SEC Filing | Treace Medical Concepts, Inc.

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10-Q

“333

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from___ to___

Commission file number: 001-40355

Treace Medical Concepts, Inc.

(Exact name of registrant as specified in its charter)


Delaware	47-1052611
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

203 Fort Wade Rd, Suite 150

Ponte Vedra, Florida 32081

(Address of principal executive offices, including zip code)

(904) 373-5940

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	TMCI	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒
Smaller reporting company	☒	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 5, 2022, 55,403,265 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

TREACE MEDICAL CONCEPTS, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Table of Contents


Item 1.	Unaudited Condensed Financial Statements	3
	Condensed Balance Sheets	3
	Condensed Statements of Operations and Comprehensive Loss	4
	Condensed Statements of Stockholders' Equity (Deficit)	5
	Condensed Statements of Cash Flows	6
	Notes to Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	25
Item 4.	Controls and Procedures	25


	Part II: Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
	Signatures	29

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

As used in this Quarterly Report on Form 10-Q (“Quarterly Report”), unless expressly indicated or the context otherwise requires, references to “Treace Medical Concepts,” “we,” “us,” “our,” “the Company,” and similar references refer to Treace Medical Concepts, Inc. This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

These forward-looking statements include, but are not limited to, statements about:

•

the expected use of our products by physicians;

•

the expected growth of our business and our organization;

•

our expected uses of our existing cash and cash equivalents and the sufficiency of such resources to fund our planned operations;

•

our expectations regarding government and third-party payor coverage and reimbursement;

•

our ability to retain and recruit key personnel, including the continued development of a sales and marketing infrastructure;

•

our ability to obtain an adequate supply of materials and components for our products from our third-party suppliers, some of which are single-source suppliers;

•

our plans and expected timeline related to our products, or developing new products, to address additional indications or otherwise;

•

our ability to manufacture sufficient quantities of our products with sufficient quality;

•

our ability to obtain and maintain intellectual property protection for our products;

•

our ability to identify and develop new and planned products and/or acquire new products;

•

our ability to obtain, maintain and expand regulatory clearances for our products and any new products we create;

•

our ability to expand our business into new geographic markets;

•

our compliance with Nasdaq requirements and government laws, rules and regulations both in the United States and internationally;

•

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;

•

the effect of the COVID-19 pandemic and its impact on our business;

•

developments and projections relating to our competitors or our industry;

•

our plans to conduct further clinical trials; and

•

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve

known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in our Annual Report on Form 10-K under “Part I, Item 1A-Risk Factors” and listed under “Risk Factors” and elsewhere in this Quarterly Report. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with the Securities and Exchange Commission (“SEC”) as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

TREACE MEDICAL CONCEPTS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	June 30,			December 31,
	2022			2021
Assets
Current assets
Cash and cash equivalents	$	101,533		$	105,833
Accounts receivable, net of allowance for doubtful accounts of $430 and $414 as of June 30, 2022 and December 31, 2021, respectively		16,501			18,568
Inventories		13,168			10,561
Prepaid expenses and other current assets		3,995			3,010
Total current assets		135,197			137,972
Property and equipment, net		8,741			2,849
Operating lease right-of-use assets		14,650			—
Other non-current assets		134			—
Total assets	$	158,722		$	140,821
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,099		$	4,056
Accrued liabilities		4,809			4,518
Accrued commissions		4,308			5,181
Accrued compensation		4,038			4,455
Operating lease liabilities		383			—
Total current liabilities		16,637			18,210
Derivative liability on term loan		—			173
Long-term debt, net of discount of $1,438 and $635 as of June 30, 2022 and December 31, 2021, respectively		52,562			29,365
Operating lease liabilities, net of current portion		17,811			—
Total liabilities		87,010			47,748
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.001 par value, 5,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value, 300,000,000 shares authorized; 55,391,309 issued and outstanding as of June 30, 2022; 300,000,000 shares authorized; 54,181,082 issued and outstanding as of December 31, 2021		46			45
Additional paid-in capital		139,841			134,933
Accumulated deficit		(68,175	)		(41,905	)
Total stockholders’ equity		71,712			93,073
Total liabilities and stockholders’ equity	$	158,722		$	140,821

The accompanying notes are an integral part of these financial statements.

TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenue	$	29,967		$	20,654		$	59,014		$	39,361
Cost of goods sold		5,651			3,944			11,157			7,271
Gross profit		24,316			16,710			47,857			32,090
Operating expenses
Sales and marketing		26,250			14,010			48,173			26,158
Research and development		2,984			2,422			6,036			4,290
General and administrative		7,015			4,329			13,677			7,095
Total operating expenses		36,249			20,761			67,886			37,543
Loss from operations		(11,933	)		(4,051	)		(20,029	)		(5,453	)
Interest and other income, net		128			6			139			7
Interest expense		(946	)		(1,038	)		(1,897	)		(2,069	)
Debt extinguishment loss		(4,483	)		—			(4,483	)		—
Other expense, net		(5,301	)		(1,032	)		(6,241	)		(2,062	)
Net loss and comprehensive loss		(17,234	)		(5,083	)		(26,270	)		(7,515	)
Convertible preferred stock cumulative and undeclared dividends		—			(39	)		—			(196	)
Net loss attributable to common stockholders	$	(17,234	)	$	(5,122	)	$	(26,270	)	$	(7,711	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.31	)	$	(0.10	)	$	(0.48	)	$	(0.18	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		55,308,273			49,187,285			55,071,368			43,556,107

The accompanying notes are an integral part of these financial statements.

TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(unaudited)


	Convertible										Additional						Total
	Preferred Stock						Common Stock				Paid-In			Accumulated			Stockholders’
	Shares			Amount			Shares		Amount		Capital			Deficit			Equity (Deficit)
Balances at December 31, 2021		—		$	—			54,181,082	$	45	$	134,933		$	(41,905	)	$	93,073
Issuance of common stock upon exercise of stock options		—			—			1,097,860		1		1,371			—			1,372
Share-based compensation expense		—			—			—		—		1,409			—			1,409
Net loss		—			—			—		—		—			(9,036	)		(9,036	)
Balances at March 31, 2022		—			—			55,278,942		46		137,713			(50,941	)		86,818
Issuance of common stock upon exercise of stock options		—			—			112,367		—		165			—			165
Share-based compensation expense		—			—			—		—		1,963			—			1,963
Net loss		—			—			—		—		—			(17,234	)		(17,234	)
Balances at June 30, 2022		—			—			55,391,309	$	46	$	139,841		$	(68,175	)	$	71,712
.
Balances at December 31, 2020		6,687,475		$	7,935			37,366,865	$	28	$	14,166		$	(21,353	)	$	776
Issuance of common stock upon exercise of stock options		—			—			690,551		2		568			—			570
Share-based compensation expense		—			—			—		—		402			—			402
Net loss		—			—			—		—		—			(2,432	)		(2,432	)
Balances at March 31, 2021		6,687,475			7,935			38,057,416		30		15,136			(23,785	)		(684	)
Issuance of common stock upon exercise of stock options		—			—			272,082		—		193			—			193
Vesting of restricted stock awards		—			—			5,866		—		—			—			—
Share-based compensation expense		—			—			—		—		875			—			875
Issuance of common stock from initial public offering, net of issuance costs and underwriting discount of $10.6 million		—			—			6,953,125		7		107,603			—			107,610
Issuance of common stock upon net exercise of warrants		—			—			621,570		1		(1	)		—			—
Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock		(6,687,475	)		(7,935	)		6,845,922		7		7,928			—			—
Net loss		—			—			—		—		—			(5,083	)		(5,083	)
Balances at June 30, 2021		—		$	—			52,755,981	$	45	$	131,734		$	(28,868	)	$	102,911

The accompanying notes are an integral part of these financial statements.

TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities
Net loss	$	(26,270	)	$	(7,515	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization expense		757			220
(Recovery) for allowance for doubtful accounts		(45	)		(72	)
Share-based compensation expense		3,372			1,277
Non-cash lease expense		1,165			—
Amortization of debt issuance costs		95			88
(Recovery) Provision of inventory obsolescence		(197	)		88
Gain on fair value adjustment to derivative liability		(173	)		—
Debt extinguishment loss		4,483			—
Net changes in operating assets and liabilities:
Accounts Receivable		2,112			4,511
Inventory		(2,410	)		89
Prepaid expenses and other assets		(1,039	)		(2,919	)
Other non-current assets		(134	)		—
Operating lease liabilities		2,392			—
Accounts payable		(957	)		656
Accrued liabilities		(958	)		(600	)
Net cash used in operating activities		(17,807	)		(4,177	)
Cash flows from investing activities
Purchases of property and equipment		(6,649	)		(866	)
Net cash used in investing activities		(6,649	)		(866	)
Cash flows from financing activities
Repayment of PPP loan		—			(1,788	)
Proceeds from interest bearing term debt		49,651			—
Proceeds from interest bearing revolving debt		3,850			—
Debt issuance costs paid to third parties		(989	)		—
Repayment of term loan		(33,893	)		—
Proceeds from issuance of common stock upon initial public offering, net of issuance costs and underwriting fees of $10.6 million		—			107,610
Proceeds from exercise of employee stock options		1,537			763
Net cash provided by financing activities		20,156			106,585
Net (decrease) increase in cash and cash equivalents		(4,300	)		101,542
Cash and cash equivalents at beginning of period		105,833			18,079
Cash and cash equivalents at end of period	$	101,533		$	119,621
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,897		$	2,917
Operating lease right-of-use assets obtained in exchange for new lease liabilities	$	15,300		$	—
Supplemental disclosure of noncash investing activities:
Property and equipment received in exchange for lease liability	$	4,115		$	—
Supplemental disclosure of noncash financing activities:
Issuance of common stock upon exercise of warrants	$	—		$	1
Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock	$	—		$	7,935

The accompanying notes are an integral part of these financial statements.

TREACE MEDICAL CONCEPTS, INC.

Notes to Condensed Financial Statements

(unaudited)

1. Formation and Business of the Company

The Company

Treace Medical Concepts, LLC was formed on July 29, 2013 as a Florida limited liability company. Effective July 1, 2014, the entity converted to a Delaware corporation and changed its name to Treace Medical Concepts, Inc. (the “Company”). The Company is a medical technology company driving a fundamental shift in the surgical treatment of Hallux Valgus (commonly known as “bunions”). The Company received 510(k) clearance for the Lapiplasty® System in March 2015 and began selling its surgical medical devices in September 2015. The Company has pioneered the proprietary Lapiplasty 3D Bunion Correction System – a combination of innovative instruments, implants and surgical methods designed to improve the inconsistent clinical outcomes of traditional approaches to bunion surgery. In addition, the Company offers other advanced instrumentation and implants for use in the Lapiplasty Procedure or other ancillary procedures performed in high frequency with bunion surgery. The Company recently expanded its offerings with the Adductoplasty™ Midfoot Correction System, designed for reproducible correction of the midfoot to provide further support to hallux valgus patients. The Company operates from its corporate headquarters located in Ponte Vedra, Florida.

Initial Public Offering

On April 27, 2021, the Company completed its initial public offering (“IPO”) of 12,937,500 shares of its common stock, which included the exercise in full of the underwriters’ option to purchase additional shares. As part of the IPO, 6,953,125 shares of common stock were issued and sold by the Company (inclusive of 703,125 shares pursuant to the exercise of the underwriters’ option) and 5,984,375 shares of common stock that were sold by the selling stockholders named in the prospectus (inclusive of 984,375 shares pursuant to the exercise of the underwriters’ option), at a price to the public of $17.00 per share. The Company received net proceeds of approximately $107.6 million, after deducting underwriting discounts and commissions of $8.3 million and offering expenses payable by the Company of $2.3 million. The Company did not receive any proceeds from the sale of the shares by the selling stockholders. Upon the completion of the IPO, all 6,687,475 shares of Series A convertible preferred stock then outstanding were converted into shares of common stock on a one-to-one basis plus 158,447 shares of common stock were issued to pay accrued cumulative dividends on Series A convertible preferred stock of $2.5 million.

Liquidity and Capital Resources

The Company has incurred operating losses to date and has an accumulated deficit of $68.2 million as of June 30, 2022. During the six months ended June 30, 2022 and 2021, the Company used $