Treace Medical Concepts, Inc. (TMCI) Earnings Call Transcript

Thank you. Ladies and gentlemen, thank you for standing by. Welcome to Treece Medical Concepts' second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you would need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. to withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Tripp Taylor, Investor Relations. Please go ahead.

Good morning, everyone, and welcome to our second quarter 2026 earnings conference call. Participating from the company today will be John Treese, Chief Executive Officer, and Mark Hare, Chief Financial Officer. On this call, John and Mark will discuss the second quarter financial results in 2026 outlook. We'll then host a question and answer session following the prepared remarks. The earnings press release can be found in the investor relations section of our website at investors.treese.com. This call is being recorded and will be archived in the investor 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 future events will be protected under the Private Securities Litigation Reform Act of 1995. as well as our estimated results or performance, our 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 currently available information, and Treece 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 2025 Form 10-K and our Form 10-Q for the second quarter of 2026, filed before the market opens today, August 7th, which can be found in the investor relations section on our website at investors.treese.com for a detailed presentation of risks. With that, I will now turn the call over to John.

Thank you, Tripp. Good morning, everyone, and thank you for joining us on our second quarter 2026 earnings conference call. We are pleased with our results in the second quarter, with our revenue growth rate improving sequentially and our focus on profitability generating stronger adjusted EBITDA and reduced cash usage over prior year. These results were driven by continued year-over-year case volume growth, which accelerated to high single digits in the quarter, and market share gains driven by increasing surge in adoption of our comprehensive bunion portfolio and early impact of our expanding line of new technologies, now allowing us to tap into a broader range of procedures throughout the foot and ankle. We continue to focus on investing in growth initiatives to leverage this growing portfolio while driving improved profitability, positioning us for stronger growth expected in the second half of the year. As a result, we are raising our full year 2026 revenue guidance to be in the range of $204 million to $212 million, representing a decline of 4% to 0% compared to full year 2025. This compares the previous revenue guidance of $202 million to $212 million. Importantly, this outlook assumes ongoing expected dynamics, including continued procedure volume increases and the lapping of the ASP mix shift dynamics related to our 2025 product launches and as we begin to benefit from our 2026 planned product launches. More specifically, this year we expect to return to positive revenue growth in our seasonally strongest fourth quarter. Turning to our growth strategy. As we continue to prioritize penetration of the bunion market and maximize the impact of our expanded portfolio, we're focusing on three key initiatives. First, driving the adoption of our three new Bunyan systems launched in 2025 across our large customer base of over 3,300 existing surgeon customers. Second, to build upon our leadership position with LAPAplasty by advancing new technologies that appeal to existing and new surgeons. And third, continue to broaden our portfolio by launching new technologies, allowing us to address adjacent procedures performed by our existing surgeon customers, enabling us to grow wallet share and expand our addressable market. and we continue to deliver these technologies through our sales channels that include our Focus Direct sales team, which accounts for approximately 80% of our revenue. Speaking now to our first initiative. Before reviewing our commercial progress, I'd like to briefly reiterate the strategic importance of the Bunyan technologies we introduced in 2025. We believe these new systems meaningfully expand our addressable market beyond lapoplasty and adductoplasty. Nanoplasty and percuplasty expand our reach into the high-volume osteotomy segment with differentiated 3D minimally invasive solutions designed to simplify adoption and deliver consistent three-plane correction. while our speed MTP system extends our portfolio into the large and attractive MTP fusion market, which overlaps with bunion pathology and is among one of the most common foot and ankle procedures performed. Across our large base of over 3,300 surging customers, we estimate Lapoplasty in recent years has captured around 25% of their bunion-related procedure volume on average. three new platforms are designed to address the remaining 75% of their procedure volume, creating a significant opportunity to increase surgeon utilization and drive long-term growth across the estimated 4.4 million annual U.S. bunion sufferers. Importantly, we believe our strategy is working, and this continues to validate our confidence in the significant opportunity ahead of us. Through Q2, approximately 40% of our Lapoplasmy surgeon user base has already utilized at least one of our three new bunion systems since their launch in the third quarter of 2025. This builds upon the 35 percent utilization rate we reported in the first quarter of 2026. In addition, approximately 30% of the growing number of new surgeons who first became Treece customers by using one of our three new bunion systems have also used lapoplasty technology, demonstrating a pull-through effect to lapoplasty technologies from this new surgeon cohort. Turning to our second initiative, our core lapoplasty franchise remains a key strategic priority. As the recognized leader in the Lapidus Fusion segment, which represents approximately 30% of the estimated 450,000 annual U.S. funding procedures, we are continuing to invest in innovation to improve our existing users' experience, appeal to new surgeons, and extend our market leadership. We remain on track for a limited commercial launch of our next generation lapoplasty lightning platform in the fourth quarter of this year. Lightning features new 3D correction instrumentation and speed TMT implants designed to simplify workflow, reduce procedure time, and enhance the surgeon's accuracy and their control over the 3D correction. Another key initiative for our lapoplasty strategy is our focus on increasing surgeon adoption of our Intelliguide technology, the industry's first patient-specific planning and cut guide system for lapoplasty bunion and adductoplasty midfoot corrections in the U.S. Intelliguide reduces steps and saves time and is particularly valuable in helping surgeons with treating complex deformities and revisional surgeries with greater confidence and control. We believe the combination of our lapoplasty lightning and Intelliguide PSI platforms provide a compelling and unique value proposition and can support further surgeon adoption and reinforce our category leadership in this key market segment. Now turning to our third initiative, we continue to broaden our portfolio beyond Bunyan's to allow our sales force to more fully service a greater share of our surging customers overall foot and ankle procedures and product needs and grow our share of wallet. During the second quarter, we took an important step towards this initiative with the limited commercial release of our new SuperBike compression screw system. As a reminder, compression screws are a fundamental bone fixation technology utilized broadly throughout the foot and ankle. We continue to receive very positive feedback and encouraging early customer uptake from our early market release of SuperBite. SuperBite features an innovative self-drilling and countersinking design that can reduce or, in many cases, eliminate the need for pre-drilling, improving OR efficiency, and simplifying the procedure. SuperBite, which we expect to fully commercialize this quarter, enables our sales force for the first time to participate in a wide range of incremental foot and ankle surgical procedures from the forefoot to the midfoot and hindfoot, and these incremental SuperBITE cases often utilize additional Treece products. Building upon our recent access into the midfoot and hindfoot fusion procedures facilitated by SuperBITE, we recently completed our initial cases utilizing our HyperPlate XM dynamic compression locking implant technology. Fusions of these larger joints in the mid and hind foot can be challenging and have associated historically with higher non-union rates. The HyperPlate XM's implant combination of locking screws and dynamic compression provides a highly stable construct with an anatomic shape designed to promote fusion in these larger midfoot and hindfoot applications. And consistent with our focus to provide innovative sterile instrumentation to make procedures more reproducible and more efficient, we developed and recently commercialized the Great Release XM instrument. Great Release XM is specifically designed to facilitate more efficient and thorough release of the soft tissues connecting these larger joints so that the joint surfaces can be accessed to prepare for fusion. And in the fourth quarter, we plan to further strengthen this mid and hindfoot portfolio with the introduction of our new CardiBlaster powered joint preparation rasps. These single-use sterile-packed rasps connect with the powered saw handpiece and are designed to speed up and facilitate thorough removal of the cartilage from these larger joint surfaces to effectively prepare them for use for fusion. We believe hyperplate XM implants, great release XM instruments, and cartoblaster rafts, complemented by our SuperBite compression screws, present a differentiated problem-solving portfolio to help surgeons advance their outcomes in their mid- and hindfoot fusion cases. In closing, we're pleased with the progress we made during the second quarter as we strengthened our leadership position in 3D bunion correction, advanced our portfolio, and increased our presence across the foot and ankle market. Our focus remains on unlocking the full potential of this broader portfolio while investing in our key growth initiatives. Looking ahead, our anchor position in the bunion market has presented opportunities to leverage our core capabilities into new procedural adjacencies and continue to more broadly service our surging customers. We will continue to develop innovative solutions to address our customers' unmet clinical needs, support our customers' outcomes with best industry medical education, and service them with our direct focus sales team. As we execute this strategy, we believe we can drive sustainable long-term growth and create long-term value for our shareholders. With that, let me now turn the call over to Mark to review our financial performance. Mark?.

Thank you, John. Good morning, everyone. Revenue in the second quarter was $45.4 million, a decrease of 4% compared to the prior year period. The decrease was driven by lower procedure kit sales to stocking distributors and a continued mix shift towards lower priced, minimally invasive products. Excluding sales to stocking distributors, we sold more procedure kits and in the quarter compared to the prior year period. Gross margin was 78.5% in the second quarter of 2026 compared to 79.7% in the second quarter of 2025. Total operating expenses decreased 8% to $50.6 million in the second quarter of 2026 compared to total operating expenses of $10.5 million. 54.7 million in the second quarter of 2025. Second quarter net loss was 15.9 million or 24 cents per share compared to a net loss of 17.4 million or 28 cents per share in the second quarter 2025. Adjusted EBITDA for the second quarter was a loss of 3.5 million compared to a loss of 3.6 million in the second quarter of 2025, representing both improved leverage and profitability. Year-to-date, cash usage reduced by 57%, or $3.6 million, when compared to the same period in 2025. Cash equivalents and marketable securities totaled $45.6 million as of June 30, 2026. According to our outlook for full year 2026, as John mentioned, we are raising our full year guidance and expect full year 2026 revenue to be in the range of $204 million to $212 million, representing a decline of 4% to 0% compared to the full year 2025. the previous revenue guidance of $202 million to $212 million. We expect revenue declines to continue until our seasonally strongest fourth quarter. We believe revenue in the fourth quarter will largely be supported by accelerating case volumes, the annualization of the mixed shift dynamics from last year's and the company's funding product launches, as well as contributions from our 2026 product launches. We are updating our adjusted EBITDA guidance to be in the range of a loss of $3 million to $5 million for the full year 2026, as compared to previous guidance of a loss in the range of $4 million to $6 million. and adjusted to EBITDA loss of $3.9 million for the full year 2025. In addition, we are reiterating an expected reduction in cash usage of approximately 50% for full year 2026 as compared with full year 2025. Supported by our balance sheet and available liquidity, we believe we are well positioned to continue executing our strategic and growth initiatives for the foreseeable future. With that, I'll turn the call over to the operator to open the lines for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. And we do ask that you please limit to one question and one follow-up. And our first question is, The next question will come from Ryan Zimmerman with U.S. Bank Corp. Your line is now open.

Hi, good morning everyone. This is Izzy on Orion. Thank you for taking the question. John, just to start off, I was curious if spend some time just talking about the quarter over quarter improvements or changes that you saw in terms of volume and pricing and whether or not either of these dynamics have.

have improved with the new products that you've brought to market so far? Hi, Izzy, appreciate that. Appreciate the question. Within the quarter, what we saw was greater penetration of our three new bunion systems that we launched in Q3 of last year. We went from 35% of our 3,300 surgeon base using those products last quarter to 40%. So that was nice to see. We also saw some contributions from our limited market release of our SuperBite screw system, and that penetrated some new procedures, so when you combine those two together, we accelerated our case volume growth. We talked about mid single digits over the last couple of quarters. We were in the high single digits this quarter. So we were pleased with what we saw there. And that's pretty much what played out in the quarter that led to the result.

Appreciate that. Thank you. And then, Mark, as we think about the guide for 26 and the step up, I think that's a for the seasonally strong fourth quarter. Could you spend a little bit of time parsing out exactly how you're thinking of the pacing in third quarter and fourth quarter? Thanks for taking the question.

Yes, I appreciate that. Yes, we're really excited. This is what John said, that a lot of the strategies and the commercial strategies that been implementing last year with our new product launches. They've been successful this year, and we really feel like the trends are working according to plan. So the way we see the second half of the year is for this continued strategies to continue to work. And so we'll see continued improvement in case volumes and more contribution from these new products in the back half of the year. Now, fourth quarter is always our seasonally strongest quarter. We've always seen that step up, sequential step up in revenue and case volumes from Q3 to Q4, and so there's really no changes there that we're anticipating that to occur again. We've seen it time and time again that that's what happens. And so we feel like we're well positioned with the new products that we launched last year to benefit from, as well as the new products that we're launching this year to continue to drive more case volume increases. And so we're looking forward to the back half of the year.

Thank you. And the next question is going to come from Ben Hainer with Lake Street Capital. Your line is open.

Good morning, gentlemen. Thanks for taking the questions. First off, for me, on the great release and the Cardi Blaster, can you share a little bit on kind of how you see the addressable market sizes for those products?.

Sure, Ben. It's John. Thanks for the question. What we've talked about is when you look at the combination of SuperByte, the HyperPlate XM, and the CardiBlaster, the Great Release XM platform, I think that expands our TAM by about $300 million on the US side. That's eyes of that opportunity that we're going after in this kind of midfoot and hindfoot port.

portfolio targeting. Perfect. That's helpful. On the last question. apoplasty surgeons that are picking up your other offerings, Do they tend to gravitate towards one or the other, or are there any commonalities there, and also any commonalities on who you're displacing?.

Yes, you know, first at a high level, you know, we've assessed, we're getting about 20, we were, before we launched the three new bunion system, we were getting around 25% on average of our surgeons overall bunion related volume. As these new products have been driving into that customer base, what we're finding is, you know, based on the surgeon's preference on the MIS side, they may not want to use a burr, and so they gravitate more towards an anaplasty. That's one of our MIS systems that's an IM implant, and you don't have to learn how to use a burr. a rotary cutting bur, there is a learning curve established with that. And you have other surgeons that prefer to go the perkioplasty route. They want to use the bur or they've been using the bur at a time, so they choose that system. As far as speed MTP, we're just seeing very strong adoption of that across the board, across all fronts. It's an outstanding system. very, very low profile, great diffusion plate with excellent stability and fixation. And as the name indicates, it goes on very quickly. So,.

I'd say that's how the mix is playing out in our customer hands. Got it. Thank you for the call. Appreciate the questions. You can try to fund the progress.

Thanks, Ben. Thank you. And the next question will come from Rick Wise with Stifel. Your line is open.

Thank you. Good morning, John. Good morning, Mark. John, maybe going back to your starting comments about which I think is, you know, hats off to you and the team, but 40% of the base using at least one and 35% of the new docs pulling through lapoplasty, et cetera, and obviously more products to come. But I'm curious about... what kind of competitive response you're seeing, what kind of competitive response you might, we should imagine you might face? Obviously, you've got some tough competitors out there. How quickly can they, you know, you know, imitate or replicate some of the innovations I'm sure you're bringing, just how do we, you know,.