Treace Medical Concepts Inc. Q1 2023 Earnings Call
Yeah.
Good day, and thank you for standing by.
Welcome to the treat medical first quarter 2023 earnings call.
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Please be advised that today's conference is being recorded.
Now like to hand, the conference over to your Speaker Vivian Cervantes Investor Relations at Gilmartin Group. Please go ahead.
Thanks, Teresa and good afternoon, everyone and welcome to our first quarter 2023 earnings conference call participating from the company today will be John Tree, Chief Executive Officer, and Mark hair, Chief Financial Officer.
During the call we will offer commentary on our commercial activity and review our first quarter financial results released after the close of the market today after which we'll host a question and answer session.
Press release and supplemental materials can be found in the Investor Relations section of our website at investors dot trees dotcom.
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.
<unk> that relate to expectations or predictions of future events and market trends as well as other estimated results or performance are forward looking statements.
All forward looking statements are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially 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 first quarter to be filed tomorrow and our Form 10-K for full year 2022 filed on March eight 2023 for a detailed presentation of risks.
With that I'd now turn the call over to John .
Thank you Vivian and good afternoon, everyone and thanks for joining us on our first quarter 2023 earnings conference call.
Before we begin I'd like to take a moment to acknowledge everyone at <unk> medical for their dedication focus execution and passion for our business and its mission to improve surgical outcomes for finding patients.
He is our chief collective effort, along with the support of our loyal surgeon user base and the positive impact our technologies are having on the lives of the patients phase III.
<unk> supported the success and growth for our company for nearly eight years now.
Since our first lap a vast procedures performed.
In the first quarter revenue increased 45% as compared to the same period in 2022 with steady gains across all of our key operating metrics.
It's clear to us that the strategic investments we continue to make in our business are delivering strong returns confirming we have the right strategies in place to expand the market penetration of our differentiating technologies.
Before I go into details about the quarter, let's start with our market summary on where we stand today.
Our disruptive lack of plastic solution was specifically developed to correct the root causes and address a large and underserved market.
<unk> identified an estimated addressable $5 billion plus in the U S market of $1 1 million Angela surgical candidates of which only 450000 undergo <unk> surgery, each year, which we believe is mainly due to limitations associated with current standards of care.
As of the first quarter of 2023, we have penetrated approximately five 8% of the estimated 450000 annual volume surgical procedures in the U S.
Up from four 3% in the first quarter of 2022, and reflecting approximately two 4% market penetration of the $1 $1 billion annual U S surgical candidates, which constitute our $5 billion addressable market in the U S.
Turning to our Q1 results.
Revenue in the first quarter was $42 2 million, representing 45% growth over the first quarter of 2022.
During the first quarter, we continued to benefit from our commercial strategies and investments growing salesforce productivity, coupled with strong seasonal demand trends decidedly extended our seasonal strength in the fourth quarter into the first quarter.
Therefore, we are extremely pleased not only with our topline growth, but also the sustained positive trends in our key operating metrics, including.
Our expanding direct binding focused sales team, which accounted for 79% of our Q1 revenue mix compared to 63% during the first quarter of 2022.
Strong steady increases in the number of new surgeon users ended Q1 with 2499 active surgeons up 31% year over year.
Our year over year increase in our trailing 12 months of utilization with an average of $10 five kits per active surgeons in Q1 up from $10, one chips, a year ago and strong blended average selling prices of $6244 per lateral talking get sold in the quarter, representing 13% growth.
Over prior year as our expanding direct sales team more effectively leverages our broader portfolio.
So solving complimentary product solutions, such as a Dr philosophy, or SaaS based crews and our speed released and try some tissue release instruments into their lateral classic cases.
Our strategic investments in commercial focus will continue to support the growth of our business, giving us confidence that we have a well defined proven and scalable commercial strategy.
Given these positive trends, we are raising our full year 2023 revenue guidance to $190 million to $196 million.
It reflects an increase of 34% to 38% over 2022 revenue.
We remain committed to balancing aggressive execution of our targeted commercial initiatives to maximize our growth and market penetration, while delivering modest improvement in our expense leverage.
Shifting to our commercial and market development activities as we previously discussed we're continuing our targeted investments in 2023 with the goal of increasing our market penetration by expanding the footprint and coverage of our binding focused direct sales channel <unk>.
Advancing our patient awareness DTC initiatives and driving more targeted R&D innovations into the market.
We have a highly specialized team of trees, including a rapidly growing direct sales force. One that is 100% focused on bindings and related to that but surgery and represents the only such organizations that we're aware of in the U S Med Tech industry.
We believe this has contributed meaningfully to our revenue and market penetration.
In the first quarter, 79% of our revenue was generated by our direct sales force up sequentially from 77% in the fourth quarter and up from 63% in the same period last year.
We continue to aggressively invest in our direct channel with a target of having over 200 quota carrying direct sales reps by year end up from 168 at the end of 2022.
We continue to see increasing productivity from the 87 direct reps that we hired during 2022.
As a reminder, our historic data demonstrates that our direct reps typically scale with significant revenue and cost leverage achieved within 24 months, primarily because they are exclusively focused on our products and fully utilize our suite of corporate resources and programs.
Our patient awareness DTC initiatives are a key component of our commercial strategy.
You may recall, our investment in DTC is resulting in hundreds of thousands of patients visiting our website every month and tens of thousands of patient searching for lack of plastic surgeons in their area.
With one in four surgeries in the U S. Using lab philosophy, we now have a larger and expanding national surgeon base that can field inquiries from a higher volume of patients.
On strong momentum, we stepped up our investments and initiated our DTC efforts earlier this year compared to last year to drive greater awareness amongst the target patient population.
We have a great foundation of surgeons and sales reps in place to support growing patient interest and we remain focused on our patient awareness DTC initiatives that are designed to educate and steadily increase the number of potential patients visiting our web site.
Become educated on the lack of plasma procedure locate experienced lots of plastic surgeons in their area and to ultimately schedule of compensation.
Our surgeon education and training programs also continue to be well received.
Interest and attendance by new surgeons at our training events remained strong with many of our events oversubscribed.
Likewise, our advanced training events, both online and in person or our more tenured surgeons can acquire advanced skills and learn new approaches and procedures like Dr. <unk> continued to show strong demand.
Our education programs play a key role in the effective onboarding of new surgeon users and increasing the scale of our existing surgeon users broadening their patient vacations.
In the first quarter, we on boarded 112, new surgeon users who are trained in a safe and effective use of our technologies through these training programs.
We're encouraged to see continuing growth in our surgeon user base.
As the first quarter, our active surgeon user base, which include surgeons, who performed at least one case in the trailing 12 months has achieved approximately 25% penetration of the estimated 10000 foot and ankle surgeons in the U S performing <unk> surgery.
As our surgeon base continues to mature we look forward to utilization gains with increased use of our lots of classy and inductor classic systems as well as further adoption of our growing portfolio of complementary products all supported by our expanding direct sales channel differentiated clinical datasets and patient awareness DTC initiatives.
Speaking now to our product development strategy, we have an R&D team that is committed to driving innovation to maintain our industry leadership with <unk>.
Programs for both next generation binding correction systems as well as the development of new complementary technologies addressing other funding related technologies.
IP defense of our technology and innovations.
Announced in April to date, we have 47 corrected U S patents and 51 U S patent applications pending.
We highlighted two new exciting product innovations at the American college of foot and ankle surgeons. This past February namely.
The micro lack of flashing citizen.
This is an advanced instrumentation options designed to further reduce both the incision size and related tissue dissection with a lack of plasma procedure.
This exciting evolution of our instrumentation allows the patented lateral classy procedures to be performed through two centimeter incision.
And our speed play implant fixation platform.
This is a new fixation technology platform designed for rapid insertion through small two centimeter incision, serving as both an enabling technology for the micro <unk> procedure, but also with broader applicability to both our standard in many decision multiplexing systems as well as far as Dr Classic Midfoot procedures.
Feedback on speed play from Surgeons, who have received early clinical assets during the quarter had been highly favorable with emphasis not only on the time savings, but also the excellent stability and a dynamic compression benefits of the implants as well.
We anticipate commercial launch of <unk> technology by year end, we're excited about the potential benefits micro lab atlassian speed play a combination can bring to patients as with any procedure that involve smaller incisions and less tissue disruption. We believe this could translate to even faster patient recovery with less pain and swelling.
We look forward to providing additional updates on our new product innovations as we continue to develop our pipeline centered around our core technologies and IP aimed at improving search and user experience patient outcomes and supporting continued market penetration.
Turning to clinical data are key.
Key differentiating driver for our business is our commitment to clinical evidence, which we believe resonates with both surgeons and patients.
From what we can see in the marketplace. We believe we're the only industry participant with a growing body of clinical data.
Our interim clinical data demonstrating rapid return to weight bearing walking boot with low recurrence rates at 12, and 24 months as well as positive patient reported outcome scores following our funding correction procedure.
At the 2023 American college of foot and ankle Surgeons annual scientific conference. This past February we announced an interim analysis from our flagship align <unk> prospective <unk> study on a 128 patients with at least 24 months follow up which demonstrated.
Early returned to weight bearing to walking boot at an average of $8 one days.
A low recurrence rate of <unk>, 9% and 24 months, 88% reduction in pain measured using the visual analog scale or vas at 24 months.
92, and 90% improvement in walking standing and social interaction patient reported quality of life measures, respectively, using the Manchester, Oxford foot questionnaire through 36 months, and notably 97, 3% of patients reported they were satisfied or very satisfied with the overall results of the lap of glass procedure.
At 36 months.
The <unk> scientific poster, which includes additional details are available on our website.
We believe we're the only company to offer this level of clinical evidence on our commercial and surgical bunion product and it's rewarding to see the meaningful impact of lack of plastic procedures, making on patients' lives.
<unk>, not only physically but socially as well as demonstrated by the 97% patient satisfaction rating three years post launch of plastic surgery.
As a reminder, later this year, we expect to submit our primary endpoint align <unk> manuscript for publication in a peer reviewed journal.
This is an exciting milestone culmination of activities that began five years ago with the first patient enrolled in 2018.
We believe these positive interim patient data coming from our differentiated of line <unk> study resonate strongly with surgeons and patient communities and as reinforcing further market adoption of allowed the classic procedure.
I'd like to highlight one additional item that occurred right. After the end of the quarter.
In early April we published our inaugural environmental social and governance report, which outlines our focus and ongoing progress towards ESG initiatives across trees.
We will continue to integrate ESG considerations into the way, we manage our business while carrying on our mission to improve surgical outcomes for finding patients.
In closing I am proud of another great quarter of execution of trees.
Our solid execution driven by our talented team of employees improvements strategic investments supported by our strong balance sheet continue to drive our momentum.
We believe we've developed a specialized and scalable business model that is fueling our growth strategy and our mission to advance the standard of care and the surgical correction of funding and related mid foot deformities.
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 $42 2 million, an increase of $13 1 million and 45% growth over the prior year growth was driven by increases in procedure volumes and an increase in blended average selling price due to adoption of our newer complementary technologies.
In the first quarter 2023, the number of active surgeons performing at least one case with trailing 12 months increased 34% year over year to 2499, surgeons, which translates to approximately 25% penetration of the estimated 10000 surgeons in the U S. We performed I think.
Procedures surgeon utilization increased to an average of $10 five lack of classic hits purchase and the trailing 12 months up from an average of $10 one a year ago.
As a reminder, we commercialized lateral classic procedure nearly eight years ago and in the past two years alone. We've added 1145 active searches.
Half of our total active surgeon base.
On the average this growing number of active surgeons has steadily increased utilization each year. These lateral class.
Due to positive patient outcomes and expanded indications in their practices.
We sold 6758 lack of classic procedure kits in the first quarter, a 28% increase versus the prior year's first quarter blended average selling price in the first quarter was $6244, a 13% increase over the first quarter in 2022 and a 6%.
Kris from Q4 last year.
First quarter blended average selling price of $6244 includes a contribution of approximately $4800 from lack of capacity and a growing contribution of approximately 1400 from our.
An expanding portfolio of complementary products, such as our cloud based system tracks home and speed release instruments, and fast pitch and screw kits as our expanding direct sales channel helps provide surgeons with our problem solving technologies.
Gross margin was 89% in the first quarter of 2023 compared to 82, 3% in the first quarter of 2020 to the 140 basis point decrease was primarily due to an increase in payroll and related costs as a result of our expanded operations.
Total operating expenses were $47 9 million in the first quarter of 2023, which includes sales and marketing expenses of $33 7 million.
Research and development expenses of $3 4 million and general and administrative expenses of $10 9 million. This compares to total operating expenses of 32 million in the first quarter of 2022, which included sales and marketing expenses of $22 3 million research and development expenses of $3 1 million.
And general and administrative expenses of $6 7 million.
The increase in operating expenses reflect strategic investments and our expanding direct sales channel investments in product innovation increased capacity requirements as well as support for other commercial initiatives.
First quarter net loss attributable to common stockholders was $13 5 million or <unk> 23 per share compared to a net loss of $90 million or <unk> 16 per.
<unk> per share for the same period in 2022 cash cash equivalents marketable securities were $170 7 million as of March 31, 2023, as we mentioned last quarter. We completed a follow on offering in February which raised net proceeds of $107 5 million.
This is the first time, we raised capital since our IPO and we believe this provides us with additional balance sheet strength and flexibility to continue aggressively executing on our strategic investments and growth initiatives.
Before concluding let me turn to our outlook for full year 2023.
As John mentioned, we are encouraged by the underlying strength and momentum in our business and are raising full year 2023 revenue guidance to $190 million to $196 million, which reflects an increase of 34% to 38% over 2022 revenue.
This is an increase from our prior.
Full year guidance of $187 million to $193 million for.
For the second quarter 2023, we continue to see our business tracking to expectations and expect revenue in line with elective procedures seasonality following our first quarter, which benefited from an extended seasonally strong fourth quarter.
Turning to the middle of the P&L, we continue to expect that our operations and expenses will continue to grow throughout 2023, as we increase our DTC investments and further expand our direct sales force, while increasing leverage of our fixed costs and overhead expenses. Therefore, we still expect to sell more.
Modest improvements in adjusted EBITDA for the full year compared to 2022 with that let me turn the call over to the operator to open the line for your questions.
Thank you.
At this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Robbie Marcus with Jpmorgan. Your line is open.
Oh, great. Thanks for taking the questions and congrats on another nice quarter.
Thanks, Ravi Thank you Robyn.
Pam.
Maybe to start I wanted to dive into some of the trends you saw in first quarter I know, it's probably hard to kind of tease out each of the individual components, but what are you seeing in terms of how much is coming from better contracting a more complete product portfolio returns on DTC and fast.
Matt.
<unk> sales force and anything you could add to try and place where some of the growth drivers are going and why.
What you're focused on for the rest of the year.
Yes, Ravi this is mark great question.
John and I.
I've really tried to focus on all of those items that you talked about really with our investments on building the direct sales channel our DTC investments that we've.
Leaned in a little bit more this year in Q1 versus last year.
And now we have.
An expanded portfolio of products as well so it's all these things all the investments we really believe are helping the other thing that we talked about in the prepared remarks was that this really strong seasonally fourth quarter really extended into the first quarter. So not all of the procedures where were achieved.
Achieved in the fourth quarter and so we saw some of that benefit come into the first quarter as well. So I don't know that we have really quantified each one of those individually, but we feel really good about the momentum and as a reminder, the 45% growth is over a really tough comp from last year as well. So we feel good about the momentum as we're coming in and we feel like all of them.
Pieces are really playing well together to achieve that good result.
Thanks, maybe as a follow up here there is a lot.
That we're hearing in terms competitively out in the field and other.
Lower extremity bunion competitor was recently acquired.
And the noise is growing which is great for the field and the conversion to instrument at procedures, but I'd love to hear.
What your reps are seeing out in the field do you think any of the competitors are impeding your ability to grow and if you don't win an account what's the number one reason youre not here. Thanks a lot.
Yes, Hi, Ravi John here, Thanks for the question.
Yes.
Consistent maybe with what we discussed last quarter.
There are other products in the marketplace.
Being offered from other companies most of these are.
Kind of highly diversified companies with large bags of products.
We're not really seeing any incremental.
I think opposition to our momentum coming from these in some ways Theyre just further validating.
What we started and what we developed long ago.
<unk>.
Yeah.
Any of these companies products and offerings get like a fractional portion of their sales teams.
Time and attention and what we found is with over nearly eight years of refinement lap of places just so elegant and reproducible.
It's frankly, just unmatched and performance at the Doctor patient interface and.
And we continue to wrap more patents around what we're doing making it a little more challenging for companies to make something that can truly replicate the elegance of lap of classes. So.
On top of that our direct sales channel our training programs, our patient advocacy through our DTC, our real clinical outcomes data that we can backup our product with it just further differentiates us in the market, but I cant say that theres any.
Any one of these multi line distracted companies thats.
Slowing our business momentum.
Great. Thanks for taking the questions.
Sure thing.
Thank you.
Okay.
Yes.
Our next question comes from June <unk> of Morgan Stanley . Your line is open.
Hi, Thanks for taking my questions.
Just maybe just start on kind of the pricing trends I appreciate you breaking out.
Lots of plastic kits and the expanding portfolio, if I kind of look at the math from first quarter 2022.
And kind of pulled that forward.
You're obviously expanding your blended ASP.
Adding a direct sales force and I think I heard you, saying youre getting up to about 200. This year. So maybe just talk to us about a couple of things one maybe the acceleration that we should kind of expect with blended ASP.
Through 2023, and even into 2020 for sure if you want to get that dangerous and then second.
Can you just maybe highlight.
A bit more on the attachment rate that youre seeing for Dr. Plasty and your cases and maybe what type of surgeons are actually performing the case are you seeing it more in your more established mature tenured surgeons or even on some of the more recent adopters. Thank you.
Sure. Thanks, Hi, drew its John .
Happy to answer that question.
I think regarding the blended ASP.
As we Peel back that $62 44 that we had in the first quarter.
Around 4800 is a lap a classic case in call. It 400 and change is coming from complementary products that are using those lap a classic cases.
As we mentioned in the prepared remarks, we continue to see that blended asps lifting from our new products do.
Due to the continued adoption of a Dr. <unk>, which we think is still early on in the adoption curve.
As well as those other recently commercialized technologies, our <unk> kits are tissue released tools et cetera.
I think what we're beginning to really see and appreciate is the leverage effect, we're getting from this direct channel selling more of these complementary products that serve those other procedures that are performed within the lap a classic case.
So as we continue to layer on more and more new innovations as we will be later this year with speed play for example, we definitely believe there's more room to grow our ISP overtime.
And.
The adductor Plasty makeup surgeon profile.
Interestingly, we we initially brought a Dr <unk> to our more tenured surgeon base and targeted them to to come to trainings and they were most excited to come but as time has gone by we are now starting to introduce that Dr. Platt CNR beginner courses. So they not only get trained on lap of plastic.
When they come to a training course, but they get a little bit of a training on a dr plasma as well so they get exposed to it then and then we're finding more and more of those new adopters are requesting a dr. Plastic for their cases earlier on so it's been a good blend of both our more tenured advanced users and now moving into our our newer surgeons.
Base so.
Got it. Thank you and maybe this question is more more for mark but.
As we kind of think about some of your commentary about the fourth the first quarter was tracking to expectations.
Extended seasonally strong fourth quarter in the first quarter should we kind of interpret that as at the second quarter could be flat sequentially I would just like a little bit more understanding of maybe what youre seeing in the field given some of the strong drivers across asps surgeon utilization and prevent just maybe help us flush that.
A little bit more and thanks for taking my questions.
Yes of course.
Thanks drew.
Yes, so we do we feel really good about what we achieved in Q1 that 45% growth over last year.
A difficult comp and we as a result, we've raised our annual guidance range to 34% to 38% growth for the full year.
We do believe that the next couple of quarters, our growth rates will be within that raised annual range.
And we're comfortable with those mid points.
Based on all of these these investments that were made came in so we feel good about the momentum that we have.
Going on for the rest of this year.
Thank you for your question.
Our next question.
From Rick Wise of Stifel. Your line is open Mr. Ryan.
Thank you Hi, John Hi, Mark.
Great to see another excellent quarter here.
A couple of things.
Maybe just starting on the direct sales rep expansion.
Basically the 80%, making great strides.
Just remind us your latest thinking.
<unk>.
Is the goal to have 100% direct.
How quickly can you achieve it.
Maybe some color.
Around that for starters, if you would.
Sure Hi, Rick its John Thanks for the question.
We will continue to progress through this year driving.
More direct salespeople into the field and that will likely elevate that ratio above 80% over time, that's what we would expect.
That said, we have some excellent excellent really aligned.
Independent distributor partners, who are putting up numbers that.
Are really excellent.
So we will continue to work with them along the way and continue to build out our direct channel as we move forward but.
I think I think you can continue to expect.
Some progress in that ratio of direct as we continue to move ahead alright.
Alright.
Appreciating where youre, saying youre strong.
Independent distributors John .
Is it a concern in terms of.
The pace of growth at all just and Im saying this from <unk>.
Alright, good grants, but do I worry that as you get to your Max conversion levels that.
That slows the momentum or or it just shifts to other factors growth driving factors.
Aye.
I think it's probably the latter can you can you be a little more specific im sorry, if im not clear Im just thinking alright, alright, the idea of of.
Got it.
Going direct in having all these direct reps just that kind of focus and intensity.
Once you get to your sort of Max level of conversion.
Does that slow your growth momentum in any way shape or form.
Okay.
Looking ahead to $24 25.
Once that Ryan.
Finished yes, we'll continue we'll continue to have high growth expectations for any of our new direct rep additions in any of our remaining independent distributors as we go forward we don't.
We don't concede on our growth expectations on either side. So we'll just continue to build.
The most effective distribution, we can find in any given territory as we go forward and continue to drive high growth rates in this business run our playbook launching new product innovations training more surgeons more DTC.
And.
And of course, reinforcing everything with strong clinical data sets.
I think thats the way, we see it break.
Got you.
On the ASP.
Really impressed with.
Jumping your blended average selling price, obviously and you all explained it very clearly.
How do we think about.
The sustainability of this level and do we just assume as we see.
The cascade of innovative new products and the uptake of things like the micra lack of class a system in place.
Is that is that blended asps.
To move from here or move up from here, how do we think about it.
Yes, Rick Jon again.
One way to think about it is if you think about the mix of procedures, we have average Medicare reimbursement rates for facility materials used as plus or minus 10000.
So if we're at 62 today 200 today, we definitely have more headroom to go in terms of.
Addressing other procedures that coexist.
And our lap a classic case.
So we're going to continue to look to innovate and provide new innovations for additional procedures. So that our sales reps can stay in our lap of plastic case, but more comprehensively solve all the interrelated.
<unk> of that bunion.
And so we do believe that there is more room to go up into the right on on.
On the blended ASP, it's hard to say where that ceiling is going to Max out, but we feel like the average reimbursement and thats on the Medicare level for the average cases somewhere around 10000 now the majority of our.
Patient mix is actually commercial pay where you have a premium to that in terms of reimbursement for implants or materials used in surgery. So yeah.
I think we've got a nice runway of upward to the right.
Movement in our blended ASP over time.
It could vary quarter, it could kind of wobble quarter to quarter, but over.
An annual term I think I think you would continue to see that at a modest rate.
That's great. Thanks again.
Sure.
Our next question comes from Ryan Zimmerman of BT Hygiene. Your line is open.
Hey, guys. Thanks for taking our questions and congrats on the nice quarter.
Both my questions upfront.
First as.
As the DTC efforts.
The market is getting more competitive reaching a certain level of scale. When do you think investors start to see leverage on the DTC spend.
In the P&L Mark and.
Then the second question I'll just ask this upfront is.
As we look at the different categories of surgeons and your customer base.
How do you think about the funnel of those surgeons progressing to more advanced options. So.
At what percentage or what time point someone move say from novice user are generally user to a center of distinction in the centre of excellence et cetera et cetera. Thanks for taking the questions guys.
Yes. Thanks, Ryan This is mark I think it's a great question about our DTC efforts, we've really.
Seen great great activity from a DTC perspective, and as I said in previous calls some of that investment will fluctuate quarter to quarter, but overall, we think it's a valuable way to invest in to train and educate our patients drive onto our website and make sure that they understand.
And.
More about the lab classic procedure with regards to leverage on the P&L. Even this year, we've talked about having increased leverage versus last year. So we believe that some of thats coming this year.
If things go well, maybe there'll be more to talk about next year, it's a little premature for that but we're already beginning to see some leverage in and so we feel good about how that's playing out for this year 2023, and maybe I'll have John talk about the funnel.
Sure sure.
Yes, I think your question was around.
Uh huh.
How surgeons are progressing through different levels of yes, I got it.
Yes.
Yes, just as you think about the broader customer base I mean, you're you're at 25% of the market.
What percentage of those start to progress to the centers that distinction and so forth and so on kind of up the ladder, if you will and and the pace of that shift.
And how that's changing maybe from what it was even just a year ago.
As you introduce all of these products and people.
Just an extremely comfortable with with the system. Thanks.
Yes, Ryan.
You are very dialed into our our centers and the <unk>.
On our website and then do a lot of great analysis, there. So youre probably a step ahead of me.
But I can I can say there are certain fixed criteria for achieving center distinction excellence Centurion and elite center status.
Multiple items that play into that.
They tend to evolve through those different <unk>.
<unk> over time and more experience with the product.
What I can tell you is that this past year's first 12 months tenured surgeon group has adopted a lap of placing more aggressively than any other prior first year tenured group in the history of the business. So they tend to be coming on to lap a classic faster and more aggressive.
<unk>, we think that's largely due to the reputation that <unk> has now as an established procedure and so getting more mainstream so they feel very comfortable embracing it a little more aggressively in their practice versus a few years ago, where surgeons would try a couple of cases see how the patients do.
Wait a little bit and then maybe come back. So respected peer effect is taking is taking hold here. We've surveyed a lot of our new users and they say the number one reason that they are.
Coming to get trained on lap a classic now are adopting us because they are respected peer of theirs is using lap a philosophy and having good results. So we like what we see there we think we're in the.
Starting to get into the early majority part of the adoption curve and.
It is exciting to see this so.
Good stuff John Thank you.
Sure Ryan.
You bet.
Thank you.
Our next question comes from Rich New winter with truly your line is open.
Alright, thanks for taking the questions.
A couple from me here.
Maybe just first on how you're compensating the now increasingly direct sales organization.
More and more levers if you will especially with this really pretty impressive revenue per procedure Asps increase I guess.
What I'm trying to get get at here is what's the.
Where are you focusing are emphasizing.
<unk>.
To drive growth is it is it any more or less towards higher revenue per procedure or opening new lap. The classic customer accounts I'm, just trying to get a sense for how you balanced that especially with this new Avenue of growth that's materializing.
Yes, great Great question, and Hi, rich its John .
We keep it pretty straightforward with the sales team.
They tend to be pretty much fully commission they have a quota.
They make a certain percentage during the quarter and if they make their quarter number they can make a little more so.
We kind of motivate them on on that.
<unk>.
On the other side the management team is being.
Compensated not only on hitting hitting their regional numbers, but on the number of rep hires and the number of new reps that they add to the team and then on how productive those reps get so that's kind of the way we've been doing it there also.
Aligned with adding new surgeon users as well as part of their compensation plan. So they are out there working with our salespeople to identify new surgeons to bring to our training events, having a successful training event, and then getting back and making sure that that surgeon can adopt lap a classy and their practice efficiently.
So that's.
That's how we've been kind of.
Working at its not.
We don't have incentives to necessarily sell more products into a case or have a higher blended ASP.
But it is an added benefit that we're starting to see now that we have a bigger bag a bigger portfolio of products that can be implemented in those lap of plastic cases. So it's a great. It's a great situation to be in we find ourselves able to divide up more territories, because theres more opportunity now and that makes room for newer new reps, who make new relay.
And shifts with doctors that werent being called on before and then those doctors are coming to our trainings and those new reps are now getting those doctors to convert to lap a philosophy. So.
Hopefully I answered your question there but.
If not please let me know what I can do.
Got it.
That definitely was helpful and maybe just my follow up on your your DTC I know you.
You said that you are putting a little more a little sooner.
<unk> thousand three relative to last year at least so I was hoping a is there any quantification you can give us for how much your DTC spend.
Is growing our what that dollar amount was last year and what your plans would be this year and then.
What was behind the decision to maybe accelerate some of that spend.
Do you guys.
Quantify the ROI, if you can and what should we be thinking about that from a leverage standpoint in the back half.
Yes, great Great question rich.
I appreciate you being.
On the call.
So when we think about this year really we ended last year 2022, which was really our full year, where we talked about it being an investment year, we specifically called out the DTC as an investment.
We did a lot of tracking with all throughout last year and all of our different channels in which we can make those investments.
And we felt really good about.
What was happening in the result of that DTC. So thats why we came in this year.
And we really wanted to lean and so we've leaned in good.
30%, 40% increase over over last year, and we feel like that's going to support.
Our growing surgeon base, there was part of part of our thought process was.
We needed enough surgeons lack of plastic surgeons out there to really benefit from this DTC.
There was no point in really leaning too far and without this large surgeon base. So now that we have 25% of all.
Surgeons are using lap of Plaza, we just really felt that this was the year to lean into that we've seen really good results last year. We've learned a lot last year, we continue to learn and so we want to invest more this year because we've got this larger group of surgeons that can benefit.
Got it. Thank you. Thank you for the answers and congrats on a great quarter. Thank you.
Okay. Thanks, rich thanks rich.
Thank you for your question.
Our next question comes from George seller with Stephens. Your line is open.
Hey, good afternoon, thanks for the time and congrats on a great quarter.
Maybe to start on the surgeon population and thinking about just the growth algorithm.
How much would you attribute to surgeons, who are using lap plus deferred their lapidus fusion procedures versus converting surgeons to treat bunions.
With Plessey are doing a lot of it is fusion from.
More traditional osteotomy.
How much growth is associated with.
Driving greater penetration of surgeons, who are already using <unk> fusion procedures to treat bunions versus further penetrating that.
Surgeon, who is still doing kind of the traditional osteotomy.
Yes, Great question, Hi, George It's John .
While we see we see two cancer surgeons and you've identified them really really well.
You have some surgeons that come out of training programs already highly lapidus centric.
I believe in the principle of correcting deformity at the point of origin and that <unk> is the correct way to do it.
And those people that convert to lap a plasty tend to embrace it very quickly and they'll use it for.
Upwards of 70% of their cases.
The other the other group.
Our.
And it's the majority of the surgeon population that.
Follow the traditional algorithms that lap of distributions should be for the 15% or so of cases that are.
Extreme in their deformity angles or their hypermobile and you really can't treat them effectively with an osteotomy. So with those doctors what we find is we expose them to lap a class eight.
And our training programs they go back and use it for their next severe case.
What would be a lap of distribution for them that they struggled with in the past they realize how.
Straightforward and reproducible lap a policy is so they get much more comfortable with it over time and they begin to carve into their osteotomy base over time, starting with the severe and then going to the the more moderate cases over time and they will progress to 40 50 plus percent of their cases over time.
So we're having a lot of growth and success I would say the majority of our revenue growth is coming from converting those more conservative osteotomy bias surgeons.
And converting their osteotomy used to lap a plastic.
Okay, that's really helpful.
And then on micro lab, Plasty and some of the other.
Devices that you commented on I apologize if I missed this but could you give us an update on the full commercialization timeline for some of those additional devices.
Okay.
Sure, Yes, both both micro lap of Plasty instrumentation.
<unk> been doing select cases with micro apoplast instrumentation.
<unk>.
Our prior implants.
Already in a few centers.
The speed play component is going to come fully commercial late this year towards the end of the year, probably more fourth quarter, and then ramp up through fourth quarter and into 2024.
So those two kind of go hand in hand, and a late 'twenty 2023 launch.
Okay, great. Thank you so much for the time and congrats again on the quarter. Thanks.
Thanks George.
Thank you for your questions.
At this time I would like to turn it over to Vivian Cervantes.
Excuse me for closing remarks.
Thank you Theresa.
Thanks, everybody for joining us today.
Concludes our call and we look forward to our next update following the close of the second quarter 2023.
Thank you for your participation everyone. This does conclude the program you may now disconnect.
Okay.
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Thanks.
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