, was opportunistic to take advantage of a unique situation and buy that building.

We don't have any other major capex items planned our office building as I mentioned was opportunistic to take advantage of a unique situation and by that building and save save a bit of money actually.

save a bit of money, actually. Operating activities, we did increase inventory opportunistically during the quarter. I think we went from 40 to 43 million, approximately. And some of that was driven by our new products that we're launching, but also, just,

Operating activities, we did increase inventory opportunistically during the quarter I think we went from 40% to $43 million approximately.

And some of that was driven by our new products that we're launching but also just.

Additional SaaS based upon a lot of the experienced hires that we've been bringing them into our business and building up.

based upon a lot of the experienced hires that we've been bringing into our business. So building up stocks of inventory with expectations for additional feet on the street, really starting to contribute more as we move, particularly into the second half of the year.

Stocks of inventory with expectations for additional feet on the street really starting to contribute more as we move particularly into the second half of the year.

Okay, great. Thank you.

Okay.

Thank you. Again, to ask a question, please press star one.

Thank you again to ask a question. Please press star one.

There are no additional questions at this time. I will now pass it back to the management team for any closing remarks.

There are no additional questions at this time I will now pass it back to the management team for any closing remarks.

This is Steve. Thank you again for your time today, Albert, and I look forward to meeting many of you in the future, and we're at the Bank of America Conference here this week in Las Vegas, so look forward to seeing you tomorrow and speaking to you again in the future. Thank you.

This is Steve. Thank you again for your time today, Albert and I look forward to meeting many of you in the future and we're at the Bank of America Conference Here. This week in Las Vegas, I look forward to seeing you Tomorrow and speaking you do too again in the future. Thank you. Thank you.

That concludes today's conference call. Thank you. You may now disconnect your line.

That concludes today's conference call. Thank you you may now disconnect your lines.

Yes.

Okay.

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