Welcome, ladies and gentlemen, to the third quarter 2026 earnings conference call for Shoulder Innovations. At this time, all participants have been placed in a listen-only mode. At the end of the company's prepared remarks, we will conduct a question and answer session. Please note that this conference is being recorded and will be available on the company's website for replay shortly. I will now turn the call over to Sam Bensinger, Investor Relations at Kilmartin Group, for a few introductory comments. Please go ahead.

Good afternoon and thank you for participating in today's call. Joining me from Shoulder Innovations are Rob Ball, Chief Executive Officer, and Jeff Points, Chief Financial Officer.

Earlier today, Shoulder Innovations issued a press release announcing financial results for the third quarter ended September 30, 2026.

A copy of the press release is available on the investor relations section of the company's website. Before we begin, I'd like to remind you that management will make remarks during this call that constitute forward-looking statements within the meaning of federal securities laws and that these are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. 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. Accordingly, you should not place under reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our most recent annual report of Form 10-K and in our other filings at the Securities and Exchange Commission. Additionally, during this conference call, the company will discuss certain financial measures that have not been prepared in accordance with GAAP. This non-GAAP information should not be considered in isolation or as a substitute for, or superior to, results prepared in accordance with GAAP. Please refer to the tables in our earnings release for reconciliation of these measures to the most directly comparable GAAP financial measure. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 5, 2026. Shoulder Innovations disclaims any intention or obligation, except as required by law, to to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I will now turn the call over to Rob.

Thanks, Dan. Good afternoon, everyone, and welcome to our third quarter earnings call. Q3 marked another quarter of strong growth and execution for shoulder innovations, and I'm looking forward to walking through both our commercial performance and several product and pipeline updates. Our third quarter results reflect the consistency of our commercial model, especially through what is typically the slowest stretch of the orthopedic calendar. We added new surgeons ahead of plan, grew volume within our existing customer base, and kept product roadmap moving, including launching the InsetGo, our next generation of glenoid implant. Third quarter net revenue was $16.2 million, an increase of 38% year over year. Q3 gross margin was also strong at 78.5%, up year over year and sequentially. Sustained pricing discipline and our cost down programs continue to strengthen our margin profile and Jeff will cover the additional cost initiatives that we expect to contribute beginning in 2027. We are also pleased to see the favorable CMS final rulings related to shoulder arthroplasty published yesterday evening. We're proud to have delivered these results through the normal Normal summer seasonality as we saw across the orthopedic market, which we anticipated on our last call and incorporated into our guidance at that time. Notwithstanding, the impact of seasonality amongst our more tenured poor surgeons was more pronounced this quarter as compared to the third quarter of 2025. However, as was the case in 2025, new customer additions in Q3 drove significantly above market growth despite these dynamics. With three strong quarters behind us, we are again raising our full year 2026 net revenue guidance to the range of 68 to 70 million dollars representing growth of 44 to 48 percent over 2025. This compares to our prior range of 67 to 69 million or 42 to 46 percent growth. As is typical, procedure volumes began to improve in September and we've been encouraged by the start to the fourth quarter. The pace of new surgeon activity and the depth of our funnel underpin the confidence behind our updated outlook. Our progress this quarter maps directly to the three strategic priorities that guide how we invest our time and resources. These include driving adoption among new surgeons, increasing penetration or existing surgeon customer base to increase procedural volume, and adding products to our portfolio to address the unmet needs of patients and surgeons. Beginning with new surgeon adoption, We again added new customers into our core contender and prospect funnel at a pace ahead of our expectations in the third quarter as we have done every quarter this year. Our W2 commercial organization remains focused on the roughly 1,800 high volume shoulder specialists in the U.S. and that targeted approach continues to translate into steady growth in our customer base. We expect that momentum to be durable as we close out the year. To support this momentum, we have accelerated our hiring plans, again, adding top talent to our commercial leadership team through the third quarter and further additions continuing in the early weeks of Q4 as well. The 2025 cohort of commercial leaders has been a meaningful contributor to our growth this year, and we expect this year's hires to follow a similar path as they ran with our business intelligence platform, helping each of them prioritize the right search and targets from day one. Additionally, surgeon-to-surgeon education remains one of the most effective tools we have for converting new customers. Our CEME team has now carried out more than 150 surgeon engagement events so far this year. In August, we hosted our Inset Society meeting alongside our national sales meeting, which together drew approximately 250 attendees. The energy and optimism across both simultaneous events were outstanding, and the R&D initiatives we outlined in our last call were exceptionally well received by our CSRSN partners. Even further, just after quarter end, we hosted our second national symposium of 2026. After a record turnout at our spring symposium earlier in the year, this event drew even more healthcare providers, making it our largest and most successful symposium to date. The event generated numerous new cost surging conversions, and we believe these programs strengthen our brand and lay the foundation for future growth. Regarding our second priority, increasing utilization and procedural growth within our customer base, third quarter implant volume across our core, contender, and prospect customers grew approximately 34% year over year to 2126 units. When we look at our customer base by annual cohort, We continue to see each group of surgeons grow its volume over time with average volume per cohort increasing from 24 to 25 and again so far in 26. Within that, the majority of our implant volume growth this quarter was again derived from our core surgeon category. We've seen marked increases in productivity among both the core and contender groups. Put simply, the prospect to contender to core progression we've described since our first earnings call continues to play out as designed and with new surgeons entering the funnel at a steady pace, our base of future core surgeons keeps growing. We believe this predictability is one of the most important value drivers of our business. We also continue to expand our geographic coverage in U.S. markets and deepen our presence in the existing ones. Over the past 12 months, we have established encouraging talent presence within several new major metropolitan markets and anticipate these investments will drive meaningful impact in each region. More recently, we have continued to bolster these efforts with additional investments expected to contribute more substantially in 2027. With the vast majority of roughly 1,800 high volume shoulder specialists in the U.S. not yet using our platform, our expanded commercial leadership team has a long runway of greenfield opportunity ahead of it. Turning to innovation and our third strategic priority of developing and launching new technologies, most recently we have moved our next generation anatomic glenoid from the pipeline into the operating room, while during the third quarter we expanded our N22 line and continue to advance our development programs. I'll start with these two recent product introductions and then walk through updates on our enabling technology platform, our robotics program, and the pipeline projects we outlined last year. First, in early October, surgeons completed the first cases with INSET-GO, our next-generation inset anatomic glenoid, consistent with the timing we outlined on our last call. INSET-GO preserves the key design elements of our inset glenoid, including our inset plus augmented options, while reducing the surgical steps involved. The surgeon response to INSET-GO has been unanimously positive since launch. Second, we received FDA clearance for and launched our N22 humeral head, extending our N22 line for patients with metal hypersensitivity into anatomic procedures and building the uptake we've seen with the N22's glenosphere on the reverse side. Combined with the other products we've launched over the past year, including our I-135 RSX humeral stem and titanium plasma spray or TPS reverse base plate, The share of our procedures using at least one new product continued to tick up in the quarter. These launches also continued to support our average selling price. Turning to enabling technology, during the quarter we released a new version of Provoiance, which we consider to be the main engagement center for our surgeons that includes new features and security upgrades. These updates also build the planning foundation for our robotic technology known as Inset Neo. We connect to keeping the workflow simple and procedure times predictable for surgeons and enabling them to deliver the most accurate and effective surgery possible. As it relates to Inset Neo, development is progressing ahead of our initial internal timelines and we remain on track for a planned FDA submission in the first half of 2027. Surgeon feedback on the portable case-by-case model continues to be very encouraging, and we look forward to sharing more on product features and our commercial approach as we near submission. Now for a few updates across the rest of our development pipeline. Beginning with our inset clutch guide system for anatomic and reverse glenery procedures, Clutch is designed to allow surgeons to more effectively transfer and execute their preoperative plan from ProVoyance into the operating room through a simple reusable solution, and we expect it to provide a modest uplift to average selling price. With a new version of our Provolian software now in place, we expect to commence a limited user release of Clutch in the first quarter of 2027. Second, we commence the limited user release of our subscapularis sparing technique and instrumentation during the quarter. Failure of the subscapularis tendon remains a persistent postoperative complication in anatomic shoulder arthroplasty, and the low profile of our inset implant designs makes our platform particularly well suited to a technique that avoids takedown of attendance. We are seeing growing surgeon interest and have modestly expanded availability as the limited release continues through year end. And we expect the technique to continue evolving with input from our surgeon partners over time. Third, our spectrum of solutions continues to broaden beyond standard products via inset one, our patient match, Additively manufactured iteration of our inset reverse solution purpose-built for our risk-based approach to preoperative planning. We believe inset one can improve upon existing market designs for challenging and complex patient indications and over the midterm can represent a lower cost, higher margin procedure for the majority of patients. Our target timing for FDA submission remains intact for 2027. Augmenting our support for complex surgery even further is our exclusive collaboration with ALM Ortho, a leader in additively manufactured devices for the treatment of severe deformity in complex revision cases. This relationship allows us to offer bespoke solutions for highly complex cases where surgeons may not view our current portfolio as optimal. We've been very encouraged by the positive response from our customers since announcing this partnership in September. and have previously underestimated the negative impact of not having great solutions in this particular area. The first patients were treated in the third quarter successfully through this partnership, and we expect more meaningful revenue contribution beginning in 2027. Taken together, we believe that INSET-1 and our partnership with ALM-Orslo substantially improves our ability to drive impact in complex surgery. We're also making progress with the soft tissue device manufacturer we partnered with last quarter. Product is on order and we expect to perform our first surgeries with these devices around year end. This represents an important first step in adjacent soft tissue procedures performed by the same high volume shoulder specialists we serve today. And finally, I want to provide a brief update on the clinical evidence front. Enrollment in our clinical data registry continues to exceed our expectations, now approaching around 900 patients enrolled across anatomic and reverse configurations. As we shared last quarter, we're partnering with centers that hold large bodies of retrospective data to accelerate our pathway to publication. The first of these sites has now received IRB approval, which will allow us to incorporate approximately 250 retrospective patients and meaningfully expand our base of two-year data. We remain encouraged by the early signals we've seen and look forward to sharing more as work progresses. To help illustrate the sort of confidence in our products we believe our registry will ultimately validate, I'd like to share recent feedback from one of our leading surgeon partners in New York and his experience with our reverse system. In his words, I did roughly 50 reverses from a single competitor and had five stress fractures right before switching to SI. In two years, I've done over 250 SI reverses and I had yet to see one. While anecdotal, this reflects the type of feedback we consistently hear from surgeons and the differentiation we've designed into our reverse platform. With that, I'll now turn the call over to Jeff to review our full third quarter results and discuss our updated full year 2026 outlook in more detail.

Thanks, Rob. And good afternoon, everyone. As Rob mentioned, net revenue for the third quarter of 2026 was $16.2 million, a 38% increase from $11.8 million in the prior year. Growth was driven primarily by a 34% increase in implant systems sold, aided by our powerful business development system and reflecting new surge in additions and higher utilization among existing customers, along with a year-over-year increase in average selling price. The growth margin for the third quarter of 2026 was 78.5% compared to 76.2% in the prior year. The year-over-year increase reflects higher ASPs and the cost reduction programs now flowing through our product costs. Selling, general, and administrative expenses in the third quarter of 2026 were $17.1 million compared to $15.1 million in the prior year. The increase in SG&A expenses was primarily driven by increased headcount in our commercial organization and higher variable selling expenses partially offset by lower legal related expenses. As announced in early September, we entered into a settlement agreement to resolve all outstanding patent litigation. Research and development expenses in the third quarter of 2026 were 3.2 million compared to 1.5 million in the prior year. The increase was primarily driven by investment in new product development efforts including substantial work related to the robotics platform. Net loss in the third quarter of 2026 was $7.0 million compared to a loss of $8.7 million in the prior year. The adjusted EBITDA loss in the third quarter of 2026 was $5.5 million compared to a loss of $7.5 million in the prior year. The change in both net loss and adjusted EBITDA loss primarily reflects higher gross profit partially offset by higher operating expenses. In addition, the prior year period included changes in the fair value of the company's preferred stock lower liability and convertible notes. Our cash equivalents and marketable securities as of September 30, 2026 were $92.3 million. As expected, our cash burn improved again in Q3 compared to Q2 as we balanced investing behind our growth drivers and leveraging our operating model. We continue to believe we are in a strong financial position to continue investing in growth while maintaining our ability to achieve cash flow breakeven with cash on hand. Turning now to our guidance and outlook for 2026. On the top line, we now expect full year 2026 net revenue to range from 68 to 70 million, representing growth of 44 to 48%. This guidance reflects our high degree of conviction and our ability to deliver industry-leading growth by providing adoption among new surgeons, increasing penetration in our existing surgeon customer base, and through commercial launches of new products. In addition, guidance accounts for seasonal dynamics that are typical in our industry, specifically a sequential step-up in volumes in Q4 and a shift in procedure mix during the second half of the year, which typically lowers our percentage of reverse procedures and correspondingly impacts ASPs. Regarding gross margins, we are very pleased with our progress on margin improvement and continue to expect similar margins for the fourth quarter. Longer term, we expect our pending 510K related to additive manufacturing of certain products to add capability to our supply chain, providing incremental cost reductions on certain products beginning in 2027. In tandem with volume-driven savings, we see continued room for margin expansion as we scale. On operating expenses, The discipline we've demonstrated this year has created flexibility to continue investing in our commercial organization. As our conviction around business growth increases, we will continue to identify and invest in greenfield opportunities across new geographic areas for commercial team footprint expansion, and we've already begun deploying additional investments in the fourth quarter. At our current full-year revenue guidance, we expect SG&A expenses as a percentage of revenue to increase in Q4 compared to Q3. Finally, with currently contemplated innovation programs, we continue to expect R&D expenses as a percentage of revenue to remain relatively consistent through fourth quarter and begin to moderate in 2027. From a cash standpoint, we expect cash burn to moderately increase in Q4, considering the additional investments in both the commercial team and research and development. With that, I'll turn the call back to Rob for a few closing remarks.

Thanks, Jeff. In sum, the third quarter demonstrated the durability of our growth and execution capabilities as an organization. We delivered 38% revenue growth, continued to add new surgeons ahead of plan, deepened utilization within our existing surgeon base, and advanced a broad and increasingly differentiated product pipeline. Beyond our own pipeline, our partners are extending what our platform can offer with ALM or so, bringing bespoke solutions for the most complex revision cases and our soft tissue partnership positioning us to serve more of each shoulder specialist practice. Together with our organic development, we believe each of these relationships will meaningfully land what we're able to offer surgeons and their patients for time. As we head into the final quarter of 2026, We're carrying strong momentum in the new surgeon adoption and a portfolio that is broadening with each launch and a team that has consistently delivered on its commitments. We believe shoulder innovations remains in the early stages of what we can accomplish in transforming shoulder surgical care, and we look forward to finishing 2026 strong and building on that momentum into 2027. With that, I will now turn the call over to the operator for Q&A. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Matthew O'Brien with Piper Sandler. Please proceed with your question.

Hi, good afternoon. This is Anna on for Matt. Thanks for taking our questions here. Maybe to start, just would love to hear more on the top line guide for the fourth quarter. It essentially implies like a similar level of sequential dollar revenue growth versus Q4 last year. So just wondering, you know, what exactly is baked into the top line growth assumptions for the fourth quarter and what could be some areas of potential upside? So yeah, sorry for the long-winded question there, but yeah, any color there would be helpful. And then I have one follow-up.

Yeah, sure, for sure. We're obviously excited about the momentum that we've seen build coming out of Q3 into early Q4. And, you know, kind of as is our typical mode of operation, we provide guidance that carries a very high degree of conviction. So, you know, kind of our revenue performance, like all quarters, will be measured as a function of number of surgeons we can add and the volume we can drive to the surgeons. Quarter by quarter we've been able to meaningfully increase both of those and so we expect to continue to do so.

Awesome. Great. That's super helpful. And then I guess just on that surgeon acquisition comment, you mentioned accelerated conversion of the core contender surgeons in the quarter. So maybe if you could also provide some, you know, additional detail on what exactly is driving this, if it's the broader portfolio, you know, more, reps in the field, improving productivity, the surgeon to surgeon training, just any additional commentary you can provide there. And thanks for taking the question.

Yeah, my pleasure. Thanks for the question, Anna. So I think on the software side, of course, as we've grown as a company, brand recognition, brand equity has played an important role in, you know, kind of are potential customer base being already familiar with the name and that being constructive in the conversations we've had. On the harder side, for sure, the metrics that we track and manage against are the raw performance of our commercial organization and kind of the relative and so forth. So, we have a great relationship between the number of kind of feet on the street or units of selling capacity we have available to us as compared to the number of customers operating. So, we obviously watch those figures carefully and pace our investments against those very carefully as we have built a great data set through our business development platform to help us to understand those relationships and be able to provide some predictability around the model. That's in part why you do see quite significant operating leverage this quarter as we've gotten better and better at understanding those relationships and tuning in our investments.

Next question. Our next question is from Ryan Zimmerman with U.S. Bancorp BITG. Please proceed with your question.

Hey, Rob. Hey, Jeff. Thanks for taking our questions. Congrats on a nice quarter. You know, we've had a lot of companies report so far this earnings season, you know, there's been some debate about the health of the recon market. You guys are clearly doing well. You're taking share. I guess I would love, Rob, for your perspective on kind of, you know, whether you think there's been any change in procedure dynamics broadly, you know, regardless of your ability to take share. kind of your perspective on the shoulder market, I think would be appreciated. And then I have a follow up.

Sure. Thanks Ryan. I appreciate the question. And I think it's fair to say that our data set is far inferior to other larger companies. So it's difficult for us just in terms of scale, obviously. And it's very difficult for us to make any sort of data based conclusions around you know kind of overall health of the marketplace. I can characterize in the shoulder arthroplasty market we clearly remain passionate about the supply-demand imbalance that exists in the shoulder surgical care market broadly and specifically in shoulder arthroplasty and so continue to you know kind of drive that forward. Well, for sure, as we got through, you know, kind of summer months, we found seasonality to be exactly as expected in terms of timing. And we kind of signaled that in our last call and obviously baked that into our expectations for the quarter. But in terms of overall health of the market, I don't think I have any data that says that, you know, kind of we're seeing a downturn or seeing an upturn. You know, what we've seen is kind of normal seasonality dynamics.

Fair enough. And then, you know, you're introducing a number of products next year. I'm curious, you know, how to think about both utilization of the products that I would think that, you know, you're going to have higher attachment rates on certain things that would help, you know, some of the mix, particularly with your core contender population, but also on pricing. If you can, again, have higher attachment rates on some of these incremental products, I would think that there could be some price lift next year just in the composition of those implant systems that are used. I'd be curious if you have any directional thoughts at this point.

It's a great question, Ryan. I think, as always, there are vectors of growth for price and there are vectors of diminution for price. you know kind of obviously we are seeking to consistently optimize price and I think you're correct a number of these new products in and of themselves are opportunity for improving price and those additional products I think the point you're making Ryan is that those additional products give you better call it stickiness with customers and that's a little more influence on price I think indeed that's possible At the same time, as you know, we continue to grow further and further into the ambulatory surgery setting. And we do see modestly lower prices in the ambulatory surgery setting. And I don't expect that to slow down. Either a greater sophistication of purchasing power by ASCs or the volume of ASCs performing shoulder replacements. So we see that next going up. towards ASCs, and we see more pressure in ASCs as time goes by. I think those are both likely the case. Having said that, with CMS payment and outpatient centers finalized last night, as you know better than I do, you know, we do see a really constructive economic setup, we think, particularly for shoulder replacement and the outpatient setting, which we think overall is, you know, kind of just helpful for our potential growth going forward.

Understood. Thanks, Rafael.

Once again, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question is from Matthew Taylor with Jefferies. Please proceed with your question.

Hey, good afternoon. This is Matthew on for Matt. I have a quick question and then I'll follow up right after that. But I would say it's really great to see the momentum in the rep hiring and the adoption that follows it. I wanted to ask if you would attribute some of the strength in the rep recruiting to the disruption you see at some of the other ortho companies and their commercial efforts and then also if you think you're rep hiring to continue into Q4 but even into next year.

Hi Matt, thanks a lot for the question, a good question. I would attribute our success at hiring to a number of factors. Probably first and foremost is the culture in the organization that we've worked very, very hard to create. We've invested a lot of time and effort into creating an environment where people can really enjoy and perform. I'll put it that way. And I'd say that's been a very, very attractive cultural environment that indeed I think if you ask many of our employees, as they talk with their friends at other organizations. They communicate that quite robustly, and I think that's been a real opportunity for us. In contrast, I think on some level, some of those elements don't exist in some other organizations, and so the contrast kind of can be exaggerated. I'd say a couple other factors that are important for our hiring is one, indeed, commercial team members love to sell products that they love to sell. We have a product that is, you know, kind of clinically and technically differentiated. You hear yes a lot when you're selling our product. And that's certainly a lot more fun to develop a commercial business around than, you know, kind of hearing yes less often, I'll put it that way. But also, you know, as you're executing that commercial plan, What makes it also fun is knowing that you have a group of people around you with high levels of competence and the level of talent that we've been able to to to, you know, kind of bring alongside shoulder innovations is really quite remarkable. And I'll I'll yet brag again. I share this with many people. We have yet to spend one dollar in recruiting of a commercial team. So it definitely has happened very organically.

Okay, wow, that's very helpful, thanks. And I'll just ask a quick follow up and maybe ask a little bit differently on the defer or on the debate on deferable procedures or deferable elective procedures. So maybe you can kind of shed some light or some anecdotal information on the deferability of shoulder replacements. Would you say like these patients are typically those who have delayed treatment or at the point where they have no ability to defer and like they need They need a procedure? Sorry for the long-winded question, but any color would be helpful.

Yeah, I think the dynamic is similar as you find in other, you know, kind of call it lower extremity or hip markets in the sense that there is a range of deferability. It's just a matter of how long the time is. So obviously you get to a point with a, you know, pain in your knee that you just can't walk. And so that makes it somewhat less deferable. The challenge with shoulders is you just can't sleep. you know obviously many people are side sleepers and you get to the point where you just you can't sleep at night and it becomes really effectively non-deferrable or a non-elective procedure and so that time period may be different in upper extremity versus lower extremity I'm not an expert in exactly what those time periods are but I'd say you have a very similar dynamic there as you do in other cases.

Great, thank you very much.

Thanks for the question. Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Ball for closing remarks.

Thanks, everybody. I appreciate your participation, engagement, and support. And have a great afternoon. Look forward to talking again in a couple months.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.