And so we were asking a lot of those questions. A lot of our guide going into Q3 was based on anecdotal what we were hearing from our customer surgeon base with hopes and views that some of this softness in the summer was going to turn. Well, it just didn’t turn as quickly as we had hoped, but the positives that we take away from it is, like what John said, we’ve had this really strong September new surgeon adds. That means they’re doing cases for the first time in September. So that was very helpful and beneficial, and some of that strength has continued into October from a surgeon add perspective. So we think that’s very beneficial. But as we also think about not having the number of surgeons, as you go into the fourth quarter, it was a little bit of a challenge because as we think about it, we want to have the full team, the full complement of the team going into our busiest quarter.
And so, of course, not having as many surgeons on the team and using Lapiplasty will definitely have an impact. And same thing with not having launched in as aggressive of a way SpeedPlate in the third quarter, so that has pushed into the fourth quarter. And so both of those things are really informing the way we’re looking at the fourth quarter. And we feel confident in the midpoint of that guide, given everything that we know so far.
Rick Wise: Okay. And Mark, maybe you’d expand on your comments about gross margin. It was less than we thought and I’m guessing less than you expected. And talk about the specific mix drivers and the greater overhead. And I think there’s a third one which I’m not remembering right this second, but to what extent does that continue into the fourth quarter and maybe just help us think in general about your gross margin thinking and how you would frame our gross margin thinking going forward.
Mark Hair: Yes, great question, Rick. And so it was 80.4% in the quarter, and it was impacted by product mix, some inventory provisions, and when I say increased overhead, we have a growing business and employees to handle the growing volume that we have, and that was partially offset by some lower royalty rates. And so those were all the puts and takes. I would not view this as uncommon. Our gross margin will fluctuate quarter to quarter depending on some of the mix. As we introduce new products, Rick, not only SpeedPlate, but we have some other sterile instruments and other things, what we’ve tended to see is when at the beginning of our launches that we may not fully have all the efficiencies in our manufacturing processes available.
And so it may take 1, 2, 3 quarters before we get all those efficiencies. And so it’s somewhat of a mix. Are we selling some of the new products or which products are being sold or preferred by our customers? Again, we think anything north of 80% is really strong, and we feel really good about that. And we’ve mentioned previously that we have relatively few sellable SKUs. We have less than 50 sellable SKUs. So a mix does have an impact when you’re talking about so few SKUs. But we continue to focus on our gross margins, and we plan to remain at these high levels, near or above 80%.
Operator: Our next question comes to the line of Drew Ranieri with Morgan Stanley.
Andrew Ranieri : Just maybe to start on my end, what essentially gives you the confidence that this is truly a seasonality aspect, and I appreciate that it might be picking up into the fourth quarter, but why are you so confident that it’s seasonality and not any competitive entry or changes in the landscape becoming more of a problem in capturing surgeon mind share or any incremental procedures? And I know that we’re all trying to get at maybe what utilization could look like into ’24, but maybe just help us better understand what you were seeing in terms of same surgeon utilization levels in the third quarter that’s giving you confidence that maybe we’re not appreciating.
John Treace: Drew, John here. I’ll try to get to the first one first, and then Mark can remind me of the other parts. What’s giving us the confidence is we did a lot of work, a lot of surveying, a lot of work with our surgeons during these summer months to figure out what the root cause of what was going on in the softness in surgery demand, and that affected new surgeons coming on. We can train tons of doctors. But if patients are coming in at a normal rate asking for a surgery, they don’t get counted as a new active doctor. So we’re certainly going into Q4, which is our bunion season, with a different trajectory, combining the bit of delay on the SpeedPlate, full availability, and that lower doctor count. But again, we’ve been through 8 years of this bunion season in Q4.
It is very real. And as we sit here today, I can tell you it’s back, and we’re feeling it in the activity. And that’s what’s got us confident that midpoint is doable and comfortable. So it’s a tough point for me to not express my extreme enthusiasm because I can see the other side of this as SpeedPlate comes into full availability and that continuing ramp on surgeons in utilization and what’s going to come. But that’s what’s happened during the summer and that’s how it’s affecting Q4.
Mark Hair: And, Drew, I think there’s another part of your question with regards to customer utilization. That was 10.6. That’s a strong utilization number. It’s up more than 4% over the prior year at the same time. So it really isn’t that it’s a lack of utilization, per se. It was really what John talked about is there was a different patient demand for our patient demographic and that caused a few things. And then with the decision of SpeedPlate as well, pushing that out just a little bit, which was the right decision. But the combination of those 2 just had an impact in Q3 and then that’s going to set us up for Q4. So that’s why we felt that it’s an appropriate guide for Q4, understanding those 2 items.
John Treace: And, Drew, I think I missed another component of your question about competition, and we’ve had competition for the last several years in this space. We expected it. We created a very exciting market. The market is very big, over $5 billion in the U.S. We’re way out ahead, and we’ve got the best technology. New entrants will continue to come into the market, but we’ve got a pretty powerful offense. Our rapid innovation, our focus, our direct sales channel, and then this patient advocacy that we drive through our DTC. So will competition be there and continue to be there? Yes, it has been and it will continue to. But that’s not what was driving this shift. That’s not what’s driving the softness in the summer months.
