TREACE MEDICAL CONCEPTS THIRD QUARTER 2026 EARNINGS CONFERENCE CALL - TREACE MEDICAL CONCEPTS INC

Financial Performance:

• Q3 2026 revenue was $48.3 million, a 4% year-over-year (YoY) decline driven by a mix shift toward lower-priced minimally invasive products and reduced bunion kit volume; excluding stocking distributor sales, revenue grew mid-single digits.
• Gross margin improved to 79.5% in Q3 2026 from 79.1% in Q3 2025.
• Total operating expenses decreased 10% YoY to $49.9 million ($5.5 million reduction).
• Net loss narrowed 23% to $12.6 million ($0.19/share) from $16.3 million ($0.26/share) in the prior year.
• Adjusted EBITDA turned positive at $0.3 million in Q3 2026, compared to a $2.6 million loss in Q3 2025.
• Year-to-date cash usage decreased 53% (a $9.7 million reduction) compared to the same period in 2025.
• Cash equivalents and marketable securities totaled $39.8 million as of September 30, 2026.
• Full-year 2026 adjusted EBITDA guidance updated to a loss of $1 million–$2 million, a significant improvement from the $3.9 million loss in 2025.

Guidance and Future Outlook:

• Full-year 2026 revenue guidance narrowed to $206 million–$210 million (previously $204 million–$212 million), reflecting a 3% to 1% decline from 2025.
• Management anticipates a return to revenue growth in Q4 2026 driven by increased procedure volumes, the fading of ASP mix headwinds from 2025 launches, and benefits from new 2026 product introductions.
• Full-year 2026 cash usage guidance remains reduced by approximately 50% compared to 2025.
• Management expects 2027 to show growth above historical market rates (mid-single digits) as new products gain traction, though specific 2027 guidance will be provided on the Q4 call.
• The "Lightning" platform for Lapiplasty is scheduled for commercial launch in Q1 2027, followed by the full commercialization of the "Taylor Plasty" system.

Business Segments and Product Lines:

• Bunion Systems: Strategic expansion beyond the 30% Lapiplasty (Lapidus fusion) market to address the remaining 75% via three new systems launched in Q3 2025: Nanoplasty, Percuplasty, and Speed MTP.
• Adoption Metrics: 45% of Lapiplasty surgeons used at least one new bunion system in Q3 2026 (up from 40% in Q2), and 30% of surgeons acquired via new systems are now purchasing Lapiplasty products.
• New Product Launches (2026):
  • SuperBite: Compression screw system launched in Q3, eliminating drilling steps to increase efficiency in mid/hindfoot procedures.
  • HyperPlate XM: Dynamic compression locking implant for mid/hindfoot fusions to reduce non-union rates.
  • VitaFuse: Bioactive glass graft technology.
  • Cartoblaster: Powered joint preparation rasps for rapid cartilage removal.
• Taylor Plasty: New minimally invasive system for bunionettes (fifth metatarsal deformity) with initial cases completed; full commercialization expected Q1 2027.
• TAM Expansion: The four products launched in Q3 (SuperBite, HyperPlate, VitaFuse, Cartoblaster) expand the U.S. Total Addressable Market (TAM) by an estimated $400 million; the full 2026 portfolio launch adds an estimated $700 million to TAM.
• Service Scope: Expanded product suite now targets ~80% of an average surgeon's reconstructive foot and ankle volume, up from 30% previously.

Market and Competitive Landscape:

• Market share gains are being achieved through the adoption of a comprehensive portfolio of "best-in-class" bunion systems.
• Clinical evidence remains a key differentiator; the five-year Align3D study for Lapiplasty showed low recurrence rates and significant pain reduction, marking a first-in-industry milestone.
• The company aims to expand beyond the bunion segment into midfoot, hindfoot, and ankle procedures, leveraging existing customer relationships to capture wallet share.
• International expansion is acknowledged as a future opportunity, but no specific timeline or material progress is currently announced pending further portfolio development.

Risks and Challenges:

• ASP Mix Shift: Revenue pressure is driven by the introduction of lower-priced minimally invasive products, though this is offset by volume growth and high-ASP complex cases.
• Execution Risk: Managing the rollout of multiple new product launches (SuperBite, HyperPlate, Taylor Plasty) during the peak Q4 season requires disciplined sales force training and integration.
• Market Volatility: Broader market commentary suggests slowing procedure volumes among peers, though the company reports double-digit volume growth due to its expanded portfolio.
• Stocking Distributors: Significant headwinds from stocking distributor inventory normalization in Q3 are expected to decrease significantly in Q4.

Management Commentary and Tone:

• Management expressed a "cautiously optimistic" and "encouraged" tone, highlighting validation of the strategy through double-digit case volume growth.
• CEO John Treese emphasized a disciplined expense management approach while leveraging commercial resources for high-impact growth.
• CFO Mark Hare highlighted the successful reduction in cash usage and the inflection in Adjusted EBITDA, framing the Q3 net loss as a positive step toward profitability.
• The tone reflected confidence in the "anchor" Lapiplasty business supporting the expansion into adjacent foot and ankle segments.

Analyst Questions and Answers:

• ASP vs. Volume (Ryan Zimmerman, U.S. Bancorp/BTIG): Confirmed that while some new products carry lower ASPs, the overall strategy includes high-reimbursement complex cases; management expects ASP and volume dynamics to tighten and benefit long-term growth.
• Adoption Rates (Ben Hainer, Lake Street Capital): Adoption of new bunion systems is tracking well (45% of surgeons), but management aims for 100% usage and multiple system adoptions per surgeon; international expansion is being eyed but no timeline given.
• Q4 Outlook & Market Trends (Rick Wise, Stifel): Q4 expectations remain unchanged despite a modest Q3 beat; revenue growth is expected to resume in Q4 due to the seasonal high in bunion volumes and reduced stocking distributor headwinds.
• Reorder Rates & Sustainability (Rick Wise): Reorder rates and multi-product adoption are "very healthy," with increasing percentages of surgeons using two or more systems.
• 2027 Growth Expectations (Rick Wise): Management declines to give specific 2027 revenue guidance, preferring to wait for Q4 results and further data on new 2026 product performance before committing to numbers.
• Sales Force & OpEx (Richard Neweter/Truist Securities): Sales force productivity is increasing (1.5x cases per rep) due to portfolio synergy; incremental headcount additions are planned but not "big magnitude," with OpEx expected to remain stable with some variable commission increases aligned to revenue growth.

Other Key Points:

• The company has 3,300 surgeon customers, a number that has grown throughout the year.
• Clinical studies for Adductoplasty and SpeedPlate were also presented at the AOFAS annual meeting in September.
• The "Lightning" platform for Lapiplasty aims to provide faster procedures and greater 3D correction control.
• A lighthearted moment occurred regarding rumors of a celebrity endorsement for the "Cartoblaster" product, which management declined to confirm or deny humorously.