Treace Medical Concepts, Inc. (TMCI) Q4 2022 Earnings Report, Transcript and Summary

Hello, and welcome to Treace Medical Concepts Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there would be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Vivian Cervantes of Investor Relations. You may begin.

Good afternoon everyone, and welcome to our fourth quarter 2022 earnings conference call. Participating from the company today will be John Treace, Chief Executive Officer; and Mark Hair, Chief Financial Officer. During the call, we will offer commentary on our commercial activity and review our fourth quarter financial results released after the close of the market today, after which, we will host a question-and-answer session. The press release can be found in the Investor Relations section of our website at investors.treace.com. This call is being recorded and will be archived in the Investors section of our website. Before we begin, we would like to remind you that it is our intent that all forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends, as well as our estimated results or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and Treace assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to our SEC filings, including our Form 10-K for the full-year 2022 to be filed on March 8, 2023, for a detailed presentation of risks. With that, I now turn the call over to John.

Thank you, Vivian. Good afternoon, everyone, and thank you for joining us on our fourth quarter 2022 earnings conference call. 2022 was another great year of growth and execution at Treace. At the beginning of the year, we strategically increased investments into proven business strategies, namely growing our direct bunion-focused sales channel, increasing investments into our patient awareness DTC initiatives, and making targeted R&D investments in Lapiplasty innovations, as well as in our expanding suite of complementary products. These investments resulted in strong revenue growth of 50% over 2021 and realized continued gains in our key operating metrics. Our operations continued to scale through 2022, ending our seasonally strong fourth quarter with positive adjusted EBITDA. We are proud of the progress we've made and believe we've built a strong foundation that will continue to fuel our growth over the coming years. Before I go into details about the quarter and year, let's start out with our market summary on where we stand today. Our disruptive Lapiplasty solution was specifically developed to correct the root cause of the bunion and address a large and underserved market. We've identified an addressable $5 billion plus U.S. market of 1.1 million annual surgical candidates of which only 450,000 undergo bunion surgery each year, which we believe is mainly due to limitations associated with current standards of care. As of the fourth quarter of 2022, we have penetrated approximately 5.5% of the estimated 450,000 annual bunion surgical procedures in the U.S., up from 3.8% in the fourth quarter of 2021 and reflecting approximately 2.2% market penetration of the 1.1 million annual U.S. surgical candidates that constitute our $5 billion plus total addressable market. Turning to our Q4 and full-year results. Revenue in the fourth quarter was 49.8 million, representing 49% growth over the fourth quarter of 2021 and was slightly above the previously announced revenue range expectation of 49.1 million to 49.6 million. During the fourth quarter, we continued to benefit from our commercial strategies and investments with strong demand trends from surgeons and patients and growing sales force productivity. For the full-year 20-22, revenue was 141.8 million, 50% increase over 2021 and also slightly above the top-end of our pre-announced revenue expectation of 141.2 million to 141.7 million. Notably, our revenue growth in the second half of 2022 was above the growth rate we experienced in the same period for 2021. Therefore, we're extremely pleased not only with our top line growth, but also sustained positive trends in our key operating metrics during the fourth quarter, including our expanding direct bunion-focused sales team, which accounted for 77% of our Q4 revenue mix coming in well-ahead of our 70% target for the year. Strong steady increases in the number of new surgeon users ending Q4 were 2,387 active surgeons, which is an increase of 604 during the year, up 34% year-over-year, a year-over-year increase in trailing 12-month surgeon utilization with an average of 10.3 kits per active surgeon in Q4 up from 9.8 kits a year ago and strong blended average selling prices of $5,907 per Lapiplasty kits sold in the quarter, representing 10% growth over the prior year, due to steadily increasing contribution from our Adductoplasty Midfoot Correction System, as well as our more recently commercialized [S4A Anatomic Plating System and SpeedRelease] [ph] and our TriTome tissue instruments. Our strategic investments and commercial focus have allowed us to successfully grow our business, giving us confidence we have a well-defined proven and scalable commercial strategy. Therefore, as we turn to 2023, we are providing full-year revenue guidance of 187 million to 193 million, which reflects an increase of 32% to 36% over 2020 revenue. We look forward to balancing aggressive execution on our proven strategic initiatives to maximize our growth and market penetration with modestly improving expense leverage. Given our market differentiation and large $5 billion plus U.S. opportunity, we remain committed to our growth agenda. Shifting now to our commercial and market development activities. As discussed, we made targeted investments in 2022 with the goal of increasing our market penetration by expanding the footprint and coverage of our bunion-focused direct sales channel, advancing our patient awareness DTC initiatives, and driving more targeted R&D investments into the market. We have a highly specialized team at Treace, including a rapidly growing direct sales force, one that's 100% focused on bunion and related mid-foot surgery, and represents the only such organization we're aware of in the med tech industry. We believe this has contributed meaningfully to our revenue and market penetration. In the fourth quarter, 77% of our revenue was generated by our direct sales force, up sequentially from 74% in the third quarter and up from 58% just a year ago. We were happy to announce last quarter that we surpassed our previously communicated 70% year-end target earlier than anticipated and we expect to grow to a higher mix of direct revenue over time. We ended the fourth quarter with 168 quota carrying direct sales reps, an increase of 107% from the 81 direct reps that we had at the end of the year 2021. Given the strong interest from great candidates to join our employee sales team, we're also happy to announce that we exceeded our year-end target 150 quota carrying sales reps set forth at the beginning of the year. We believe these new reps are joining our team because of our unique growth profile and culture driven by disruptive technologies that are backed by strong clinical data sets and supported by our market leading patient and surgeon education programs. Including associate sales reps, clinical specialists, and sales management, our employee fleet in the field increased 85% to 267 sales employees in the fourth quarter, compared to 144 employees at the end of last year. We continue to experience strong benefits from our expanded direct sales team. Our direct reps typically scale with significant revenue and cost leverage achieved within 24 months, primarily because they're exclusively focused on our products and fully utilize our suite of corporate resources and programs. In 2023, we plan to continue to invest in our direct sales channel to drive increased market penetration with a target of having over 200 quota carrying direct reps by the end of the year 2023. Our patient awareness DTC initiatives are a key component of our commercial strategy. We remain focused on our patient awareness DTC initiatives that are designed to educate and steadily increase the number of potential patients visiting our website, become educated on the benefits of Lapiplasty, locate experienced Lapiplasty surgeons in their area, and ultimately for these patients to schedule a consultation. Our investment DTC is resulting in hundreds of thousands of patients visiting our website every month and tens of thousands of patients searching for a Lapiplasty surgeon in their area. Now, with one out of four surgeons in the U.S. using Lapiplasty, we have a larger and expanding national surgeon base that can field inquiries from a higher volume of patients. Given this, we believe the time is right to step-up our DTC investments in 2023, which we've initiated earlier this year than last. Our surgeon education and training programs also continue to be well-received. Interest in attendance by new surgeons at our training events was strong and oversubscribed very often in 2022. Likewise, our advanced training events both online and in-person where our more tenured surgeons can acquire advanced skills and learn new approaches such as our Mini-Incision and Adductoplasty procedures continued to show strong surgeon demand. Our education programs play a key role in the effective onboarding of new surgeon users and increasing the skills of our existing users, broadening their patient indications. During 2022, we added a record 604 new surgeons compared to 508 in the same period last year, representing a 34% increase. We are encouraged to see this continued strong growth in our surgeon user base. As of the fourth quarter, our active surgeon base, which includes surgeons who performed at least one case in the trailing 12-months, has achieved approximately 24% penetration of the estimated 10,000 Foot and Ankle Surgeons who perform bunion surgery in the U.S. As our surgeon base continues to mature, we look forward to utilization gains with increased use of our Lapiplasty and Adductoplasty systems, as well as further adoption of our growing portfolio of complementary products, all supported by our expanding direct sales channel and patient awareness DTC initiatives. We were pleased to see the high level of interest and attendance of new surgeons at our training events in 2022. And it's evident that we offer a great education platform for a growing network of Lapiplasty surgeons and we look forward to hosting additional surgeon training events in 2023 across the country and in our new state of the art training facility here at our headquarters in Ponte Vedra. Speaking now to our product development strategy, we have an R&D team committed to driving innovation to maintain our industry leadership with programs for both next generation bunion correction systems, as well as the development of new complementary technologies addressing other bunion-related pathologies, and IP defense of our technology and innovations. At the end of Q4, we had 40 granted U.S. patents and over 46 U.S. patent applications pending. 2022 was a terrific year of innovation for us. Following full commercialization of our Adductoplasty system in Q2, in August, we announced the full commercial release of our Lapiplasty 3-in-1 [catgut] [ph], our Lapiplasty S4A Anatomic Plating kit, and the SpeedRelease and TriTome tissue release instruments. While still early, adoption of these products has progressed nicely, and we are encouraged by the favorable response received from the surgeon community for a growing portfolio of bunion-focused technologies. In February at the American College of Foot and Ankle Surgeons, we highlighted two new exciting product innovations, namely our micro Lapiplasty system. This is an advanced instrumentation option designed to further reduce both the incision size and related tissue dissection with the Lapiplasty procedure. This evolution of our instrumentation allows the bunion correction and joint preparation steps of patented Lapiplasty procedure to be performed through 2 centimeter incisions, and our speed plate implant fixation platform. This is a new fixation technology platform designed for rapid insertion through small 2 centimeter incisions serving as both an enabling technology for the micro Lapiplasty procedure, but also with broader applicability to our standard and mini-incision Lapiplasty systems, as well as Adductoplasty midfoot procedures. We continue to anticipate the commercial release of these technologies during the second half of 2023. We're excited about the potential benefits this micro Lapiplasty SpeedPlate combination could bring to patients. As with any procedure that involves smaller incisions and less tissue dissection, we believe this can translate to even faster patient recovery with less pain and swelling. We look forward to providing additional updates on our new product innovations as we continue to develop our pipeline centered on our core technologies and IP aimed at improving surgeon user experience, patient outcomes, and supporting continued market penetration. Turning to clinical data. A key differentiating driver for our business is our commitment to clinical evidence, which we believe resonates with both surgeons and their patients. From what we can see in the marketplace, we believe we're the only industry participant with a growing body of clinical data demonstrating rapid return to weight bearing in a walking boot with low recurrence rates at 12 months and 24 months and interim data demonstrating positive patient reported outcome scores following our bunion correction procedure. During the fourth quarter, we announced the treatment of the first patient in our MTA 3D Adductoplasty clinical study. As a reminder, the MTA 3D study is a prospective multicenter clinical study that will evaluate outcomes of Adductoplasty combined with the Lapiplasty procedure for patients in need of bunion and mid-foot deformity correction. We look forward to providing interim updates on our MTA 3D study in the future. At the 2023 American College of Foot and Ankle Surgeons Annual Scientific Conference in February, we announced an interim data analysis from our flagship ALIGN3D prospective Lapiplasty study on 128 patients with at least 24 month follow-up, which demonstrated early return to weight bearing in a walking boot in an average of 8.1 days, a low recurrence rate of 0.9%, 80.8% reduction in pain measured using the visual analog scale or VAS at 24 months, 92% and 90% improvement in walking standing and social interaction patient reported quality of life measures respectively using the Manchester-Oxford Foot Questionnaire, or MOXFQ through 36 months and notably 97.3% patients reporting they were satisfied or very satisfied with the overall results of their Lapiplasty procedure at 36 months. We believe we're the only company to offer this level of clinical evidence on a commercial surgical bunion product and it's rewarding to see the meaningful impact the Lapiplasty procedure is making on patient’s lives not only physically, but socially as well as demonstrated by the high 97% patient satisfaction rating at 3 years' post Lapiplasty surgery. As a reminder, later this year, we expect to submit our primary endpoint ALIGN3D manuscript for publication in a peer-reviewed journal. This is a milestone culmination of activities that began five years ago with the first patient enrolled in 2018. Again, we believe the positive interim patient data coming from our differentiated ALIGN3D study resonates strongly with the surgeon and patient communities and is further reinforcing market adoption of Lapiplasty. In closing, 2022 was another strong year performance and growth for our company. We are experiencing significant momentum in all aspects of our business and have developed a specialized and scalable business model that we believe will allow us to continue to advance our growth strategy. I'm proud of the great execution delivered by our team here in Ponte Vedra, Florida and throughout the country and we remain highly and extremely excited about our future prospects as we continue to execute on our strategic plans. With that, I'll now turn the call over to Mark to review our financial performance. Mark?

Thank you, John. Good afternoon, everyone. Revenue in the fourth quarter was $49.8 million, up $16.3 million and 49% over the prior year. Growth was driven by increases in procedure volumes and an increase in blended average selling price, due to adoption of our newer complementary technologies. Our seasonally strong fourth quarter revenue increased 51% sequentially over Q3. In the fourth quarter 2022, the number of active surgeons performing at least one case in the trailing 12-months increased 34% year-over-year to 2,387 surgeons, which translates to approximately 24% penetration of the estimated 10,000 surgeons in the U.S. who perform bunion procedures. Surgeon utilization increased to an average of 10.3 Lapiplasty kits purchased in the trailing 12-months, up from an average of [9.8] [ph] a year ago. We are pleased with this notable increase. As a reminder, we commercialized Lapiplasty seven years ago. And in the past two years alone, we've added 1,112 active surgeons, nearly half of our total active surgeon base. On the average, this growing number of active surgeons steadily increase utilization each year they use Lapiplasty, due to positive patient outcomes and expanding indications in their practices. We sold 8,426 Lapiplasty procedure kits in the fourth quarter, a 35% increase versus the prior year's fourth quarter. Blended average selling price in the fourth quarter was $5,907, a 10% increase over the fourth quarter in 2021, driven by the adoption of our Lapiplasty and Adductoplasty systems, as well as early impact from our newer technologies, our S4A plating kit, SpeedRelease, and TriTome instruments. We continue to see greater uptake of our other complementary forefoot products as we add direct sales reps who tend to focus more on selling these complementary products, while in Lapiplasty cases, displacing other competitive bunions-related forefoot products. For the full-year 2022, revenue was $141.8 million, a 50% increase over 2021, slightly above the top-end of our pre-announced revenue expectation of 141.2 million to 141.7 million and above our prior 2022 revenue guidance range of 135 million to 138 million. We sold 24,656 Lapiplasty procedure kits for the full-year 2022, a 41% increase versus the prior year with a blended average selling price of 5,753, a 7% increase over the prior year. Gross margin was 80.4% in the fourth quarter of 2022, compared to 81.1% in the fourth quarter of 2021. The 70 basis point decrease was due in-part to an increase in capitalized surgical instruments and related depreciation necessary to support our expanding direct sales force, as well as increases in payroll and related costs. For the full-year 2022, gross margin was 80.6%, down from 81.1% in the year ago period, primarily due to increases in capitalized surgical instruments and related depreciation necessary to support our increased direct sales force, as well as increases in payroll and related costs. Total operating expenses were $43.5 million in the fourth quarter of 2022, which includes sales and marketing expenses of $29.4 million, research and development expenses of $3.7 million, and general and administrative expenses of $10.4 million. This compares to total operating expenses of 32.7 million in the fourth quarter of 2021, which included sales and marketing expenses of 22.3 million, research and development expenses of 3.4 million, and general and administrative expenses of 7.0 million. For the full-year 2022, operating expenses were $149.2 million compared to $93.1 million in the prior year period. The increase in operating expenses reflects strategic investments in our expanding direct sales channel investments in product innovation, increased capacity requirements, as well as support for other commercial initiatives. Fourth quarter net loss attributable to common stockholders was $4.4 million or $0.08 per share, compared to a net loss of $6.6 million or $0.12 per share for the same period of 2021. Full-year 2022 net loss attributable to common stockholders was 42.8 million or $0.77 per share, compared to a net loss of 20.7 million or $0.43 per share in 2021. As noted, we ended the fourth quarter, our seasonally strongest with approximately $300,000 in adjusted EBITDA. Cash, cash equivalents, and marketable securities were $81.3 million as of December 31, 2022. On February 8, we completed a follow-on offering of 5,476,190 shares of common stock, which raised net proceeds of $107.5 million. This is the first time we raised capital since our IPO and we believe this provides us with additional balance sheet strength and flexibility to continue aggressively executing on our strategic investments and growth initiatives. Before concluding, let me turn to our outlook for full-year 2023. As John mentioned, we are providing full-year 2023 revenue guidance of $187 million to $193 million, an increase of 32% to 36% over 2022 revenue. We remain encouraged by the underlying strength and momentum in our business with our strategic investments clearly delivering on growth. For the first quarter 2023, consistent with prior years, we expect a sequential revenue decrease from the fourth quarter, due to normal seasonality coming off our usual strong year-end performance. Unlike Q1 2022, we do not expect incremental revenue from rescheduled fourth quarter procedures to benefit the first quarter of 2023. Turning to the middle of the P&L. We expect that our operations and expenses will continue to grow throughout 2023 as we increase our DTC investments and further expand our direct salesforce, while increasing leverage of our fixed costs and overhead expenses. Therefore, we expect to show modest improvements to adjusted EBITDA for the full-year, compared to 2022. Before turning the call over to the operator, I'd like to provide an update on our IP litigation. As you recall, we filed a lawsuit in March 2022 to enforce our IP. Although the terms are confidential, we reached a mutually agreeable resolution to settle the matter and are pleased with the outcome. Since inception, we've made important investments in our proprietary technologies and remain committed to protecting and growing our IP portfolio. With that, let me turn the call over to the operator to open the line for your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Robbie Marcus with JPMorgan. Your line is open.

Great. Start with congratulations again on a great quarter and a good guide. Maybe we could talk about the trends that are informing the guide here. You're clearly adding a lot of reps, your revenue per procedure continues to grow up. Maybe speak to just how you think about the key drivers of the guide, and any color you want to give us on how to think about the growth between the volumes versus the revenue per procedure?

Thanks, Robbie. Great question. As John mentioned in the prepared remarks, we feel really encouraged by the strength and the momentum that we experienced in the back half of last year. We had really strong growth in both third quarter and then again in the fourth quarter. And we believe a lot of this has been driven by the investments that we've been making throughout the full-year of last year. Namely, it's really that growing and building direct sales channel, which we believe is already beginning to have some dividends that we've experienced and they've been able to push through some of the headwinds that we've had historically. So, that's one of our primary drivers. The other thing that we're looking for and then as we talked about, there'll be enhanced DTC and patient awareness efforts. We think that now that we've got a larger surgeon base that it's the right time to continue to invest in patient awareness. Now that we've got more surgeons and a sales force to support those additional inquiries.

And I feel like I know the answer here, but I’ll still ask it anyways given the growth you're seeing and the growth you're expecting, but it's a very large underpenetrated market for instrumented procedures. There are a lot of companies going after it. Maybe just give us a sense of what you're seeing out in the field? Are there any products or companies you're losing accounts to? And what's the competitive message that your reps are putting out there to keep the growth engine going? Thanks a lot.

Hi, Robbie, John. Thanks for the question. And yes, we kind of go back to the fundamentals here that our number 1 competitors we see it is the osteotomy procedure. It's 70% of the procedure base and changing the mindsets of these surgeons to using Lapiplasty for the majority of their bunion cases versus the minorities. That's where we really focused our efforts with our surgeon education programs or direct sales force and even the patient awareness side comes into play there. So, it's converting that procedure not a company's product specifically that we're after. And that's what's been the underlying growth driver of this business for the past seven years. And we're going to continue to focus. That said, there are a few companies on the market and more are entering with products claiming to be like Lapiplasty. We haven't really seen a notable increase in the pressure or impact on us from those companies or products As we know, the market is really large over 5 billion and we're just way out ahead of everybody. We've always expected that these companies would try to come along and opportunistically get a piece of the market that we pioneered and developed here. And in some ways, these companies coming to market are sort of validating us. But keep in mind that these products are coming from companies that have multiple product lines, highly distracted sales forces, large bags of products to sell, of which this Lapiplasty like product is just yet another. And with over seven years of use in refinement, Lapiplasty is just so elegant and reproducible at the doctor patient interface, how it works and it's protected by a lot of patents. We have a tremendous patent portfolio, 40 issued patents And then we're constantly iterating the technology, making it faster, easier for the surgeon and ways to make it a quicker recovery for the patient. So, nobody's out there with that level of commitment to iterating, improving and modifying rapidly. But the other barriers we have are just beyond that and the IP and the product innovation, are beachhead of clinical data that keeps getting stronger and stronger, the bunion focused direct sales channel, our powerful surgeon and patient training programs. While these serve as really great, offensive drivers of our business, they offer the service great defensive barriers as well. So, I kind of long answered your question, but I think for these multi-line distracted companies, it’s really hard to compete with a rapidly innovating, highly focused company with a first-mover advantage that's so far out ahead like we are.

That's really helpful. Appreciate the color.

Thank you. Please stand by for our next question. Our next question comes from the line of Drew Ranieri with Morgan Stanley. Your line is open.

Hi, thanks for taking the questions and congrats on the great quarter and guide. Maybe just another guidance question to start, but as you are thinking about the guidance build for this year, can you maybe just help us, kind of parse out how you're thinking about the maturing surgeon base versus utilization improvement? I mean, you're already at around 10% penetrated for surgeons, but just maybe how are you kind of thinking about those factors in the guide and that this is really going to be a year where all those mature active surgeons that you've added over the past two years really kind of move up the utilization curve?

Andrew, this is Mark. Great question and thanks for joining us. We've previously commented that a lot of our revenue growth year-over-year is not purely from new surgeons, but from the increased utilization of our existing surgeon base. And so, we've been really pleased with and in my prepared remarks, I commented on nearly half of our active surgeons have come over the last two years. What we do believe though is that there is an incremental build of utilization year-after-year. It doesn't come exclusively in year two or exclusively in year three. So, we believe that a lot of the patterns that we've seen year-after-year will continue to hold true as we continue and plan to add new surgeons this year in 2023 as well. And our existing surgeon base will continue to move up that chain and have increased utilization on average. We have commented that in the most recent 12-month period that new surgeons have been adopting Lapiplasty at a faster rate than they ever have before. So, we believe that the surgeons who are coming to our labs getting trained, they're very interested in adopting Lapiplasty and the data is proving out that when they do become a customer, they're actually doing more cases than the average shows and what more than what we've had historically. So, all of this builds into our revenue build for the guidance number that we gave. So, we feel really good about this strong surgeon base. We plan on adding more and now we've got that direct sales channel to support all of these surgeons in their journey.

Got it. Thanks. And maybe just a couple other financial questions too. Just as we do think about the seasonality from 4Q to 1Q, Mark, I get your comment that this past first quarter was – had the benefit from recapturing some of the COVID procedures, [indiscernible] should we be – just maybe help us put a finer bow on maybe the sequential step down? And then second, can you help us a little bit more with OpEx for the year, just in terms of your revenue growth rate? Thanks for taking the questions.

Yes, thanks Drew. So, I wanted to comment in the remarks that there was a little bit of an anomaly. We're glad that we're not talking about or making references to COVID anymore, but wanted to just bring to everyone's memory that Q1 of 2022 did have some benefit from some rescheduled cases. So, historically and if you adjust for some of those – some of the benefit in Q1, the last couple of years we've had a step down and so Q1 has been roughly about 80% of the revenue, plus or minus, but around 80% of revenue in Q4. So, that's a very normal step down. That's what we experienced last year. If you adjust the revenue out of Q1 and kind of push it back into Q4, that would have been the same. So, we would expect something very similar to that as we come into 2023. Overall, you asked a question about the OpEx and we're going to continue to invest in the company. John outlined several things that we will continue to do. We're continuing to build the sales channel. We'll continue to invest in R&D and we will have some incremental investments in our DTC program. So, there will be some build, but overall, there'll be some improved leverage in 2023 versus 2022.

Thanks for taking the questions.

Thank you. [Operator Instructions] Please standby for our next question. Our next question comes from the line of Ryan Zimmerman with BTIG. Your line is open.

Good afternoon. Thanks for taking the questions and congrats on all the growth and everything as said before. Sitting here at the American Academy of Orthopaedic Surgeons, thinking about, kind of who your marginal customer is. Now, I know it's not the general [orthopod] [ph] that's going to necessarily pick up a Lapiplasty kit, but as we think about the 1.1 million potential bunion surgeries out there versus those that are having the 450,000, how do you think about that 450,000 growing over the next few years. What's it going to take? Is it more DTC? Just, John, your thoughts on general market growth and what moves the needle from actual surgery to penetrate more of those candidates?

Hi, Ryan. Good to hear from you and thanks for the question. Yes. So, I think if you look at all the kind of standard market reports that companies can acquire out there, they would typically show the bunion procedure base growing at 3% to 4% maybe for the next five years. That's my recollection. How we try to expand that is obviously through our DTC and patient awareness efforts and investments. If we can get to those fence sitting patients with our DTC messages, with our stronger clinical evidence, and communicate that there is a better procedure now, a better offering than there was in the past, that recurrence rates can be much lower than they were in the past that you can get back to bearing weight and back to your activities at a predictable time, then we think that can resonate. We think that can bring some of these fence sitting patients over the fence and connecting with our doctors maybe for a consultation through our website about Lapiplasty. So, I think in the coming years that's our project. We're going to try to work to expand our relative portion into the 1.1 million as best we can. And yes, that's where we'll put our efforts.

Fair enough, John, I know it's not an easy question and there's no magic silver bullet, I guess, but appreciate the commentary. And then the second question is just around complementary products. I mean, they are so important for you guys. As we think about the model and the move higher in ASPs, I'm wondering if you can kind of help us understand what the [indiscernible] 39:05 rates are as you think about them today for your key, kind of complementary products and where you think you can take that over time or where we should think about that going over time? Thank you for taking my questions.

Sure, sure. So, the complementary products, definitely a great part of our strategy. And most of our complementary products are all aimed at improving the outcomes for these bunion patients. We got Adductoplasty because we recognized people with that midfoot deformity didn't get as good and enduring correction or lasting correction with their bunion procedure if you didn't fix the midfoot. So, these are all really tied together. So, the attachment rate I think kind of goes hand-in-hand. If a surgeon is doing an ductile procedure, 99% of the time they're going to be doing a Lapiplasty as well. Our SpeedRelease instrument is another excellent example of an instrument that can make the great [toe tissue] [ph] release [indiscernible] release much easier, more predictable for the surgeon. And this occurs in over 95% of our Lapiplasty cases. So, attachment rate can be very, very high there once we get a doctor trained on it and they implement it in their practice. Other things like the S4A plates, not really complementary, but heavy conversion going on right now out in the field to doctors wanting to use that next generation more advanced plating geometry on their patients and [so planning] [ph] earlier versions of our plating with that. And then, of course, in the back half later this year, we'll be releasing the micro Lapiplasty and the SpeedPlate technologies and I think SpeedPlate is going to be a really neat technology platform for us. It's going to be used in a variety of Lapiplasty and other midfoot cases as well.

Great. Thanks, John.

Sure. Thank you.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back to Vivian for closing remarks.

Thank you, [Twanda] [ph]. Thanks everyone for joining us today on behalf of Treace Medical. This concludes our call and we look forward to our next update following the close first quarter 2023.

Thank you. You may now disconnect.