Good day and thank you for joining us. Welcome to the Treace Medical Concepts’ First Quarter 2022 Earnings Conference Call. I would now like to turn the conference over to your speaker today, Vivian Cervantes from Gilmartin Group Investor Relations. Please proceed.

Thank you, Kim. Good afternoon, everyone and welcome to our first 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 first 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 this 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-Q for the first quarter to be filed later today and our Form 10-K for the full year 2021 filed on March 4, 2022, for a detailed presentation of risks. With that, I will now turn the call over to John. John?

Thank you, Vivian and good afternoon everybody and thank you for joining us on our first quarter 2022 earnings conference call. We are off to a solid start in 2022 with strong execution on our commercial strategies and initiatives, aided further by improving trends in procedure volumes, resulting in a 55% increase in revenue in the first quarter over prior year. We are pleased to report yet another strong quarter of growth, adding to our positive momentum since our IPO. Our business is driven by our disruptive technology and surgical procedure, which we believe is fundamentally changing bunion surgery today. From what we can see in the marketplace, we are the only industry participant that has a growing body of clinical evidence, demonstrating both rapid return to weight-bearing and low recurrence rates. In fact, this morning, we announced a peer-reviewed publication in the Journal of Foot & Ankle Surgery on our interim data from the ALIGN3D clinical study, demonstrating continued positive radiographic and patient-reported outcome scores at 12 and 24 months following the Lapiplasty procedure. We continue to be pleased with the sustained enthusiasm and positive momentum from surgeons through our active surgeon education initiatives as well as patients through our targeted DTC programs. We’re also encouraged to see the steady increases in our active surgeon users and surgeon utilization rates, supported by our expanding direct sales channel as well as our patient education and awareness activities, which we believe help patients learn about our procedure and connect them with knowledgeable surgeons in their area. Of note, our direct sales channel is 100% focused on bunion surgery, the only such organization that we’re aware of in the med tech industry today. The expansion of this specialized sales team has contributed meaningfully to our revenue and market share growth, and we will continue to invest in this channel and transition to a higher mix of direct revenue over time. In the first quarter, 63% of revenue was through our direct sales channel, up sequentially from 58% in the fourth quarter and up from 44% just a year ago. 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 a $5 billion-plus U.S. market of 1.1 million annual surgical candidates, of which only 450,000 undergo bunion surgery each year, mainly due to limitations with current standards of care. As a reminder, recurrence rates reported in the clinical literature with metatarsal osteotomy, which represents 70% of the bunion surgeries today, are highly variable and have been shown to be as high as 78%. In the first quarter of 2022, we believe our market share stands at approximately 4.3% of the estimated 450,000 annual bunion surgical procedures in the U.S., up from 3.8% in the first quarter of 2021, and representing approximately 1.7% share of the 1.1 million annual surgical candidates in the U.S. Our team is driven by positive feedback we received from our surgeons, our patients, and the clinical community, reinforcing our conviction that we’re well positioned for sustained growth and continued market share gains. Turning now to our Q1 results, revenue in the first quarter was $29 million, representing 55% growth over the first quarter of 2021. Building on strong company-wide execution to deliver on our targeted financial and operating metrics, during Q1, we continued to benefit from the impact of our strategic commercial investments complemented by deferred procedures from Q4 2021 that were realized in the back half of the quarter. All told, continued momentum from the strategic commercial programs I discussed earlier led to steady market acceptance and traction of our technology, fueling strong Q1 revenue growth. We are extremely pleased by not only our top line growth but the continued positive trends in our underlying growth metrics, including our expanding direct focused bunion sales team, which accounted for 63% of our revenue mix in Q1; strong increases in the number of new surgeon users ending Q1 with 1,901 active users, up 40% year-over-year; continued year-over-year increases in surgeon utilization with 10.1 kits per surgeon used in Q1, up from 9.2 kits a year ago, representing an approximate 10% increase. Strong blended average selling prices of $5,503 per case, which represented 3% growth over the prior year, and positive uptake of our newer innovations such as our Lapiplasty Mini-Incision System and our Adductoplasty System for mid-foot correction. Our continued investments in patient education DTC programs, expansion of our direct sales channel and R&D innovations have consistently supported our revenue expansion and momentum. We remain excited about the positive impact these investments are making on our business and have confidence that we have a well-defined, proven and scalable commercial strategy that’s fueling our growth. Given these positive trends, we are raising full year 2022 revenue guidance to $128 million to $133 million, which reflects an increase of 36% to 41% from 2021 revenue. This is up from our prior full year guidance range of $125 million to $130 million. Turning now to our commercial and market development activities. A key differentiating driver for our business is our commitment to clinical evidence. As mentioned earlier, we are pleased to have announced this morning our first peer-reviewed publication on the interim results from our ALIGN3D study in the Journal of Foot & Ankle Surgery. This comes on the heels of a podium presentation of interim 1 and 2-year ALIGN3D data at the February 2022 American College of Foot & Ankle Surgeons Annual Scientific Conference. As announced, the interim data from this new publication demonstrated consistent positive radiographic and patient-reported outcomes for patients following the Lapiplasty procedure. Data on a total of 173 study patients, including 117 patients with at least 12 months and 40 patients with at least 24-month follow-up demonstrated early return to weight-bearing in a walking boot at an average of just 7.8 days; return to work within 25 days and to full unrestricted activity within 4 months post-surgery, on average; and significant improvement in radiographic measures of 3-dimensional bunion correction from pre-surgery to 6 weeks and maintained at 12 months for 108 reporting patients and 24 months for 38 reporting patients post-surgery, with 1 recurrence reported at the 12-month time point post-surgery for a 0.9% recurrence rate. Additionally, this interim published data demonstrated statistically significant improvement in patient-reported outcome scores across three validated scoring systems, including the visual analog pain scale or VAS, the Manchester-Oxford Foot Questionnaire, or MOXFQ; and the patient reported outcomes measurement information systems known as PROMIS-29. For example, at 24 months post-surgery, 40 reporting patients noted a greater than 80% reduction in pain versus pre-surgery levels per both VAS and MOXFQ scoring systems. In addition, 87% improvement in walking, standing as well as social interaction was observed using MOXFQ. Further, statistically significant improvement in physical, mental, and social health scores were reported using the PROMIS-29 scoring system. In a similar approach to ALIGN3D, we have an ongoing Mini3D Lapiplasty prospective multi-center clinical study utilizing our Mini-Incision Lapiplasty system, which offers a much smaller 3.5-centimeter incision option to realign the entire first metatarsal bone and address the root cause of the bunion. First is just cutting and shifting the bony bump, which is the case with newer minimally invasive osteotomy procedures. During the quarter, we continue to treat additional patients and onboard new clinical sites for this study, and we look forward to providing future interim report outs on the many 3D dataset as we have done with the ALIGN3D study. Our Mini-Incision Lapiplasty approach continues to resonate with growing interest from both physicians and patients. We continue to see a steady adoption of our Mini-Incision System with positive contributions to our blended average selling price. On the strength of our positive clinical body of evidence and differentiated surgical approach, interest and attendance at our surgeon training events were strong through Q1, and we have many more national and local level events planned with continued strong participation expected for the remainder of the year. As mentioned before, we also offer evergreen learning for our surgeons through a regular schedule of advanced training events, both online and in person throughout the year, where our tenured surgeons can acquire advanced skills as well as learn new approaches like our Mini-Incision and Adductoplasty procedures. As we mentioned last quarter, we are making additional targeted investments this year to accelerate our market penetration and drive share gains in the long term. These growth investments are expected to accelerate patient awareness, surgeon education, and demand for our Lapiplasty procedure, expand the footprint and coverage of our bunion-focused direct sales channel and drive more R&D innovations into the market. We’re very pleased to report positive early feedback on all three of these initiatives. Our DTC patient awareness initiatives are a key component of our commercial strategy. Over the past several years, we’ve made important investments that leverage targeted direct-to-patient awareness campaigns designed to educate patients on the bunion deformity and our differentiated solution. We successfully employed social media, Google search, public relations, and other media, including targeted TV campaigns, all of which are designed to encourage patients to seek more information and education on our patient website, locate Lapiplasty surgeons in their market, and ultimately schedule a consultation. Our direct-to-consumer strategy works with strong metrics and performance data that show active patient engagement further supported by feedback from regularly conducted surgeon surveys. We have a strong conviction in our direct sales force strategy. Our channel analytics show that on average, relative to our independent agencies, our direct sales reps penetrate their markets faster, generate higher surgeon utilization, and sell at higher blended ASPs. These reps typically scale with cost leverage within 24 months primarily because they are 100% focused on Treace products and fully utilize our corporate resources and programs. In the first quarter, our 55% revenue growth was led in part by a strong contribution from this direct sales channel, which represented 63% of revenue, up from 58% of revenue in Q4 of 2021. Our goal of approximately 150 quota-carrying direct sales reps by the end of this year stands, with this growing direct sales channel contributing a higher proportion of our overall revenue in 2022 and beyond. We expect that over 70% of our revenue will come from our bunion-focused sales channel by the end of this year. Turning 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 technologies addressing concomitant conditions, and IP defense of our technology and innovations. At the end of Q1, we had 34 granted U.S. patents and over 40 U.S. patent applications pending. We featured several of our new product innovations at our booth at the ACFAS Scientific Conference last February. These included the Lapiplasty 3-in-1 guide, an instrument designed to advance the speed and reproducibility of the Lapiplasty procedure. We’ve been receiving excellent feedback on this product, including a recent surgeon user survey reporting an average of 10 minutes in case time saved using this new 3-in-1 guide. This translates to a very meaningful 15% to 20% reduction in time depending on surgeon proficiency to perform a complete Lapiplasty procedure. We also featured an expansion of our Adductoplasty system, adding several specialized instruments designed to improve the efficiency and expand the clinical application of the system. As I mentioned before, our Adductoplasty system uniquely offers a reproducible instrumented system to address complex mid-foot deformities that can occur in up to 30% of bunion patients, serving as a complementary system during our Lapiplasty surgeries. And finally, the Lapiplasty S4A Anatomic Plating System, our next-generation in Lapiplasty fixation technology, providing an advanced anatomic plate design to better address variabilities in TMT joint anatomy. S4A plating is currently in early clinical release, and we’re receiving excellent early feedback on the system. We look forward to providing additional updates on our new product innovations as we continue to develop our pipeline focused on our core technologies and intellectual property. So in closing, I’d just like to say, despite what’s going on in the stock market today, we are more excited than ever before about the future of this great company, one built from scratch here in Ponte Vedra, Florida starting 8 years ago. Since our first live surgery in late 2015, we’ve sold nearly 50,000 Lapiplasty procedure kits and helped improve the lives of so many patients suffering from painful, lifestyle-limiting bunion deformities. I am so very proud of what this team has accomplished and from such humble beginnings. Today, we have a rapidly growing, highly talented team of over 300 employees, all with a crystal clear vision of where we’re going and with a shared passion for our mission to improve surgical outcomes for bunion patients. With the targeted investments we’re making in our proven DTC programs, direct sales channel and R&D innovations, supported by our newly announced access to growth capital and strong clinical evidence, we are better equipped than ever to deliver upon our goal of establishing Lapiplasty as a standard of care in bunion surgery.

Thank you, John. Good afternoon, everyone. Revenue in the first quarter was $29.0 million, up from approximately $18.7 million a year ago, representing an increase of 55% over the first quarter of 2021. In the first half of the quarter, procedure volumes were in line with our expectations, and we saw a particular strength in the back half of the quarter, which we believe reflects a recovering elective procedure environment as well as the realization of some rescheduled procedures from Q4 2021 into Q1. These dynamics further demonstrate that surgeons and patients understand the differentiating benefits of Lapiplasty and continue to choose our bunion correction system even when faced with scheduling challenges. Q1 revenue growth metrics include an expanded surgeon base and higher utilization rates, which grew the number of Lapiplasty procedure kits sold. In addition, we saw an increase in our blended average selling price in the quarter compared to the prior year. With our Mini-Incision and Adductoplasty systems, as well as other ancillary products, providing continued average pricing support. In the first quarter 2022, we sold 5,278 Lapiplasty procedure kits, a 51% increase versus the prior year’s first quarter. Blended average selling price in Q1 was $5,503, a 3% increase over the first quarter of 2021 and a 2% increase from Q4 of last year. The number of active surgeons performing at least one case in the trailing 12 months in the quarter increased 40% year-over-year to 1,901, while utilization increased approximately 10% year-over-year to an average of 10.1 Lapiplasty procedure kits purchased per active surgeon in the trailing 12 months. Gross margin was 81.0% in the first quarter of 2022 compared to 82.2% in the first quarter of 2021. Sequentially, first quarter gross margin was consistent with the 81.1% reported in the fourth quarter of 2021. On a year-over-year basis, the 117 point variance in gross margin was attributable to increases in royalty expense resulting from our increased revenue and a modest increase in depreciation expense related to incremental surgical instruments. Total operating expenses were approximately $31.6 million in the first quarter of 2022, including sales and marketing expenses of $21.9 million, research and development expenses of $3.1 million and general and administrative expenses of $6.7 million. This compares to total operating expenses of approximately $16.8 million, including sales and marketing expenses of $12.1 million, research and development expenses of $1.9 million and general and administrative expenses of $2.8 million in the first quarter of 2021. As previously noted, the increase in operating expenses reflects investments to support our growing business and commercial initiatives. First quarter net loss was approximately $9.0 million or $0.16 per share compared to a net loss of approximately $2.6 million or $0.07 per share for the same period in 2021. Cash and cash equivalents were $98.5 million as of March 31, 2022. Earlier this week, we announced a refinancing of our existing debt, bringing new non-dilutive $150 million loan arrangement that favorably reduced our cost of capital, strengthened our balance sheet, enhanced our financial flexibility, and provided us with non-dilutive liquidity that we believe is adequate to fund the company through profitability and to fully fund our planned commercial, market, and product development initiatives. Upon last week’s closing of our new loan agreement, we received advances totaling $54 million, consisting of $50 million under our new term loan, and an additional $4 million under the revolver. Following the payment of fees and expenses related to financing and repayment of the $30 million debt outstanding under our previous credit facility, we added approximately $18.3 million of cash to our balance sheet. Before concluding, let me turn to our revised outlook for full year 2022. As John mentioned, we remain encouraged by the underlying strength and momentum in our business and are raising our full year 2022 revenue guidance to $128 million to $133 million, which reflects an increase of 36% to 41% over 2022 revenue. This is an increase from our prior full year guidance of $125 million to $130 million. For the second quarter of 2022, we continue to see our business tracking to expectations and expect revenue to be sequentially flat with the first quarter that had the catch-up impact of rescheduled Q4 procedures that I noted previously. With that, let me turn the call over to the operator to open the line for your questions.

Our first question comes from Robbie Marcus with JPMorgan. Your line is now open.

Hi. This is Lilly on for Robbie. Thanks for taking the question. I was hoping I could just get some color on how you are thinking about your momentum over the rest of the year. Is there anything holding you back right now in terms of staffing, hospital capacity, anything like that at this point or is it basically back to normal?

No, that’s a great question. And from our perspective, it’s pretty consistent with what we talked about last time is we are very comfortable with what we are able to do in the current environment. We have a lot of confidence in our growing sales team and a lot of our commercial initiatives. But with respect to the rest of the year, the guidance range that we provided really supports what we are seeing and what we believe is supportable here. And it’s being only early May, it’s probably a little early to get into back half of the year, but we feel very comfortable with the range that we have provided on this call.

Great. That’s helpful. And then is there anything new that you are seeing on the competitive front? I know there are some me-too products out there and one of your competitors was recently acquired. So what are you hearing about adoption of these products and have you seen any sort of tangible headwinds?

Hi, Lilly, it’s John. Yes, we've been competing alongside a couple of these products for a couple of years now, Stryker has a system and the CrossRoads System that was acquired by J&J. We haven’t seen any real change in the competitive dynamics on that front. We continue to kind of run our offense and build our business and nothing seems to be really getting in the way of us achieving the growth rates that we’re committed to at this point. So again, we have a very refined system, a lot of great intellectual property around it and a huge head start in the market and direct sales channel, the only product with clinical data. And you just have a lot of things through the focus of this business being solely on Lapiplasty, it just – it helps us a lot.

Great. Thank you.

Our next question comes from the line of Drew Ranieri with Morgan Stanley. Your line is now open.

Hi, John and Mark. Congratulations on the quarter. Maybe just to piggyback on that last question about the competitive landscape, but just curious how you are thinking about building your portfolio? Is the focus going to remain on foot, potentially move into ankle or just curious how you are thinking about it, especially with a building direct sales channel?

Yes. Hi, Drew, John. Thanks for the question. And I think the way we are going to approach it is I'm going like the way we’ve been approaching it, and that’s looking at this bunion problem. And continuing to advance Lapiplasty to be quicker, easier, less invasive. And then we’re also going to be looking at other opportunities that are related to the bunion pathology and coming up with new innovative solutions around those like we did with – like we do with Adductoplasty. So with only 4.3% of the annual U.S. bunion procedures penetrated, we have got such an enormous runway in this $5 billion market. We just think that staying tight and focused on this bunion call point with our sales channel with our R&D innovations and design teams is the right way to go for this company.

Got it. Thank you. And maybe just on the backlog for a moment, I get that from your prepared remarks that there was a catch-up in the first quarter from delayed procedures. Just curious if you can maybe help us size that so we can get a better sense of maybe what your normalized sequential growth will be in the second quarter? And just with the first quarter performance, I mean, even being so strong. Just curious if there were maybe still any issues or on the company’s ability to maybe get more surgeons involved in using Lapiplasty?

Yes. And thanks, Drew. This is Mark. I think there are a couple of parts to make sure I get both parts of that question. With respect to some of those procedures that came through in Q1, as I mentioned, we are actually really encouraged because from our perspective, it really shows that both surgeons and patients are really understanding the differentiated benefits that are coming from Lapiplasty. So to the extent there were some challenges in scheduling procedures in Q4, we did feel them. We noticed that in the back half of Q2. We also had a survey with our surgeons and they commented on the same thing that they are definitely rescheduled procedures that came into Q1. And with respect to sizing, we would estimate that it’s probably about half of the size of the beat in the quarter.

Great. Thank you.

Our next question comes from the line of Danielle Antalffy with SVB Securities. Your line is now open.

Hey, good afternoon, guys. Thanks so much for taking the question and congrats on a strong quarter. Just if I could, John, ask a question about the stickiness of the Lapiplasty procedure, just in the context of new competition coming to market. Once you get a surgeon going sort of what’s the most important part of the surgeon’s journey that makes that surgeon sticky and more likely to stay with Lapiplasty versus convert? Just thinking, you guys have kind of a first-mover advantage here, a real differentiated clinical data. So anything you can – any context you can provide there?

Sure. No, it’s a great question. Hi, Danielle. And I think there are several factors. Our whole kind of commercial strategy is wrapped around producing that stickiness. And from the way that we initially train the doctors, we hold their hands very closely, provide clinical specialist experts that could go into their first few cases and make sure that everything goes smoothly and they follow the steps to the direct salespeople that they are handed off to who do nothing, but this product day in, day out. They know it backwards, forwards, upside down. And this is a very- it’s a technical procedure. We are changing the way that doctors have performed bunion surgery completely. And having that expert and that expertise alongside of these doctors is really important and having a product that really works efficiently and effectively in the surgeon’s hand at the patient’s level, Lapiplasty delivers that. We have had 6.5 years of live clinical use and very speedy refinement and iteration to make it easier to use, more reproducible, and more effective. And I think the doctors appreciate that and we provide a lot of ongoing education for them. And then we are making a lot of patients aware out there about Lapiplasty and its differentiated solution versus standard of care. So I think our doctors just really see us as true experts and they’re loyal, and they appreciate not only everything we’re doing for them and the true clinical evidence we’re providing and the sales expertise, but the ongoing education and support structure that the company provides to take them to those next level evolutions of Lapiplasty or Adductoplasty. These are procedures and products that never existed before that we are developing. So it’s multifaceted, but all that kind of dials together into this great ecosystem that makes – once they have adopted Lapiplasty and gotten through the learning curve, makes it very sticky.

Yes. Yes, that’s what I was getting at. So that was super helpful. Thank you for that. And then congrats on the ALIGN3D publication, can you talk about how that could impact new users coming to Lapiplasty or is that more just reaffirming existing users are going deeper into existing accounts? Is that something that you think will get more surgeons on board or how should we think about the impact for this publication? And I think we are going to get the full cohort in mid-‘23 so that as well? Thanks so much.

Yes, great. Great follow-on. I’d say it’s going to incrementally help both in supporting onboarding new surgeons, and it’s going to further reinforce with our existing customer base. The results that they are seeing in their own clinical practice and we know that each year that a surgeon uses Lapiplasty, the following year, they use more Lapiplasty. And that’s largely attributable not only to all these programs we’re talking about but the effectiveness that they’re seeing in their own patients locally. And when they see a sophisticated clinical study like ALIGN3D showing results like they’re seeing it, sort of reconfirms with them. And this is data that we can now take to the facilities and product approval committees and really differentiate us and say, yet another peer-reviewed study, multi-center prospective, highly sophisticated, this product deserves to be approved at these accounts. So, we can use this in a lot of ways and we look forward to more such report outs that will occur before the final report out in late 2023.

Thank you.

I am showing no further questions at this time. I would now like to turn the call back to Vivian.

Thanks, Kim. On behalf of Treace Medical, thanks everybody for joining us today. This concludes our call and we look forward to our next update following the close of our second quarter 2022 results. Thank you. Have a good evening.