Good day and thank you for standing by. Welcome to the Treace Medical Concepts Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Vivian Cervantes, Investor Relations, Gilmartin Group. Please go ahead.

Thank you, operator. Good afternoon, everyone and welcome to our third quarter 2024 earnings conference call. Participating from the company today will be John Treace, Chief Executive Officer; and Mark Hair, Chief Financial Officer. During the call, John will offer commentary on our commercial activities, followed by Mark for a review of our third quarter financial results released after market close today. We will host a question-and-answer session following our prepared remarks. Our press release can be found on 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 estimates 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 Medical 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-Q for the third quarter filed today our Form 10-K for the full year 2023 filed on February 27, 2024, 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 third quarter 2024 earnings conference call. We recognize this is a busy and important day for our country, and we greatly appreciate you taking the time to join us. Our third quarter results reflect our execution to drive solid growth in the business while steadily improving our operating leverage. In addition, we announced a limited market release of the Nanoplasty 3D MIS system representing our first entry into the large metatarsal osteotomy market, supporting our strategy to significantly increase penetration into the overall bunion market and continue to expand our surgeon customer base. Related to this announcement, we’re pleased to report continued progress on our commercial strategy aimed at broadening our presence in the bunion market by further strengthening our product portfolio to address the evolving needs of both patients and surgeons. Just as we did with our pioneering Lapiplasty system in the Lapidus Fusion segment of the bunion market, we are now excited to introduce unique technologies into the metatarsal osteotomy segment, currently estimated to represent 70% of the 450,000 annual bunion cases performed in the U.S., first, with our Nanoplasty 3D procedure to be followed by our second MIS osteotomy system at the end of the year, and we’ll discuss more later. Our focused R&D innovation pipeline is loaded and poised to significantly expand our technology and procedure offerings through 2025 and beyond. Turning to the quarter. Third quarter revenue was $45.1 million, representing 11% growth over the third quarter of 2023. This growth was fueled by continued commercial execution and driven by product mix shift that resulted from increased adoption of newer technologies, such as Adductoplasty and SpeedPlate, continued strong demand for our other complementary product offerings as well as increases in our…

Thank you, John. Good afternoon, everyone. Revenue in the third quarter was $45.1 million, an increase of $4.3 million and 11% over the prior year period Growth was driven by product mix shift that resulted from increased adoption of newer technologies, increased sales of ancillary products used in bunion cases and an increase in active surgeons in the quarter. Gross margin was 80.1% in the third quarter of 2024 compared to 80.4% in the third quarter of 2023. Third quarter gross margin of 80.1% was relatively unchanged from the 80.2% gross margin reported in Q2. Total operating expenses were $51.3 million in the third quarter of 2024. Total operating expenses were $50.6 million in the third quarter of 2023. The increase in operating expenses reflect increased share-based compensation expense, investment in product innovation and support for other corporate initiatives. Third quarter net loss was $15.4 million or $0.25 per share compared to a net loss of $17.5 million or $0.28 per share for the same period of 2023. Adjusted EBITDA loss in the third quarter was $5.1 million, an improvement of 45% compared to the loss of $9.2 million in Q3 2023. Compared to the second quarter 2024, adjusted EBITDA loss improved 42%. Cash, cash equivalents and marketable securities were $82.8 million as of September 30, 2024. Before concluding, let me turn to our outlook for full year 2024. As John mentioned, we are revising full year 2024 revenue guidance to $204 million to $211 million, which reflects an increase of 9% to 13% over 2023 revenue. This compares to our previous guidance of $201 million to $211 million. For the full year 2024, we continue to expect adjusted EBITDA improvement of approximately 50% compared to the full year 2023. With that, let me now turn the call over to the operator to open the line for your questions.

[Operator Instructions] And our first question comes from Robbie Marcus of JPMorgan. Your line is open.

Oh, great. Good afternoon. Thanks for taking the questions. Maybe to start, I wanted to ask on the new MIS osteotomy product. You came to market with Lapiplasty with 2 years best-in-class data, and that was really what got you in the door with surgeons and drove uptake. How do you feel about going to market now without clinical data? Is that important? And do you think you’ll be able to get the same differentiation in the market with this product as you did with Lapiplasty?

Hi, Robbie. Thanks for the question. It’s John. I – it’s a great question. And for the first several years that we marketed Lapiplasty, we were gathering clinical data. We didn’t have really the solid evidence yet. So that was an ongoing project that took several years. As we were building the business with Lapiplasty, customers were seeing the success in their hands, and then we came and reinforced it with the data that further supported the outcomes that they were seeing. With Nanoplasty, we are going to be committed to developing that – those data sets. The benefit we have is that we’re adding the third plane of correction, the rotational component that made Lapiplasty so successful. We’re adding that to the osteotomy, and there’s scientific literature and evidence that demonstrates that if you can get the rotation correct and fix all planes, all three planes in osteotomy, those osteotomies have higher durability than those where all three planes are not corrected. So we feel like we’re bringing forth in multiple ways a more sophisticated osteotomy to the market, and we believe there’s quite a high degree of surgeon interest in that.

Great. I appreciate that. Then maybe for Mark, as we come up on the end of the year, there’s a lot of new product launches next year. I believe you’ve recommitted towards trying to cut the adjusted EBITDA, again, to striving towards breakeven next year in ‘25, any early thoughts on the rest of ‘25 as we look down the P&L? Thanks for a lot.

Yes, Robbie, this is Mark. Yes, last call, we talked about this year, how we’re going to improve our adjusted EBITDA of 50% over last year, and then we’ll get the remaining 50% in 2025. And so that would be to an adjusted EBITDA breakeven in 2025. And we’ll continue to do what we’ve started to do this year is just showing improved leverage throughout the middle of the P&L, and that should drop down and get us to a better position from an EBITDA perspective at the end of next year. And again, as we’ve talked about in the past, that’s a full year view. A lot of the EBITDA comes late in the year, especially in the fourth quarter.

And any early comments on the top line as we head into next year?

I think it’s a little bit early. What we’re happy about is what John talked about in his prepared remarks, that we do have a lot of these new products coming. I think we just really want to see how they will be received in the marketplace. We have every reason to believe that they’re what surgeon customers are asking for. But I think we want a little bit more time as we see the adoption before we talk more about 2025. But irrespective of that top line number, we feel really good about managing the cost in the middle of the P&L to get to that adjusted EBITDA line, so more to come on the guide for full year 2025.

Fair enough. Thanks for taking my questions. Appreciate it.

Thanks, Robbie.

Thank, Robbie.

Thank you. Our next question comes from Rick Wise of Stifel. Your line is open.

Hey guys. This is Anton on for Rick. Thanks for taking the questions. Maybe to start on SpeedPlate, we continue to hear positive surgeon feedback during our checks earlier this year. I think you highlighted SpeedPlate was being used in 40% of cases, but you have recently introduced the new larger SpeedPlate design and have the quad-play on the horizon. I guess where are we with the SpeedPlate rollout broadly, supply availability for the new design? And with these different SpeedPlate iterations on the market, is the product being used in the majority of cases now? And what do you see as the ceiling for SpeedPlate utilization?

Hi Anton. Thanks for question. It’s John. Yes, SpeedPlate has been a real game changer in our product line. Our certain customers are – they are really preferring it as their go-to fixation in more and more of their cases. We have seen the percentage of our fixation climb beyond that 40%, without giving exact numbers, but it continues to grow as an overall percentage. We did launch the newer larger design for larger bone fusions in the foot, and that is in full supply now and it’s getting good uptake. And the new configurations that are coming, we think they are going to be well embraced, adopted and they really dovetail nicely with Micro-Lapiplasty and Mini-Adductoplasty, and allowing surgeons to put more robust fixation into smaller incision sizes. So, we think the advances we keep making in SpeedPlate keep differentiating that line and driving the market even further.

Alright. That’s great to hear. And on the CMS final reimbursement decision, could you kind of help me think through what that means from a margin perspective? I mean the new ASC reimbursement rate would seem to meaningfully narrow the reimbursement gap relative to the hospital outpatient setting and may mitigate a previous pricing headwind. I mean through that lens, is it still right for us to think about Treace’s kind of long-term kind of gross margin trajectory as being basically stable?

Hey Anton, this is Mark. We are pleased with the final ruling with CMS and those associated reimbursement rates. As far as our gross margin, we will continue to sell into these customer accounts, and we are still continuing to target 80% this year. And there may be some minor fluctuations next year, but we don’t necessarily look at this event being a change to our gross margin profile, but it definitely can provide greater access to some patients who are looking for a Lapidus type procedure for Lapiplasty specifically.

Thank you. Our next question comes from Richard Newitter of Truist Securities. Your line is open.

Hey Rich. Operator?

I will move on to the next process. Our next question comes from Ryan Zimmerman of BTIG.

Hi guys. This is Izzy on for Ryan. Thanks for taking the questions. So, I just wanted to stay on the topic of the finalized reimbursement rate for 2025. How are you guys thinking about how this might influence the competitive dynamics that you are seeing going on in the market right now? Do you think it will be more of a rising tide opportunity, or do you see a chance to gain more market share, particularly among surgeons who may not be currently using TMCI products?

Hi. It’s John. Yes, we were really pleased with those adjustments. They are significant and a particular interest to us because we believe we are the single largest Lapidus player in the U.S. There are a lot of ways that this may benefit that Lapidus segment of the market in general. One outcome could be a broadening of patient access to Lapidus procedures at different sites of care. With that said, we just need to see how it is going to play out next year and report to – report back on any changes we see in demand or access.

Got it. I understand. And just following-up on that, if we think about the actual mix of procedures of lab opacity relative to osteotomies, do you see the opportunity to see the utilization change in that or even drive more utilization towards Lapiplasty given the really awesome rates that we are seeing for next year.

Yes. I mean there is a lot of potentials in theoreticals, that’s one of them. But it’s just too early to say. And I think we need to get into 2025 and see how things play out and become better informed on what that’s going to look like.

Understood. Thanks for taking my question.

Sure Izzy.

[Operator Instructions] And we have Richard Newitter again from Truist Securities. Your line is open.

Hi. It’s Ben on for Rich. Can you hear me?

We can hear you.

Yes. Thank you. So, I am wondering what you are seeing in terms of trends in the foot and ankle market. I know there was some commentary from a competitor that they are expecting some reacceleration into 4Q. So, I am wondering if you are seeing similar.

Hi Ben, it’s John. Thanks for the question. Yes, there have been some comments on the foot and ankle market. We uniquely kind of participate in one segment that highly elected segment bunion surgery. Some of those other companies have more diversified portfolios that include things like trauma products and other reconstructive products. So, it’s hard to make a direct comparison with our business to what these other companies might be saying and seeing. We identified some softening in our space in late Q1, and that continued into Q2, which led to our revised guide in early May. With that said, we are pleased that Q2 and Q3 came in largely as we expected them. And every year, we see an acceleration in bunion procedures that starts kind of at the tail end of the third quarter and then accelerates as you progress through the fourth quarter. So, that’s kind of the seasonal pattern that we would expect to see in our segment of the foot and ankle market, specifically the bunion market.

Okay. Thank you.

Sure Ben.

Thank you. And our next question comes from Danielle Antalffy of UBS. Your line is open.

Hi. Good afternoon guys. Thanks so much for taking the question. Congrats on a good quarter here. And just a quick question on the updated guidance for 2024 and particularly the implication for Q4 is a step down in growth. I think at the midpoint, it’s high-single digits, just curious what the sort of puts and takes of that are, any hurricane impact in that number and then just a quick follow-up to push a little bit on 2025?

Hey Danielle, this is Mark. Let me start and maybe John can fill in any color that I missed. But yes, we are definitely pleased with the execution that our sales force had in Q3, 11% growth was really largely in line with our projections. As you think about this year and last year, Q3 was an easier comp for us. And when we did provide full year guidance back in May, we really felt like we appropriately factored in all the headwinds of competitive activities as well as the tailwinds of some of these new product launches that John has been talking about. Just as you mentioned, there are a few new variables here that have come up with respect to maybe some lingering IV, bag rationing and a couple of hurricanes that we are candidly in our backyard here in Florida. So, bouncing all of it, we just felt pleased with our third quarter results, but believe it’s prudent to really maintain our guide for Q4 given some of that uncertainty.

Got it. Okay. That’s helpful. And then just to push a little bit on 2025. I mean I think right now where Treace sits, it’s high-single digit growth or thereabouts. I mean it feels like things have actually gotten a little bit incrementally better. You have grown double – low-double digits year-to-date thus far. I mean is there any reason to believe, just given the cadence of new product launches that you have, growth would actually decelerate next year, or is it safe to say probably that Treace is a little bit on the low end. Appreciating you are not giving guidance, but just trying to think about this conceptually. Thanks so much.

Yes, Danielle, that’s – it’s a great question and something that we talk a lot about here. As we talked about, we had single-digit growth rate in Q2 and the guide has an implied single-digit growth rate as well in Q4. We have got a lot of things that have been in the pipeline, and we are just barely beginning to get them to market. Some of these two MIS systems that John is talking about are just really coming out in the fourth quarter. So, we don’t have a lot of history just yet. Now, we feel really good about all of those coming. There are several other products and systems that are coming out next year as well. But I think for – where we are sitting right now, there has been a lot of change. There has been some challenges this year. And I think we – as we think about next year, we have got a great and strong sales force. We have got some great products coming, including our existing Lapiplasty and Nanoplasty product lines. We feel like we have a lot of things in order. I think at this time, we are going to wait and see a little bit more of how our surgeon customers adopt these new systems, and then we will be ready and prepared to give a little bit more guidance into next year as it gets a little bit closer.

Got it. Thanks so much.

Thank you. I am showing no further questions at this time. I would like to turn it back to Vivian Cervantes for closing remarks.

Thank you, operator. Thanks everybody for joining us this afternoon. On behalf of Treace Medical, we are concluding our call, and we look forward to our next update following the close of the fourth quarter of 2024.

This concludes today’s conference call. Thank you for participating and you may now disconnect.