Dave Turkaly: Okay. Thanks. Maybe, Albert, I was wondering if you might share with us, sort of embedded in your guidance, sort of what kind of rep adds you think you might have this year and maybe for like a target docs trained or something, anything like that you would like to share with us in terms of how you’re getting to those numbers as well would be helpful if you could.
Albert DaCosta: You got it. Maybe I’ll start this question. By the way, great to hear from you, Dave. Maybe I’ll start this question, then I’ll turn it over to Steve for some metrics there as well. But our balanced approach to growth. One of the nice things about the products that we’re introducing to the market, it does generate a lot of interest on the sales side of things. So we get a lot of activity either from surgeons or from sales reps who are really looking at these products and wanting to be a part of this mission to improve foot and ankle outcomes. So it’s always an exciting time for us. I feel like right now the visibility as a public company with some of these big launches that could be really meaningful to surgeons are generating a more interest than even in the past and so I continue to expect to see a lot more rep type improvements.
But we’re also really careful. We want to make sure that the sales folks that come on board with us have the same culture and feel about wanting to be a true service to our surgeon partners and that means that they want to learn everything they can about foot and ankle surgery. They want to really sympathize with what’s going on in the operating room so they can be the best service. So we’re in a wonderful place now. We’ve got an amazing portfolio. It’s pretty comprehensive, if not one of the most comprehensive and still growing the way it’s growing. I think we could take our choices here and really find the right partners and continue to expand our sales representation. Anything to add to that, Steve?
Steve Deitsch: Yeah. I would just tell you, Turk, that we had an outsized contribution from the growth in the number of producing reps during 2023 in the U.S. I mean, we added almost 40 producing reps or 14% growth. We expected that to be more balanced in terms of the numbers being added, as well as the productivity dollars per. We expect a lot of revenue from these producing reps that recently have joined us and are just getting going. So some really exciting adds to the team, both last year and in the first part of this year, even. Some really exciting adds. And so we expect some more balance, though, in terms of the overall math on what’s driving the U.S. business. The split between numbers of reps and actual dollars per rep.
Dave Turkaly: Thank you for that. And you’d mentioned last quarter, the step up in inventory that you expected, and obviously, closing out around $100 million. That — I think that’s kind of what you anticipated. I want to make sure that’s sort of in line…
Steve Deitsch: Yeah.
Dave Turkaly: … and then also that you think the write-downs are essentially over at this point?
Steve Deitsch: Yeah. No. I think that’s a great question and our inventory levels ended up exactly where we had anticipated they would. And as we go into this year, as we’ve said, we expect significant improvements in operating cash flow and free cash flow. And we believe that and we have great visibility to that. And it’s going to be driven by positive EBITDA. It’s going to be driven by leveraging the existing inventory investments we’ve made. And so we don’t expect and aren’t planning for and have — and we will not have the kind of inventory increases that we saw last year. So that’s all going to bode very well from a cash flow perspective improvement in 2024. And to your point, the adjustment that we made in the fourth quarter was a non-cash charge, increasing the level of reserves on just a much higher level of inventory.
So we don’t expect adjustments of that order of magnitude at any time in the future. It’s — we — those kinds of adjustments, you always have inventory adjustments, but not to the size and scale we saw in the fourth quarter.
Dave Turkaly: Given that it’s one-time too, I think, most people will back it out, but thank you for all that detail.
Steve Deitsch: Yeah. Thank you, bud. Appreciate it.
Albert DaCosta: One comment just to add to that is, we still respond to my mom, as one of the first investors, it’s really important that we keep good records and account, everybody’s accountable for what we spend and how we invest those dollars and that’s not changed since we’ve become public. So we take a lot of pride in building an amazing business there.
Operator: Thank you. [Operator Instructions] And our next question today is from the line of Mike Matson of Needham & Company. Mike, your line is now open.
Mike Matson: Yeah. Thanks. So I appreciate the detail on the bunion products you provided and getting to see them at AAOS. But I guess I wanted to ask one just about kind of the market opportunity there in bunions. Can you just remind us, I don’t know if you have numbers in terms of the number of bunion procedures, but — and then, to what degree do you think these products will drive market share gains, conversions from competitive products versus just expanding the overall market?
Albert DaCosta: Yeah. Thanks for the question. Maybe I’ll start here. The first part of your question, the bunion market today, there’s about 400, according to our estimates, I’ll preface it by saying that, but there’s about 450,000 bunions done annually in the United States. We do think that that’s growing pretty nicely. There’s a lot of patients waiting for better technology to get their bunions treated. We’ve had and continue to have a really strong presence there. We’ve got some of the best technology, in our opinions, to treat bunions. Again, addressing a pretty wide optionality there to make sure that we can address specific considerations for each patient. We’re definitely not a one-size-fits-all organization there and we’ve got some amazing products to treat that.
That being said, I think, these products are going to be really complimentary and put a spotlight on some of the technology that we have and expand our presence or continue to expand our presence in the bunion space, which is, it’s a fast-growing, large part of the foot and ankle market as a whole. It is a wonderful balance for us, so it’s — I wouldn’t say, it’s more important than fracture fixation or ankle or Charcot or forefoot or any of the other procedures, but it is exciting for us to continue to build a really good balanced portfolio, create reproducibility with every surgery that we can and impact patients in a positive way.
Mike Matson: Okay. Thanks. And then…
Albert DaCosta: Yeah. You got it.
Mike Matson: … given the credit facility increase, we haven’t seen you do a lot of M&A or I just wanted to take your temperature there in terms of the outlook. Is that something you’re still looking at or do you feel like you’ve certainly got quite the engine there internally for developing your own products?
Albert DaCosta: Yeah. Maybe I’ll hit this one. I’ll tell you, we are 100% committed to creating an environment for foot and ankle surgery that improves outcomes. I can’t think of a better way to say it. And we’re also very — I think, we are very passionate and excited about what we can build in foot and ankle. We’re aware of areas where maybe we don’t have the expertise and the technology in-house to do things that are dramatically going to improve those outcomes. So we’re always looking for that and we’re very careful about what we consider and how we consider it, but technology that influences better outcomes for foot and ankle patients is always going to be top of mind for us as we’re on this mission, right?
And this mission is pretty exciting. It’s very few times in life that you get a chance to do something so powerful in a market and influence the market the way we hope to. And so that, for us, we’re going to keep an open mind to it. I wouldn’t say that there’s things right now on the burner, but we are always looking for opportunities to continue to expand that technology.
Mike Matson: Okay. Great. Thank you.
Albert DaCosta: You got it, Mike.
Operator: Our next question today is from the line of Caitlin Cronin of Canaccord Genuity. Caitlin, your line is now open.
Caitlin Cronin: Hi. Thanks for taking the questions. Just to start off, thoughts on Stryker’s new footprint technology and if Smart28 is eventually going to compete with this product?
Albert DaCosta: Yeah. Thanks for the question, Caitlin. I’ll hit it. I believe the footprint product is surrounding the total ankle piece. I think any kind of preoperative planning is a great way for us to be thinking about the future of foot and ankle surgery. I think it connects a lot to what our aspirations are around Smart28. I think we need to do and have better tools to help diagnose, to help plan and predict what the output of that is going to be. And so to the extent that it can influence better outcomes for foot, for the ankle replacement, I think, it’s a positive move for the market.
Caitlin Cronin: Okay. And any color on adjusted EBITDA cadence through 2024 as you hit break-even on an annual basis?
Steve Deitsch: Yeah. Hey, Caitlin. It’s Steve. I think you can think about it sort of scaling with the revenue build. And we did see, I think, the best leverage of our operating expenses that we’ve seen as a public company during the fourth quarter with 10% growth on a much higher topline growth. So as we go into this year, you can expect that our operating expenses are going to continue to scale at a much less lower rate than overall revenue growth and that our EBITDA will trend in line as the revenue builds and grows. So that’s maybe the simplest way to think about it, but it’s the way we’re running the business and we don’t get in front of ourselves in terms of investments and really anywhere up and down the P&L.
Caitlin Cronin: Got it. Thanks so much.
Steve Deitsch: You’re welcome. Thank you.
Operator: Our next question today is from the line of Justin Lin of William Blair. Justin, your line is now open.
Justin Lin: Hey guys. Thanks for taking my questions here. I guess to start off kind of high level, can you talk about the strength of the end markets kind of going into 2024? What’s kind of the state of the patient backlog, which maybe is less important for your business now, but just curious, how are all of these dynamics trending?
Steve Deitsch: Yeah. Maybe I’ll start and then, Albert, we’ll talk a little bit about what he’s hearing from surgeons every day. I’d tell you that we were very, very busy to begin the year through today. We’ve had a strong start to the year and markets are buoyant and we’re participating well in those buoyant markets. The fourth quarter was strong. I would tell you that the fourth quarter was stronger for us at the first half and then December was good, but not quite as good as the earlier months. Then we saw a really strong February. So it feels like we’ve got buoyant markets and setting us up nicely going into this year and to take advantage of our commercial teams’ capabilities and this product portfolio and our new products. So we’re excited about the setup for 2024.
Albert DaCosta: I’ll maybe just add one comment to that, Justin. I’ve mentioned before, I don’t think we see too much of a backlog bolus type thing for the foot and ankle space. I think we capture OR time where we can. I think maybe some of our counterparts in orthopedics see a little bit more of the bolus stuff. I kind of like that because for us, having a pent-up energy, it spreads that over a longer period of time. It’s a more predictable business piece, right? But all that to say, I don’t think we — we’re seeing as much of a backlog bolus type thing as we are just seeing pent-up demand for foot and ankle surgery, more on the elective side, obviously.
Steve Deitsch: Maybe I’ll just add one more thing. This is maybe somewhat anecdotal, but I think it’s important. The hips and knees, I know that they really did have more of a bolus impact in 2023 and the commentary that I’ve read is that that bolus isn’t as strong going into 2024. That bodes well for foot and ankle surgeons because there’s more operating room availability because of that. So I don’t know if that will develop into a potential tailwind for these markets that we’re in, but I know that when there’s less large joint orthopedic procedures taking place, it allows our smaller joint folks time to get in there and take advantage of the OR space.
Justin Lin: Got it. Super helpful color here. Just next question on your commercial strategy. When you hire new reps, are you going after new territories or are they going deeper into accounts? And also, the second part of that question is like, what are the main geographies you’re not in today yet that you’d like to expand into? I know you guys talk about the U.K., Australia and South Africa a lot, but just curious?
