Q2 2024 Paragon 28 Inc Earnings Call

followed by one on your telephone keypad. As a reminder, this call is being recorded for replay purposes and I would now like to hand the conference over to our host today, Mr. Matthew Brinckman, SVP of Strategy and Investor Relations. Mr. Brinckman, please go ahead.

Operator: Good afternoon, and thank you for joining Paragon 28 for its second quarter 2024 financial results and earnings. Presenting on today's call are Albert DaCosta, Chairman and Chief Executive Officer, and Kristi Wright, Interim Chief Financial Officer. We're also pleased to have Shadi Shaheen, newly appointed Chief Financial Officer and EVP of Supply Chain Operations, joining us.

Matthew Brinckman: Good afternoon and thank you for joining Paragon 28's second quarter 2024 financial results and earnings call.

Speaker Change: Presenting on today's call are Albert DaCosta, Chairman and Chief Executive Officer, and Kristy Wright, Interim Chief Financial Officer. We are also pleased to have Shadi Shaheen, newly appointed Chief Financial Officer and EVP of Supply Chain Operations, joining us.

Operator: Before we begin, I would like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of future events, results, or performance. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from those expressed in these forward-looking statements.

Speaker Change: Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

Speaker Change: Forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations, or predictions of future events, results, or performance.

Speaker Change: These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from these forward-looking statements.

Operator: All forward-looking statements are based upon current available information, and Paragon 28 assumes no obligation, except as required by law, to update these statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today. During this presentation, we will refer to the non-GAAP financial measure of adjusted EBITDA and constant currency net revenue growth.

Speaker Change: All forward-looking statements are based upon current available information and Paragon 28 assumes no obligation except as required by law to update these statements.

Speaker Change: Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today.

Speaker Change: During this presentation, we will refer to the non-GAAP financial measure of adjusted EBITDA and constant currency net revenue growth. A reconciliation to the most comparable GAAP financial measure, net income and reported net revenue growth, respectively, is contained in our press release issued earlier today.

Operator: A reconciliation to the most comparable GAAP financial measure, net income, and reported net revenue growth, respectively, is contained in our press release issued earlier today. And with that, I will now turn the call over to Albert.

Speaker Change: And with that, I will now turn the call over to Albert.

Albert DaCosta: Thanks, Matt. Good afternoon, and thank you for joining us for our second quarter 2024 earnings call. First, I'd like to welcome Shadi to the team. We are thrilled to have him join us. Now, I want to kick this call off by thanking the entire Paragon 28 team for their enduring commitment to our mission. I am truly grateful for their efforts, which have enabled us to achieve impressive results on the top line, as well as the bottom line, in the second quarter.

Albert DaCosta: Thanks Matt. Good afternoon and thank you for joining us for our second quarter 2024 earnings call. First, I'd like to welcome Shadi to the team. We are thrilled to have him joining us.

Speaker Change: Now, I want to kick this call off by thanking the entire Paragon 28 team for their enduring commitment to our mission. I am truly grateful for their efforts, which have enabled us to achieve impressive results on the top line, as well as the bottom line, in the second quarter.

Albert DaCosta: This has been a critical quarter for the company, and we are coming out of it with strong commercial execution, improvements to operating expenses, and a rapid cadence of meaningful product launches. For all that, I thank the team.

Speaker Change: This has been a critical quarter for the company, and we are coming out of it with strong commercial execution, improvements to operating expenses, and a rapid cadence of meaningful product launches. For all that, I thank the team.

Albert DaCosta: Now turning to our performance, global revenue for the second quarter of 24 was $61 million, representing 19.6% and 19.7%, reported in constant currency growth, respectively. We continue to drive balanced growth across all our subsegments in the quarter. Looking at the US business performance, revenue for the second quarter of 24 was $49.7 million, representing 17.6% reported growth. During the quarter, we grew our surgeon customer base to 2,271, which is 11% growth compared to the second quarter of 23.

Speaker Change: Now turning to our performance.

Speaker Change: Global revenue for the second quarter of 24 was $61 million, representing 19.6% and 19.7% reported in constant currency growth, respectively. We continue to drive balanced growth across all our subsegments in the quarter.

Speaker Change: Looking at the U.S. business performance, revenue for the second quarter of 24 was $49.7 million, representing 17.6% reported growth.

Speaker Change: During the quarter, we grew our surgeon customer base to 2,271, which is 11% growth compared to the second quarter of 23.

Albert DaCosta: Over the same time period, we increased our U.S. producing sales rep roster by 13.1% to 277 reps and saw a 7% increase in productivity across our rep base. Looking at the momentum across these commercial metrics, you can see that we've continued to execute on our commercial growth strategy. And we have laid the foundation for durable growth in the future. Importantly, we are continuing to expand our customer base and enable our sales force to be increasingly productive, bolstered further by significant new product launches and continued investments in medical education. Second quarter international revenue was $11.3 million, representing 29.4% and 29.6% reported in constant currency growth, respectively. International growth was driven primarily by the United Kingdom, Australia, South Africa, and Spain.

Speaker Change: Over the same time period, we increased our U.S. producing sales rep roster by 13.1% to 277 reps and saw a 7% increase in productivity across our rep base.

Speaker Change: Looking at the momentum across these commercial metrics, you can see that we've continued to execute on our commercial growth strategy, and we have laid the foundation for durable growth in the future.

Speaker Change: Importantly, we are continuing to expand our customer base and enabling our sales force to be increasingly productive, bolstered further by significant new product launches and continued investments in medical education.

Speaker Change: Second quarter international revenue was $11.3 million, representing 29.4% and 29.6% reported in constant currency growth, respectively.

Speaker Change: International growth was driven primarily by the United Kingdom, Australia, South Africa, and Spain.

Albert DaCosta: We look forward to continuing to bolster international growth as we clear and launch additional products in markets outside the United States. One final word on the commercial front. I want to reiterate that I truly believe we have the best reps in the foot and ankle business. I am so proud of our sales team and the many agencies that we work with both in the US and in the international market. They're working every day to be the best possible partners to our surgeon customers while scaling their business to align with Paragon 28's vision.

Speaker Change: We look forward to continuing to bolster international growth as we clear and launch additional products in markets outside the United States.

Speaker Change: One final word on the commercial front. I want to reiterate that I truly believe we have the best reps in the foot and ankle business. I am so proud of our sales team and the many agencies that we work with both in the U.S. and in the international markets.

Speaker Change: They are working every day to be the best possible partners to our surgeon customers while scaling their business to align with Paragon 28's vision. It isn't easy to do what they do, and I am impressed with the results they deliver every single day.

Albert DaCosta: It isn't easy to do what they do, and I am impressed with the results they deliver every single day. Standing next to our product portfolio, we're setting a new pace of foot and ankle innovation, having fully launched six products in the first quarter, followed by another six products in different stages of market release. That makes 12 launches through the first seven months of the year.

Speaker Change: Turning next to our product portfolio.

Speaker Change: We are setting a new pace of foot and ankle innovation, having fully launched six products in the first quarter, followed by another six products in different stages of market release.

Albert DaCosta: And many of those launches are in high growth or high impact indications, spanning nearly all of our subsets. Our R&D engine is really firing on all cylinders, and we still have additional projects in the pipeline, which we expect to roll out later this year. As a reminder, our Q1 launches included the FJ2000, Precision MIS, and limited market release of Bunyomatic, which, while early in the cycle, are performing nicely and expected to be significant growth drivers, particularly in the forefoot in the future. We rounded those out with four soft tissue products that are highly complementary to our hardware portfolio. Looking at what's new for this earnings cycle, we have two line extensions and a limited market release.

Speaker Change: That makes 12 launches through the first seven months of the year, and many of those launches are in high-growth or high-impact indications, spanning nearly all of our subsegments.

Speaker Change: Our R&D engine is really firing on all cylinders, and we still have additional projects in the pipeline, which we expect to roll out later this year.

Speaker Change: As a reminder, our Q1 launches included the FJ2000, Precision MIS, and limited market release of Bunyomatic, which while early in the cycle, are performing nicely and expected to be significant growth drivers, particularly in forefoot in the future.

Speaker Change: We rounded those out with four soft tissue products that are highly complementary to our hardware portfolio.

Speaker Change: Looking at what's new for this earnings cycle, we have two line extensions in limited market release. First is the recently launched Bonobo Ball Joint Strut, designed specifically for diabetic limb salvage, and increases the functionality of our Monkey Rings Circular X-Fix system.

Albert DaCosta: The first is the recently launched Bonobo Ball Joint Strut, designed specifically for diabetic limb salvage and increases the functionality of our Monkey Rings Circular X-Fix System. Second, we are preparing to launch a novel right-angle drill designed to precisely drill vertical holes in the tibia to prepare the appropriate interface for our APEX 3D total ankle implant. Streamlining Implant Implementation for the Surgeon. There will be more updates coming soon on our recent launches, but I want to share an early preview of where we are because we're getting into some truly groundbreaking areas.

Speaker Change: Second, we are preparing to launch a novel right angle drill designed to precisely drill vertical holes in the tibia to prepare the appropriate interface for our APEX 3D total ankle implant.

Speaker Change: Streamlining Implant Implementation for the Surgeon.

Speaker Change: There will be more updates coming soon on our recent launches, but I want to share an early preview of where we are, because we're getting into some truly groundbreaking areas, and this is what I personally live for, to change the world of foot and ankle with incredible innovation.

Albert DaCosta: And this is what I personally live for, to change the world of foot and ankle with incredible innovation. First, we have the Reflex Stabilization System on limited market release. The reflex is planned to be the crown jewel of our symbiotic injury repair portfolio, with novel features that give surgeons the ability for the first time to precisely adjust and visualize tension during your repair with a simple turn of the handle. That dynamic tensioning is incredibly important, and we believe it will help mitigate the arthritic response, which is a primary complication following these types of ankle fractures.

Speaker Change: First, we have the Reflex Stabilization System on limited market release.

Speaker Change: The Reflex is planned to be the crown jewel of our syndesmotic injury repair portfolio, with novel features that give surgeons the ability, for the first time, to precisely adjust and visualize tension during a repair with a simple turn of the handle.

Speaker Change: That dynamic tension is incredibly important and we believe it will help mitigate the arthritic response, which is a primary complication following these types of ankle fractures.

Albert DaCosta: The reflex is highly complementary to our ankle fracture plating portfolio and is expected to be a significant catalyst for fracture business. Now turning to Smart28, which rounds out the rest of our product updates for the quarter. I am pleased to say that our Smart28 case management portal is now live.

Speaker Change: The reflex is highly complementary to our ankle fracture plating portfolio and is expected to be a significant catalyst for fracture business.

Speaker Change: Now turning to Smart28, which rounds out the rest of our product updates for the quarter. I am pleased to say that our Smart28 case management portal is now live.

Albert DaCosta: The portal will host all of our 3D preoperative planning modules and patient-specific implants while also giving surgeons the ability to plan cases, coordinate surgery dates, and submit patient imaging. It will also serve as a direct line of communication with the Paragon 28 engineering and sales teams for real-time support, status updates, and surgical planning insights. Also, on the SMART28 front, we launched our highly anticipated first module, the SMART Bunyomatic for bunion correction, which is FDA cleared for both weight-bearing CT scans and x-rays, making it highly suitable for both acute and ASC settings.

Speaker Change: The portal will host all of our 3D preoperative planning modules and patient-specific implants while also giving surgeons the ability to plan cases, coordinate surgery dates, and submit patient imaging.

Speaker Change: It will also serve as a direct line of communication with the Paragon 28 engineering and sales teams for real-time support, status updates, and surgical planning insights.

Speaker Change: Also, on the Smart28 front, we launched our highly anticipated first module, the Smart Bunyomatic for Bunion Correction, which is FDA-cleared for both weight-bearing CT scans and x-rays, making it highly suitable for both acute and ASC settings.

Albert DaCosta: With the ability to leverage both CT scans and X-ray imaging, 3D planning will be widely available to all surgeons. Smart Banyomatic revolutionizes preoperative planning and correction for hallux valgus by creating plans tailored for the individual patient, utilizing AI-enabled algorithms and statistical models combined with the surgeon's input to identify abnormalities and seamlessly export a surgical plan within only about 10 minutes. The ability to 3D plan a correction is groundbreaking, but perhaps what differentiates SMART by Pneumatic the most is the ability for surgeons to precisely implement the plan down to the millimeter with full intraoperative surgeon control.

Speaker Change: With the ability to leverage both CT scans and x-ray imaging, 3D planning will be widely available to all surgeons.

Speaker Change: The Smart Bunyomatic revolutionizes preoperative planning and correction for hallux valgus by creating plans tailored for the individual patient.

Speaker Change: utilizing AI-enabled algorithms and statistical models combined with the surgeon input to identify abnormalities and seamlessly export a surgical plan within only about 10 minutes.

Speaker Change: The ability to 3D plan a correction is groundbreaking, but perhaps what differentiates Smart Banyomatic the most is the ability for surgeons to precisely implement the plan down to the millimeter with full intraoperative surgeon control.

Albert DaCosta: The SMART28 ecosystem is a massive advancement in helping surgeons understand highly complex deformities and optimize multi-planar correction, which we believe will ultimately result in improved precision and a reproducible outcome. We will be sharing more on SMART 28 and the SMART binomatic in the coming weeks, but we could not wait to share a glimpse with you all now after completing our first cases in late July.

Speaker Change: The SMART28 ecosystem is a massive advancement in helping surgeons understand highly complex deformities and optimize multi-planar correction, which we believe will ultimately result in improved precision and reproducible outcomes.

Speaker Change: We will be sharing more on SMART 28 and the SMART Bunyomatic in the coming weeks ahead, but we could not wait to share a glimpse with you all now, after completing our first cases in late July .

Operator: Now, before I hand things over to Kristi to walk through the financials, I want to share an update on our strategy to drive improved operational efficiency. While we remain hyper-focused on top-line growth, we believe that it's crucial that we also maintain a sharp focus on operational efficiency and capital allocation. To that end, today we are announcing a comprehensive plan to foster operational excellence and drive discipline across all facets of our business, ensuring every dollar is strategically allocated to improve surgeon experience, patient outcomes, and maximize value for our shareholders.

Speaker Change: Now, before I hand things over to Kristi to walk through financials, I want to share an update on our strategy to drive improved operational efficiency.

Speaker Change: While we remain hyper focused on top-line growth, we believe that it's crucial that we also maintain a sharp focus on operational efficiency and capital allocation.

Speaker Change: To that end, today we are announcing a comprehensive plan of foster operational excellence and drive discipline across all facets of our business, ensuring every dollar is strategically allocated to improve surgeon experience, patient outcomes, and maximize value for our shareholders.

Operator: Elements of our operational efficiency plan include a reduction in the current and planned workforce, a one-time realignment of 2024 executive compensation, and reductions in areas like travel, IT, professional services, and freight, to name a few. Additionally, we are implementing an inventory burndown plan that will improve our day's inventory on hand and preserve cash throughout 2025. These measures, combined with a rigorous focus on cost control, will result in durable savings and will enable us to sustain high growth while building a solid foundation for long-term success.

Speaker Change: Elements of our operational efficiency plan include a reduction of current and planned workforce, a one-time realignment of 2024 executive compensation, and reductions in areas like travel, IT, professional services, and freight, to name a few.

Speaker Change: Further, we are implementing an inventory burndown plan that will improve our day's inventory on hand and preserve cash throughout 2025.

Speaker Change: These measures, combined with a rigorous focus on cost control, will result in durable savings and will enable us to sustain high growth while building a solid foundation for long-term success.

Operator: In closing, we are positioning Paragon 28 for long-term sustainable growth and operational excellence, and we believe we are very well aligned to drive shareholder value with every dollar invested. With that, I will now turn it over to Chris.

Speaker Change: In closing, we are positioning Paragon 28 for long-term sustainable growth and operational excellence, and we believe we are very well aligned to drive shareholder value with every dollar invested. With that, I will now turn it over to Chrissy.

Kristina Wright: Before we dive into the rest of the P&L, I will first share an update regarding our recent 8K filing from July 30th, as well as the 10-K-A and 10-Q-A filed earlier today. As noted in that 8K filing, during the second quarter of 2024, we identified errors in the calculation of excess and obsolete inventory, as well as errors in accounting for inventory variations, which resulted in a net overstatement of inventory and a net understatement of cost of goods sold for the year ended 2023 and for Q1224.

Chrissy: Thank you, Albert. Before we dive into the rest of the P&L, I will first share an update regarding our recent 8K filing from July 30th, as well as the 10-K-A and 10-Q-A filed earlier today.

Kristina Wright: The correction of these errors resulted in the cost of goods sold being understated by $8.4 million for the 2023 fiscal year and $1.7 million for the first quarter of 2024. Consequently, the net inventory balance was overstated by $8 million for 2023 and $9.7 million for the first quarter of 2024. These areas did not have an impact on revenue or reported cash and cash equivalents for the restated period. Additionally, we disclosed in our amended filings that management concluded that our internal control over financial reporting was not effective due to material weaknesses in our control environment and monitoring. Over the past several weeks, management has begun developing a remediation plan.

Chrissy: As noted in that 8K filing, during the second quarter of 2024, we identified errors in the calculation of excess and obsolete inventory, as well as errors in accounting for inventory variances.

Chrissy: which resulted in a net overstatement of inventory and a net understatement of cost of goods sold for the year ended 2023 and for Q1224.

Chrissy: The correction of these areas resulted in cost of goods sold being understated at $8.4 million for the 2023 fiscal year, and $1.7 million for the first quarter of 2024.

Chrissy: Consequently, net inventory balance was overstated by $8 million for 2023 and $9.7 million for the first quarter of 2024.

Chrissy: These areas did not have an impact on revenue or reported cash and cash equivalent for the restated period.

Chrissy: Additionally, we disclose in our amended filing that management concluded that our internal control over financial reporting is not effective due to material weaknesses in our control environment and monitoring.

Chrissy: Over the past several weeks, management has begun developing a remediation plan.

Kristina Wright: This plan includes hiring resources with appropriate accounting and internal controls expertise, evaluating the organization design of the finance and accounting function, and enhancing the design of our monitoring and management review controls and internal controls over financial reporting. The company will continue to share progress updates on the status of our remediation efforts in future quarters. Now turning to the rest of the P&L. For year-over-year comparisons and references to 2023, we will reference the restated figures noted in our 10-K-A and 10-Q-A filed earlier today, beginning with gross margin. Gross profit margin for the quarter was 75.0% compared to 77.3% in the second quarter of 2023.

Chrissy: This plan includes hiring resources with appropriate accounting and internal controls expertise, evaluating the organization design of the finance and accounting function, and enhancing the design of our monitoring and management review controls and internal controls over financial reporting.

Chrissy: The company will continue to share progress updates on the status of our remediation efforts in future quarters.

Speaker Change: Now, turn into the rest of the piano. For year over your comparisons and references to 2023, we will reference the rest of figures noted in our 10KA and 10QA filed earlier today, beginning with growth margin.

Chrissy: Gross profit margin for the quarter was 75.0% compared to 77.3% in the second quarter of 2023.

Kristina Wright: The decrease in gross profit margin is primarily the result of higher prices from suppliers, higher non-cash expense for excess and obsolete inventory, and higher revenue from International, which has lower average selling prices, partially offset by lower freight expense as a percentage of revenue. At this time, we believe the growth margin has stabilized. We have several initiatives in place to drive improvements in gross profit, including ongoing actions to reduce pricing of legacy SKUs to pre-COVID levels.

Speaker Change: The decrease in gross profit margin is primarily the result of higher prices from suppliers, higher non-cash expense for excess and obsolete inventory, and higher revenue from international, which has lower average selling prices.

Speaker Change: Partially offset by lower freight extend as a percentage of low volume.

Speaker Change: At this time, we believe Krist margin has stabilized.

Speaker Change: We have several initiatives in place to drive improvements to growth profit, including ongoing actions to reduce pricing of legacy skews to pre-COVID levels.

Kristina Wright: We expect a tailwind over time as we sell through the high-cost inventory purchased in 2023. Second quarter R&D expense was $7.1 million, or 11.6% of revenue, compared to $7.7 million, or 15.1% of revenue in the prior year period. The improvement is driven by the implementation of cost savings initiatives to lower outsourced consulting services, partially offset by increased investments in personnel.

Chrissy: We expect a tailwind over time as we sell through the high-cost inventory purchased in 2023.

Speaker Change: I can quarter R&D expense with $7.1 million or 11.6% of revenue compared to $7.7 million or 15.1% of revenue in a prior year period.

Speaker Change: The Improvement is driven by the implementation of cost savings initiatives to lower out-tourced consulting services, partially offset by increased investments in personnel.

Kristina Wright: SGA extended in a quarter with $49.4 million, a $5.6 million or 12.8% increase compared to the second quarter of 2023. As a percentage of revenue, SG&A improved 490 basis points to 81% compared to the prior year period. The increase in SG&A expense was primarily driven by increased variable commission expense, increased personnel costs, and depreciation expense.

Speaker Change: SGA expense in a quarter with $49.4 million, a $5.6 million or $12.8% increase compared to the second quarter of 2023.

Speaker Change: As a percentage of revenue, FG&A improved 490 basis points to 81% compared to the prior year period.

Speaker Change: The increase in SG&A expense was primarily driven by increased variable commission expense, increased personnel costs, and depreciation expense.

Albert DaCosta: Adjusted EBITDA for the second quarter of 2024 was a $3 million loss, an improvement of $2.4 million compared to the second quarter of 2023. The improvement in adjusted EBITDA is driven by a $6.3 million increase in growth profit, offset by a $4.2 million increase in operating expense, excluding non-cash depreciation and amortization and stock-based compensation. Now turning to our cash flow and liquidity, operating cash flow for the second quarter of 2024 was negative $10.2 million compared to negative $6.3 million in the prior year period after adjusting for the $13 million legal settlement payment made in the second quarter of 2023.

Speaker Change: Adjusted EBITDA for the second quarter of 2024, with a $3 million loss, an improvement of $2.4 million, compared to the second quarter of 2023.

Speaker Change: The Improvement and Adjusted EBITDA is driven by a $6.3 million increase in birth profit, offset by $4.2 million increase in operating expense, excluding non-taste appreciation and amortization and stock-based compensation.

Albert DaCosta: The increase in cash use is primarily attributed to changes in networking capital items, namely accounts payable, and is offset by lower inventory purchases in the second quarter of 2024 compared to the second quarter of 2023. Looking at the rest of 2024, we expect improvement to operating cash flow driven by a broader operational efficiency plan, particularly in the fourth quarter of 2024 and into 2025. We ended the second quarter of 2024 with $97 million of total liquidity, consisting of $47 million of cash on the balance sheet and $50 million available through our credit facility. I will pass it back over to Albert to share updates on our guidance and future outlook.

Speaker Change: Now turning to our cash flow and liquidity.

Speaker Change: Operating cash flow for the second quarter of 2024 was negative $10.2 million compared to negative $6.3 million in the prior year period after adjusting for the $13 million legal settlement payment made in the second quarter of 2023.

Speaker Change: The increase in cash use is primarily attributed to changes in networking capital items, namely count to payable. And it's offset by lower inventory purchases in the second quarter of 2024 compared to the second quarter of 2023.

Speaker Change: Looking at the rest of 2024, we expect improvement to operating cash flow driven by a broader operational efficiency plan, particularly in the fourth quarter of 2024 and into 2025.

Speaker Change: We ended the second quarter of 2024 with $97 million of total liquidity, consisting of $47 million of cash and a balance sheet, and $50 million available through our credit facility.

Speaker Change: I will pass it back over to Albert to share updates on our guidance and future outlook.

Albert DaCosta: Thanks, Chrissy. Before I get into guidance, I want to thank you for your incredible leadership as interim CFO. I cannot understate how critical this quarter has been, and we couldn't ask for a better partner. Now, turning to revenue guidance. For the full year of 2024, we are narrowing our revenue guidance range to $249 million to $255 million, representing reported growth of 15.1% to 17.8%, which assumes no change in current foreign exchange rates.

Albert DaCosta: Thanks, Chrissy. Before I get into guidance, I want to thank you for your incredible leadership as interim CFO . I cannot understate how critical this quarter has been, and we couldn't ask for a better partner.

Albert DaCosta: Now turning to revenue guidance.

Albert DaCosta: For the full year of 2024, we are narrowing our Revenue Guidance Range to $249 million.

Speaker Change: to $255 million. Representing reported growth of 15.1% to 17.8% which assumes no change in current foreign exchange rates.

Albert DaCosta: Looking at the back half of the year, we remain highly confident in our commercial strategy, led by growth in sales reps and our continued cadence of significant product launches. And we continue to monitor how the underlying macro environment may impact the foot and ankle market. We have the strategy, the people, and the products to be a long-term growth company. But we don't stop at growth.

Speaker Change: Looking at the back half of the year, we remain highly confident in our commercial strategy, led by growth in sales reps and our continued cadence of significant product launches.

Albert DaCosta: And we continue to monitor how the underlying macro environment may impact the foot and ankle market.

Albert DaCosta: We have the strategy, the people, and the products to be a long-term growth company. But we don't stop at growth. We want to be the best company possible in always.

Albert DaCosta: We want to be the best company possible in all ways, and that includes improving operations, managing costs, preserving cash, and building an incredible, highly competent team at all levels and all functions. That's how we will drive shareholder value by making smart investments and taking the right steps to achieve success in all these areas. Now I want to hand it over to Shadi to say a few words, but before I do, I want to tell you a little bit about why we are so excited to have him on board.

Albert DaCosta: And that includes improving operations.

Albert DaCosta: Managing Costs, Preserving Cash, and Building an Incredible, Highly Competent Team at All Levels and All Functions.

Albert DaCosta: That's how we will drive shareholder value, by making smart investments and taking the right steps to achieve success in all these areas.

Albert DaCosta: Now I want to hand it over to Shadi to share a few words, but before I do, I want to tell you a little bit about why we are so excited to have him on board.

Albert DaCosta: Outside of being a heck of a nice guy, Shadi stood out from the pack during our CFO search for his wealth of experience in the orthopedic markets, finance, and operations. He has a track record of fostering strong business partnerships, and we believe he is going to be a huge asset to Paragon 28, and importantly, a great partner for me. He's only a few days in, and he's already rolled up his sleeves, working closely with Chrissy and me to prepare for this transition. Now, turning to Shadi.

Shadi Shaheen: Outside of being a heck of a nice guy, shot he stood out from the pack during our CFO search for his wealth of experience in the orthopedic market, finance and operations.

Albert DaCosta: He has a track record of fostering strong business partnerships and we believe he is going to be a huge asset to Paragon 28 and importantly a great partner for me.

Albert DaCosta: He's only a few days in and he's already rolled up his sleeves, working closely with Chrissy and me to prepare for this transition. Now turning to Shadi.

Shadi Shaheen: Thanks, Albert. No pressure at all.

Shadi Shaheen: Good afternoon, everyone. I'm incredibly excited to join Paragon 28 at such an important juncture. Albert and the team have built an incredible company as a leader in the foot and ankle market, with a strong reputation within orthopedics. And I'm impressed with the business potential for being sustainable and profitable. My goal is to help scale the business to the next level, and I'm eager to start making an impact immediately. I'm ramping up quickly and spending a lot of time getting to know the team and understanding all the unique opportunities ahead.

Shadi Shaheen: Thanks Albert, no pressure at all.

Shadi Shaheen: Good afternoon, everyone. I'm incredibly excited to join Paragon 28 at such an important inflection point.

Shadi Shaheen: Albert and the team have been an incredible company as it needs it in the food and ankle market.

Shadi Shaheen: with a strong reputation within orthopedics. And I'm impressed with the business potential for sustainable and profitable growth.

Speaker Change: My goal is to help scale the business to the next level and I'm eager to start making an impact in the media.

Speaker Change: I'm ramping up quickly and spending a lot of time getting to know the team and understanding all the unique opportunities ahead of us.

Shadi Shaheen: From day one, I'm focused on executing the strategic initiatives and priorities that Albert laid out earlier in the call to drive sustainable growth, improve profitability, and deliver shareholder value. I look forward to working closely with the entire Paragon 2018 team to build on the company's strong momentum and help take us to the next level. With that, I will now turn it back over to Matt.

Speaker Change: From day one, I'm focused on executing the strategic initiatives and priorities that Albert laid out earlier on the call to drive sustainable growth, improve profitability and deliver shareholder value.

Speaker Change: I look forward to working closely with the entire Paragon 28 team to build on the company's strong momentum and help take us to the next level.

Speaker Change: With that, I will now turn it back over to Matt.

Operator: Thanks, Shadi. We will now start our Q&A session. Operator, may we have our first question?

Matt: Thanks, Shadi. We will now start our Q&A session. Operator, may we have our first question, please?

Operator: Certainly, the first question today is from the line of Craig Bichow of Bank of America. Please go ahead. Your line is open.

Speaker Change: Certainly, our first question today is from the line of Craig Beach Out of Bank of America. Please go ahead, your line is open.

Craig Bijou: Thanks, guys, for taking the questions. I want to start with revenue guidance. So obviously, the guidance for the year comes down at the midpoint, and I believe that implies, you know, 14 to 15 percent growth in the second half, which is less than the first half despite easier comp. So, you know, I guess the question is, we keep moving away from kind of the 20% growth that we had attached to you guys for the last couple of years.

Craig Beach: Thanks guys for taking the questions. I want to start with revenue guidance, so obviously the guidance through the year comes down at the midpoint and I believe that implies 14 to 15 percent growth in the second half, which is...

Speaker Change: which is less than the first half, despite easier comps. So, you know, I guess the question is, we keep moving away from kind of the 20% growth that we had attached to you guys for the last couple of years.

Speaker Change: And I want, you know, I was hoping that you guys could help us understand exactly the reason why that growth rate.

Speaker Change: Keeps coming down. So, is it the market growth? I know we've heard from some other companies that maybe the food and ankle mark. It was a little bit softer in the first half. Is it paragon specific, either, you know, product wise, or maybe, you know, when you look at some of these.

Speaker Change: cost savings that you're implementing that may have an impact. And then just how should we think about that, you know, growth level or what should we expect going forward?

Albert DaCosta: Yeah, thanks for the question, Craig. I'll take this one.

Speaker Change: Yeah, thanks for the question, Craig. I'll take this one. Maybe to start, what I'll say is, you know, we definitely felt some of the choppiness as well in the second quarter, and honestly, some of that lingering into the third quarter as well.

Albert DaCosta: Maybe to start, what I'll say is, you know, we definitely felt some of the choppiness as well in the second quarter. And honestly, some of that lingered into the third quarter as well. So that was a consideration for us. Given some of that choppiness that we experienced in the second quarter, we were thrilled to put up 19.7 percent of currency growth. And a lot of that was fueled by some of the new product launches that definitely drove some energy for us, disproportionate to maybe what some of the others were communicating. We felt a lot of energy in the second quarter, despite some of that choppiness.

Speaker Change: That was a consideration for us.

Speaker Change: Given some of that...

Speaker Change: choppiness that we experienced in the second quarter. We were thrilled to put up 19.7 kinds of currency growth, and a lot of that was fueled by some of the, you know, new product launches that definitely drove some energy for us, disproportionate to maybe what some of the others were communicating. We felt a lot of energy in the second quarter despite some of that choppiness.

Albert DaCosta: What I will say, you know, looking at this, is that we've factored all of that in. We've got some exciting products hitting the market. We have a lot of confidence in our commercial strategy. And when we set kind of within that range there, we kind of brought the range to 249 to 255, based on our confidence that we could hit that. While we're also carefully monitoring some of the macroeconomic noise that we're seeing there, we're also carefully monitoring some of that choppiness to see if it's just a short-term effect or if there could be some lingering effects into the second half.

Speaker Change: What I will say, you know, looking at this is we've factored all of that in, we've got some exciting products sitting the market.

Speaker Change: We have a lot of confidence in our commercial strategy.

Speaker Change: And when we set kind of within that range there, we kind of brought the range to 249 to 255.

Speaker Change: based on our confidence to hit that.

Speaker Change: While we're also carefully monitoring some of the macroeconomic noise that we're seeing there, we're also carefully monitoring some of that topiness to see if it's just a short term effect, or if there could be some lingering effects in the second half.

Albert DaCosta: So all of that is factored into our guide where we feel really confident. Again, in that range from 249 to 255, and that implies, you know, 15.1% to 17.8% on the high end, and we want to make sure when we set something with you that we've got the commitment to execute on that, Greg, and that's our plan here. I will refrain from commenting further out than that. We'll certainly look at some of the numbers going into next year, but for now, our confidence level, again, is high on the commercial strategy. A lot of new product launch energy, but carefully monitoring the macroeconomic conditions there just to make sure that we get a good understanding of where that's going to end up.

Speaker Change: So, all of that is factored into our guide, where we feel really confident, again, in that range from 249 to 255, and that implies, you know, 15.1% to 17.8% on the high end.

Speaker Change: And we want to make sure when we set something with you that we've got the commitment to execute on that, Craig, and that's our plan here.

Craig Beach: I will refrain from commenting further out than that.

Speaker Change: We'll certainly look at some of the numbers going into next year, but for now, our confidence level, again, is high on the commercial strategy, a lot of new product launch energy, but carefully monitoring the macroeconomic conditions there just to make sure that we get a good understanding of where that's going to end up.

Albert DaCosta: Got it. Okay, thanks for that, Albert.

Speaker Change: Got it. Okay, thanks for that, Albert. And, you know, maybe...

Craig Bijou: And, you know, maybe I think the other thing that investors are focused on is obviously EBITDA and cash flow. And I heard Chrissy's comments and appreciate the fact that you guys are implementing a new cost savings program. So is there any way to quantify or maybe just talk about how we should expect the progression of EBITDA, of cash flow, you know, in the second half and then even into 25 to the extent that you can talk about it? And, you know, will these programs and some of the other steps that you're taking be enough? Where your needs for capital are met, where you have enough capital to move forward.

Speaker Change: I think the other thing that, you know, investors are focused on is obviously, you know, EBITDA, cash flow. And I heard Chrissy's comments and appreciate the fact that you guys are implementing a new cost savings program. So is there any way to quantify or...

Speaker Change: Maybe just talk about how we should expect the progression of

Speaker Change: of EBITDA of cash flow in the second half, and then even into 25 to the extent that you can talk about it. And you know, will these programs and some of the other steps that you're taking, you know, be enough to...

Speaker Change: where your needs for capital, where you have enough capital to move forward.

Albert DaCosta: Yeah, Craig, your second question actually reminded me of part of your first question that I didn't get to hit. The impact of operational efficiency is to enhance our business. We were really careful when we were looking at areas that we could target, looking at simplification of roles and headcount, really understanding the things that we could influence that wouldn't have any effect on our growth opportunities. And so we were very careful; that was in front of us.

Speaker Change: Yeah, Craig, your second question actually reminded me of part of your first question that I didn't get to hit. The impact of the operational efficiency

Speaker Change: is to enhance our business. We were really careful when we were looking at areas that we could target, looking at simplification of roles and headcount, really understanding the things that we could influence that wouldn't have any effect on our growth opportunities.

Albert DaCosta: And so we anticipate that those are going to be supportive of the business and just enhance our operational efficiency. So we don't anticipate that affecting our ability to grow and hit top line numbers. On the other side of that is... And forgive me, I'll preface this answer by saying, I hope that I repeat this a few times during the call today, because I just want to emphasize how important this is going forward and based on that operational efficiency project that we're working on.

Speaker Change: And so we were very careful. That was in front of us.

Speaker Change: And so we anticipate that those are going to be supportive of the business and just enhance our operational efficiency. So we don't, we don't anticipate that affecting our ability to grow and hit top line numbers. On the other side of that is

Speaker Change: And forgive me, I'll preface this answer by saying, I hope that I repeat this a few times on the call today, because I just want to emphasize how important this is.

Speaker Change: Going forward, and based on that operational efficiency project that we're working on,

Albert DaCosta: It's really important that I emphasize that my absolute top priority right now, as the leader of Paragon 28 and the entire team around me, is simple: to achieve EBITDA positivity in the year 2025 and to achieve cash flow positivity in 20. That is our absolute target, and again, I'm going to emphasize that all the things that we're talking about are going to move us in that direction, and that's going to be our priority.

Speaker Change: It's really important that I emphasize that my absolute top priority right now is the leader of Targon 28 and the entire team around me.

Speaker Change: is simple to achieve EBITDAW positivity in the year 2025.

Speaker Change: and to achieve cash flow positivity in 26.

Speaker Change: That is our absolute target and again, I'm going to emphasize that all the things that we're talking about are going to move us in that direction and that's going to be our priority.

Albert DaCosta: The other part of that may be some of the things that I can quantify. You know, some of the improvements that we've already kicked off, we believe, have contributed to about 840 basis points to OPEX. So we're starting to see some improvement there, and this year, what I can quantify for you is that the impact of some of the headcount optimizations is expected to be about $8 million, with about a million dollars of severance committed to achieving that $8 million. So that is hopefully has answered your question.

Speaker Change: The other part of that may be some of the things that I can quantify. You know, some of the improvements that we've already kicked off, we believe have contributed to about 840 basis points to OPEX.

Speaker Change: So we're starting to see some improvement there.

Speaker Change: And this year, what I can quantify for you is that the impact of some of the headcount optimizations, we anticipate to be about $8 million, with about $1 million of severance committed to achieving that $8 million.

Speaker Change: So that is hopefully that answered your question.

Albert DaCosta: Yeah. Thanks, Albert. I appreciate it.

Speaker Change: Yeah, thanks, Albert. Appreciate it.

Operator: Our next question today is from the line of Matthew O'Brien of Piper Sandler. Please go ahead; your line is open.

Speaker Change: Our next question today is from the line of Matthew O'Brien of Piper Sandler. Please go ahead, your line is open.

Phil (for Matthew Bacso): Hey, this is Phil. I'm from Matt.

Matthew O'brien: This is still on format, thanks for taking our questions and congrats on the corridor despite the headwinds. It still looks like you outgrew a lot of your competition and I think that's going to get lost in the weeds today.

Albert DaCosta: Thanks for taking our questions and congrats on the quarter, despite the headwinds. It still looks like you outgrew a lot of your competition, and I feel like that's going to get lost in the weeds today. But as I look at the operational strategy you unrolled, what part of the organization might see the biggest loss here? And in the past, you've mentioned SG&A, which is a big part of the growth story as you scale. So I'm curious to hear your take on how you expect SG&A to move through the balance of this year and into 2020.

Speaker Change: But, you know, as I look at the operational strategy, you unrolled what part of the organization might see the biggest loss here and in the past you've mentioned S.G.A. that is a big part of the growth story as you scale, so secure to hear your take on how you expect S.G.A. to move through the bounce of the CRNN into 2025.

Albert DaCosta: Yeah, thank you for the question. And thank you for recognizing my performance during the quarter. We are very proud of that, especially given some of the commentary around the foot and ankle market. To start, I want to just maybe reemphasize that we were really, really careful to look at every aspect of the business. When we went public, we made some significant investments, one to be a public company but really to accelerate some opportunities to position the company the best way to move forward, right?

Speaker Change: Yeah, thank you for the question and thank you for recognizing the performance on the quarter. We are very proud of that, especially given some of the commentary around the foot and ankle market. To start, I want to just maybe reemphasize that we were really, really careful.

Speaker Change: to look at every aspect of the business. When we went public, we made some significant investments one to be a public company, but really too.

Speaker Change: accelerate some opportunities to position the company the best way to move forward, right? Our aspiration has always been to be a billion-dollar foot-and-ankle business, but to balance that with good financial performance.

Albert DaCosta: Our aspiration has always been to be a billion-dollar foot-and-ankle business, but to balance that with good financial performance. What we're doing now is just looking at every dollar of spend and analyzing the return on that dollar, the anticipated investment, and making sure that we're spending those dollars not being stingy on growth; we don't want to affect our ability to grow this business. We don't want to impact the structure in a way that's going to compromise our ability to move this thing forward, but we do want to optimize every dollar of investment to make sure it's going to the right places. And that's really the target of this.

Speaker Change: What we were doing now is just looking at every dollar of spend and analyzing the return on that dollar, the anticipated investment, and making sure that we're putting those dollars, not being stingy on growth. We don't want to affect our ability to grow this business.

Speaker Change: We don't want to impact the structure in a way that's going to compromise our ability to move this thing forward But we do want to optimize every dollar of investment to make sure it's going to the right places And that's really the target of this so looking at things like travel

Albert DaCosta: So looking at things like travel, freight, professional services, looking at maybe some of our marketing presence, the amount and optimization of where we're positioning some of those dollars, looking at medical education spend, just looking at every, again, every dollar, really putting a lot of emphasis, too, on inventory and working capital. So, from a networking capital perspective, you all know that last year and the year before, we had some significant headwinds because of the supply chain, and that forced us to build some excess inventory to manage through that.

Speaker Change: of Brain Professional Services.

Speaker Change: Looking at maybe some of our marketing presence, the amount and optimization of where we're positioning some of those dollars, looking at medical education spend, just looking at every, again, every dollar, really putting a lot of emphasis too on inventory and working capital.

Speaker Change: From a networking capital perspective, you all know that last year and the year before, we had some significant headwinds because of supply chain, and that forced us to build.

Albert DaCosta: Well, we did that at less than perfect prices, right? And so that's an area for us to eyeball and target, "How do we leverage some of that inventory, help burn some of that down, and create a tailwind for us moving forward?" And so all of those things are target areas for us. What I hope I'm answering for you is that we are absolutely obsessed with making sure that we don't compromise this company, the ability to do what we need to do, which is bringing the best technology to patients to improve outcomes, to keep growing this business in a meaningful way, but to make sure that we get that fiscal responsibility that was honestly our trademark going into the IPO. We were the unicorn for that, and we know how to manage that in an effective way without compromising growth, and we're going to do that.

Speaker Change: Some access inventory to manage through that?

Speaker Change: Well, we did that at less than perfect pricing, right? And so it's...

Speaker Change: That's an area for us to eyeball and target, is how do we...

Speaker Change: leverage some of that inventory, burn, help burn some of that down and create a tailwind for us moving forward. And so all of those things are target areas for us. What I hope I'm answering for you is

Speaker Change: that we are absolutely obsessed with making sure that we don't compromise this company, the ability to do what we need to do, which is bringing the best technology to patients to improve outcomes.

Speaker Change: To keep growing this business in a meaningful way, but to make sure that we get that fiscal responsibility that

Speaker Change: was honestly our trademark going into the IPO. We were the unicorn for that, and we know how to manage that in an effective way without compromising growth, and we're going to do that.

Albert DaCosta: Thank you. That's very helpful.

Speaker Change: [inaudible]

Phil (for Matthew Bacso): And then not to get too far ahead of myself here, but, you know, again, you clearly took share this quarter. What does the back half guide assume as far as share taking goes? And then any thoughts on at least growing, call it mid-teens next year? And when might we finally get back to a level of end growth, end market growth?

Speaker Change: Thank you. That's helpful. And then not to get too far ahead of myself here, but, you know, again, you clearly took share this quarter. What does the back half guide assume as far as share taking goes? And then any thoughts on at least growing, call it mid-teens next year? And when might we finally get back to a more level of end growth, end market growth? Thanks so much for taking the questions.

Albert DaCosta: Thanks so much for taking the question. Yeah, you got it. Thanks.

Albert DaCosta: Yeah, you got it. Thanks for the questions.

Albert DaCosta: One thing I apologize for, when I mentioned the $8 million of potential savings from the headcount simplification, the one thing that I missed was the word annualized, right? So our anticipated savings there is an annualized number of $8 million, not what we would expect for the second half of this year. So I just wanted to make that correction to myself. I should have caught that when I was saying it.

Speaker Change: Yeah, you got it, and thanks for the questions. One thing I apologize, when I mentioned the $8 million of potential savings from the headcount,

Speaker Change: Simplification.

Speaker Change: The one thing that I missed there is the word annualized, right? So our anticipated savings there is an annualized number of $8 million, not what we would expect for the second half of this year. So I just wanted to make that correction to myself.

Albert DaCosta: On the second part of that, this was a really interesting first half of the year, because despite some of the choppiness that we've communicated, we had such positive energy from the product launches. We launched six pretty key products in Q1, mostly around the forfeit space, and those carried a ton of momentum for us in the second quarter. So in one sense, there's this sense of choppiness.

Speaker Change: I should have caught that when I was saying it. On the second part of that is this was a really interesting first half of the year, because despite some of the choppiness that we've communicated.

Speaker Change: We had such positive energy from the product launches. We launched six pretty key products in Q1, mostly around the forefoot space.

Speaker Change: Those carried a ton of momentum for us in the second quarter. So in one sense, there's this sense of choppiness. On the other sense, there's all this excitement around product launches. Well, we anticipate that carrying forward, right? As you all can expect, when we launch products.

Albert DaCosta: On the other hand, there's all this excitement around product launches. Well, we anticipate that carrying forward, right, as you all can expect when we launch products. But there's a several quarter lag before you start seeing meaningful contributions.

Albert DaCosta: And despite the excitement, we would expect in the second half, those first quarter launches to really start being more meaningful for us. So on the high end of our range, that's certainly what's implied there is that we feel a lot of that momentum carrying forward into the second half and honestly, even being more meaningful into 25. The other part of this is we want to be clear and transparent, but we also want to be cautious because with Shadi on the team now, we want to make sure he's got time to really understand the financial statement and look at where we are as a company and help us with the optimization strategy and really get a handle on all the things that are important for us, but keeping in mind that priority number one for us, EBITDA positivity in 25, cash flow positivity in 26.

Speaker Change: There's a several-quarter lag before you start seeing meaningful contributions. And despite the excitement, we would expect in the second half, those first-quarter launches to really start being more meaningful for us.

Speaker Change: So I'm the high end of our range that's certainly worth what's implied there is that we feel a lot of that momentum carrying forward into the second half and honestly even being more meaningful into 25.

Speaker Change: The other part of this is, we want to be clear and transparent, but we also want to be cautious

Speaker Change: with Shotty on the team now. We want to make sure he's got time to really understand the financial statement and look at where we are as a company. It helps us with the optimization strategy and really get a handle on all the things that are important for us. But keeping in mind.

Speaker Change: That's priority number one for us, EBITDA positivity in 25, cash flow positivity in 26.

Albert DaCosta: And so I'm thrilled to be working with Shraddha to look at all of that information. We'll be communicating our sense of purpose for 25 when we get closer to 25. But for right now, what we're really focusing on is executing in the second half on all these things, operational efficiency, getting the remediation plan in place and executed for the corrections, and then looking at all of the exciting things that we've got in front of us, which are our sales force execution and productivity increases, and product launches. We've got a really exciting second half. Thank you. Our next question today is from the line of.

Speaker Change: and so I'm thrilled to be working with Shadi to look at all of that information. We'll be communicating our sense for 25 when we get closer to 25.

Speaker Change: But for right now what we're really focusing on is executing in the second half on all these things where we...

Speaker Change: the operational efficiency getting the remediation plan in place and executed it for the corrections and then looking at.

Speaker Change: All of the exciting things that we've got in front of us, which is, you know, our Salesforce execution and productivity increases, product launches, we've got a really exciting second half.

Speaker Change: Thank you very much for watching this video, and I hope you enjoyed this video.

Operator: Thank you. Our next question today is from the line of Dave Turkaly of Citizens GMP. Please go ahead. Your line is open. Hey, good afternoon Albert. You mentioned

Speaker Change: Thank you. Our next question today is from the line of Dave Turkaly of Citizens GMP. Please go ahead, your line is open.

Dave Turkaly: Hey, good afternoon Albert, you mentioned the 7% increase in sales source productivity. I was wondering, did you quantify where that stands today and maybe where you think that's going?

Albert DaCosta: Yeah. Hey, Dave, great to get the question from you. And go Gators. Sorry.

Albert DaCosta: Yeah, they've great to get the question from you up.

Dave Turkaly: and Bill Gaters. Sorry. The, to answer that question...

Albert DaCosta: To answer that question, productivity, for us, is something that we're always looking at balancing productivity and headcount increases. Productivity comes from a few different places. One, it comes from new product introductions, right?

Speaker Change: You know, productivity for us is something that we're always looking at balancing productivity, headcount increases.

Albert DaCosta: So as we launch new products, that certainly helps to bring the productivity level up. But also, a lot of our investments in medical education really contribute to that. We've referenced in the past that about half of our attendees at medical education courses are existing users looking at additional products that they might not be utilizing yet. Half of that, the attendees are brand new to the story.

Dave Turkaly: Productivity comes from a few different places. One, it comes from new product introductions, right, so as we launch new products, that certainly helps to bring the productivity level up.

Dave Turkaly: But also, a lot of our investments in medical education really contribute to that. We've referenced in the past that about half of our attendees at medical education courses are existing users looking at additional products that they might not be utilizing yet.

Speaker Change: Um, after that.

Speaker Change: The attendees are brand new to the story, so we've got a really nice mix there.

Albert DaCosta: So we've got a really nice mix there, and that definitely influences not only the efficiency or effectiveness of the sales reps and productivity, but it also really impacts the surgeon's awareness of the products that we're bringing to the market, et cetera, et cetera. So that's a number that we really do look at. The one confusing point to that, if I can be transparent about that, is that as new people funnel into the sales, producing rep sales area, we tend to, you know, they're lower on the curve.

Speaker Change: And that definitely influences not only the efficiency or effectiveness for the sales reps and productivity, but

Speaker Change: It also really impacts the surgeon's awareness of the products that we're bringing to the market, et cetera, et cetera. So, that's a number that we really do look at. The one confusing point to that, if I can be transparent on that, is as new people funnel into the sales.

Speaker Change: Producing Rap sales area that we tend to, you know, they're lower in the curve and so we tend to see that productivity fluctuate just a little bit.

Albert DaCosta: And so we tend to see that productivity fluctuate just a little bit. But then we see that momentum just carrying forward. So that's something to keep in mind as people funnel in on the lower end. We can bring that productivity number down a little bit, but then we expect that certainly to ramp up. And there's also a little bit of seasonality to the productivity piece as well.

Speaker Change: But then we see that momentum just carrying forward. So that's something to keep in mind as people funnel in on the lower end. We can bring that productivity number down a little bit, but then we expect that certainly to ramp up. And there's also a little bit of seasonality to the productivity pieces as well.

Albert DaCosta: A quick follow-up. Was there any day impact in the quarter, and is there any in the back? Chris, you want to hit that one? Yeah, thanks for the question. So no day impact in the second quarter versus the first.

Speaker Change: Thanks a quick follow-up was there any date day impact in the quarter and is there any in the back half?

Kristina Wright: Yeah, thanks for the question. So no day impact in the second quarter versus second quarter last year. I think on the last earnings call, I implied that there might be a couple of days of change. There was no change, same days this quarter and next quarter. And for the back half of the year, there is one day more in Q3 versus Q3 last year.

Speaker Change: Chris, you want to hit that one? Yes, thanks for the question. So no day impact in the second quarter versus second quarter last year. I think on last earnings calling, by though there might be a couple of days change. There was no change same day this quarter and next quarter. And for the back half of the year, there is one day more in two, three versus two, three last year.

Speaker Change: Great, thank you very much.

Speaker Change: You get it?

Operator: And our next question is from the line of Mike Matson of Needham. Please go ahead. Your line is open.

Speaker Change: Thanks for the question.

Speaker Change: And our next question is from the line of Mike Matson of Needham. Please go ahead, your line is open.

Michael Matson: Yeah, thanks. So just in terms of this choppiness that you're talking about, seeing the second quarter, and you're kind of, anticipated slash worried about it continuing in the second half of the year. You know, I was just wondering if it is affecting some areas of the business more than others? Like, for example, maybe like bunions, which tend to be more elective and maybe affect things like trauma less. In other words, is this like some kind of, well, does it seem to have some sort of economic impact on the business?

Mike Matson: Yeah, thanks. So just in terms of this chopping, it's that you're talking about seeing the second quarter or the kind of...

Speaker Change: you know, anticipate it, slash worry about continuing in the second half of the year.

Speaker Change: I was just wondering, is it affecting some areas of the business more than others? Like, for example,

Speaker Change: you know maybe like bunions which tend to be more elective and maybe affecting things like trauma less in other words is it's like some kind of uh does it seem to be some sort of uh you know economic impact to the business

Albert DaCosta: Yeah, Mike, thanks for the question. You know, honestly, I looked at that, and I didn't see it.

Speaker Change: Yeah, Mike, thanks for the question. You know, honestly, I looked at that and I didn't see it and one thing...

Albert DaCosta: And one thing I looked carefully at, and to brag a little bit, I'm really proud again of the diversity of our portfolio that we have enough of. We, you know, we're present in every segment, and each of those five segments, we reported pretty strong balanced growth across the entire foot and ankle spectrum. So, I'm really excited about that, and again, I'm thrilled that we took that diverse approach because it did give us some balance.

Speaker Change: I looked carefully.

Speaker Change: [inaudible]

Speaker Change: To brag a little bit, I'm really proud again of the diversity of our portfolio that we have enough of, you know, we're present in every segment and each of those five segments.

Speaker Change: We reported pretty strong balance growth across the entire flood and ankle spectrum, so really excited about that and again, I'm thrilled that we took that diverse approach because it did give us a balance. When I looked at the elective and non-elective, I really saw nice momentum across both.

Albert DaCosta: When I looked at the elective and non-elective, I really saw nice momentum across both. So, and I was looking to see exactly what you asked there, Mike. Was there some kind of influence on the elective piece? But the one caveat that I'll say is that we launched a lot of forefoot products in the Q1 time frame that really boosted us in the second quarter. And so that might have muted a little bit of what we were seeing there. But to the best of my ability, the choppiness was more week-to-week choppiness and less product-specific choppiness.

Speaker Change: So, and I was looking to see exactly what you asked there, Mike, was there some kind of...

Mike Matson: influence on the elective piece.

Mike Matson: But the one caveat that I'll say is we launched a lot of for-foot products in the Q1.

Mike Matson: timeframe that really boosted us in the second quarter, and so that might have muted a little bit of what we were seeing there, but to the best that I could see, the choppiness was more week-to-week choppiness and less product-specific choppiness.

Michael Matson: Okay, understand. And then as far as this inventory burndown plan, how will that work? And you know, what sort of implications, if any, does it have on cash flow and margins? I mean, I'd imagine it's probably positive for cash flow, but I don't know if it may be negative for gross margin. I don't know.

Speaker Change: Okay, understand.

Speaker Change: And then as far as this inventory burndown plan, so how will that work and what sort of implications, if any, does it have for the cash flow and margins? I mean, I'd imagine it's probably positive for cash flow, but I don't know if it may be negative for gross margin. I don't know.

Albert DaCosta: Yeah, our baseline of gross margin today, as we stand with the corrected statements, is around 75%, right? And so we don't anticipate that 75% accounts for the increased pricing for some of the inventory billed in 2023. And that will take us a little bit of time to burn that inventory down to where we can start to get to pre-COVID pricing on primarily our legacy SKUs and to see a positive influence there.

Speaker Change: Yeah, our baseline of gross margin today as we stand

Speaker Change: with the corrected statements. Our baseline is around 75%.

Wright: Wright, and so we don't anticipate that, that's 75% accounts for

Speaker Change: the increased pricing for some of the inventory build in 23. And that will take us a little bit of time to burn that inventory down to where we can start to get to pre-COVID pricing on primarily our legacy SKUs.

Albert DaCosta: When we talk about burning down, there are two keys there. One is selling more, and two is ordering less. So, we've got inventory today, which we've mentioned on previous calls, and part of that stockpile that we communicated was essential to try to manage through the inventory shortage or capacity shortage issues in 23 and 22. We've got the opportunity now to position that inventory, burn some of that down without the need to replenish just yet. So, that's essentially what we're communicating when we anticipate in the second half to see some modest effects from that burn down.

Speaker Change: and to see a positive influence there. When we talk about burning down, there's two keys there. One is selling more and two is ordering less.

Speaker Change: So, we've got inventory today, which we've mentioned on previous calls, and part of that stockpiling that we communicated was essential to try to manage through the inventory shortage or capacity shortage issues in 23 and 22.

Speaker Change: We've got the opportunity now to position that inventory, burn some of that down without the need to replenish just yet. So that's essentially what we're communicating when we anticipate in the second half to see some modest effect from that burn down.

Michael Matson: Okay, got it. And, you know, just, you know, looking at the company and kind of what's happened since the IPO. I mean, it seems like, you know, you've done a great job from an R&D perspective, and innovation perspective, but clearly, there's been some issues on the kind of operational side. And, you know, I know that's part of Shadi's new title. So, but, you know, I'm just wondering, you know, is it worth it to have kind of the CFO doing both?

Speaker Change: Okay, got it.

Speaker Change: and, you know, just...

Speaker Change: You know, looking at the company and kind of what's happened since the IPO, I mean, it seems like, you know, you've done a great job from an R&D perspective, innovation perspective, but clearly there's been some issues on kind of operational side and, you know, I know that's part of shoties, you know, new title.

Speaker Change: So, but, you know, I'm just wondering.

Michael Matson: Or, you know, would it maybe make more sense to bring in kind of a full, fully dedicated person, just given all the, you know, the degree of, you know, trouble that you've had in this area?

Speaker Change: You know...

Speaker Change: is in.

Speaker Change: I mean does it make sense to have kind of the CFO doing both or you know would it maybe make more sense to bring in kind of a full fully dedicated person just given all you know the degree of you know trouble that you've had in this area

Albert DaCosta: Yeah, let me take a stab at that one first. And then I might even have Shadi say a few words on that.

Speaker Change: Yeah, let me take a stab at that one first, and then I might even have Shadi say a few words on that. But one, maybe to start, one of the real attractions to us about Shadi was how diverse his background is.

Albert DaCosta: But one, maybe to start with, one of the real attractions to us about Shoddy was how diverse his background was. Tons of experience in all of these things: finance, building partnerships within the organization, managing aspects of operational efficiency. Just his history and experience was so perfect for what we were looking for.

Speaker Change: Tons of experience in all of these things, finance, building partnerships within the organization, managing aspects of operational efficiency, just his history and experience was so perfect for what we were looking for. So that was part of the marriage there.

Albert DaCosta: So that was part of the marriage there. On the other side of it is, you know, when we went public, we made some investments, aggressive investments to make sure we were positioning ourselves, as I mentioned, on two fronts. One, to take advantage of the opportunity and enhance some of our growth opportunities, but to really set it up to be a public company. There is some significant operational expense associated with that.

Speaker Change: On the other side of it is, you know, when we went public...

Speaker Change: We made some investments, aggressive investments, to make sure we were positioning ourselves as I mentioned on two fronts.

Speaker Change: to take advantage of the opportunity and enhance some of our growth opportunities, but to really to set us up to be a public company. There is some significant operational...

Albert DaCosta: And building that team out to support future stages was something we really looked at building quickly in our post-IPO phase. Now, to that end, looking at those pieces, our are what we're analyzing today, just making sure that one, we don't overcomplicate things like I think some of the AK announcement found some areas where errors were being made just because of the complexity there. And that's a real opportunity for us to simplify that process and put some controls there to ensure we don't make those kinds of errors. So when we talk about simplification, there are tons of areas where we can improve. Now that we've got the team, we've got the infrastructure, we've always had the product development pipeline. We've always had the commercial engine.

Speaker Change: expense associated with that and building that team out to support future stages was something we really looked at building quickly in our

Speaker Change: Post IPO phase, not to that end, looking at those pieces.

Speaker Change: are what we're analyzing today, just making sure that, one, we don't overcomplicate things, like I think some of the...

Speaker Change: The 8K announcement found some areas where errors were being made just because of the complexity there, and that's a real opportunity for us to simplify that process and put some controls there to ensure we don't make those kinds of errors. So when we talk about simplification...

Speaker Change: There's tons of areas where we can improve now that we've got the team, we've got the infrastructure, we've always had the product development pipeline, we've always had the commercial engine. Those things, I'm happy to say, have been a strength of ours.

Albert DaCosta: Those things, I'm happy to say, have been a strength of ours. But one thing I've always communicated is we don't want to be a lopsided company. We don't want to be the best in product development or with very little commercial organization or the strongest sales force with no product pipeline. We really want to be balanced across the full spectrum of a company. And that means that finance and operations and IT and regulatory compliance and healthcare compliance, we want every single part of this business, honestly, to be optimized. And that's something we're always going to improve as a company and always enhance moving forward. So, and then the last piece to that question is...

Speaker Change: But one thing I've always communicated is we don't want to be a lot-sided company. We don't want to be the best product development.

Speaker Change: or with very little commercial organization or the strongest sales force with no product pipeline. We really want to be balanced across the full spectrum of.

Speaker Change: of a company. And that means that finance and operations and IT and regulatory to planets and healthcare compliance, we want every single part of this business, honestly, to be optimized, and that's something we're always going to mature as a company and always enhance, moving forward.

Albert DaCosta: I don't want to give the impression that Shadi is going to be working alone to improve operations. This is a priority for the entire company. Every single aspect of this company right now is looking at freight, travel, SG&A, you know, OpEx. We're analyzing every dollar of spend. And the feedback we've gotten from the team has been incredibly positive. Everybody is on board. Everybody's working to find the most optimal way to move this thing forward. So anything to add to that, Shadi?

Speaker Change: So, and then the last piece to that question is,

Speaker Change: I don't want to give the impression that Shoddy is going to be working alone to improve operations. This is a priority for the entire company.

Speaker Change: Every single aspect of this company right now is looking at freight.

Speaker Change: Travel

Speaker Change: and the SGNA, you know, objects, we're analyzing every dollar of spend.

Speaker Change: and the feedback we've gotten from the team has been...

Speaker Change: Incredibly positive.

Shadi Shaheen: Everybody is on board. Everybody's working to find the most optimized way to move this thing forward. So, anything to add to that, Shadi? You know, Albert, I think I really understand, and as I said in my prepared remarks, I'm very excited.

Shadi Shaheen: Charlie, you know, Albert, I think I really understand. And as I said in my prepared remarks, I'm very excited about being able to have that responsibility, because I firmly believe that moving us from goals to deliverables through talent processes and systems, through strengthening our operating mechanism, so we have visibility, so we are not in a reactive mode. And instead, we are in a proactive mode. So I have no doubt that I have the trust of the organization and the support to make these deliverables a reality, and I look forward to it.

Shadi Shaheen: about being able to have that responsibility because I firmly believe

Shadi Shaheen: that moving us from goals to deliverables through talent, process and systems.

Shadi Shaheen: Through strengthening our operating mechanism, so we have the visibility, so we are not in a reactive mode.

Shadi Shaheen: And instead, we are in a proactive mode. So I have no doubt that I have the trust of the organization and the support to make these deliverables a reality, and I look forward for it.

Michael Matson: Okay, great. Thank you.

Operator: Our next question today is from the line of Caitlin Cronin of Canafford Genuity. Please go ahead. Your line is open.

Speaker Change: Our next question today is from the line of Kate and Cronan of California. Please go ahead. Your line is open.

Caitlin Cronin: Hey, great. Thanks for taking the questions and congrats on the growth this quarter. I just would love a little more color on what you mean by the choppiness from a macro perspective and whether this is a phenomenon you're seeing both in the US and also internationally.

Speaker Change: Hey, great. Thanks for giving the questions and I can draw some of those discolors.

Speaker Change: Just, um, it was love a bit of a color on what you mean by this choppy mist from Amaco perspective, and whether this is a phenomenon you're seeing in the US, and also internationally.

Albert DaCosta: Hey, Caitlin, thanks for the question. And thanks for the compliment again.

Speaker Change: Yep.

Speaker Change: Hey Caitlin, thanks for the question and thanks for the compliment again.

Albert DaCosta: We felt like it was a really strong quarter, all things considered. As for the choppiness, you know, we mentioned last year that we felt a return to more normal seasonality. And part of that seasonality was people taking holidays and vacations that they honestly weren't able to take in the years prior. We mentioned that because of COVID and the years following COVID, hospitals had some pretty significant restrictions on surgeons leaving, especially trips out of the country.

Speaker Change: We felt like it was a really strong quarter, all things considered. On the chopping us, we mentioned last year that we felt a return to a more normal seasonality. And part of that seasonality was people taking...

Speaker Change: holidays, vacations that

Speaker Change: honestly weren't able to take them in the years prior. We mentioned that because of COVID and the years following COVID,

Speaker Change: Hospitals had some pretty significant restrictions on surgeons leaving.

Albert DaCosta: And so we felt like last year we felt a more return to normal there where people were actually taking some vacations during the summer months. Sometimes those summer months continue on in the beginning half of Q3. And so that's what we're carefully looking at is to see is it just a seasonal piece or is there some other macroeconomic piece there, you know, inflation or something else influencing that. But again, I'll point out something.

Speaker Change: especially trips out of the country and...

Speaker Change: and so we felt like last year we felt a more return to normal there where people were actually taking some vacation during the summer months.

Speaker Change: Sometimes those summer months continue on in the beginning half of Q3 and so that's what we're carefully looking at is to see is it just a seasonal piece or is there something...

Speaker Change: and I'm a piece there, you know, inflation or something else influencing that, but again, I want to point out.

Albert DaCosta: At least in our early glances here, we didn't see much of a difference between the elective and non-elective pieces of our business, both of them marching strong. So it felt like maybe there was some choppiness associated with vacations in that quarter and certainly lingering a little bit in Q3, but we're going to carefully monitor that before we make any definitive comments about what the second half might look like just to see how the rest of this quarter shapes up.

Speaker Change: At least in our early glance here, we didn't see much of a difference between the elective and non-elective pieces of our business, both of them marching strong.

Speaker Change: It felt like maybe there was some choppiness associated with...

Speaker Change: vacations in that quarter and certainly lingering a little bit in the Q3, but we're going to carefully monitor that before we make any definitive comments about what the second half might look like just to see how the rest of this quarter shapes up.

Caitlin Cronin: That's super helpful. And also, you know, congrats on the pilot launch of SMART28 with Bonyomatic. I guess when do you think you'll move into more of a full launch with that module? And, you know, when do you plan to add additional modules?

Speaker Change: That's super helpful. And also, you know, congrats on the pilot launch of SMART28 with Bonyomatic. I guess, when do you think you'll move into more of a full launch with that module and, you know, when do you plan to add additional modules?

Albert DaCosta: Caitlin, I can't thank you enough for that question. You know, my face is smiling right now.

Albert DaCosta: And I'm blushing because I get so excited about some of the smart 28 initiatives. I'm certainly thrilled about the launch of that first module, which we've really been talking about for a year and a half, or almost since the acquisition of Dysior. We also launched the portal for the case management system, which is really exciting.

Speaker Change: Caitlin, I can't thank you enough for that question. You know my my face is smiling right now and I'm blushing because I get so excited about some of the SMART 28 initiatives.

Speaker Change: I'm certainly thrilled about the launch of that first module, which we've been really talking about for a year and a half, or almost since.

Speaker Change: The acquisition of Dizior. We also launched the portal for the case management system, which is really exciting. I don't mean to overshadow that piece because of Smart Bunyomatic, but just really excited about where that type of technology is going to take us in the future.

Albert DaCosta: I don't, I don't mean to overshadow that piece because it's a smart buniomatic, but I'm just really excited about where that type of technology is going to take us in the future. When we talk about launching that more fully, we're having some of our key surgeons taking a look at the system, and early feedback is really good. And there's something there that I think it's worth pointing out.

Speaker Change: When we talk about launching that more fulsome, we're having some of our key surgeons taking a look at the system. Early feedback is really good and there's something there that it's worth pointing out.

Albert DaCosta: When we're 3D planning surgeries and trying to replicate those surgeries in the operating room with some sort of patient-specific guide system, the surgeon loses some intraoperative flexibility. If there's anything they see that they're not comfortable with, it's hard to make those adjustments. By guiding the smart Bunyomatic with the plan, it gives them all that sophistication in pre-op planning, but it gives them complete interoperative versatility to make those adjustments as they see fit.

Speaker Change: when we're 3D planning surgeries.

Speaker Change: And we're trying to replicate those surgeries in the operating room with some sort of patient-specific guide system. The surgeon loses some intraoperative flexibility. If there's anything they see that they're not comfortable with, it's hard to make those adjustments.

Speaker Change: By guiding the smart, bunionmatic with the plan, it gives them all that sophistication and pre-op planning, but it gives them complete interoperative versatility to make those adjustments as they see feds. The surgeons feedback on that part has been really positive.

Albert DaCosta: So Surgeon's feedback on that part has been really positive. One more point to brag about here is that we worked really hard to develop an AI algorithm using some statistical shape models, et cetera, to have the ability to not only model CTs into three-dimensional plans but to do the same with X-rays. We are aware that, you know, we think the future of pre-op planning is definitely going to be enhanced by CT capability. But, for at least now, not everybody has access to that.

Speaker Change: One more point to brag about here is we worked really hard to develop an AI algorithm using some statistical shape models, et cetera, to

Speaker Change: to have their ability to not only model CTs into three-dimensional plans.

Speaker Change: but to do the same with X-ray.

Speaker Change: We are aware that, you know, we think the future of pre-op planning is definitely going to be enhanced with CT capability.

Albert DaCosta: It was really important that we gave that access to the world. So we're really, really excited to report that we also have FDA clearance for X-ray to 3D planning. So the Smart Bunionmatic, we're expecting the second half of this year to be moving forward nicely. And one more point to add there: I'd like to say it's better to be lucky than good.

Speaker Change: But for at least now that everybody has access to that, it was really important that we gave that access to the world.

Speaker Change: We're really, really excited to report that we also have an FDA clearance for X-ray 2-3D.

Speaker Change: planning. So the Smart Bunyomatic...

Speaker Change: We're expecting the second half of this year to be moving forward nicely, and one more point to add there. I'd like to say it's better to be lucky than good, but

Caitlin Cronin: But it just so happens that bunion reimbursement is being considered by CMS in primarily surgery center settings and outpatient settings. The timing with us launching these four-foot solutions couldn't be any better. So it opens up some really interesting avenues for us to look at more of the surgery center options. And so anyway, it's just all around excitement for that. Thank you for asking about Smart Bunyomatic. And I really hope to give you more visibility into what the sophistication of that planning is.

Speaker Change: It just so happens that bunion reimbursement is being considered by CMS in primarily surgery center settings and outpatient settings.

Speaker Change: that timing with us launching these four foot solutions I think couldn't be any better.

Speaker Change: So it opens really some really interesting avenues for us to look at more of the surgery center options and and so anyways just all-around excitement on that. Thank you for asking about Smart Bunyomatic and I really hope

Caitlin Cronin: And so the last part of your question, sorry, I just realized I hadn't answered yet. Our goal is to bring that, pre-operative planning, intra-operative tool, post-operative evaluation to essentially all aspects of the foot and ankle, right? That complexity exists in almost all of our procedures. And we think it's really going to help to identify some patterns and improve outcomes. So our goal is to bring that to the entire foot.

Speaker Change: to give you more visibility to what the sophistication of that planning is. And so, last part of your question, sorry, I just realized I hadn't answered yet. Our goal is to bring that...

Speaker Change: pre-operative planning, intra-operative tool, post-operative evaluation, to essentially all aspects of the foot and ankle, right? That complexity exists in almost all of our procedures.

Speaker Change: and we think it's really going to help to identify some patterns and improve outcomes. So our goal is to bring that to the entire foot and ankle.

Speaker Change: We'll see you next week, by the way, at your conference.

Speaker Change: Excited for it. Thanks.

Operator: and our next question today is from the line of George Sellers of Stephen Think. Please go ahead, Joe Linzo.

Speaker Change: Thank you.

Speaker Change: And our next question today is from the line of George Sellers of Stephens Inc. Please go ahead, your line is open.

George Sellers: Hey, good afternoon, and thanks for taking the question. Maybe just to follow up on that Smart 28 discussion, I'm just curious if you could give us some additional color on that, sort of business model, you know, what, what's the, how does that system and platform generate revenue? Is there an associated, uh, licensing fee for access to, uh, that platform? What is, what's the business model, and how should we think about that impacting, uh, revenue and growth?

George Sellers: Hey good afternoon and thanks for taking the question. Maybe just to follow up on that Smart 28 discussion, I'm just curious if you could give us some additional color on that.

Speaker Change: Sort of business model, you know, what's the, how does that?

Speaker Change: system and platform generate revenue? Is there an associated licensing fee for access to that platform? What's sort of the business model and how should we think about that impacting revenue and growth?

Albert DaCosta: You got it. Hey, George, and thanks for the question. To start, let me say that the model will be very similar to what we do today, really, for total ankle replacement, what we call the MAVEN system, where we're converting CT scans into a preoperative plan, giving surgeons the ability to guide that correction, plan that correction, and then turn that into an intraoperative tool. There is a fee associated with that service, and that includes the guide systems for the intraoperative piece.

George Sellers: You got it. Hey George, and thanks for the question. To start, let me say that the model will be very similar to what we do today, really for total ankle replacement.

George Sellers: what we call the MAVEN system.

George Sellers: where we're converting CT scans into a preoperative plan, giving surgeons the ability to guide that correction, plan that correction, and then turn that into an intraoperative tool.

Albert DaCosta: It also includes the planning part of that. There are a few situations where just the plan could be used alone without the intraoperative tools, and there's also a situation where there might be some enhanced engineering support to handle some really difficult cases. And so there are a few exceptions that might go outside of that, but generally speaking, we expect that to be similar to what we do today for the MAVEN for total ankle replacement.

Speaker Change: There is a C-associated with that service, and that includes the guide systems for the Interoperative Peace. It also includes the planning part of that.

George Sellers: There are a few situations where there could be just the plan used alone without the interoperative tools.

George Sellers: And there's also a situation where there might be some enhanced engineering support to handle some really difficult...

Speaker Change: Cases and so there are a few exceptions that might go outside of that, but generally speaking we expect that to be similar to what we do today.

Albert DaCosta: The other part of that is we expect some pull through from all of our other products, right? We've got a multitude of fixation options for addressing the first EMT, or what's known as a lapidus. We have nails, we have plates, we've got staples. So a surgeon can really customize the solution based on the needs of that patient. And that's, you know, the planning part of that is certainly going to give...

Speaker Change: for the MAVEN for total ankle replacement. The other part of that is we expect some pull-through of all of our other products, right? We've got a multitude of fixation options for addressing the first TMP or what's known as a lapidus.

Speaker Change: We have nails, we have plates, we have got we've got staples so a surgeon can really customize the solution based on the needs of that patient and and that's you know the the planning part of that certainly going to give them visibility to that.

Albert DaCosta: Okay, that's really helpful. Sorry, sorry for the delayed part of that. But, you know, it takes a few months to get these things up and running, right, medical education, hospital contracting, etc, etc. So we would anticipate more meaningful contributions in 25, a little bit less and a lot of excitement in 24. But we expect to see some real contributions in 25 and 26 and beyond. Okay, okay. I got it. And then maybe, shifting gears back to focusing on the quarter, could you give us a little bit of maybe some quantitative detail on how some of the new devices that you launched early in the first quarter have progressed and what contribution those devices have made to revenue growth here this quarter?

George Sellers: Okay, that's really helpful. One more part of that, George, sorry. Yep.

George Sellers: Sorry for the delay part of that, but...

George Sellers: You know, it takes it takes a few months to get these things up and running, right? Medical education, hospital contracting, etc, etc. So we would anticipate more meaningful contributions in 25, a little bit less, a lot of excitement in 24, but we would expect to see some some real contributions in 25 and 26 and beyond.

Speaker Change: Okay, okay, got it.

Speaker Change: And then maybe shifting gears back to focusing on the quarter, could you give us a little bit of, maybe some quantitative detail on how some of the new devices that you launched early in the first quarter, how those have progressed and what...

Speaker Change: contribution those devices had to revenue growth here this quarter.

Albert DaCosta: Yeah, thanks. We try not to get too granular on the contribution amount, just for, you know, obviously for some competitive reasons.

Speaker Change: Yeah, thanks. We try not to get too granular on the contribution amount, just for, you know, obviously for some competitive reasons, but I can tell you we've exceeded our expectations on the performance of some of those Q1 launches.

Albert DaCosta: But I can tell you we've exceeded our expectations on the performance of some of those Q1 launches. We've had some real excitement around a lot of the forfeit solutions, including the Power Console and the SJ2000. The Precision MIS Bunion system's been doing incredibly well. There's real patient demand for that right now, and it's really good timing there.

Speaker Change: We've had some real excitement around a lot of the forfeit solutions, including the Power Console, the FJ-2000.

Speaker Change: The Precision MIS Bunion System has been doing incredibly well. There's a real patient demand for that.

Albert DaCosta: We've had a great response to our Buniomatic alone, even absent the Smart Buniomatic algorithm, and we were expecting a more wholesome launch of just the Buniomatic right now as well. So, great momentum there. And then the other piece is that we have several soft tissue products that are really contributing nicely. So all around, really positive momentum there. The feedback has been great. I don't want to be hyperbolic, but we're thrilled. We expect to see more meaningful contribution from those Q1 launches in the second half of this year, where some of the more recent launches like Reflex, although it's off to a great start, and Smart Buniomatic, we would anticipate more of a 25% contribution. But also really exciting there from feedback.

Speaker Change: and it's really good timing there. We've had a great response on our fun geomatic alone.

Speaker Change: even absent of the smart buniomatic algorithm. And we were expecting a more fulsome launch of just the buniomatic right now as well. So great momentum there. And then the other piece is we had several soft tissue products that are really contributing nicely. So all around.

Speaker Change: Really positive momentum there. The feedback has been great.

Speaker Change: I don't want to be hyperbolic, but we're thrilled.

Speaker Change: We expect to see more meaningful contribution from this two-one launches.

Speaker Change: In the second half of this year, where some of the more recent launches like reflex, although it's off to a brake start, and smart bunge automatically, we wouldn't anticipate more of a 25 contribution, but also really exciting there from feedback and performance so far.

George Sellers: Okay, great. We've got a few more products still coming. We've got, I'm sorry, I keep interrupting you. I keep forgetting more, but we do have, you know, several other exciting launches coming in the second half of this year, and we've had a lot of line extensions with our right angle drill, and our ball joint strut for our x-fix line. So we've got a lot of excitement around all five sub-segments, which has been pretty balanced for us. Okay, great, great to hear. Thank you all again for your time.

Speaker Change: Thank you. Thank you. All of you. Thank you. We've got to keep you running.

Speaker Change: We've got to, and sorry, I keep interrupting you, I keep forgetting more, but...

Speaker Change: We do have several other exciting launches coming in the second half of this year, and we've had a lot of blind extensions with a right angle drill, or a ball joint strut for x-fix line, so we've got a lot of excitement around all five sub segments, which has been pretty balanced for us.

Operator: And our next question today is from the line of Brandon Vazquez of William Blair. Please go ahead. Your line is open.

Speaker Change: And our next question today is from the line of Brandon Vazquez of William Blair. Please go ahead, your line is open.

Brandon Vazquez: Hi, everyone. Thanks for taking the question. I also wanted to kind of stay on Smart28 for a second, just given, as you were saying, Albert, this is kind of one of the things you've been talking about since the IPO. I have a couple of questions I'll kind of list off, and then I have an unrelated follow-up.

Brandon Vazquez: Hi everyone, thanks for taking the question. I also wanted to kind of stay on SMART 28 for a second.

Brandon Vazquez: Just given, as you were saying, Albert, this is kind of one of the things you've been talking about since the IPO. I have a couple of questions I'll kind of list off and then I have an unrelated follow-up.

Brandon Vazquez: But on Smart28, can you talk a little bit about what training is like? This is new technology in the space. So what's the upfront lift kind of like for new surgeons on this? Is this going to be an open or a closed platform for your hardware specifically? And then any plans you can share to build clinical data over the coming years to kind of demonstrate the benefits of these modules?

Speaker Change: On Smart 28, can you talk a little bit about what training is like? This is a new technology in the space, so what's the upfront lift kind of like for new surgeons on this?

Speaker Change: Is this going to be an open or a closed platform to your hardware specifically and then any plans you can share to build clinical data over the coming years to kind of demonstrate the benefits of these modules.

Albert DaCosta: Brandon, thank you very much for the question. It's great to hear from you.

Speaker Change: Brandon, thank you very much for the question and great to hear from you. Yes,

Albert DaCosta: Yes. Let me address the first part of this where it's the complexity. So one of the things we were really careful when designing this first module, one of our real leading three-dimensional thinking surgeon advisors is Dr. Cesar Donato out of Duke. And when he gives his presentations, we've always noticed that everybody in the room is in oohs and aahs at the three-dimensional complexity that he's able to analyze with tools like this.

Albert DaCosta: But there's a general fear that they're not as technically savvy as Dr. Caesar is. And so our goal when we were designing this was to make it as streamlined and easy for people to use as Instagram or Facebook, potentially even easier, right?

Speaker Change: Let me address the first part of this where it's the complexity. So one of the things we were really careful when designing this first module, one of our real leading three-dimensional thinking surgeon advisors is Dr. Cesar Donato out of Duke.

Brandon Vazquez: And when he gives his presentations, we've always noticed that everybody in the room is in oohs and aahs at the three-dimensional complexity that he's able to analyze with tools like this.

Speaker Change: But there's a general fear that they're not as technically savvy as Dr. Caesar is and so our goal when we were designing this was to make it as streamlined and easy for people to use as Instagram or Facebook.

Albert DaCosta: So the ability to upload a DICOM image, the ability in less than 10 minutes to convert that into a plan, then the flexibility surgeons have to manipulate that plan and see different configurations and rerun it to turn that into some, you know, preoperative tool that they can even use to communicate with the patient. What's really important here is that planning is giving them so much sophistication three-dimensionally to not just what they're correcting but to the deformity that exists within that particular patient.

Speaker Change: Potentially even easier, right? So the ability to upload a die-con image, the ability at less than 10 minutes to convert that into a plan, then the flexibility surgeons have to manipulate that plan and see different configurations and rerun it to turn that into some pre-operatives.

Speaker Change: a tool that they can even use to communicate with the patient.

Speaker Change: What's really important here is that planning is giving them so much sophistication, 3-dimensionally, to not just what they're correcting, but to the deformity that exists within that particular patient. And sometimes when you look at a 3-dimensional plan...

Albert DaCosta: And sometimes when you look at a three-dimensional plan, you see things that you wouldn't see just on a simple view, right, on a 2D view. And so we're really excited that surgeons are going to be armed with a lot more information to make better decisions for their patients, but then to have all that flexibility that I described. So one, really easy to use platform.

Speaker Change: You see things that you wouldn't see just on a simple view, right, on a 2D view, and so we're really excited that surgeons are going to be armed with a lot more information to make better decisions for their patients.

Speaker Change: but then too have all that flexibility that I describe. So, one really easy to use platform. We focused on that so that everybody didn't have to be a doctor's Caesar to do this.

Albert DaCosta: We focused on that so that everybody didn't have to be Dr. Caesar to do this. Two, we wanted to make sure that we gave surgeons really good information to help them in diagnosing the deformity in the first place. And I've mentioned this on previous calls that a bunion is a really complex three-dimensional deformity, and there are a multitude of pathways that are really unique, right? There are at least five different pathways that we know of today that should have different considerations when surgeons are determining how to fix them.

Speaker Change: Two, we wanted to make sure that we gave surgeons really good information to help them in diagnosing the deformity in the first place. And I've mentioned this on previous calls that...

Speaker Change: A bunion is a really complex three-dimensional deformity, and there's a multitude of pathways that are really unique, right? There's at least five different pathways that we know of today.

Speaker Change: That sure has different considerations when surgeons are determining how to fix that so if we're going to customize

Albert DaCosta: So if we're going to customize treatment options for a patient, truly patient-specific, we have to give surgeons those tools and better diagnostic capabilities to make those decisions. So all of that was a consideration for us when we were developing this. Another reason why we're so excited as we launch this.

Speaker Change: Treatment Options for a patient, truly patient specific, we have to give certain those tools and better diagnostic capabilities to make those decisions. So all of that was considered a consideration for us when we were developing this. Another reason why we're so excited as we're launching this.

Brandon Vazquez: Okay, great. And then maybe as a follow-up, switching gears a little bit, maybe for either Chani or Chrissy, but now with cash flow positivity pushed out to 2026, how are you guys thinking about just kind of the balance sheet and the capital that you have? Do you feel comfortable where you are? Just talk to us about that, given the push out and cash flow positivity. Thanks.

Speaker Change: Okay, great. And then maybe as a follow-up, switching gears a little bit, might be for either Chani or Chrissy, but now with Cash Flow Positivity pushed out to 2026, how are you guys thinking about just kind of the balance sheet and the capital that you have? Do you feel comfortable where you are? Just talk to us about that, given pushed out in Cash Flow Positivity. Thanks.

Albert DaCosta: Um, so one thing I'll say just again, focusing on cash flow positivity in 26. This might be one of the first times we're communicating that formally, that our top priority is to be cash flow positive by 26. All of the moves that we're making right now are going to enhance and create an opportunity for us to achieve that. We've taken all of this into account. We've got, again, a top priority for everything we're doing right now to make sure we're EBITDA positive in 25, and then cash flow breakeven or positive in 26. Any color you want to add to that, Chrissy or Shadi?

Speaker Change: So, one thing I'll say, just again, focusing on cash full positivity in twenty-six days.

Speaker Change: This might be one of the first times we're communicating that formally, that our top priority is to be cash flow positive by 26th.

Speaker Change: All of the moves that we're making right now are going to enhance and create an opportunity for us to achieve that.

Speaker Change: We've taken all of this into account. We've got, again, a top priority on everything we're doing right now to make sure we're even top positive in 25.

Chrissy: and then cash flow break even or positive in 26. Any color you wanna add to that, Chrissy or Shadi? No, I guess I would just add that we're looking at acceleration and EBITDA in the back half of the year as well as acceleration of cash flow.

Kristina Wright: Now, I guess I would just add that we're looking at acceleration in EBITDA in the back half of the year, as well as acceleration in cash flow, and that is contributing to our confidence and our ability to hit those two performance metrics that Albert has mentioned. And I want to reiterate, as the C.F.

Speaker Change: and that is contributing to our confidence and our ability to hit those two performance metrics that Albert has mentioned.

Shadi Shaheen: And I want to reiterate, as the CFO, this is my number one priority to roll up my sleeves and have deliverables that make that happen.

Speaker Change: And I want to reiterate as a CFO, this is my number one priority to roll off my sleeves and have deliverables that make that happen.

Chrissy: [inaudible]

Operator: Thank you. And with no further questions in the queue at this time, I would like to hand back to management for any closing remarks.

Speaker Change: [inaudible]

Speaker Change: Thank you, and with no further questions in the queue at this time, I would like to hand back to management for any closing remarks.

Albert DaCosta: Yeah, thanks everybody for joining us on our call today. We look forward to seeing you all at upcoming investor conferences. We'll be at the Canaccord conference next week and other industry conferences over the next couple of months. Thanks again. That concludes our remarks.

Operator: Thank you, everyone. This concludes the Paragon 28 second quarter 2024 earnings call. You may now disconnect your lines.

Speaker Change: Thank you everyone this concludes the Paragon 28 second quarter 2024 earnings call. You may now disconnect your lines.

Speaker Change: Be safe out there!

Speaker Change: [inaudible]

Albert DaCosta: Good color, thank you so much. We'll see you next week, by the way, at your conference.

Craig Bijou: And I want, you know, I'm hoping that you guys can help us understand exactly the reason why that growth rate keeps coming down. So, is it market growth? I know we've heard from some other companies that maybe the food and ankle mark was a little bit softer in the first half. Is it Paragon specific, either, you know, product wise, or maybe, you know, when you look at some of these cost savings that you're implementing that that may have an impact? And then just how should we think about that, you know, growth rate or what should we expect going forward?