Treace Medical's Q3 2025 Earnings Call: Contradictions Emerge on Strategy, Growth, and Market Share Amid Lapiplasty and MIS Osteotomy Shifts

Date of Call: November 6, 2025

Financials Results

• Revenue: $50.2M, up 11% YOY
• EPS: $0.26 loss per share, net loss increased 6% vs $0.25 loss per share prior year
• Gross Margin: 79.1%, compared to 80.1% in the prior year

Guidance:

• Full-year 2025 revenue expected $211M–$213M, +1%–2% vs 2024.
• Full-year adjusted EBITDA loss expected $6.5M–$7.5M, a 32%–41% improvement vs prior year.
• Full-year cash use expected to be reduced 43%–47% vs 2024.
• Q4 will face a headwind from ~ $3M of pulled-forward distributor orders that are not expected to recur.

Business Commentary:

* Revenue and Market Dynamics: - Treace Medical reported third quarter revenues of $50.2 million, representing a 11% growth over the third quarter of 2024 and a 49% improvement in adjusted EBITDA versus the prior year. - This growth was driven by increased sales to stocking distributors and the introduction of new bunion correction systems. However, the growth was also impacted by a shift in surgeon and patient preferences towards minimally invasive osteotomies and broader economic conditions.

• Outlook and Market Adjustments:
• The company revised its full-year 2025 revenue outlook to between $211 million and $213 million, representing growth of 1% to 2% compared to the full year of 2024.

• This revision reflects a softer economic environment, changes in surgeon preferences, and adjustments in contractual arrangements with distributors.

• Sales Strategy and Product Portfolio:

• Treace Medical introduced 3 new bunion correction systems this year, expanding its portfolio to address all 4 classes of bunion deformities, which is expected to drive case volume growth.

• Despite mid-single-digit case volume growth, the shift in surgeon preferences towards lower-priced minimally invasive osteotomy systems has impacted overall revenue levels.

• Operational Efficiency and Cost Management:

• The company reported a total operating expense increase of 8%, reflecting increased medical education, surgeon training, restructuring charges, and litigation expenses.
• Treace Medical is taking action to control organizational costs and plans to evaluate levers for improving profitability and reducing cash burn in 2026.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management revised full-year revenue down and said they are 'disappointed' with results, yet highlighted improved adjusted EBITDA (Q3 adjusted EBITDA loss reduced 49% YOY) and product/ commercial progress. Guidance shows modest growth but material cost/EBITDA improvement targets, reflecting mixed near-term softness and longer-term optimism.

Q&A:

• Question from Lilia-Celine Lozada (JPMorgan Chase & Co, Research Division): Can you talk about the softness in the core Lapiplasty business and whether this trend toward MIS osteotomies can turn around? What could return Lapiplasty to growth?
  Response: Trend toward MIS osteotomies is reducing Lapiplasty volumes; strategy is to win MIS surgeons with new, lower-ASP products and then pull them into Lapiplasty, but current adoption hasn't yet offset the Lapiplasty softness.

• Question from Lilia-Celine Lozada (JPMorgan Chase & Co, Research Division): The guide implies Q4 sales down ~10% (or ~6% net of pull-forward). Is that how to think about early 2026?
  Response: They are not providing 2026 guidance now; Q3 case volumes increased and they expect additional case volume in Q4 and will provide an update at the Q4 earnings call.

• Question from Marie Thibault (BTIG, LLC, Research Division): Has there been an acceleration away from Lapiplasty and can the adoption of the three new bunion technologies be accelerated by the salesforce to offset the shift?
  Response: Yes—the shift to MIS is ongoing; the salesforce is focused on new Percuplasty/Nanoplasty/SpeedMTP products which are driving penetration and mid-single-digit procedure growth while opening opportunities to present Lapiplasty.

• Question from Marie Thibault (BTIG, LLC, Research Division): What specific actions are you taking to find efficiencies on the P&L to offset a lower top line?
  Response: They've implemented a Q3 restructuring charge and are evaluating additional organizational and cost levers going forward, leveraging a scalable, high-margin business to improve profitability.

• Question from Jayna Renee Francis (UBS Investment Bank, Research Division): How will you recoup deferred procedures next year and what are the qualitative puts and takes to 2026?
  Response: Plan to recoup deferred patients by leveraging a broader product portfolio and deeper sales engagement as consumer sentiment improves, positioning to capture returning patients with additional innovations.

Contradiction Point 1

Business and Product Strategy

It reflects differing views on the company's strategic focus and growth initiatives, which are crucial for understanding the company's direction and investor expectations.

Can you explain the softness in the core Lapiplasty business, whether growth can resume if MIS osteotomy gains preference, and what factors might reverse the trend amid shifting doctor preferences? - Lilia-Celine Lozada(JPMorgan Chase & Co)

2025Q3: There's definitely a trend towards popularity of minimally invasive osteotomies, but Treace is focused on capturing share in the minimally invasive osteotomy market and the MTP fusion market. The success on the ground in surgeons' practices isn't translating to top-line growth due to lower price points. Every surgeon has to do Lapidus at some point, and Treace aims to get more surgeons on board, pulling through the Lapiplasty procedure. - John Treace(CEO)

Can you provide quantitative details on surgeon profiles for the new 3 systems? Will volume growth for adopters match that of Lapiplasty? - Aaron Wukmir(Lake Street Capital Markets)

2025Q2: Our strategy is focused on penetrating faster into the 1.1 million patient base and doubling our share of procedures with our customers. We know we're only getting about 30% of our current surgeon user bases' bunion volume, and penetrating the additional 70% is key while also bringing on new customers attracted by these new technologies. - John T. Treace(CEO)

Contradiction Point 2

Financial Performance and Growth Expectations

It involves differing expectations for financial performance and growth, which are critical for investors to assess the company's future prospects.

Does the guidance suggest fourth quarter sales will decline 10% or 6% (adjusted for pull forward) and should we expect similar trends in early 2026? - Lilia-Celine Lozada(JPMorgan Chase & Co)

2025Q3: We're not providing guidance for 2026 at this time. However, we're optimistic about the growth in case volumes and the reception of the new bunion systems and innovation pipeline. We expect to provide an update at our fourth quarter earnings call, focusing on market share gains, commercial organization, and case volume growth. - Mark Hair(CFO)

How should we view the second half of this year and the setup for 2026? How confident are you in regaining a sustainable double-digit growth trajectory by 2026? - Danielle Joy Antalffy(UBS Investment Bank)

2025Q2: We are looking at double-digit growth in the back half of this year. We have a really good setup for the back half of this year. The guidance for the full year already expects around 10% growth in Q3. Every quarter in this year sees a nice step-up sequentially in growth rates and Q4 is even a step-up from Q3. We feel good about this year, and with more time with these new products, we'll give more color on how we see 2026. - Mark L. Hair(CFO)

Contradiction Point 3

Strategic Focus and Market Positioning

It reflects a shift in the company's strategic focus and market positioning, which could impact investor perceptions and long-term growth expectations.

What factors are contributing to the softness in the core Lapiplasty business, and how do you expect the trend to evolve? Is the growing preference for MIS osteotomy a potential catalyst for growth? What strategies could drive growth if physician preferences have shifted? - Lilia-Celine Lozada(JPMorgan Chase & Co)

2025Q3: There's definitely a trend towards popularity of minimally invasive osteotomies, but Treace is focused on capturing share in the minimally invasive osteotomy market and the MTP fusion market. The success on the ground in surgeons' practices isn't translating to top-line growth due to lower price points. - John Treace(CEO)

How are you positioning the osteotomy products to compete with the bunion market? - Iseult McMahon(BTIG)

2025Q1: Not a lot has changed on the competitive front. Several companies have Lapiplasty knockoffs, but Treace remains the market leader. New products will further differentiate and drive growth. Lapiplasty remains superior due to clinical outcomes data. - John Treace(CEO)

Contradiction Point 4

Product Adoption and Market Penetration

It reveals differing perspectives on the rate of product adoption and market penetration, which could impact sales projections and market share.

Has there been acceleration away from Lapiplasty, and why has this become a bigger issue in the second half of this year? - Marie Thibault(BTIG, LLC)

2025Q3: There is a trend with minimally invasive osteotomy, and Treace is playing in that market with novel technologies. We have increased penetration and are extracting market share. - John Treace(CEO)

Is the adoption speed of new surgeon users changing? - Iseult McMahon(BTIG)

2025Q1: Turnouts at BunionMasters training programs are oversold. There is strong interest in the new systems, which are expected to significantly boost penetration into the remaining 75% of surgeon cases that Treace does not currently capture. - John Treace(CEO)

Contradiction Point 5

Lapiplasty & MIS Osteotomy Market Position

It highlights the company's strategic focus on the Lapiplasty business and its market positioning amidst a shift towards MIS osteotomies, impacting market share and product adoption strategies.

What is driving the softness in the core Lapiplasty business, and what is the outlook for future trends? Can growing preference for MIS osteotomy reverse the decline in the core Lapiplasty business? What strategies can drive growth if doctor preferences continue to shift to MIS osteotomy? - Lilia-Celine Lozada(JPMorgan Chase & Co)

2025Q3: There's definitely a trend towards popularity of minimally invasive osteotomies, but Treace is focused on capturing share in the minimally invasive osteotomy market and the MTP fusion market. Every surgeon has to do Lapidus at some point, and Treace aims to get more surgeons on board, pulling through the Lapiplasty procedure. - John Treace(CEO)

How does the product pipeline affect ASPs, unit volumes, and the risk of Lapiplasty cannibalization? - Ryan Zimmerman(BTIG)

2024Q4: Lapiplasty is more for moderate to severe cases, while MIS osteotomies target milder cases, providing natural guardrails against cannibalization. - John Treace(CEO)