Good afternoon. My name's Craig Bijou. I'm one of the medical device analysts here at BofA. And it's a pleasure to have Treace Medical with us. From the company, John Treace, Chairman and CEO, Mark Hair, CFO, and Julie Dewey, Chief Communication and IR Officer. So thank you all for coming.
Thanks for having us.
Thanks for having us. Great to be here.
So we're just, you know, not too far from earnings, a week removed, as for you guys. So wanted to start with a recap of, of Q1 results. You know, 21% revenue growth, which I believe is on your toughest comp of the year. So maybe just talk about what, you know, the highlights from the quarter and, and what went well.
Yeah, sure thing. Yeah, like you said, 21% growth. It was a nice growth quarter, where the revenue was strong. Our new customer adds, we communicated that we'd add between 250 and 300 new surgeons during this year, and we were on track for that through the quarter, so we were adding new surgeons. SpeedPlate, our newest fixation technology, it accounted for about 20% of our cases in Q4. Q1, it accounted for, you know, twice that ratio, so really 40% of our cases. So strong uptake from SpeedPlate and strong customer adoption continued. We had nice blended ASPs, good unit volumes. And a couple things that may not have heard happen in the quarter, we received our 510(k) for our two new minimally invasive osteotomy systems.
We've recently trained a group of early users that will be the first to try these systems in the somewhat near future, and then launch, you know, in fourth quarter.
Great. And I do wanna get into that. You know, obviously, the stock had a reaction, and I think it was largely driven by the cut in guidance for the year. So, you know, maybe. You know, obviously, want to address that. So maybe just talk about, you know, what the cut was, you know, some of the rationale for the cut, or the thought process behind the new updated guidance.
John, maybe I start, and you can add some color?
Sure.
So what we do on a monthly basis, and every company does, but we really look and do our analyses to understand the underlying trends. We do benefit from. Typically, in every Q1, we benefit from a carryover in the fourth quarter. It's our busiest time of the year. We do more case volume in the fourth quarter. It represents a bigger piece of our full-year revenue. So not all those cases can be done in the fourth quarter, so we benefit in the Q1 with some of that, what we call that carryover revenue. And so as we were just doing our analytics and understanding what was kind of base business and what's kind of the benefit from that carryover, we noticed some slowness as we're coming out of the Q1.
You know, it raised some flags. We were looking at those dynamics, and then ultimately, we had a softer April than what we would expect. And so now it became a little bit more of a trend from what we had anticipated. And then, you know, you get into, you know, what the forecasts are and what the field is saying about, you know, May and things. So we had some softness coming out of Q1. We saw it in Q2, and we just said: "Hey, look, we need to say what we're seeing." And so we did. We revised the guidance range to reflect some of these underlying trends. And to John's point, some of the trends were really good.
We had, you know, some nice volume increases in Q1. We are adding new surgeons, so definitely surgeons are still interested in a comprehensive platform for Lapidus procedures in our flagship Lapiplasty. But as we were looking at a lot of the analytics, we saw that in the utilization or the frequency that our very large customer surgeon base, it's approaching 3,000 that have used Lapiplasty in the trailing twelve months. The frequency in which they were coming to the table and using Lapiplasty was just a little bit different from what we anticipated, and so we decided to change that guidance to reflect what we were seeing.
Got it. And, so I guess trying to, I guess, drill down on some of that, you know, some of those comments. And then let me start with the utilization piece that you just talked about, Mark, and, you know, trialing, and I think you might have said, you know, there's some new products out there for bunion repair. And, you know, maybe trialing of new products was part of this change in utilization. So I guess I wanna get your impression, and is that one of the... You know, do you think that's one of the drivers? And, you know, we see this a lot in med tech, so it's not uncommon to see new products come.
Doctors tend to, you know, see what they, you know, utilize a new product, and maybe that hurts some of their existing, what they, their normal utilization might be. And then we see it come back. Some come back, some don't. So I guess, you know, I guess it's a long-winded way of asking, you know, the competition or, like, what are you seeing in the field? I assume you're talking to your docs when you saw this utilization. So, you know, what's the feedback that you're getting from them? And then maybe, you know, maybe follow up on that. We can get into maybe what you assume comes back or doesn't in the full year guidance.
Yeah, I can start there, and Mark can clean up maybe. You know, the two pieces that we were looking at were, yes, numerous new alternatives to Lapiplasty, a Lapiplasty-like product, the knockoffs. You know, we believe. Some of them are on our IP, frankly. The other piece is the broadening usage of the minimally invasive osteotomy. So in that slightly reduced volume per surgeon data that Mark was speaking to, both of those are playing into that softening. When you have a lot of products out there, like you said, doctors are gonna try to use them. Whether they stick with them long term or not, some will, some won't.
We saw this to a degree last year as we went through the summer months, where other new competitive entrants had entered the market, and you had a combined, you know, competitive entries with a seasonal change in behavior of our patient demographic. They were traveling at an extraordinary level and not wanting their surgery in the middle of the year. And then we came back with a very strong surgeon number and utilization rate in Q4. So it's not unnatural for surgeons to try these new alternatives for a while. They get pressured to do it, they try it, and then very often they come back to Lapiplasty because as a lot of our doctors will tell us, "I tried this thing. I tried that thing. Lapiplasty just works.
In my hand, it's just so straightforward, it's simple, it's reproducible, and I can count on it." So I think in our forward guide, we're trying to contemplate those two things: continued adoption of minimally invasive osteotomies for a portion of more surgeons' bunion practice, and then continued noise from some of these competitive alternatives.
Got it. And I mean, I guess, thinking about the bunion repair market in general, you talked about some of the MIS, and it seems that maybe there's a shift from a procedure perspective, maybe to some more MIS procedures. So love to kind of get your thought on that more broadly, where patient preferences are going, you know, how docs obviously, patients are important to docs. You know, docs have their preferred procedures. But maybe just talk about some of the underlying dynamics going on in the bunion repair. And, you know, are they more temporal or, I mean, could they be permanent changes? Just, you know, would love to kinda... Given, you know, your focus on bunion repair, like, you're obviously living it every day.
Would love to kinda understand how you see the market evolving right now.
Sure, sure, and then maybe I'll take a step back and talk about, you know, kind of the market pie. You know, when we started 8 years ago, when we started selling Lapiplasty, a Lapidus-type approach, you know, a joint fusion approach, was used for probably 15% of cases, and the remainder were metatarsal osteotomies. Over the past 8 years, we've shifted that to where today it's closer to 30% are the Lapidus-type or joint fusion procedures. The newness of some of these minimally invasive osteotomies are very patient attractive, and they're attractive to the surgeons as well. Because once you get up the proficiency curve, they can be done pretty quickly, and the recovery for the patient can be pretty quick.
The challenge is those procedures have a very long learning curve, and some of the surgeons you talk to about minimally invasive osteotomy say it's 40-50 cases in live clinical use before you can start to really get proficient and reliable, reproducible outcomes. During that phase, you're taking a lot of fluoro shots, a lot of radiation, and you may not be getting the best results that you want to be getting. That's a really significant challenge to the current broad adoption of MIS osteotomy, where what we've seen is, we can take the approach that we took with Lapiplasty, where before Lapiplasty, the Lapidus fusion was a very difficult freehand operation to perform, and it really limited it in the marketplace. We brought an instrumented, elegant solution that allowed it to be mass adoptable, and we did the third plane fix.
We've been working on our own osteotomy, minimally invasive platforms, quite a while now. We've listed a world-renowned group of MIS surgeons to help us with it, and the solutions we're gonna be bringing to the market are gonna be much like we did with Lapiplasty: highly instrumented, quick learning curve, minimally invasive, fast procedures, and that third plane, the rotational plane, that can help drive lower recurrence rates. We're gonna bring that into the marketplace to our installed base of 3,000 surgeons that are doing over half their procedures as metatarsal osteotomies. We don't have a solution today. When our focused, direct bunion sales force is armed with a comprehensive suite, now best-in-class osteotomy, three plane, best-in-class Lapidus, three plane, we think that's gonna be a very powerful position to put the company in.
Got it. Okay, that's helpful. And, maybe if I just go back to the guidance and kind of what it implies for, for the back half and maybe some of the cadence, and maybe you can explain kind of, some of the cadence. So 21%, as we talked about in the Q1. The Q2, I believe it's flat quarter-over-quarter, is the expectation. And then, you know, roughly 10%, I guess, to get to the midpoint, you know, implied in the back half. So I guess, you know, the Q2, Mark, you talked about, you know, maybe April, you saw some of that softness, so I'm assuming that's driving that. But then, what drives that re-acceleration in the second half? And is that... You know, are you assuming those procedures come back?
Is it more the MIS osteotomies? I guess, you know, I'll let you answer-
Yeah.
rather than me talk.
Sure. I'll take a shot. Mark, Mark, please add to it. But when you look at it, Q2 was a big comp last year, and we've based on the recent trends, and as you get into Q3, we're gonna have some more surgeons trained. We're gonna be over an easier comp. We were 23% last year in Q3, 40% in Q2, so that's the one to get over. We get into the lower comp, and we've got more trained surgeons, more of our sales force maturing and contributing more. We have a new SpeedPlate product that's gonna be launching in the beginning of the Q3 that will address bone fusion procedures that we don't address today with our current SpeedPlate offerings. So that's another catalyst. And last but not least, we started our DTC program pretty actively in March.
By the time frame that it takes for patients to, you know, do their research and actually schedule an appointment, we could foresee some patients starting to come in from that, that impact in Q3. So there's catalyst for Q3, where we're an easier comp, and then as you get into Q4, you've got all those other catalysts, plus we're going to expand access to our RedPoint PSI technology, and we'll have some impact from the minimally invasive osteotomy platforms. So that's kind of what gives us the kind of momentum build as we go through the year.
Have you said kind of where Q3, excuse me, revenue might be? You know, I'm just implying numbers for the back half, but-
Yeah.
Have you said what that kind of step-up is?
We said Q2 would be roughly flat, and then Q3 and Q4 would be consistent in high single digits.
Okay.
And so, to your point, that midpoint of the guide range is 10%.
Got it. Okay. Sorry, kind of jumping around here, but I did want to ask, and I don't know if you got it on the call, maybe you've got it subsequently. You know, you were expanding your commercial infrastructure, and, you know, I guess when you see a cut in guidance, and especially in orthopedics, the assumption is, you know, you're losing docs or you're losing reps or maybe both. So, you know, I wanted to ask if... You know, Mark, you talked about the utilization, so that may be the bigger driver. But, you know, I did want to ask if surgeons are moving away from you, doing other procedures, you know, completely, if reps are you know, if potentially you lost some reps to competitive hires.
Yeah. Yeah, let's address each of those. So one, as John mentioned, that, you know, we gave a guide of 250-300 new surgeons this year, so we're on track for that.
Yeah.
So we continue to have a lot of interest from surgeons who want to have a more repeatable Lapidus procedure, so they come to get trained on our Lapiplasty. So we haven't seen it there. You know, with any sales force, it never stays completely stagnant. So we've had, I'll call it some changes in the size of the team, but a lot of that is non-regrettable and changes that we were making as we, you know, are monitoring the effectiveness in all the territories that we have. So I wouldn't really say we've lost key accounts through sales rep turnover that way. And we just want to make sure that our sales organization is as efficient and productive as they absolutely can be.
So we're spending a lot of time with them, and they're very energized right now to, you know, understanding these incremental dynamics, and we're making sure that they've got all the information at their fingertips to understand even these slight changes in utilization. Because we don't see any particular, you know, competitor per se. It's not one competitor. It's really a lot of things that are happening at the same time. And so what's that - what that has done is kind of across some of our existing tenured groups of surgeons, you know, if they're all missing just, you know, one case a year, when you have close to 3,000 surgeons, that begins to add up.
Mm-hmm.
It's more of just around the edges that we're seeing some of that utilization kind of come down, but it doesn't seem to be any dramatic changes in our customer base. You know, we always have some churn in our customer base, and we recognize that. I think that's very common for all companies. But the churn or those that are lost is not really anything that has been different from what we've seen in the past. It's more of a utilization. What mix of their cases are they going to use our flagship Lapiplasty versus other alternatives?
Got it. Okay. That's helpful, Mark. Thank you. And so I guess with some of the utilization on Lapiplasty, with the two new MIS bunion osteotomy products... I'll get that word right at some point.
It's a tricky one.
And, you know, even some of the new other product launches, you know, I think a question that comes up is, you know, what's the mix of the business, you know, look like going forward? And along with that, what's the right growth rate? You guys had very impressive growth for a number of years, and you're still double digit. You know, your guidance is still double digit now, while digesting some of these, you know, I'll call them temporary headwinds. But, you know, how to think about the mix of the business going forward, you know, how much it comes or how much out of bunion or how, I guess, how far into foot and ankle are you planning to lean?
You know, what, what is the right growth rate for the business in 2025 and going forward?
Yeah, great, great question. You know, I think the, you know, we're in this technology kind of reload phase right here. We had SpeedPlate. We thought it would bridge us to, to the new osteotomy technologies and, and, you know, bridge that growth rate, the underlying a little bit of softness or dampening of the utilization, kind of put a little bit of a, a headwind on that.
Mm-hmm.
So this is a technology reload phase. We're going to get to the minimally invasive osteotomy systems, but we're also going to be continuing to do a connect-the-dots approach to where we expand into. You know, we tend to focus primarily on the bunion, and we'll have more broadly focused on the bunion with our minimally invasive osteotomies. We got into the midfoot with the Adductoplasty, and now we've added SpeedPlate, and SpeedPlate has taken us to other areas in the foot, and now we see new opportunities for other implants and fixation systems and other products for those areas of the foot. Put our reps in a more fulsome presence with these doctors in these cases as they kind of work their way around the foot over time.
We'll continue to add and broaden our portfolio, but still keeping that focus on the core bunion and midfoot.
... our related operations.
And Craig, you talked about the mix. I think what we're really excited about is what osteotomy platforms will bring for us. So right now, if you think, and we believe that the market is really about 70% are still done in osteotomies, and 30% is where we've been focusing and building that Lapidus segment of the market. But, you know, this opens up a lot of opportunity for us. Even our—some of our most seasoned surgeons, you know, even when they get to 4, 5, 6 years using Lapiplasty, they're really, on average, still doing less than half percent of half, half of their cases with Lapiplasty. And so there's this opportunity for an equal number of osteotomies that they're already doing today.
So that's the exciting part, is that we have nearly 3,000 customer surgeons today. We know that on the average, they're doing more osteotomies in their practice, and to the extent we can do exactly what John said, make it a very difficult procedure, instrumented, repeatable, adjusted, and correct in the third plane, we think there's a really good opportunity to drive a lot of additional procedures that we've missed out on.
Okay.
And just building, building on that, too, it also opens avenues to surgeons that never gave Treace Medical a good look because we were just all about a Lapiplasty, all about the Lapidus approach, and their bias was towards osteotomies strongly. Now, we're going to be able to go after those doctors and get them on a Treace Medical solution, and then work our portfolio of SpeedPlate, Lapiplasty, and our other technologies around those new customers. So that's, that's why we're so excited about this new upcoming platform. We think it's going to be incredibly elegantly designed, quickly adoptable, very differentiated, and it's going to appeal not only to our current customer base, in the cases we're not getting, but a whole new segment of customers that we've never had an opportunity to serve.
I want to get to profitability, but I had one follow-up question on the differentiation of the new osteotomy products that you're going to launch. And just, you know, any detail on, like, how they're differentiated than from what's on the market?
Without getting into too much detail, there are two schools of ways of doing it, and we don't believe that either one of them have been instrumented in a refined way to allow them to be really reproducibly done, and to be done with the third plane correction in a very accurate and reproducible manner, and that's what we're going to bring to those two platforms.
Similar to kind of what you did to, with Lapiplasty?
Exactly.
Yeah.
It's going to be the osteotomy story with Lapiplasty, and it's a bigger segment of the market. That's why we're so excited. We've been waiting to make this transition from the company, from a Lapiplasty-focused company to a total comprehensive bunion company for some time. It was planned that way. It's why we grew the sales force 35% last year. We were a year ahead planning for these MIS programs, so we'd have enough coverage when their volume increases, so.
Got it.
Now, this is really a 2025, you know, growth leg-
Got it
... story, but it will start to have a little impact, we expect and anticipate, in the fourth quarter.
Got it. Okay. Thank you for that. So shifting to profitability, I think with the revenue guidance, the lower revenue guidance, you talked about right-sizing your PNL.
Mm-hmm.
So maybe just, you know, what does that mean? Like, what are some of the steps that you're taking, and, you know, what are the areas that you may be making cuts in, and how should investors think about it?
Yeah. So at the beginning of the year, we said that we'd improve our profitability or adjusted EBITDA loss. We'd improve that by 50%. So we talked about it on our call last week, that we still plan to do that, notwithstanding the fact that we've lowered our revenue. Now, some of that is variable expenses in nature, whether it's COGS, commissions, and other employee incentives, and then there's other discretionary spend that, you know, we've been anticipating being a certain size of a company, given projected anticipated growth rates. So if we're not going to hit those growth rates this year, we can hold back on some of the discretionary spend, some of the new hires, and those kind of things.
So we're committed to having increased, improved profitability this year and going into next year as well. We'll continue to improve that bottom line going into next year.
Got it. And, we kind of talked about it, cuts to the commercial team. So, you know, not just, you know, those that have, you know, left or the hires that you made. I guess just, you know, looking at where your commercial team stands today, I mean, is there any right sizing of that specifically?
Well, I think what we're looking to do is we're evaluating territories to ensure that everyone is as productive as they can and should be. Are the territories, you know, divided in the right places with the right people in those spots? So I think there's always a view and an analysis of: Are we doing as much as we should be doing? You know, we've added a lot of sales reps over the last 4 years. We went from, you know... It wasn't that long ago where we had 30 direct sales reps and, you know, we're well over 200 now. So we've had a lot of growth, and a lot of the focus now has been to just ensure that we've got the right people in those territories.
We've got the right, the right people who are productive and effective where they are. So we'll continue to do that and make sure that we've got that right size, whether from a leadership to the sales rep territories across the whole sales organization. And we'll do that throughout our whole organization, not just limited to the sales, but we'll, we'll look throughout our whole organization and say, "If we can be a little bit leaner, then we absolutely need to do that.
And, so DTC, so you guys have done an extremely effective job, you know, of leveraging DTC over the last several years. So, you know, given it's not cheap, you know, it's relatively expensive generally, you know, love to get your thoughts on how, you know, maybe the right sizing of the P&L, does that have any impact on your DTC spend? And, you know, first part, and then the second part is: how are you leveraging DTC, DTC spend, you know, beyond Lapiplasty and some of the newer products?
Yeah. Don, do you want that or should I take it?
Oh, go ahead, Mark. You're on.
So DTC has really gotten the word out. We have educated so many potential patients on our website, helped them understand the benefits of 3D correction and what a Lapidus solution and Lapiplasty provides for them. So we've had a lot of benefit from that. We have, over the past couple of years, we haven't needed to raise our DTC as much as we had early on, and so there's already been kind of a reduction in some of those efforts that we have already. We think that there's probably some opportunities there to maybe pull some of that back a little bit more, but it does a lot of great things. What it does is it drives potential patients to our website.
They get educated, and we talk to our surgeons all the time, and they regularly comment about how often patients are coming in pre-educated about Lapiplasty. So there's definitely a benefit there, but we're always trying to figure out what that right size is there. So there's some potential opportunities that we will probably experience this year. There's always some benefits of having some of that social media, especially there's education and reminders of what Lapiplasty can do. So, you know, we anticipate that there's an appropriate level that will continue to drive patients to our website and get educated.
And maybe the second part of that, it was just on some of the new products.
Yeah.
So, is that?
Yeah
... is it as leverageable of an asset, as it was for Lapiplasty, as it is for some of the newer products?
If I can jump in, but yeah, I believe it is. And part of what that leverage that Mark is speaking to is that we have a marketing leader with strong consumer DTC background, and he's been able to come in and, you know, do more with less, and we're getting bigger impacts on lesser spends.
Right.
It takes an expert to really dig in and do that, but we feel like he keeps getting more creative over time, and we can leverage that line. And he's got some great ideas on how we can, you know, still leverage a lower cost structure in DTC to get the word out on these new technologies. So more to come on that as those technologies come available.
I would say absolutely, 'cause what we're trying to do is highlight some of the benefits and get patients to our website, and then once they're to our website, there'll be different platforms and different of our products that they can be educated on, so it's absolutely leverageable.
Got it. And Mark, you touched on this, you know, maybe we have a couple of minutes left, but maybe just a question to end on is, you know, thinking about the spend beyond 2025, so you're right sizing the P&L. And I know you've committed or you said you're gonna give, you're gonna try to drive leverage within the business.
Yeah.
So, should we expect maybe a ramp up in spending as maybe revenue grows and some of the new products, you know, come on board at the end of this year? I guess just how to think about your approach to spending. I know you're not... You know,
Yeah
... no guidance, but,
Yeah
... I know, how, what's your approach to spending in 25, given the right sizing of the P&L this year?
Well, you know, we've done a lot of very positive things to get to where we are. So we've built a fantastic sales force that's primarily W-2 or direct channel, their employees. They wake up every morning with only our products to sell every day, and we think that that's really driven these great relationships with our surgeon customers, and they've been able to grow a business. You know, we're on track to being over $200 million this year. So we know that they're a fantastic group of individuals that have done amazing things. A lot of the investments that we've made, we've already made, and we can really leverage and benefit from this sales force that's already in place.
And we also have some great distributors as well, and they're high-performing, and so they're providing a great service to us as well. So I don't know that we need to dramatically change or increase from what we've been doing because we've built this team, we've been preparing for this moment as we're on the cusp of launching these brand-new platforms that can open up a lot more procedures that we've missed up to this point. So I don't really anticipate seeing a significant or much increase in our spending levels because we've been planning for this day.
Great. I think with that, we're just about out of time, so I'll, I'll end it there. So thanks, guys.
Great.
Thanks, Mark.
Thanks.
Appreciate it.