Good day, and thank you for standing by. Welcome to the Treace Medical Concepts Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] Now it is my pleasure to hand the conference over to your host today, Vivian Cervantes with Gilmartin, Investor Relations. Please go ahead. Vivian Cervantes;Gilmartin;Managing Director, Investor Relations: Thank you, Paul. Good afternoon, everyone, and welcome to our fourth quarter and full year 2021 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 and full year 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 2021 to be filed Friday, March 4. With that, I will now turn the call over to John.

Thank you, Vivian, and good afternoon, everyone. Thank you for joining us on our fourth quarter and full year 2021 earnings conference call. We are pleased and encouraged by the strong fundamentals in our business in 2021. Through our team's focus and steady investments in our commercial operations, we delivered above consensus revenue growth each quarter following our April 2021 IPO. These results were led by: an expansion of our direct sales channel that is 100% focused on bunion surgery, the only such organization that we're aware of in the medtech industry; a disruptive technology in surgical procedure that's backed by a growing body of clinical data demonstrating both rapid return to weight-bearing and recurrence rate significantly below that of current standards of care; positive momentum from both surgeons through our active surgeon education initiatives as well as patients through our targeted DTC programs; and steady increases in our active surgeon count and surgeon utilization rates, facilitated largely by our DTC program investments and our expanding direct sales channel. Our disruptive Lapiplasty solution, specifically developed with our Surgeon Advisory Board to correct the root cause of the bunion, addresses a large and underserved market. We have 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, primarily due to the limitations of current standards of care. Through 2021, we believe our market share stands at only around 3.8% of the estimated 450,000 annual surgical bunion procedures, up from 2.5% in 2020 and just 1.6% share of the 1.1 million annual surgical candidates. For 2022, our business fundamentals remain firm, and we see a long runway ahead of us. We believe we remain well positioned for steady growth and continued market share gains ahead. With another quarter as a public…

Thank you, John. Good afternoon, everyone. Revenue in the fourth quarter was $33.4 million, an increase of 55% over the third quarter 2021 and up from -- over the third quarter of 2020 and up from $24.1 million a year ago, representing an increase of 39% over the fourth quarter of 2020. Revenue growth was led by our expanded surgeon base and higher utilization rates, which grew the number of Lapiplasty procedure kits sold. In addition, we saw continued favorable average selling prices in the quarter compared to the prior year. In the fourth quarter 2021, we sold 6,235 Lapiplasty procedure kits, a 35% increase versus the prior year's fourth quarter. Blended average selling price in Q4 was $5,363, a 3% increase over the fourth quarter in 2020 and a slight decrease from Q3 of this year. The number of active surgeons performing at least 1 case in the trailing 12 months in the quarter increased 40% year-over-year to 1,783, while utilization increased 13% year-over-year to an average of 9.8 Lapiplasty procedure kits per active surgeon in the trailing 12 months. For the full year 2021, revenue was $94.4 million, a 65% increase over 2020 and also at the top end of our preannounced revenue expectation of $94.1 million to $94.4 million and our prior 2021 revenue guidance range of $90 million to $95 million. We sold 17,490 Lapiplasty procedure kits for the full year of 2021, a 57% increase versus the prior year and a blended average selling price of $5,398, a 5% increase over the prior year. Gross margin increased to 81.1% in the fourth quarter of 2021 compared to 78.9% in the fourth quarter of 2020. The 2020 basis point gross margin expansion was due to increases in the number of Lapiplasty procedure kits sold, increases in…

[Operator Instructions] Your first question comes from Robbie Marcus with JPMorgan.

Congrats on a good quarter. So maybe to start, as we think about the guide, how do we think about volume growth versus revenue per procedure growth? And then second part of that question is, once again, this is a market that's atypical for medtech. How do we think about the phasing of it throughout the year?

Thanks, Robbie. What we just showed and what we just reported was increases in a few things. One is our active surgeon base, and that's a primary focus for us. And we also reported increases in the utilization for those surgeons. And so that also remains a focus for us. And we believe that those 2 metrics are really key to forecasting revenue for us. And so we remain focused on really both, to adding incremental active surgeons throughout 2022 as well as all of the commercial programs that John was talking about, which we believe will also have an impact on the utilization. So it's going to be both. We're going to add surgeons -- active surgeons as well as continue to have higher utilization when that comes as our surgeons become more tenured and utilize Lapiplasty more frequently.

Great. And one more from me. How do we think about -- we hear a lot of your competitors out there saying they have the latest and greatest. We saw Johnson & Johnson do a very small deal. What are you seeing when you go out in the field? Are you getting pushback from doctors that are trained on Lapiplasty and switching to other competitors? And is it still very much an open market against surgery versus other procedured innovations?

Yes. Robbie, John here. Yes, we -- there are a couple of other competitive systems out there now. J&J acquired CrossRoads. They're a company we've been familiar with. We noted them as a competitor [ in our S-1 ]. Not sure how much real traction they have out there or how much of their overall revenue is related to the bunion products, but clinical evidence would be a question. But others -- we have a very large sales channel now that we've built up that 100% focuses on Lapiplasty. We've had over 6 years of commercial fine-tuning with the procedure, a very broad patent portfolio to protect our innovations. And we're the only system out there with meaningful clinical data. And it was really rewarding to see the ACFAS society award that podium presentation with an honorable mention especially at this early stage of the study. So we feel really great about our ability to keep driving our growth over the long term and out-innovating, outdating and out-channeling anybody else out there that wants to try to get in and bite at our ankles. For some of those folks, the more they talk us up, the more they just validate us. So we're feeling very good about our prospects for long-term growth, even with a couple or a handful of other companies trying to get into the fray here.

Your next question comes from Drew Ranieri with Morgan Stanley.

I just wanted to talk about utilization for a moment. And I kind of remember during your IPO process, you had a chart talking about different levels of surgeon utilization over their tenure of using Lapiplasty. I was just kind of curious kind of what you're seeing now towards the end of 2021 into 2022? Kind of where are you seeing the most significant increases in your surgeon tenures utilization rate? Is it coming more from the experience stock? Or are you actually seeing maybe more of an acceleration and traction among the surgeon groups as there's been more data or -- as there's been more experiences? Wondering if you could help us out there.

Drew, it's John. Thanks for the question. As we track the utilization by tenure or by years that they've been performing the procedure, it's a pretty steady climb all the way from year 1 to year 5. Some of those that I would say -- between year 4 and 5, there's a pretty good jump as they reach very high levels of certification on our patient website. And they really have seen, in their own practice, the long-term great outcomes from the procedure. So -- but it's a pretty steady climb throughout the curve from year 1 up to year 4, and then a little bit of an extra jump in year 5. That's a smaller population base of surgeons. So some really early on surgeons in that category, too.

And Drew, this is Mark, just maybe one other piece to that. The benefit of doing this for now several years is we have more and more data. And so we're really not being surprised or there hasn't been a dramatic change in the last year. So it's been -- some are predictive, and it's been very useful to us and really no surprises there. We've had some strong -- just as John said, some strong improvements year-over-year as that group tenures. So nothing really new or surprising from the way that continues to progress, and progress nicely for us.

Got it. That's fair. And maybe just on the first quarter guidance, you talked about kind of the typical seasonality. When I kind of go back and look at our model and we only have a few years of history, but it was down 30% in 2020, down 22% in the first quarter of 2021 on a sequential basis. Just given kind of where we are with Omicron and the hospital staffing shortages and some of the other challenges, I mean, where should we kind of figure out first quarter in that range? Are you going to be towards more the 33% decline or the 22% decline?

Yes. And thanks a lot, Robbie (sic) [ Andrew ]. We see that there will be a decline. As we mentioned, it's going to be -- it's pretty standard. Fourth quarter is what we refer to as bunion season, and that's our strongest quarter of the year. So there will be a step down. It's -- I think right now, what we're guiding is for the full year. And so as you look at kind of that full year and that percentage range that we've given, I think that should be somewhat helpful as we think about Q1 as well. And so -- I don't think it will be as pronounced as a couple of years ago, but that step down, but maybe we can have some more conversations about that.

Your next question comes from Danielle Antalffy with SVB Leerink.

I just had one high level and one a little bit more detailed question. Just at a high level, you're still low single-digit market share of the potential -- of the intervention sentiment, even lower than that of the potential total patient population here. And I'm just curious, John, where you see this going over time? And what are the barriers to adoption still today? It feels like you have everything in place from a sales force to the clinical data. So what stops this from becoming standard of care in the next, call it, 5 years for interventions that -- surgeries that are being done? And then just one follow-up.

Sure. Danielle, I think all the pieces that we're putting in place, we've laid a really solid foundation in place. We've been very deliberate about how we -- what about developing this business from the beginning, our patent portfolio, our clinical data, our sales channel and DTC patient education efforts. And I think the foundation is getting really solidified now. And what we're wanting to do is increase the investments in those areas to try to accelerate that and get to that point where -- and be the definitive standard of care over the next several years. So I think we're heading in the right direction. We're making a lot of progress. We're trying to overcome decades and decades of installed dogma in the teaching institutions and serving curriculum that the metatarsal osteotomy should be used for 70% or more, the majority anyway of bunions. And that takes time to change. And I think everything we're doing through our teaching programs, that we're doing with the surgeons, direct sales reps that can really stay close to these doctors and work them through that, that transition, we're clearly seeing the impact in these utilization increases year-over-year as every year that doctors use Lapiplasty, the increment year, they do more Lapiplasty. So it's working. We're just going to try to throw some accelerators on it and see if we can push to get there quicker with these investments we began in the back half of 2021, and we're going to accelerate here in 2022.

Got it. Yes, the physician inertia thing is real, I get it. So -- and then just on the investment in DTC initiatives and things like that, how do you guys measure the return on that? Or is there a way to sort of quantify how impactful that has been?

Sure. Yes. And it's something we started piloting back in early 2018. So we've been very methodical about measuring the impact of these investments, starting from a small scale and incrementally ratcheting it up year after year after year. We have hard metrics we can get from our website based on visits, based on certain engagement that patients make. There is a questionnaire to determine if they may be a surgical candidate that they can take. They can also search for a doctor in their area. So we monitor those relative to our spend. And we also, on the other side, we monitor our user base, our surgeon user base and we're able to survey them progressively and measure and monitor over time how many of their patients or what percentage of their patients are coming in pre-educated or pre-impacted by our DTC efforts. And we see that number climbing tightly correlated to our spend level. So between those 2, we get a pretty good bearing on the impact it's having. And then you just go to meetings like ACFAS, where I was in the booth the whole time and I would run out of digits to count how many surgeons came up and said, "I'm ready to get trained on this. I've had so many patients coming in asking for it. It's just amazing." So I think you put all that together and we feel great about the investment we're making in our DTC patient education.

[Operator Instructions] Your last question is from Rick Wise with Stifel.

I can't believe we haven't really talked about COVID on this call. Frankly, I was a little anxious about the fourth quarter and what you might say about '22. Did COVID present a headwind -- much of a headwind? Can you quantify it in the fourth quarter? And how do we think about your start to the year? A lot of companies have called out tough Januaries and Februaries, et cetera. Any incremental color there?

Yes, Rick, this is Mark, and thanks for the question. We see a lot of the same things that other companies are seeing. I think we've really just been trying to focus on those things that we can control. Some things we just can't control. And the things that we [ can ] control, we feel very good about. So we did see what other companies saw in the fourth quarter and enter into Q1, but we're really focused as a whole team here as we're expanding our sales force. If there are some headwinds in one region, well, let's just push harder in another region to make up for it. So we're really just trying to have -- keep our pace of growth steady throughout the country and really be down to kind of daily business each day. And we do feel that the bunch of this is behind us, and that we feel like we're largely clearing up. And so we're anxious to move ahead.

That's great to hear. And honestly, I think you did a great job in that kind of context. I wanted to talk about both the expansion of direct reps and how it might interact -- intersect with gross margins. You're going to have -- if I've heard you correctly, [ 70% ] direct reps by the end of the year, if I'm quoting you correctly. Please correct me if I'm not. But I would assume that it's going to be whatever it means for OpEx, it should mean better gross margins, correct? And you finished really strongly. How should we be thinking about gross margins in '22 and frankly, beyond given this increasing mix of direct sales?

Thanks, Rick, and good question. With our growing sales force, what we see and what we've already -- saw in last year as really the steady increase was underway is that there are some increased costs related to these direct sales channel, these W-2 employees. And those costs are being reflected in the sales and marketing line as a cost of selling the product. And from a total overall cost of goods sold, we're not going to give specific guidance here on what the margin is, but we felt comfortable with what we've been able to do. There are some operating efficiencies as we get to become a larger company. And there are benefits and efficiencies. And so we've had some gross margin expansion in 2021. But looking at the trends in 2021, you can see that the OpEx line item, sales and marketing has been expanding. And that's the line item that I was referring to in part of the script where I said we're looking to grow from here. So both in the DTC initiatives as well as that expanding DTC -- or excuse me, direct sales channel, that's where you'll see that impact. But the gross margins, we feel good about our gross margins. They've been healthy and hopefully, with the growing efficiencies and volumes that they'll remain healthy.

Got you. Maybe just last from me. Gosh, I know it's early and sort of a silly question in a way, but it's sort of a 2-part question. Where are we in the rollout of MiniLap and the Adductoplasty procedure? How do we imagine -- if I would ask that question in a year, how would you hope and expect to answer it? And sort of -- that's part A. Part B, in a way is, obviously, Lapiplasty continues on, you're adding these new incremental procedures, are -- is this -- are you -- is this part of going deeper in accounts? Is this persuading more people, more physicians to get trained? Is it opening new accounts? I'm just wondering how that all is working together as you drive forward as well the intersection of all those things.

Sure, Rick. We're very pleased with the uptake. I'd say it's steady progressive uptake of the Mini-Incision system into our more experienced surgeons practices. And there continues to be more interest in that system, especially as we roll out things like the 3-n-1 Guide that make the procedure even faster and more straightforward. I'd say we're in the third inning on that. And for adductoplasty, we're still early in the first inning. Our initial rollout, we had limited numbers of trays. And we're a little bit tray-constrained. We're now getting into a situation where we're going to be able to have some good supply out on the field here in the next few weeks or months. And I think that's going to continue to grow really nicely. There's a lot of demand for adductoplasty. A lot of excitement, both at the ACFAS conference and the AOFAS meeting prior September. So we're looking forward to getting more availability of that system out there and driving that. That's going to help -- both of those are going to help push up our blended ASP trend and our ancillary products. As we get more direct reps, I think we're going to get better penetration because we have more people that don't have the other company products in their bag to offer to those cases, right? So they've got to focus on selling our product line wholly and across the board. So I fully answered your -- the last part of your question, but please ask again if I missed something.

No, no, that's great. And so it's really the expanded sales force -- expanded direct sales force with more in the bag and more tools to offer for every procedure. So it is all going to work sort of synergistically if I'm saying it properly.

Yes, that's right. And they don't have all the products yet, but we've got a really nice pipeline and that's where we're trying to -- of identified additional opportunities, and that's why we're upping our investment in R&D. We're still keeping tight focus on that bunion and bunion-related pathologies and staying at our home base.

As there are no further questions at this time, I would like to turn the conference back over to management for closing remarks. Vivian Cervantes;Gilmartin;Managing Director, Investor Relations: Thank you, Paul. On behalf of Treace Medical, we'd like to thank everyone for joining us today. This concludes our call, and we look forward to our update following the close of the first quarter of 2022.

And this concludes today's conference call. Thank you for joining. You may now disconnect. Stay safe and well.