Good morning. My name is Craig Bijou. I'm one of the medical device analysts here at BofA, and it's a pleasure to have Treace Medical here, and from the company, John Treace, the CEO, and Mark Hair, CFO. Thank you guys for coming.
Thank you, Craig.
Thank you. Really, really gracious to be here, and excited to be at the Bank of America healthcare conference, first time.
Well, great. Well, thanks again. You know, maybe just, you know, I don't specifically or I don't cover you guys, maybe just from a high level, you're a unique, high-growth orthopedics company. You know, would love to hear a little bit more from a high-level perspective kind of what you do, what you're, you know, what you do.
Sure thing. Happy to. The company was founded in early 2014 in Ponte Vedra Beach, Florida, with an emphasis on trying to improve standard of care and clinical outcomes for bunion patients. We've done that through the development and progressive market penetration with our Lapiplasty 3D Bunion Correction System. Lapiplasty is disruptive technology. It's serving a large market opportunity. There are about 65 million Americans that are affected with a bunion deformity, so the prevalence is very high. About 5 million patients each year seek medical attention for their painful bunion, and about 450,000 undergo surgery every year to treat that painful bunion. There's about a 2-to-1 ratio between the patients that are being treated surgically and those that really need the surgery, so we have about a 1.1 million patient base that needs surgery.
Bunions are progressive. They only get worse. They don't get better. We view that as our, you know, $5 billion+ TAM here in the U.S. We're about 5.8% penetrated, revenues of about $142 million as we exited last year. We just closed out Q1 with, you know, a 45% growth rate and upped our guidance for the year.
That's great. I'll get into some of the specifics on Q1 and then, you know, some of the other metrics that you do provide. Again, maybe from a high level, you guys have seen, you know, very strong growth the last couple years. I think it's 50%, 65% in 2021, 50% in 2022. You just referenced the 45% in Q1, and guidance is mid-30s, if I'm correct. I guess, you know, what's been the key driver to that over the last, you know, several years? Maybe you can just kind of walk us through, you know, how you've seen, you know, what has been the real driver.
Sure. You know, we've been commercial now for approaching 8 years with the technology. What we've been investing in is rapid R&D innovation to make the procedure faster, easier to do, better outcomes for the patients. We've also been investing heavily in multicenter prospective clinical data and a really unique and differentiated portfolio of datasets that we can make, you know, really good claims about the outcomes that surgeons and patients can expect to see with the technology. Rapid R&D innovation, clinical datasets that are differentiating, and our direct sales channel. That's been a really strong component of our market penetration strategy over the past few years. Our direct-to-consumer patient awareness campaigns.
We leverage our clinical data into being able to make statements to the patient population, inform them that there's a better bunion solution out there today. Prior to the introduction of Lapiplasty, if you asked a patient that had bunion surgery if they were satisfied with their bunion case, there's probably a 30%-50% chance they'd say no, and they would recommend a peer not having it. You know, with our ALIGN3D multi-center study, we're now seeing patients that are three years out, 97% of them are saying they're satisfied or very satisfied with the outcomes of Lapiplasty procedure. We're really changing the expectations for bunion surgery, and that's what we think can help expand this opportunity from the 450,000 to that 1.1 million patient group over time. Those have been the components directionally.
Great. Maybe let's kind of touch on Q1. That 45% growth, obviously you saw procedure growth, you saw some ASP growth. Maybe just provide a little bit of perspective on, you know, how much each contributed to the overall growth in the quarter.
Yeah. It was probably it was an overall blend. You know, we had strong underlying, continued Lapiplasty kit growth rates. We also did benefit from the impact of several new product launches that we announced last August. There were several things. The full launch of our Adductoplasty System. This is for midfoot correction that's performed in conjunction with the bunion procedure. Every time an Adductoplasty case is performed, it adds several thousand dollars on top of our, you know, $4,800 Lapiplasty case. That's a system that's been designed to reproducibly correct a challenging midfoot deformity that occurs in up to 30% of bunion patients. Clinical literature shows if you don't correct that deformity, you don't have as great an outcome with the bunion correction.
All through this focus on the bunion, we've developed these new, unique drivers of our blended ASP. We also announced a new plating system called our S4A anatomic plates, and this is a more anatomic design that fits the anatomy better on a broader variety of patients. What it's doing out there is supplanting or replacing our core prior Lapiplasty plating kits at a little higher ASP. The more that carves into and replaces and cannibalizes our other plating systems, it's helping drive the blended ASP higher. We announced the launch of a couple tissue release instruments.
These are sterile packed, single-use instruments that are designed to make previously difficult soft tissue, release procedures much more simple, much more straightforward and reproducible. You add all those up, and they're starting to drive our blended ASP up, and we ended up with a $6,244 blended ASP in Q1. That was up 13% over Q1 of last year. We're very pleased with that, and we think that can continue to go up and to the right over time as more of our R&D pipeline projects that we have in development now start to commercialize.
Got it. I know you get asked this, you know, the stickiness of the Adductoplasty or the, you know, the stick rate, you know, with Lapiplasty. I mean, do you provide that metric? Is it on the majority of cases that you're also getting the Adductoplasty?
Well, you know, we've surveyed our surgeons, and they say that they could foresee using Adductoplasty on about 15% of their Lapiplasty cases at some point in time. We're at a fraction of that in terms of converting that market, so we've got a long, you know, runway ahead of us to continue to add more Adductoplasty cases to our overall mix. Those two are performed, though, hand-in-hand 99% of the time.
Yeah.
The stick rate is, you know, really high between those two procedures in the same case.
In the cases that, they're doing a Lapiplasty but not Adductoplasty for specifically, what, you know, what are they using? Are they using a competitor? You know, what are they using in those cases that they're not using your Adductoplasty case, or?
Well, You know, we typically wouldn't see a situation like that.
Okay.
We teach the two techniques hand-in-hand when we bring doctors to our advanced trainings and teach them how to use Adductoplasty. They typically do that procedure first to realign the smaller toes. And get them straightened out, and then they'll do the Lapiplasty on the big toe to straighten it out. They go together hand-in-hand.
Got it. Okay. Then I do, you know, I do have to ask this. You know, so you beat, I think you beat by $3 million versus the street. You raised guidance by $3 million, I think. You know, we've seen different strategies or different, you know, companies take different tacks in terms of, you know, flowing through the beat to or, you know, raising guidance, but raising it by more than the Q1 beat. You guys chose just to kind of flow it through. You know, maybe, you know, in conjunction with answering that question, you know, how should we think about the cadence? You know, how is seasonality impacting the rest of your business?
Is there anything that, you know, we should be aware of for the rest of the year that may have factored into kind of the amount that you've raised guidance, recognizing that your growth is, you know, guidance is still pretty strong, so?
Craig Bijou, maybe I'll try to answer that one. Hopefully, you can hear me. Yeah, we feel really good about Q1. All those things that our strategic focus that John has been talking about, our direct channel build, the DTC education programs that we have for patients, and our product innovations, those things were really the focus of last year. We had a very strong Q4. Q4 is typically our strongest quarter for elective bunion procedures, so we had a really strong Q4. In fact, it was so strong that we really had that trickle into and extend into Q1. That was a really strong, nice thing to see there in Q1.
We had a strong 45% year-over-year in Q1, and then we did raise to 34%-38% growth over last year. We feel that we're very well set up for the balance of the year, Q2, Q3, as we prepare for the strong Q4 again. Nothing really new or different from any other year that we've seen. We feel like we're locked and loaded and excited about Q2 and Q3.
Maybe just following up on one point you made, Mark. We've heard, and seen, you know, the numbers, strong ortho procedure numbers, from a number of companies. Some of it is, you know, comp related or if you look at the growth rates. Some of it is that same dynamic where Q4 demand was very strong and the procedures just couldn't get done, and they ended up coming into Q1. I don't know if you're willing to talk, you know, at all about kind of trends within Q1, what you see January, February, March. You know, what's your view on kind of where procedures are in Q1? It sounds like there was some, you know, spillover. Is there a pent-up demand there?
I guess we're all trying to figure out exactly what the orthopedic procedure volume environment is like. I recognize that foot and ankle may be different than hips and knees, but I would just love your perspective on what you're seeing in your market.
Yeah. I would say, you know, my comments were more specific to the elective bunion procedures. We've seen this very strong Q4. Deductibles are met. It's a great time to get a procedure. You may have additional time off, so a lot of patients come into the Q4 time period. We've seen this benefit of this strong Q4 push into Q1 for two years now. That's just our seasonality. We see, you know, Q2 and Q3 a little bit different phasing than what we see in Q4 and Q1. Again, it's difficult for me to speak to the whole orthopedic market or the broader foot and ankle market, but that's definitely what we're seeing.
We feel like it was a very strong Q1. Again, we did raise the guidance by that $3 million beat. We feel good for where we're positioned for the balance of the year.
Great. Okay. Let me, you know, one thing that stood out to me or stands out to me is, you know, your utilization. You know, you guys talk about the, your penetration amongst bunion surgeons. That's roughly 25%. Your penetration in bunion procedures is 6%. Obviously there's a little bit of a delta there. Utilization still continues to be strong and growing. You maybe, John, if you could talk a little bit about kind of that dynamic, you know, how you get those two numbers, you know, to converge a little bit more because, you know, that seems like the opportunity that you guys have.
You're right. It's a huge opportunity. You know, we can get 10% of the symptomatic surgical candidates penetrated over the next several years at our blended ASP, you know, it's a $600 million business. It doesn't mean we'll stop there, but it speaks to the power of, you know, what type of shareholder value this type of focused strategy and focus on penetrating that market can create. You know, we've got the benefit of seven years of great data on our user cohorts. We know today that the average first 12 months, full 12 months a surgeon uses Lapiplasty, they do about 6.5, 6.7 procedures. That jumps their next year up to 10 procedures. By year three they're up to 13.
They climb 50% year one, another 30%, and then by year five or so they're approaching 20, which is, you figure the average bunion surgeon does, call it 35 cases a year. You know, you're at a pretty good percentage of their overall practice. What's happening is we have, you know, nearly half of our customers have come within the last 24 months, so they're at that lower utilization end and they're diluting down. We've segmented that data. We know that if we take those out, you know, the utilization goes up, market penetration goes up over time.
The way we look at it is if we can get half the doctors in this country using Lapiplasty, 20% of the 450,000 penetrated, we've got a $600 million plus business in the out years. That's kind of how those converge. All the things we're doing to get more dedicated, focused, you know, direct reps on the street to call on a smaller group of doctors, evolve the technology so it's faster, easier, less invasive, continually supercharge our DTC patient awareness campaign so that more patients are getting educated and ultimately booking consultations. All these things we think can work to try to speed up that utilization.
We do know that this past year's 12-month for, you know, 12 full month cohort has embraced Lapiplasty at a higher rate than any prior 12-month cohort. They did an average around seven, where the average was 6.5 in the past. They seem to be coming on more aggressively, we think that's because, you know, of all the things that we're doing, plus the fact that Lapiplasty is becoming a much more established procedure now and we're starting to get this sort of, I know a respected peer that's using it and getting great results, and that's why I'm getting trained on it and adopting in my practice. That's what we'd like to see. Shows we're in the early majority part of the adoption curve, you know, we're gonna keep running that playbook going forward.
Got it. And, I think you said half of the surgeons that you've trained have been in the last 12 months or 20?
24 months.
24 months. Okay.
Yeah. Where they're in that 6.5 to, you know, 9-10 procedure range.
Okay, that 6% procedure penetration, if you kind of look back a couple of years, that's probably more of the, like, a better comparison as to how penetrated you are amongst your trained surgeons.
If you took the, you know, the year fives that are out there approaching 20, you know, that's getting into.
Okay.
You know, over half their practice.
Okay, that's helpful. DTC. You guys have, you know, been very strong and made a lot of investments in DTC. I think it's worked very well for you guys. It's probably benefited the entire industry, you know, to be honest. And I think you talked about, and I think it's you're investing more this year. I don't know if it's incremental, but I'd love to just kind of hear about your DTC investments this year. You know, maybe a little bit about the strategy now. Are you targeting certain geographies that maybe, you know, you aren't as penetrated as you are? Maybe just a little bit more color on, you know, the incremental spend on DTC.
Sure. We're both spending more incrementally this year, and we started our DTC programs a little earlier, you know, in Q1 this year. Last year it was right at the end of Q1 and Q2. You know, we have the fortunate benefit of having started this back in mid-2018. First trying social media and Facebook, seeing some good responses there. Adding to the mix Google Paid Search, more PR, and then evolving even to some targeted, you know, TV and streaming campaigns. We've got those mixes that we've been dialing in over the years, measuring and monitoring the results and looking at the, you know, the quantitative data off our website, and then also surveying our customer users to see, you know, what percentage of your patients are coming in pre-educated and maybe even asking for Lapiplasty.
As our investment's gone up, we've seen, you know, progressive increases in all that type of patient activity. On the surveys, we see higher ratios of doctors saying that patients are coming in pre-informed, and they're actually more ready for surgery, frankly, than a patient that is just coming in saying, "I think I have a bunion, what do I do?" We continue to tune that, try to drive more high involvement actions on our website. They can look for a doctor. That, we can collect that data. They can fill out a patient survey, am I a candidate? Their email goes into a database. We have hundreds of thousands of patients in a database that we can, you know, send messages to on occasion.
What we're seeing is even though we're spending more, we're reducing the cost per high-involvement patient action, which is exactly what we wanna see over time.
In any, I mean, I guess target areas, like is that how you think about it?
We apply it.
Is it just a national campaign?
We apply it more nationally.
Okay.
Yeah, we've got a pretty good distribution of doctors now, you know, 2,500 of them, you know, across the country that can receive these patients. That's why we thought we really aggressively built the sales channel last year. We had modest DTC. Now we've got a big sales channel. Now we've got 25% of the doctors doing Lapiplasty. Now we're ready to step up our DTC because we have a bigger network of surgeons that can receive all these patients that are getting educated and coming in and talking to their doctors about Lapiplasty.
Okay. Helpful. I guess somewhat related, the blended ASP, expanding the portfolio, you talked about some, you know, some new products that are coming that can help drive the ASP higher. You've seen, you know, as we talked about, you've seen strong ASP growth. You know, maybe just talk a little bit about the dynamics of kind of what else you can add to the portfolio that can drive that ASP higher. Obviously, there is likely some limit, you know, relative to a reimbursement perspective on how high you can drive that, you know, that blended procedure ASP.
You know, maybe just the balance between kind of adding in new products that kind of fit in with Lapiplasty, and maybe a ceiling that you may have, assuming reimbursement doesn't just keep going up and up and up.
Right. Well, we have benefited from annually increasing Medicare facility reimbursement rates for the last seven years. They tend to be going up low to mid-single digits. You know, just to talk at a macro standpoint, about half of our Lapiplasty cases are just a Lapiplasty, and that has a certain material reimbursement rate. The other half have additional procedures that elevate the reimbursement rate for the material. If you mesh those two together, the average reimbursement on a Lapiplasty case, blended would be around $10,000. We're at $6,200 today. We're not really bumping up against any immediate ceilings. We do have a very active R&D program, a team of doctors that are really focused on developing products that can serve procedures that overlap with the bunion and high frequency.
That as our sales reps are in these call, in these cases, we keep them focused on penetrating the Lapiplasty bunion opportunity, but they're able to add in more problem-solving solutions from Treace Medical, increase our wallet share of the overall case and increase their income, and that helps us, you know, to divide and create more new territories over time. We think it's a great model. Our limited SKU strategy has been very effective because we're able to be so efficient in building the business and building that average revenue per case.
Yeah.
Specifically, Craig Bijou, you talked a little bit about what's coming. The one thing that we've talked about is some of our new technology, the SpeedPlate technology, and that could be incremental to our blended ASP as well. On our earnings call this week, we talked a little bit about some of the early feedback that we're receiving, which has been fantastic, but it's a much smaller fixation technology. That's really going to come later, you know, probably Q4 of this year, and then we'll really see some incremental benefits next year as well. That's gonna be a really positive impact for our surgeons as well.
Yeah, absolutely. We're really excited about that platform. I forgot to mention, you know, the majority of our patient demographic makeup is commercial insured, which the reimbursement could be, you know, elevated relative to the Medicare.
Yeah.
Something to keep in mind.
Yep.
Maybe an extension on that, you're very bunion-focused today. I mean, longer term, you know, is there a desire, a plan to expand beyond bunions into other foot and ankle categories, procedures?
It's a great question, and we get it a lot. I think this focus on the bunion, you know, the way we see it, you can get to about 70% of the total foot and ankle opportunity, you know, off of the bunion because it's involved with so many comorbidities that are associated in the foot. Some are gonna be highly overlapping, and some are gonna be much lesser overlapping. You can develop a broad portfolio that's bunion-focused and keeping your sales people in those bunion cases, but able to capitalize on more and solve more problems for that doctor in that case. I say that with, you know, knowing that, you know, $600+ million revenue we can generate from getting 10% penetrated at our current blended ASP.
it's hard to say, why would we divert from penetrating the bunion opportunity with Lapiplasty as the tip of our spear, and diversify broadly when you've got that kind of opportunity out there?
Got it. I understand. Maybe talk a little bit about the P&L now. It seems, I mean, I think the Street is expecting this to be an investment year, I guess, relative to 2022. I think the guide or the estimates are EBITDA is a little bit worse than 2022, and I'm not sure how much detail you guys have provided specifically on... I know you're gonna keep hiring direct reps. I know the DTC campaign. I know you've laid out some expenses. I don't know how much you specifically talked about kind of profitability expectations for 2023.
You know, maybe if you can give us a little perspective on, you know, how you guys think about, you know, the balance between investment, driving the top line and maybe some of the expectations for 2023. You know, is 2024 a leverage year? 2025 a leverage year? Just trying to understand a little bit more.
Yeah. Great question. If you think about the story, we went public in 2021, really 2022, last year, as we talked about being our first, really an investment year. We got some growth capital. We put that to work last year in 2022, had some great results. A lot of this year is a continuation of the same commercial strategies and some carryover and annualization of those strategies that we have into this year. The only thing we said about profitability is our number one goal and objective is just what John said already, continue to expand the marketplace, drive top line growth through attracting new surgeons, because we know when we get those new surgeons, we know how they're gonna behave over time.
Put them in the funnel so that we can benefit from those new active surgeons over time. When it comes to profitability, we've said this year that we will have some leverage on the P&L, and we're looking for some improvement on a dollar basis on the adjusted EBITDA over last year. Next year will be a greater opportunity for increased leverage than what we have this year in 2023. With that said, we will have improved leverage this year over last year. You know, we just feel like this is such a great time to move forward with these investments. They've been working so well, to John's point, that there's no reason to pull back.
As we now have 25% of surgeons using Lapiplasty, you know, we just want to expand that into 30% is our next target, and then all the way up to 50% or more.
Great. We have a few minutes left. Maybe we could just talk about the competitive environment. Obviously a number of players in the space. John, you talked about the importance of clinical data that you guys have, and it's funny 'cause it's not usually a topic of conversation in orthopedic markets. It is a little bit unique. You know, I guess maybe talk a little bit about how that resonates with, you know, foot and ankle docs and, you know, how that does give you a competitive edge, if it does, like how you see that?
Yeah. you know, in this market there are a lot of, the standard are kind of like case studies or a lot of anecdotal or maybe single center. We have a, you know, we have a 7 center, 13 surgeon, post-market study with some really sophisticated data coming out of it. You know, not just time to, you know, return to weight bearing and time to work and full activities, recurrence rates, but, you know, patient reported outcomes. How are they doing socially, mentally, and physically as well, and how satisfied are they? We think this is really meaningful data to patients. I think the doctors that we work with and we talk to respect that we're investing in it.
They'll tell us, you know, "It's just really obvious that you care a lot about what you do because you as a company do things that you don't have to do and other companies don't do in orthopedics." You know, we have an expert sales force. We have a big fleet of clinical specialists out to make sure their first cases go really, really well, both Adductoplasty and Lapiplasty. We have the clinical data sets. We do make patients aware of the procedure and its benefits, so forth. I think the clinical data, you know, foundationally serves a lot of purposes for us, and it does help us, you know, when we're trying to break into larger, you know, tougher IDN networks, hospital groups that we do have the clinical evidence. We're taking the study out to five years.
You know, we already have a lot of patients out at four years. We'll be submitting that ALIGN3D final data set to a peer review publication later this year. That's a great milestone for us. We've been working on it for over five years. When that's in peer review, we think we'll have a really nice piece. Broadly or in general, the competitive landscape, you know, the way we look at the competition is our biggest competitor is changing the mindset of doctors applying the osteotomy procedure to 70% or more of their cases. We're more focused on changing the doctor's perspective on what procedure or what technique to use versus what competitor should we try to displace or what competitor's trying to, you know, get at our business.
You know, that said, there are companies out there with products that are, you know, they're saying are like Lapiplasty. We're very fortunate to be on this very early in 2014, laying down a lot of great patents on this pioneering work we were doing in 3D Bunion Correction. It's made it difficult for these companies to produce something that's as an elegant, straightforward, and reproducible at that doctor-patient interface. We're not discounting these companies. We're not discounting their products, but they're highly diversified companies. The reps have big bags of products, and this is just another in the bag, and it's gonna get a fraction of their time. This is a company with over 400 people that only do this all day long.
We're way out ahead, we innovate and iterate so rapidly on our product that it's hard not to be shooting behind if you're a competitor, because we'll already be two or three generations ahead when they get to market. It's hard to compete with a highly focused company that's so far ahead and moving that fast if you're a big diversified player.
Great. I think with that, we're out of time. John, Mark, thank you so much for for coming.
Thank you, Craig.
Thanks, Craig.
Appreciate it.