Okay. All right, good morning, everyone. Welcome to the Truist MedTech Conference. I'm Rich Newitter, and for our first session, to kick it off, we are thrilled to have Treace Medical, and Treace's CEO, John Treace, and CFO, Mark Hair. Welcome. Oh, also, if anyone in the audience has questions at any time, obviously, you could feel free to raise your hand, come up to the mic, or you can scan your questions into at the QR code that's up there on the screen, and we can try to get to your questions that way. So, again, gentlemen, thank you for joining us, and I was hoping to start off maybe higher level. You know, you guys introduced Lapiplasty, gosh, what was 2021 ?[crosstalk] 2021. Yeah.
Well, the IPO [crosstalk] Lapiplasty was well before that [crosstalk]
Before that. You've disrupted the bunion market with a new minimally invasive, innovative way to do Lapidus fusion and bunions. But I know the market's evolved since you went public and since you originally launched, and there are other emerging growth areas in foot and ankle and bunions that, you know, I think the story is getting more complex and changing a little bit. So why don't you tell us a little bit about the market, kind of where you guys started from and where you got to with Lapiplasty, and kind of where you see the opportunity for growth as we move forward?
Yeah, great. Great, Rich, and thanks again for having us here. We're happy to be here today and talk about Treace Medical. You know, if you go back to the launch of Lapiplasty, end of 2015, at that time, the marketplace, 400-450,000 bunion surgeries in the U.S. About 15% of those were a Lapidus-type procedure, which was the predecessor to Lapiplasty. The remainder, 85%, were metatarsal osteotomies. If you look at where we stand today, Lapiplasty and the success of Lapiplasty has expanded the Lapidus-type procedure to 30% of the market from 15%, and that's both through our efforts and the increasing popularity overall of that Lapidus type of approach.
So over the past, call it five years, there's been an emergence of a different way of doing the osteotomy, a minimally invasive way of doing the osteotomy, so that patients can get a, you know, a bunion treatment and get back to their lifestyle quickly. That's been growing in popularity over the past, call it five or six years, and today, that's one of the most exciting and interesting areas in bunion surgery.
We are capitalizing on that in two different ways. First, we've just finally rolled out our full commercial launch of our Micro-Lapiplasty, so that's a 2-centimeter, really minimally invasive way to do the Lapidus-type three-plane approach. And we're also going to be launching two different minimally invasive osteotomy platforms as we exit the year and go into 2025. Those are kind of the new trends that we're seeing and the ways that we've been preparing to capitalize on them.
That's great. Maybe just— So you got Lapidus fusion up to 30% penetration. It was about 15 with traditional Lapidus fusion techniques before you guys came onto the scene, more or less. So you expanded the Lapidus fusion market to around 30%. I guess, one, where do you see that penetration going over time, and should we assume that the rest of the market is, call it, 2D osteotomy, and what's the minimally invasive osteotomy penetration today?
Great, great question. So if you look at minimally invasive osteotomies, our surgeon surveys that we do, and we tend to do these on a fairly regular basis, indicate that about 10% of bunion surgeries in total are minimally invasive osteotomies today. So call it roughly 15% of the[crosstalk]
And you're not there yet?
Right. Call it 15% of the osteotomy segment is a minimally invasive osteotomy today. We're not in the osteotomy segment at all, which makes up, again, 70% of the procedures. So there's a very large opportunity for Treace Medical to introduce, you know, two very, we believe, novel, reproducible, highly instrumented, three-plane, minimally invasive osteotomy systems into the marketplace and equip our sales team, our direct sales team, with a full comprehensive suite addressing every aspect of the bunion market. Again, today we're only playing in the 30%, but we're going after the, the rest of the procedures as well.
Where are we on the kind of the Lapidus fusion slash Lapiplasty journey? Is 30%, we've arrived, or is it 30% going to 40, going to 50, going to 60? Where does that cap out?
You know, it's a really interesting question, Rich, and I don't know that we have the exact answer today. We'll let that play out over time. Will some of the minimally invasive osteotomies, the more aggressive use of that into very big deformities, get curved back over time? That's a possibility. So could the Lapidus or Lapiplasty segment continue to grow towards that 50, as you said, or will it kind of stabilize where it is? We don't know yet, and we really won't know until we have, you know, two horses in the race to put in the surgeon's hands and let them see how these results play out on their patients, and what the patients ultimately want, as far as what type of treatment and what type of outcomes they're looking for.
What does the minimally invasive osteotomy, 15% of the market, look like? Is it... you just said a two-player race, so does that mean there's really one player that's making inroads there, or is it a bunch of players that have solutions and you're going to be the next?... the next horse in the race, so to speak?
Okay, to clarify, I think what I said, the two horses in the race, those would be our product line.
Oh, sorry. Got it.
We'll have a minimally invasive and market-leading Lapidus approach, and what we believe will be a very interesting and exciting minimally invasive osteotomy approach in our portfolio. So that gives both sides of the market that we can go at it 100%. You know, we've got nearly 3,000 surgeon customers out there, and we're getting less than half of their surgical volume today. That means the rest is open for us with a osteotomy solution, and we believe what's going to be a very elegant, reproducible, and differentiated one to offer them.
Then, there's thousands of other surgeons that never really looked at Treace Medical or used our products because they viewed us as predominantly a Lapidus Lapiplasty company, and they look for every way they can to avoid a Lapidus surgery. So if we can offer them an MIS 3D reproducible approach, that's helpful. It opens the door to those customers and allows us to introduce our other suite of products, SpeedPlate, Lapiplasty, and everything else to those customers.
So maybe let's talk a little bit more about the new osteotomy launches that I think you said, you know, Q4, you'll probably or hopefully launch them, and then really 2025, it moves into a full launch. Is that right?
Yeah, we'll get a little sprinkling of impact in them in Q4, like a limited impact, and then as we go into 2025, that'll be another leg to the Treace Medical growth story.
So I guess, how are these two products going to be differentiated from the initial minimally invasive osteotomy offerings around the market today? And why do you need two?
Great, great, great question. I'll start with why they're going to be, we believe, differentiated to what's available today, and we believe, you know, market expanding. First of all, if you look at the current minimally invasive osteotomy options, they're difficult to do. They're typically freehand. There have been some jigs made by other companies. I'm not saying they're not appropriate or not good, but what Treace Medical really excels at is developing reproducible, instrumented solutions for what were, prior to that, very difficult freehand operations to perform. If you talk to surgeons that are doing minimally invasive osteotomies today, they talk about a 40-50 case learning curve to get proficient using a minimally invasive osteotomy approach. We think that's extraordinarily long, and we believe that we can completely change the game there like we did in the past.
Lapidus fusion and trying to do the third plane, the rotational correction, that was a very challenging freehand operation for people to do. Now, with the elegance and the reproducibility of the Lapiplasty instrumentation, our training, our surgical techniques, our direct sales force, that's very straightforward, and that's a very short learning curve. We're going to apply those same principles and same approach to our two minimally invasive osteotomy platforms. Why two platforms? Predominantly, they relate to two different philosophies on how the surgeon wants to place or what type of implant fixation they want to use, and there are two different schools there, and I'll, I'll kind of leave it at that today, and we'll explain more of that as they become a little more close to market release.
Okay. Will, will the offerings have different price points?
They'll predominantly be pretty close together.
Okay.
But they could have some slight variations here and there.
I guess just thinking about the osteotomy segment of the market versus Lapidus fusion, I've... And correct me if this is wrong, I've always thought osteotomy kind of was the easier, the more equalized kind of procedure, where everyone, you know, felt more comfortable doing osteotomies than Lapidus. And now you have MIS solutions to presumably make an easier, in quotation marks, procedure even easier or faster. I guess, is there less to innovate on in the osteotomy portion of the market relative to what there was for the really technically challenging and, you know, limited adoption of Lapidus fusion when you came to the scene? Does that make sense?
Yeah, no, it certainly does. And just to clarify, you know, traditional open osteotomies before the minimally invasive, yes, quite straightforward, and we were always comparing Lapiplasty, how quick can they do it, what's the reimbursement, all these variables to the traditional osteotomy. Minimally invasive osteotomy is totally different. It's much more technically challenging than a traditional osteotomy. It's got that 40+ case learning curve to it. So it begs for a company like Treace Medical, with our track record of developing elegant, reproducible instrumentation, to allow this to be, you know, democratized or and offered to the broad surgical community, foot and ankle surgical community, not just in the hands of a limited number that have gone through a long learning curve and are experts at doing it freehand.
Got it. So, you know, the osteotomy segment of the market, you guys are a pure play bunion company. You know, these were trends you obviously must have seen for a long time. You know, we are just learning about the minimally invasive osteotomy, you know, innovation efforts, more or less now or on your 1Q call. Is that just when we learned about it? Is this something you've always planned? And just talk to us about what seems, to the investor community, like a pivot. You know, we're talking more about MIS osteotomy when six months ago, it was all Lapiplasty and tons of runway there. So kind of help me think through the timelines here of when your strategy changed versus just when maybe you communicated it to the street.
Sure. And, you know, you go back to the very founding of the company, our first cadaver labs back in 2014, we were actually doing rotational osteotomies and rotational Lapidus. Our thing was to bring the third plane, the rotational part of the deformity, 'cause we knew if you could fix that, you could decrease recurrence rates. The clinical literature states this pretty clearly. So, at that time, and in our earliest IP filings, we even had coverage for rotational osteotomies. Now, minimally invasive osteotomies at that time weren't prevalent in the U.S., they were more predominant in Europe. But over the years, as we continued to have success with Lapiplasty and drive Lapiplasty further and further into the market, we were watching this minimally invasive osteotomy trend.
We knew that they hadn't been instrumented for reproducibility very well, and we fired up a development project, you know, several years ago, and we're expecting to launch that at the very end of this year. So that's been kind of the plan for quite some time. However, with the guidance change, we felt like we needed to kind of tip our hand a little early. A couple quarters before the guidance change, we were alluding to a new technology platform coming in late 2024, that we believe would speed our penetration and uptake in the bunion market, and that's what we were [crosstalk]
That's what you were alluding to?
That's what we were alluding to.
So I guess just thinking through it, right? 'Cause you did provide guidance at the beginning of the year, and that did get brought down on the 1 Q. You had some new product launches, namely SpeedPlate, in the fourth quarter that were launching. I guess, you know, where did the visibility change come? And it felt fast. So what—why was it so fast?
Yeah, Rich, I'll take that one. You know, we were very excited to launch SpeedPlate, and we saw a lot of uptake, and it was really a lot of surgeons loved our new fixation. We have. Since the beginning of the company, we had offered plates and screws, and it was the first time that we had something like a staple. There are definitely a lot of surgeons out there who prefer a staple construct, and it's similar to a staple. We believe that there's a lot of benefits over traditional staples out there. Titanium, stronger, it has some compression in the fixation, and we had a lot of surgeons really adopt it. And so this SpeedPlate was not really a separate procedure, but it's used in our existing procedures.
So whether you're doing a Lapiplasty or an Adductoplasty, we offered a new fixation option, and so a lot of surgeons really, really came to that. We were able to introduce or reach out to surgeons that were not customers yet and say, "Hey, look, we have a new fixation construct. Come talk to us." And so that was a really nice event for us. As John and I were thinking about and planning for 2024, we knew that we were going to begin offering some of these new MIS osteotomy platforms, and we just believe that the excitement around the SpeedPlate was going to really help us transition into that full-service bunion company really smoothly.
We just got a little surprised that some of these options that are now available to surgeons surprised us as far as the volumes. These two options are really two things. It's really what John has been talking about, what you've been asking about, is this MIS osteotomy space, but at the same time, in the Lapidus space or the Lapiplasty space, there have been a lot more companies who have offered Lapiplasty-like products. So there were, you know, five companies that launched new products in 2023 and more in 2024 as well. So there's been a lot more.
When we went public in 2021, there was one, and so now there we've created a lot of excitement in the space, and this happens, and we were aware that this was happening. I think just the speed in which and that momentum that that's caused was a little surprising. And so there's two places for our customer surgeons to go is it to the MIS osteotomy that John was talking about, as well as, you know, we believe there are more than 10 other Lapiplasty-like products out there, and they're with large companies, small companies, but they're all being aggressive because they've been able to see the success that Treace Medical has had.
We do know that, and we've surveyed, and we've talked to a lot of our surgeons, and a lot of them are trying these, you know, products that claim to compete directly with Lapiplasty. So we know that a lot of them just want to ensure that they're using the best product available. So there's some changes in the environment, whether it's that they're testing these other Lapidus products or if they're testing or maybe having more use of MIS osteotomies. The mix has changed a little bit. Now, the good news is we've been able to continue to add new surgeons to our, what we call our active surgeon base, and so those are surgeons that are doing at least one case a year, so it's kind of a trailing twelve-month look.
We continued to add a lot of surgeons in Q1, on track to what we had talked about earlier, that we would add, you know, from a guidance perspective, 250 to 300. So we know that we're still a great solution for a lot of surgeons looking for a Lapidus solution. It's really what we've seen is kind of the mix of how often those surgeons are using Lapiplasty versus these other alternatives.
It sounds like the market maybe shifted also a little bit to the growth coming more from minimally invasive osteotomy. You're contending with two forces: competition and maybe a little bit of a pivot.
Exactly, both at the same time.
Okay.
So that, that's what made it a little bit more surprising to us as we had our first quarter earnings call.
So, I guess, you know, and investors, you know, that makes sense, right? I guess investors are, you know, looking at the change in guidance, right? . From, you know, beginning of the quarter to end of the quarter. So obviously, the information you got intra-quarter changed a little bit to inform the guidance reduction. I guess, what can you say to investors to give confidence that you have enough visibility into the business to monitor what seems like these you know, backward-looking data points? to make sure that, you know, you've got the right level set now, and that it won't be kinda death by a thousand cuts?
No, good, good question. So, we have an elective procedure, and we always benefit from a lot more patients coming in in that fourth quarter. We also benefit from kinda what we call a carryover effect that comes into the first quarter, and that first quarter helps us set kind of the trend for the year. We had a lot of this carryover that came in in January and February, and we really kinda need to figure out ways to cut what's this carryover effect and what's our base volume effect. What we saw was in March, some of our base volume was slower, and then that continued into April. So we had both March and April information when we went into our first quarter earnings call, and we also had some visibility into May as well.
So one month doesn't make a trend. When we have you know, currently we have somewhat of a limited offering, and so, it's elective procedure, so one month doesn't make a trend. But when we saw two months and then visibility into third month, we said, "Hey, look, we're seeing a different trend for this year." And so we've done a lot of analytics, and we've extrapolated, we've looked at, you know, our sales rep changes and adds, and we've looked at our product offerings, and everything that we've seen, we feel really comfortable that we understand the new trend for this year, and that was what our guidance was based on, this new trend that we saw underneath.
Just because it feels like you're on a little bit of uncharted territory, this is me talking, so tell me if you think this is accurate. Is it safe to say that you tried to embed a, you know, what if factor in the outlook to a certain extent, just to potentially capture the possibility that things may continue- A- to change?
Absolutely. We looked at a lot of different angles here, and just like what John was saying and the questions that you're asking, there are a lot of changes. And so we wanted to look at all the what ifs and really comprehend all of those. And so, you know, we believe that we gave a very thoughtful and prudent guide, and then we'll execute from there.
You know, you also kept your near-term and longer-term profit objectives unchanged, despite a fairly substantial revenue growth outlook change. Maybe can you talk a little bit about how and why you're able to do that? And, you know, it sounds like competition's increasing. You have innovation and growth to be had, but you need to play a little bit of catch-up in the portfolio to get there.
Right.
Those sound like investment areas. So why is now the right time to maybe, you know, find operating leverage in the model?
Yeah
When revenue growth is coming down?
Well, well, I think the first thing that it goes back to one of the earlier questions is, you know, when, when did we start developing all these MIS osteotomy platforms? Well, it's been going on for a long time, so this is not incremental investment that we're making. It's keeping steady with what we've been doing for a long time. So we won't necessarily see a dramatic increase in the investment there. You know, we've had high growth. We've, we've enjoyed that high growth. We've had a lot of plans to build the company to support high growth. And, and on our earnings call, we said: Hey, look, if we're not gonna be where we thought we were, we were gonna be, we're gonna pull back and on some of that discretionary spend.
Some of that is, you know, we've been able to really get efficiencies out of, like, our DTC, for example. So although we've cut back in our spending, we've got a new leader, Nathan Minnich, who's our Senior Vice President of Marketing, who's been able to spend less, be far more efficient. We're driving even more people to our website on less spend. So that's exactly what we're doing throughout the company, is we're saying: Hey, how can we do more with less and be completely and more efficient here? So we feel really good about our commitment that we can continue to meet that adjusted EBITDA, that profitability guide that we had at the beginning of the year.
Notwithstanding the fact that we're planning to have less revenue, and that's the way we're looking at it as an entire company is, you know, let's be efficient here. We recognize the value proposition in having high growth, and we also recognize that value proposition in being more profitable, so we're committed to both.
Is it, is it fair to say that for a 10%-15% growth profile, which is kind of where, where you are on a full year basis?
Right
Less than that, obviously-
Yeah
in Q2. But you know, for a 10%-15% growth profile versus 20%-30% over the last few years, that the current spend profile you just mentioned is adequate to sustain that level, and that only if you get back to maybe, like, a 15%-20%, then you would commensurately drive up the-
So we've made a lot of changes. We've, you know, delayed some hirings. We've changed some of our expense structure. Look, we will not only... You know, not only do we feel good about our commitment about profitability this year, we're committed to having increased profitability next year as well. So regardless of that level of growth, we're committed to making those improvements in the middle of the P&L as well.
Okay.
Yeah, I mean, we've got a $200 million business, 80% gross margins, tremendously efficient, capital light, relatively low inventory levels compared to the general orthopedics industry as a whole, even some of our peers. So there's a lot of room to move and, you know, make this company more profitable faster. It's just a matter of balancing what do we want from growth and what do we want to the bottom line?
I guess, five seconds left. Quick, Mark. Now, just on gross margin, what should we think about in terms of these new products and MIS osteotomy?
So our goal continues to be right around that 80% gross margin. We tend to step down just a little bit as we release new products 'cause we don't have those efficiencies, but it's continues to remain our goal at 80% or north of that.
Okay, great. I think we're out of time there. But, John, Mark, thank you so much for the time, and thank you for everyone joining us.
Thanks for having us.
Appreciate it.