Participants

Vivian Cervantes; Investor Relations; Gilmartin Group

John Treace; Chief Executive Officer, Founder, Director; Treace Medical Concepts Inc

Mark Hair; Chief Financial Officer; Treace Medical Concepts Inc

Robbie Marcus; Analyst; JP Morgan

Unidentified Participant

Benjamin Goldstein; Analyst; Truist Securities

Danielle Antalffy; Analyst; UBS

Presentation

Operator

Good day. And thank you for standing by. Welcome to the Treace Medical Concepts. Third quarter, 2024 earnings conference call. (Operastor 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.

Vivian Cervantes

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 for third quarter financial results released after market closed 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 file today and 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.

John Treace

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 US 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 active surgeon users in the quarter.
Building on these trends, we are committed to expanding our share of procedure volumes from our growing surgeon base while also attracting new surgeon customers with the introduction of our new MIS osteotomy platforms and our other forthcoming technologies.
With that in mind. Let me now provide you with additional color and share our excitement for our limited market release of Nanoplastics. Our Nanoplastics system offers surgeons an elegantly instrumented and reproducible 3D osteotomy procedure that can be performed through a single discrete 1.5 centimeter incision hidden on the side of the foot.
This system was developed in conjunction with a team of highly experienced and internationally recognized, minimally invasive foot and ankle surgeons and it's designed to offer patients a 3D correction to relieve their lifestyle limiting bunion pain while minimizing incision size and visible scar.
We believe Nanoplasty combined with our market leading Lapiplasty and Adductoplasty systems provides a powerful suite of differentiated technologies to comprehensively address the evolving needs of bunion surgeons and patients.
And we believe we are uniquely positioned with our expert Bunion focused sales force to deliver the clinical support needed to successfully integrate these new technologies and procedures into our surgeons practices.
We estimate today's overall procedure volume in the US, Bunion market is comprised of approximately 30% [lapidus] fusion and 70% metatarsal osteotomies.
And we estimate around 10% to 15% of osteotomies are performed using MIS techniques. Today, [now we are spending] the increasing interest in MIS from surgeons and patients MIS bunion surgery remains a technically challenging, predominantly freehand operation. Thus limiting adoption by the broader foot and ankle surgeon community and limiting patient access with Nanoplasty. We're changing the MIS osteotomy market paradigm with an elegantly instrumented reproducible 3D correction system.
The strategy follows our Lapiplasty playbook where we made a challenging freehand 3D [lapidus] procedure reproducible and in doing so, democratized it, making it accessible to the broad foot and ankle surgeon community.
Let me now explain why we believe our entry into the osteotomy space represents a significant and immediate opportunity for Treace and why we expect it will further accelerate our penetration into the Bunion market.
When we look at our existing base of over 3,000 great Lapiplasty customers, Lapiplasty makes up roughly 25% of their annual average bunion case mix and we estimate the majority of the remaining 75% to be metatarsal osteotomies.
We've experienced great success with our flagship lapiplasty system and have repeatedly shown increased average utilization within our customer surgeons over time as a progressively utilized lapiplasty, initially applying it to their most severe bunions to those that are more modern in nature. Over time.
By contrast, Nanoplastics, an immediate pathway to capturing surgeons more moderate to mild bunion cases without the multiyear utilization ramp that we experienced with Lapiplasty. In other words, we don't have to wait for two or more years for surgeons to consistently apply a tree solution for their moderate to mild bunions.
Nanoplasty provides a sophisticated advancement in osteotomy surgery with strong benefits to surgeons and patients alike. Our customer surgeons are asking for these MIS solutions from treace and we are delivering.
We also believe we have a meaningful opportunity to attract new certain customers who today prefer metatarsal osteotomies for the vast majority of their bunion cases and have yet another. Now reason to engage with treace.
We've already trained a significant cohort of surgeons on Nanoplasty in the lab setting and based on their consistently strong and positive feedback, we believe Nanoplasty can disrupt the emerging MIS metatarsal osteotomy space due to its advanced 3D correction capability, rapid learning curve and its cosmetic appeal the patients.
We also have a second MIS osteotomy offering coming just behind Nanoplasty. This offering is geared towards the existing base of MIS foot surgeons who use specialized screw implants for their fixation of MIS osteotomies.
Our goal here is to offer this segment of surgeons a superior option consisting of improved implant designs and importantly, the elegant 3D correction instrumentation that tree is known for to help them achieve greater reproducibility and gaining their 3D bunion correction outcomes.
We're excited to deliver this second platform and to continue to lead the Bunion corrections space with our pioneering technologies. We look forward to sharing more details on this new platform as we initiate our limited market release later in the quarter.
In addition to the two new MIS osteotomy systems which I just discussed, I want to update you on pipeline technologies discussed on previous calls and provide updates on their commercial status. First, our [microlab the plastic] 3D minimally invasive system. This allows the patented lapiplasty procedure to be performed through a two centimeter incision. I'm pleased to report [micropop plasty] is now fully available to our surgeon customers.
Our [intel] guide, patient specific cut guides for Lapiplasty and Adductoplasty procedures. As a reminder, these utilize our acquired Redpoint PSI technology.
We continue to perform [intel] guide procedures with a number of surgeons and we expect expanded surgeon access during Q4 on our pathway to full commercial availability of this exciting technology. Within the first half of 2025 our mini Adductoplasty instrumentation which allows surgeons to perform the Adductoplasty mid procedure through a 50% smaller incision than with our standard Adductoplasty approach.
We expect expanded surgeon access within the fourth quarter with full access to this instrumentation within the first half of 2025. And our SpeedPlate, [micro quad] implant. This is a new speed plate designed specifically for high stability and anatomic fit in small surgical incision approaches such as micro Lapiplasty and mini Adductoplasty.
We expect a limited release of [micro quad] to begin in late in the fourth quarter and reach full commercialization within the first half of 2025. And there's more coming our focused R&D pipeline is loaded and we are poised to significantly expand our technology and procedure offerings through 2025 and beyond.
I'd now like to give an update on reimbursement. CMS recently released its final 2025 Medicare payment rates for hospital outpatient and ASC services to cover facility costs for surgical procedures including supplies and implants used in the surgical case. These changes take effect on January 1, 2025.
As a reminder, our products are used in procedures covered by well established specific CPT codes and we're pleased to see that CMS has rendered its final rule an accompanying agenda which includes the reassignment of CPT code 28297. A primary code used for [Lapidus] fusion and one typically used for the Lapiplasty procedure to APC 5115 with a hospital outpatient payment rate of $12,867 for 2025.
This represents an increase of $6050 or 89% over 2024 in the ASC setting, the 2025 payment is now $9820. An increase of 100% compared to $4900 for 2024. As the pioneer of the market leading Lapiplasty Bunion Correction system. We are pleased that the final rule recognizes the value that [Lapidus Fusion] offers. Patients suffering from painful life cell limiting bunion deformities.
Turning now to our financial outlook, we're revising our 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 a just Abada improvement of approximately 50% compared to full year 2023.
Before turning the call over to Mark, I'd like to provide an update on our recently filed patent infringement and unfair competition suit on October 14. We announced that we filed a lawsuit against Stryker Corporation and its subsidiary Wright Medical alleging patent infringement and unfair competition.
We are proud of the fact that we were the first company to develop patent and introduce an instrumented 3D Bunion correction system, creating a new segment of the US Bunion market.
We've been building our patent portfolio since our inception in 2014. And this lawsuit is consistent with our corporate strategy to assert and enforce our intellectual property rights with that. Let me now turn the call over to Mark to review our financial performance. Mark?

Mark Hair

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 buning 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 $0.025 per share compared to a net loss of $17.5 million or $0.028 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 ebida 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.

Question and Answer Session

Operator

Thank you. (Operator Instructions) Robbie Marcus, JP Morgan.

Robbie Marcus

Oh, great. Good afternoon. Thanks for taking the the question. Maybe to start, I wanted to ask on the new MIS osteotomy product. You came to market with Lapiplasty with two 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?

John Treace

Hi, Robbie. Thanks for the question, John. I it's a great question and you know, 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, you know, 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. You know, 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 an 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.

Robbie Marcus

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, you know, trying to, [cut] the adjusted EBITDA, again to, you know, striving towards break even next year in '25 any early thoughts on the rest of '25 as we look up and down the P&L. Thanks a lot.

Mark Hair

Yeah, Robbie, this is Mark and yeah, last call we talked about this year, how we're going to improve our adjusted EBITA 50% over last year and then we'll get the remaining 50% in 2025. And so that that would be to an adjusted EBITDA break even 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 EBITA 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 late in the year, especially the fourth quarter.

Robbie Marcus

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

Mark Hair

You know, 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 you know, 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 even aligned. So, more to come on the guide for portfolio 2025.

Operator

Rick Wise, Stifel.

Unidentified Participant

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

John Treace

Hey Anton, thanks for the question. It's John. Yes. SpeedPlates been a real game changer in our product line. Our certain customers are, they're really preferring it as their go to fixation and 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, 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're going to be well embraced, adopted and they really [dovetail] nicely with micro Lapiplasty and mini Adductalplasty in allowing surgeons to put, you know, more robust fixation into smaller incision sizes. So we think the advances we keep making in speed play, keep differentiating that line and driving into the market even further.

Unidentified Participant

All right, that's great to hear and on the the CMS final reimbursement decision, can you kind of help me think through what that means from a margin perspective? I mean, the new ASC reimbursement rate was due to meaningfully narrow the reimbursement GAAP relative to the hospital outpatient setting and they 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 growth market trajectory as being basically stable.

Mark Hair

Anton. This is Mark, you know, we're pleased with the final ruling with CMS and those associated reimbursement rates as far as our gross margin. And you know, we'll continue to sell into these customer accounts and we are still continuing to target 80% this year. And you know, 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. Lapiplasty specifically.

Operator

Thank you.
Richard Newitter, Truest Securities.

John Treace

Hey, Rich.
Rich, are you there?

Operator

I'll move on to the next person.
Ryan Zimmerman, BTIG.

Unidentified Participant

Hi guys. This is Izzy on Ryan. Thanks for taking the questions. So I just wanted to stay on the topic of the finalized reimbursement rates for 2025. How are you guys thinking about how this might influence the competitive dynamics that you're seeing going on in the market right now? Do you think it'll 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?

John Treace

I think it's John. Yeah, you know, we were really pleased with those adjustments. They are significant and of particular interest to us because, you know, we believe we are the single largest [lapidus] player in the US. There are a lot of ways that this may benefit that [lapidus] segment of the market in general. You know, one outcome could be a broadening of patient access to [lapidus] procedures that at different sites of care. You know, with that said, we just need to see how it's going to play out next year and report to report back on any changes we see in demand or access.

Unidentified Participant

Got it. I understand. And just following up on that, if we think about the actual mix of procedures of Lapiplasty 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're seeing for next year.

John Treace

Yeah, I mean, there's a lot of, you know, potentials and theoreticals, you know, that's one of them, but it's just too early to, 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.

Operator

Thank you. (Operator Instructions) Richard Newitter, Truist Securities.

Benjamin Goldstein

Hi, it's Ben on for rich. Can you hear me?

John Treace

We can hear you.

Benjamin Goldstein

Yes, thank you. So, I'm wondering what you're seeing in terms of trends in the foot and ankle market? I know there was some commentary from a competitor that they're expecting some re acceleration into 4Q. I'm wondering if you're seeing similar.

John Treace

Hi Ben. It's John. Thanks. Thanks for the question. Yeah, there have been, there have been some comments on the foot and ankle market. You know, we we uniquely kind of participate in one segment, you know that highly elected segment bunion surgery, some of those other companies have more diversified portfolios that that include things like trauma products and other reconstructive products.
So it's hard to make a direct comparison, you know, with our business to what these other companies might be saying and seeing, you know, 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're pleased that Q2 and Q3 came in largely as we expected them. And every year, you know, 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.

Operator

Thank you.
Danielle Antalffy, UBS.

Danielle Antalffy

Hey, good afternoon guys. Thanks so much for taking the question. Congrats on a good quarter here. 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 of high single digits, just curious what the sort of puts and takes of that are any hurricane impact in, in that number and then just a quick follow up to push a little bit on 2025.

Mark Hair

2025.Hey, Danielle, this is Mark. Let me start and then maybe John can fill in any color that I missed. But yeah, we're definitely pleased with the execution that our sales force had in Q3, 11% growth was really largely in line with our projections. You know, 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 tail end of some of these new product launches that John has been talking about.
You know, 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 were, you know, candidly in our backyard here in Florida. So, balancing all of it, we just felt, you know, pleased with our third quarter results, but believe it's prudent to really maintain our guide for Q4 given some of that uncertainty.

Danielle Antalffy

Got it. Okay. That's helpful. And then just to push a little bit on 2025 I mean, I think right now where the street sits, it's high single digit growth or thereabouts. I mean, you, it feels like things have, have actually gotten a little bit incrementally better. You're, grown double low, double digits here 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 the streets a little bit on the low end appreciating? You're not giving guidance but just trying to think about this conceptually. Thanks so much.

Mark Hair

Yeah, Danielle, it's a great question and something that we talk a lot about here, you know, 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. You know, we've got a lot of things that have been in the pipeline and we're 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, of history just yet. We feel really good about all those coming. There are several other products and systems that are coming out next year as well. But, you know, I think from where we're sitting right now, there has been a lot of change. There's been some challenges this year and I think we, as we think about next year, we've got a great and strong sales force.
We've got some great products coming, including our existing Lapiplasty and Nanoplastics product lines. We feel like we have a lot of things in order. I think at this time, we're going to wait and see a little bit more of how the our surgeon customers adopt these new systems and then we'll be ready and prepared to give a little bit more guidance into next year as it gets a little bit closer.

Operator

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

Vivian Cervantes

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, 2024.

Operator

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