Q2 2022 Treace Medical Concepts Inc Earnings Call
Good afternoon and welcome. Thank you for standing by welcome Tuesday trees medical concepts second quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question answer session.
To ask a question during this session you'll need to press star one one on your telephone and you will then hear an automated message advising that your hand is Reyes. Please.
Please note that today's conference is being recorded.
I'd now like to hand, the conference over to your speaker today instead of Barclays. Please go ahead again.
Thank you Kathy and good afternoon, everyone and welcome to our second quarter 2022 earnings conference call participating from the company today will be John trees, Chief Executive Officer, and Mark hair, Chief Financial Officer.
The call we bought offer commentary on our commercial activity and review our second quarter financial results released after the close of the market today. After what you will host a question and answer session at.
The press release can be found in the Investor Relations section of our website at investors Doc treats dot com.
This call is being recorded and will be archived in the investors section of our website.
Before we begin we would like to remind you that it is our intent that all forward looking statements made during today's call will be protected under the private Securities Litigation Reform Act of 1995.
Any statements that relate to expectations or predictions of future events and market trends.
Our estimated results or performance are forward looking statements.
All forward looking statements are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to material to materially differ from those anticipated or implied by these forward looking statements.
All forward looking statements are based upon current available information and treats 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 and our Form 10-K for the full year 2021 filed on March four 2022 for detailed presentation that for us.
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 second quarter 2022 earnings Conference call.
We are pleased to report a 45% annual revenue increase from the second quarter and a 50% increase for the first half of 2022 with steady gains in our key operating metrics driven by the underlying strength of our business and solid execution of our commercial strategies.
We are also encouraged that our investments and initiatives laid out earlier. This year are starting to pay dividends with our operations poised to scale.
Our business is driven by our focus with a disruptive technology and surgical procedure, which we believe is fundamentally changing bunion surgery today.
And we are building around this with complementary technologies that address bunion related deformities, such as those of the Midfoot.
Our continuing commitment to invest in programs to build clinical evidence and become the standard of care in bunion surgery.
From what we can see in the marketplace. We're the only industry participant with a growing body of clinical data demonstrating.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
Apologies, we are having some audio issues I think John if we can start your prepared remarks.
Yes, absolutely Cathy sorry about that we had a line dropped.
I'm going to continue where I believe we left off.
Maybe start from the beginning.
Okay sounds good thank you.
Thanks, everybody. We're pleased to report a 45% annual revenue increase in the second quarter and a 50% increase for the first half of 2022 with.
With steady gains in our key operating metrics driven by the underlying strength of our business and solid execution of our commercial strategy.
We are also encouraged that our investments and initiatives laid out earlier. This year are starting to pay dividends with our operations poised to scale.
Our business is driven by our focus with a disruptive technology and surgical procedure that we believe is fundamentally changing bunion surgery today.
And we're building around this with complementary technologies that address funding related deformities, such as those in the midpoint.
Our continuing commitment to invest in programs to build clinical evidence and become the standard of care for bunion surgery.
From what we can see in the marketplace. We're the only industry participant with a growing body of clinical data demonstrating rapid returned to weight bearing and walking boot with low recurrence rates at 12 months to 24 months at interim data demonstrating positive patient reported outcome scores following our bonding correction procedure.
Therefore, we are pleased with the sustained enthusiasm and positive momentum from surgeons through our active training initiatives as well as patients through our targeted DTC programs.
Note, our surgeon education and training programs continue to be well received with strong demand in our regional and national seminars booked to capacity for new surgeons as well as our advanced courses.
As such we're encouraged to see steady gains in our active surgeon user base.
So the second quarter, our active surgeon base, which include surgeons, who performed at least one case in the trailing 12 months has now reached 20% penetration of the estimated 10000 foot and ankle surgeons, who perform bunion surgery in the U S.
As our surgeon base continues to mature we look forward to surgeon utilization gains not only with increasing use of lack of biopsy technology, but also our Dr. <unk> system and the adoption of our growing portfolio of complementary ancillary products supported by our expanding direct sales channel as well as our patient education and awareness initiatives, which we.
We believe help patients learn about our procedures and connecting with knowledgeable surgeons.
We have a specialized team here at <unk>, including our rapidly expanding direct sales force.
One that is 100% focused on bunion and related Midfoot surgery and represents the only such organization that we're aware of in the med Tech industry.
This has contributed meaningfully to our revenue and market penetration.
We continue to invest in this channel and transition to a higher mix of direct revenue overtime.
In the second quarter, 68% of revenue was generated by our direct sales force up sequentially from 63% in the first quarter and up from 51% just a year ago.
We ended second quarter with 123 quota carrying direct sales reps up 52% increase from the 81 direct reps we had at the end of 2021.
Including associate sales reps clinical specialists and sales management.
Employed employee fleet in the field increased 40% to 202 employees in the second quarter compared to 144 employees at the end of last year.
We continue to have great success building, our sales team here at <unk> and.
We believe these new reps are joining our team because of our unique growth growth profile driven by our innovative technologies that are backed by strong clinical evidence and supported by our market, leading patient and surgeon education programs.
Our success not only lies with recruiting new experienced reps, but also in converting some of our successful independent sales agents into W. Two employee rats.
Having ended the quarter with 68% of sales coming from our direct channel. We are already trending above our previously announced year end goal of 70% early on here in the third quarter.
In addition, given strong interest from candidates to join our employee sales team. We now expect to exceed our year end goal of 150 quota carrying sales reps.
Our disruptive lap a quasi solution was specifically developed to correct. The root cause of the bunyan and address a large and underserved market.
We've identified a $5 billion plus U S market of $1 1 million annual surgical candidates.
<unk> only 450000 undergo <unk> surgery, each year, mainly due to limitations associated with current standards of care.
As a reminder, recurrence rates reported in the clinical literature with the <unk> procedure, which represents 70% of Bunions surgeries today are highly variable and have been shown to be as high as 78%.
In the second quarter of 2022, we believe we have penetrated approximately four 6% of the estimated 450000 annual funding surgical procedures in the U S.
Up from three 3% in the second quarter of 2021.
And representing approximately one 9% market penetration of the $1 1 million annual U S surgical candidates, representing our $5 billion total addressable market.
We are encouraged by our momentum with positive market feedback and strong execution supporting our conviction for sustained growth and market penetration.
Based on our continued rapid growth. We're pleased to note that for the fourth time in the company's history. We are once again in the process of relocating to a larger headquarters facility, which will allow us the capacity to meet our increased requirements for surgeon and sales force training R&D product innovation as well as warehousing and other infrastructure needs.
Turning now to our Q2 results.
Revenue in the second quarter was $30 million, representing 45% growth over the second quarter of 2021.
During Q2, we continued to benefit from our commercial strategies and investments.
With improving demand trends as the quarter progressed, we're extremely pleased not only with our topline growth, but also sustained positive trends in our key operating metrics, including.
Our expanding direct bunion focused sales team, which accounted for 68% of our Q2 revenue mix.
Strong steady increases in a number of new surgeon users and in Q2 with 2047 active surgeons up 37% year over year.
Continued year over year increases in surgeon utilization with $10 one kits per surgeon in Q2 up from nine eight kits a year ago.
And strong blended average selling prices of $5711 per case, representing 5% growth over the prior year due to positive uptake of our newer innovations such as the lap of passing many insertion system and our abductor plassey system for Midfoot correction.
And as our direct reps leverage their position in the or and increasingly displace competitive forklift products with our complementary ancillary products.
Investments in our patient awareness DTC programs expansion of our direct sales channel and R&D innovations consistently support our revenue expansion and momentum.
We remain excited about the positive impact these investments, we're making on our business, giving us confidence that we have a well defined proven and scalable commercial strategy, that's fueling our growth.
Given these positive trends, we are raising our full year 2022 revenue guidance to $130 million to $134 million, which reflects an increase of 38% to 42% from 2021 revenue.
Shifting now to our commercial and market development activities.
A key differentiating driver for our for our business is our commitment to providing peer reviewed clinical evidence to support the safety and efficacy of our products, which we believe resonates well with both surgeons and patients.
In May we announced our 'twenty one peer reviewed publication supporting our lap a proxy technology.
This recent article published in the journal of foot and ankle surgery reported on our positive interim one and two year results, including both radiographic and patient reported outcome scores on 102173 patients treated in our flagship align three D. Multicenter prospective study.
With our extensive and growing clinical dossier combined with over six five years of clinical use of refinement and over 50000 patients treated as of Q2. We continue to believe that we are setting a new standard of care for bunion surgery.
As mentioned last quarter and consistent with our commitment to provide meaningful clinical evidence to support our innovations we continue to make steady progress with our many three D apply a multicenter prospective clinical study.
As a reminder, this study utilizes our many envision lap a classic steps and system, which offers a much smaller 3.5 centimeter incision approach to realign the entire first metatarsal bone and address the root cause of the bunyan versus just cutting and shifting the <unk> bump, which is the case with osteotomy procedures.
During Q2, we continued to treat additional patients and onboard new clinical sites for this study and we look forward to providing future interim report outs on the mini <unk> dataset.
Okay.
Our many envision lateral plassey approach continues to resonate with growing interest from both surgeons and patients.
We continue to see steady adoption of our many insertion system with positive contributions to our average blended selling prices.
Interest and attendance by new surgeons that are training events were strong during the second quarter.
Courting our plans for additional national and local events with expectations for continued strong participation for the remainder of the year.
In addition, our advanced training events held both online and in person, where our tenured surgeons can learn new skills and approaches such as our mini incision and a doctor policy procedures are on schedule with strong demand throughout the year.
As noted we've been making additional targeted investments this year to accelerate our market penetration by.
Advancing patient awareness surgeon education and demand for our lack of classy and other related procedures.
Expanding the footprint and coverage of our bunion focused direct sales channel and driving more R&D innovations into the marketplace.
With our sites aimed at driving long term market penetration, we're very pleased to report increasing traction in early momentum from these initiatives.
Our DTC patient awareness initiatives are a key component of our commercial strategy designed to educate patients on binding deformities and our differentiated solution.
Encourage these patients to seek more information and locate lap lap of plastic surgeons and their market and.
And ultimately to schedule a surgical consultation.
We employ social media, Google search public relations and other media, including targeted television campaigns with strong metrics and performance data that show active patient engagement further supported by feedback from our regularly conducted surgeon surveys.
We believe we have a highly effective DTC strategy in place.
We also have strong conviction in our direct sales force strategy.
And continue to make focused investments to grow our highly specialized direct field sales team.
Our channel analytics continue to show that on average relative to our independent agencies are direct sales reps penetrate their markets faster generate higher surgeon utilization levels and sell at higher blended asps.
These direct reps typically scale with cost leverage demonstrated within 24 months, primarily because they're 100% focused on <unk> products and fully utilize our corporate resources and programs.
As our direct sales force matures, we look forward to driving expense leverage over time.
Turning to our product development strategy.
We have an R&D team committed to driving innovation to maintain our industry leadership with programs remote both next generation binding correction systems as well as the development of new ancillary products addressing comp comment conditions.
And IP defense of our technology and innovations.
At the end of Q2, we had 36 granted U S patents and over 40 U S patent applications pending.
On August three we announced the full nationwide commercial release of several new product innovations previewed at the ACF Scientific conference last February . These include the lack of class a three in one guide.
An instrument designed to advance the speed and reproducibility of the lap of classy procedure. We've been we've been receiving excellent feedback on this product, including a recent surge in user survey that reported an average 15% reduction in time to pro forma lap a proxy procedure when using this new three in one guide.
The lap of classic S. Four a anatomic plating system. This represents our third generation lap a classic titanium plate fixation technology and provides an advanced anatomic designed to address variability in the TMT joined anatomy.
And the speed of release and try to home release instruments. These new sterile package specialty specialized cutting instruments are designed to provide a more accurate and complete surgical release key soft tissue anatomy, commonly involved and the lack of plastic and a DUC capacity procedures.
Proper soft tissue releases are important in achieving consistent corrections of the bones involved in both bunion and mid foot deformities.
We look forward to providing additional updates on our new product innovations as we continue to develop our pipeline centered on our core technologies and IP aimed at improving surgeon user experience.
Outcomes and supporting continued market penetration.
Speaking briefly to reimbursement for our products.
CMS has recently released its proposed 2023 Medicare payment rates for hospital outpatient and ASC services to cover facility costs for surgical procedures, which include supplies in implants used in the surgical case.
As a reminder, our products are used in procedures covered by well established existing CPT codes.
And we're pleased to note that the reimbursement rates for these particular codes are slated for mid single digit increases in the year 2023.
Assuming the proposed 2023 rates or a firm. This will continue a multiyear trend of low to mid single digit increases in facility reimbursement rates for CMP CPT code <unk>.
Associated with our procedures.
Okay.
Okay.
In closing I'm proud of the great execution delivered by our focused team here and part of it are Florida and throughout the country.
Based on continued positive feedback we're receiving from the clinical community. We know that we are helping improve the lives of patients suffering from painful lifestyle, limiting bunion and related Mitra deformities.
We are executing to plan supported by a strong balance sheet that we believe is adequate to take us into profitability and to fully fund our planned commercial market and product development initiatives.
We have technologies backed by strong clinical datasets and positive reimbursement trends that are.
<unk> the standard of care and the surgical management opinions our commercial.
Strategy of proven DTC and direct sales programs that are poised to scale and a talented team of over 330 employees with a shared passion for our mission to improve surgical outcomes are bunion patients.
With that I'll now turn the call over to Mark to review our financial performance.
Thank you John good afternoon, everyone.
Revenue in the second quarter was $30 million up from $27 million, a year ago, representing an increase of 45%, which was driven by increases in procedure volumes and higher blended average selling price.
In our second quarter 2022, the number of active surgeons performing at least one case and the trailing 12 months increased 37% year over year to 2047 retained 20% penetration of the estimated 10000 U S based surgical podiatrist and orthopedic surgeons.
Certain utilization increase on average of $10 one kit.
Up from an average of $9 eight a year ago.
As our surgeon base continues to mature we look forward to surgeon utilization gains with increasing use of our buying in and related midcourse correction system as well as our complementary ancillary products driven by our growing direct sales channel DTC initiatives and pipeline of new product innovation.
Yeah.
We sold 5247 lack of classy procedure kits in the second quarter, a 39% increase versus the prior year's second quarter.
<unk> average selling price was $5711, a nearly 5% increase over the second quarter in 2021, driven by the adoption of our many incision lack of classy and add back the classic systems as well as our complementary ancillary products.
Gross margin was 81, 1% in the second quarter of 2022 compared to 89% in the second quarter of 2021 20.
20 basis point increase in gross margin was due to volume and operational efficiencies.
Total operating expenses were approximately $36 2 million in the second quarter of 2022, which includes sales and marketing expenses were $26 2 million research and development expenses of <unk> 3 million and general and administrative expenses of $7 million.
This compares to total operating expenses of approximately $27 million in the second quarter of 2021, which include sales and marketing expenses were $14 million.
Research and development expenses of $2 4 million and general and administrative expenses of $4 3 million.
This increase in operating expenses reflects strategic investments in our expanding direct sales channel.
And overall support or other commercial initiatives.
As noted earlier to support our rapid growth.
We are in the process of relocating to a larger facility that accommodates our increased capacity requirements for surgeon and sales force training R&D development prototyping warehousing and other infrastructure needs.
Importantly, we continue with these investments to aggressively expand our direct sales force.
Now with 123 quota carrying direct sales reps at the end of the Q2, representing a 52%.
Increase from the 81 direct sales reps, we had at the end of 2021, including clinical specialist sales management.
Field support teams, our entire employee stakeholders fleet in the field increased 40% to 202 to help employees in the second quarter compared to 144 at the end of last year.
As John mentioned, we're pleased with the increasing productivity of our direct sales force.
And when combined with our seasonally strong fourth quarter, we look forward to driving increasing leverage in the middle of our P&L as we scale up operations over time.
Second quarter net loss was $17 2 million or <unk> 31 per share compared to a net loss of approximately $5 1 million at <unk> 10 per share for the same period of 2021.
Adjusted net loss, which is the net loss attributable to common shareholders. Excluding the debt extinguishment loss of $4 5 million reported in the second quarter or <unk> 80 per share was $12 8 million or <unk> 23 per share.
Cash and cash equivalents were $101 $5 million as of June 30 of 2022.
In the second quarter, we announced a new five year $150 million.
Loan arrangement that favorably reduce our cost of capital strengthen our balance sheet and enhance our financial flexibility.
Drew $54 million out of the new loan arrangement in part to pay off $30 million of debt outstanding under our previous credit facility.
We believe we have sufficient liquidity to fund.
Us into profitability and to fully fund our planned commercial market and product development initiatives.
Let me turn to our outlook.
The year of 2022 as John mentioned, we remain encouraged by the underlying strength and momentum in our business and our radar.
1022 revenue guidance to $130 million to $134 million, which reflects an increase of 38% to 42% over 2021 revenue.
This compares to our prior revenue guidance of 128.
$133 million.
As a reminder, we expect typical seasonal softness and orthopedic elective surgeries during the third quarter and continue to monitor for and execute against procedural headwinds. We expect Q3 revenue to be consistent with revenue reported in Q2 representing strong.
Year over year growth.
Before concluding I'd like to take a moment to invite you to our surgeon advisor event, which will include presentations from leading lateral classy and the doctor plastic surgeons on September 20th of.
NASDAQ market site in New York City details on the event can be found on the Investor Relations section of our website.
Let me turn the call over to the operator to open the line for your questions.
Yes. Thank you at this time, we will conduct a question and answer session and as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced please standby a moment, while we compile the Q&A roster.
Okay.
Okay. Our first call is coming from the line of Robbie Marcus with Jpmorgan go ahead. Your line is open.
Oh, great. Thanks for taking my question and congrats on a nice quarter.
Hi, Ravi.
Maybe to start.
You had a really nice uptick sequentially in the revenue per procedure.
Kits were kind of flattish quarter to quarter I imagine your reps are probably starting to push some of the other.
Procedures.
Within the <unk>.
Within the <unk> add on to Bunion surgery.
How should we think about how the ramp time is being spent and how they are getting compensated on adding more to the procedure, you're clearly doing a great job, adding on is the revenue is moving up and how should we think about those two metrics going forward over the balance of the year on the new guidance range.
Okay.
Yeah. Thanks, Thanks, Robbie maybe I'll start a little bit on that.
First of all the way we view a lot of the revenue growth is year over year, and we're really pleased with that growth, 45% over Q2 of last year.
Our sales reps are commission based and so it's their.
They are commission based on the fall blended ASP thats occurring in each of these cases and so that's another reason why we report that metric so they're encouraged to sell.
The lack of classic hit as well and all of our ancillary products.
Okay.
And how should we think about the <unk>.
Cadence over the balance of the year as of price versus volume and what's assumed in the new guidance range.
Hello again.
With what we were talking about as far as the guidance in Q3 being consistent with what we had in Q2.
It gives us a really large and.
Year over year growth trend that we're very pleased with again, we do a lot of things during the course of the year as we prepare for a seasonally larger fourth quarter and so we continue to do all the medical education activities and Onboarding.
New active surgeons, which are really pleased with that so we're poised to really tend to benefit from all of these investing activities have been taking place in the first half of this year to benefit from the back half of this year.
Yes March March right and Ravi I got those that'll color that we got a very deliberate strategy to keep refining our lap of classic system and operating next generation of implants that typically command a higher asps as we're doing now rolling out our <unk> system.
We're also going to continue to keep commercializing additional bunion focused ancillary products that will continue to contribute to that blended asps like the speed released in the Tri tone that we just spoke about.
So I think while there can be some quarter to quarter mix related variability in our reported blended asps.
Generally expect an upward trend in blended ASP to continue over time.
Okay.
Great maybe as a follow up you continue to add a good amount of surgeons.
How should we think about where you stand.
Whether its top quartile users or so versus I think you said the.
The average was 10.1 in the quarter that maybe thats the trailing 12 month, how do we think about.
Where some of your highest users are as we think about where the overall base may migrate to over time. Thanks.
Yes, Thanks Ravi.
We do report that on an annual basis, the productivity of all of our urban space on the cohort when they started using lateral biopsy.
That had been excuse me lack of class a more than four years are doing more than 20 cases.
Annually and so we think it.
It's really.
Large percentage of their practice.
Lightning lateral classes. So we know that it grows over time.
And that's what it is.
Again gives us confidence as we're adding these additional surgeons that is is that in the bathroom, that's going to pay dividends.
Over the years.
Great. Thanks for taking the questions.
Thanks, Ravi Thanks Ravi.
Thank you.
Okay.
Our next question comes from the line of drew <unk> with Morgan Stanley Go ahead.
Hey, Thanks for taking the questions John and Mark.
Maybe just.
A follow up to Rob's question earlier, but.
Just wondering what youre thinking about utilization and active surgeons increasing.
Can you maybe go into a little.
Little bit more detail on kind of what gets you from point a to point b in terms of driving that utilization higher is it really all about the direct sales force is it about the ongoing training and education and John I think you mentioned that.
Defense training for tenured surgeons continues to see strong demand as well as the initial demand. So can you maybe walk us through kind of that dynamic of what uptake you do see.
After a surgeon doesn't initial.
Cores, and then maybe what a tenured surgeon does and they're following kind of an advanced course.
Hi, drew Greg Great question.
I don't know that we've measured specific doctor activity. Following these events.
But but as a whole.
Our average user of their first year, whether they came in January one or December 31 is around four cases, a year by the second year, they're doing around seven as I recall I could add these numbers up by eight 8% Mark saying.
Then by year four they are up to 20 or so.
So that's kind of the culmination of a number of things in our entire commercial ecosystem is designed to trying to accelerate that utilization curve.
From year, one to over 20 cases quicker so direct sales reps, who call on them more fully utilize our resources or.
Our product innovations.
<unk>.
And certainly the DTC patient awareness.
Informs more patients to look for them on our locator and go to their office and asked for a consultation all these kind of build on each other and then the advanced courses really what they do they are in a room with a lot of very experienced lack of class of users and maybe their earlier on their utilization curve and just using lap a classy for a thorough there.
Cases, but now they're in a room of faculty and surgeons that do 50, 8100% of their bunions with lap a class b and they're learning the advanced Tech.
Technique tips and tricks and.
Preoperative assessment and post operative management.
They are learning about the abductor classy procedure and how to do that along with <unk>. So that sort of helps build utilization further we believe making them feel more comfortable and skilled at performing Wap applies to you on a broader range of their patients and it helps drive that blended asps.
Train them to incorporate a Dr Plasty and some of these other tools into their practice.
Got it.
Okay.
Maybe more for Mark for this question, but with the guidance keeping.
Third quarter sequentially flat.
Just I mean looking at the past few years at least as a public company. It's been at least kind of mid single digit at least last year. So can you talk a little bit more about it.
About the flat expectation quarter over quarter, you mentioned.
Seasonal softness in orthopedics, but just curious if you're actually seeing those trends today or is it more of conservatism any any issues with staffing shortages.
Yes, great Great question drew.
And we've talked about it in the past that.
We see the same things that other companies see with respect to some of the staffing shortages and those kinds of things. We we really tried to focus on what we can control the things that we do best.
Growing our sales channel our DTC program.
Patient education, or all those kinds of things and so I think we're just looking at the overall macro considerations with what's happening right now from the staffing shortages and we also recognize it is seasonally slower for elective surgery in orthopedics in Q3. So when you look at what was consistent.
With Q2 revenue would be it's still a pretty substantial growth rate year over year and that's why we're really driving the business is not really on a sequential quarter to quarter basis, but looking at that growth trend year over year. So I think it's pretty favorable if you look at it that way.
Got it thank you and just one last one.
Mark again, but.
Opex came in a bit higher than we expected and I completely understand.
Investment that youre, making in the direct sales force, but how should we kind of think about that about the spend into the back half of the year. Thank you.
Yes. Thanks, you that's an important one that's another reason why we spend a fair amount of time on this call talking about some of these investments that we've been making in the direct sales channel we've been able to make some headway.
And hiring people getting the right people and transitioning some of our independent sales agents into.
W. Two.
Fully employed sales reps and all of that that.
It covers and so we're really pleased with all that growth and all of that growth comes with some additional expenses and investment into our sales channel. We also had some some increasing the DTC investments that we made in the quarter versus Q1 and so.
I don't think its going to be that much different in the back half of the year from what we just saw in Q1 or Q2 rather.
With respect to those investments, but that's why we wanted to make sure that everyone knew how pleased we are with.
With the bill that that we've made so far with that very successfully really ahead of schedule and plans. So we're pleased with those investments.
Thank you Joe.
Thanks, Joe.
Our next call comes from the line of Ryan Zimmerman with.
With BTG.
Thanks for taking my questions Hey, Thank you happy to be on the call.
Maybe just a follow up.
Thank you John .
Just to follow up on some of their other questions Robin drew.
Johnny you talked about kind of the reimbursement for Bonnie and surgery going up in the mid single digits and it's around the pricing topic and I'm. Just curious if you could kind of speak to it because if I think about the pricing.
Relative to the growth in reimbursement.
Do expect average Isps to continue to go up but how do we think about that upper bound of pricing potential in your mind, John I mean, how much can it.
How can much Kenneth take relative to kind of where reimbursement goes in and do you think about that in that context as a percentage of the total reimbursement as you're thinking about kind of layering on new products.
Yes, Ryan as John did a great great question and reimbursement is something that we pay particularly close attention to and.
Work every year or two the petition and communicate with CMS.
Our positions but.
No.
Obviously, we've had multiple years of positive reimbursement trends and the key bunion codes that are involved in lab capacity and other.
Other codes that are other procedures performed within a typical bundled case in a typical binding case can involve fiber.
Five or six different CPT codes, some even some even more so.
No.
Our blended ASP of $5700, that's not just the bunyan CPT code, that's that's involving other CPT codes.
We may have some lower cost ancillary products that are used in that procedure. So overall.
We do keep an eye on those ratios and and we're cognizant of those those ceilings that could eventually occur but.
For now we feel like we're in a pretty good situation given our portfolio of ancillary products. The CPT codes that are involved in those which have their own separate reimbursement tied to them as well as our core bunion code and the cost of our true lack of class B core system.
So the lap of classy system is not the $5700.
Rationale there and then the other night.
Ancillary products.
Yeah Fair point, John I appreciate the color there and then.
As you layer on some of the ancillary products Mark.
Your gross margins are very strong already but how do we think about kind of the gross margin impact of those ancillary products and is there potential to kind of move the dial a little bit higher on gross margins with the contribution from these newer products.
Yes, great Great question, Ryan I think Theres, a lot of things happening all at the same time right.
With inflationary pressures and everything else supply chain issues and constraints. Fortunately, we've been able to manage that extremely well. So we were really focused on maintaining our gross margin in the area. We're at that right now, but there are opportunities, where we're definitely looking for them.
It's going to be unclear, if thats going to offset some of the other pressure or if it will be an improvement from here, but we're really pleased with where we're at and we're always looking for opportunities has been great.
Alright, I'll hop back in queue. Thanks for taking my questions and congrats on the quarter.
Thanks, Brian .
I would now like to turn the call back to Vivian for closing remarks.
Thank you Kathy on behalf of <unk> medical. Thank you everyone for joining US today. This concludes our call and we look forward to seeing you at our surgeon advisor event.
At the NASDAQ market site in New York City in September 20th and also to provide you with our next update following the close of our third quarter 2020, Q. Thanks, everybody.
Okay.
Thank you this forward to seeing you at our surgeon advisor event.
At the NASDAQ market site in New York City at September 20th and also to provide you with our next update following the close of our third quarter 2022, thanks everybody.
Okay.
Thank you. This does conclude the program and you may disconnect now.
Okay.
Okay.
[music].
Yeah.
[music].
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
[music] okay.
[music].
[music].
[music].