10-Q
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“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, 2023

 

or

 

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.)

 

100 Palmetto Park Place

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 4, 2023, 61,544,672 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, 2023

 

Table of Contents

 

Part I: Financial Information

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

17

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

Part II: Other Information

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3.

Defaults Upon Senior Securities

29

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

Signatures

31

 

 


 

SPECIAL NOTE 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, cash equivalents and marketable securities 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 or acquiring 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 realize the anticipated benefits of the acquisition of MIOS Marketing, LLC d/b/a RedPoint Medical 3D ("RPM-3D") assets as rapidly or to the extent anticipated, if at all;
our ability to obtain, maintain and expand regulatory clearances for our products and any new products we develop or acquire;
our ability to expand our business into current and new geographic markets;
our compliance with Nasdaq requirements and government laws, rules and regulations;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;
the impact of inflationary pressures, higher interest rates, recent instability in the banking sector, and general economic conditions on our business;
developments and projections relating to our competitors or our industry;
our plans to conduct further clinical studies;
the impact of failures, defaults or instability of financial institutions where we have cash or investment accounts; and
the effect of the COVID-19 pandemic or another infectious disease outbreak and its impact or potential impact on our business.

1


 

 

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 1ARisk Factors”, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 in the section titled "Part II, Item 1ARisk 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.

2


 

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,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,035

 

 

$

19,473

 

Marketable securities, short-term

 

 

127,444

 

 

 

61,779

 

Accounts receivable, net of allowance for doubtful accounts of $707 and $735 as of June 30, 2023 and December 31, 2022, respectively

 

 

27,232

 

 

 

29,196

 

Inventories

 

 

26,101

 

 

 

19,330

 

Prepaid expenses and other current assets

 

 

5,284

 

 

 

3,624

 

Total current assets

 

 

198,096

 

 

 

133,402

 

Property and equipment, net

 

 

19,435

 

 

 

15,338

 

Intangible assets, net

 

 

9,500

 

 

 

 

Goodwill

 

 

12,815

 

 

 

 

Operating lease right-of-use assets

 

 

9,651

 

 

 

10,138

 

Other non-current assets

 

 

146

 

 

 

146

 

Total assets

 

$

249,643

 

 

$

159,024

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

8,146

 

 

$

8,668

 

Accrued liabilities

 

 

7,072

 

 

 

6,216

 

Accrued commissions

 

 

5,661

 

 

 

7,356

 

Accrued compensation

 

 

5,368

 

 

 

7,666

 

Other liabilities

 

 

3,775

 

 

 

339

 

Total current liabilities

 

 

30,022

 

 

 

30,245

 

Long-term debt, net of discount of $1,141 and $1,289 as of June 30, 2023 and December 31, 2022, respectively

 

 

52,859

 

 

 

52,711

 

Operating lease liabilities, net of current portion

 

 

16,766

 

 

 

15,539

 

Other long-term liabilities

 

 

37

 

 

 

 

Total liabilities

 

 

99,684

 

 

 

98,495

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 shares authorized; 61,528,409 issued and outstanding as of June 30, 2023; 300,000,000 shares authorized; 55,628,208 issued and outstanding as of December 31, 2022

 

 

62

 

 

55

 

Additional paid-in capital

 

 

260,561

 

 

 

145,221

 

Accumulated deficit

 

 

(110,445

)

 

 

(84,720

)

Accumulated other comprehensive (loss) income

 

 

(219

)

 

 

(27

)

Total stockholders’ equity

 

 

149,959

 

 

 

60,529

 

Total liabilities and stockholders’ equity

 

$

249,643

 

 

$

159,024

 

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

3


 

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,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

$

41,953

 

 

$

29,967

 

 

$

84,148

 

 

$

59,014

 

Cost of goods sold

 

 

7,675

 

 

 

5,291

 

 

 

15,714

 

 

 

10,421

 

Gross profit

 

 

34,278

 

 

 

24,676

 

 

 

68,434

 

 

 

48,593

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

33,773

 

 

 

26,610

 

 

 

67,428

 

 

 

48,909

 

Research and development

 

 

3,526

 

 

 

2,984

 

 

 

6,938

 

 

 

6,036

 

General and administrative

 

 

10,031

 

 

 

7,015

 

 

 

20,896

 

 

 

13,677

 

Total operating expenses

 

 

47,330

 

 

 

36,609

 

 

 

95,262

 

 

 

68,622

 

Loss from operations

 

 

(13,052

)

 

 

(11,933

)

 

 

(26,828

)

 

 

(20,029

)

Interest income

 

 

1,968

 

 

 

131

 

 

 

3,447

 

 

 

140

 

Interest expense

 

 

(1,282

)

 

 

(946

)

 

 

(2,567

)

 

 

(1,897

)

Debt extinguishment loss

 

 

 

 

 

(4,483

)

 

 

 

 

 

(4,483

)

Other income, net

 

 

95

 

 

 

(3

)

 

 

223

 

 

 

(1

)

Other non-operating income (expense), net

 

 

781

 

 

 

(5,301

)

 

 

1,103

 

 

 

(6,241

)

Net loss

 

$

(12,271

)

 

$

(17,234

)

 

$

(25,725

)

 

$

(26,270

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

(163

)

 

 

 

 

 

(192

)

 

 

 

Comprehensive loss

 

$

(12,434

)

 

$

(17,234

)

 

$

(25,917

)

 

$

(26,270

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.20

)

 

$

(0.31

)

 

$

(0.43

)

 

$

(0.48

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

 

61,382,514

 

 

 

55,308,273

 

 

 

60,060,483

 

 

 

55,071,368

 

 

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

4


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Accumulated Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balances at December 31, 2022

 

 

55,628,208

 

 

$

55

 

 

$

145,221

 

 

$

(84,720

)

 

$

(27

)

 

$

60,529

 

Issuance of common stock upon exercise of stock options

 

 

125,890

 

 

 

 

 

 

352

 

 

 

 

 

 

 

 

 

352

 

Issuance of common stock for vesting of restricted stock units

 

 

50,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,692

 

 

 

 

 

 

 

 

 

2,692

 

Issuance of common stock from public offering, net of issuance costs and underwriting discount of $7.5 million

 

 

5,476,190

 

 

 

6

 

 

 

107,521

 

 

 

 

 

 

 

 

 

107,527

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,454

)

 

 

 

 

 

(13,454

)

Unrealized loss on available-for-sale marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

(29

)

Balances at March 31, 2023

 

 

61,280,703

 

 

$

61

 

 

$

255,786

 

 

$

(98,174

)

 

$

(56

)

 

$

157,617

 

Issuance of common stock upon exercise of stock options

 

 

205,244

 

 

 

1

 

 

 

1,179

 

 

 

 

 

 

 

 

 

1,180

 

Issuance of common stock for vesting of restricted stock units

 

 

42,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

3,596

 

 

 

 

 

 

 

 

 

3,596

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,271

)

 

 

 

 

 

(12,271

)

Unrealized loss on available-for-sale marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(163

)

 

 

(163

)

Balances at June 30, 2023

 

 

61,528,409

 

 

$

62

 

 

$

260,561

 

 

$

(110,445

)

 

$

(219

)

 

$

149,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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

5


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Six Months Ended June 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(25,725

)

 

$

(26,270

)

Adjustments to reconcile net loss to net cash used in operating
   activities

 

 

 

 

 

 

Depreciation and amortization expense

 

 

2,019

 

 

 

757

 

(Recovery) provision for allowance for doubtful accounts

 

 

78

 

 

 

(45

)

Share-based compensation expense

 

 

6,288

 

 

 

3,372

 

Non-cash lease expense

 

 

1,264

 

 

 

1,165

 

Amortization of debt issuance costs

 

 

148

 

 

 

95

 

Recovery of inventory obsolescence

 

 

 

 

 

(197

)

Gain on fair value adjustment to derivative liability

 

 

 

 

 

(173

)

Debt extinguishment loss

 

 

 

 

 

4,483

 

Accretion (amortization) of discount
(premium) on marketable securities, net

 

 

(663

)

 

 

 

Other, net

 

 

5

 

 

 

 

Net changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts Receivable

 

 

1,886

 

 

 

2,112

 

Inventory

 

 

(6,704

)

 

 

(2,410

)

Prepaid expenses and other assets

 

 

(1,641

)

 

 

(1,039

)

Other non-current assets

 

 

 

 

 

(134

)

Other liabilities

 

 

1,072

 

 

 

2,392

 

Accounts payable

 

 

(522

)

 

 

(957

)

Accrued liabilities

 

 

(3,137

)

 

 

(958

)

Other, net

 

 

38

 

 

 

 

Net cash used in operating activities

 

 

(25,594

)

 

 

(17,807

)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of available-for-sale marketable securities

 

 

(120,957

)

 

 

 

Sales and maturities of available-for-sale marketable securities

 

 

55,763

 

 

 

 

Purchases of property and equipment

 

 

(5,709

)

 

 

(6,649

)

Acquisition, net of cash acquired

 

 

(20,000

)

 

 

 

Net cash used in investing activities

 

 

(90,903

)

 

 

(6,649

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from interest bearing term debt

 

 

 

 

 

49,651

 

Proceeds from interest bearing revolving debt

 

 

 

 

 

3,850

 

Debt issuance costs

 

 

 

 

 

(989

)

Repayment of term loan

 

 

 

 

 

(33,893

)

Proceeds from issuance of common stock from public offering, net of issuance costs and underwriting discount of $7.5 million

 

 

107,527

 

 

 

 

Proceeds from exercise of employee stock options

 

 

1,532

 

 

 

1,537

 

Net cash provided by financing activities

 

 

109,059

 

 

 

20,156

 

Net decrease in cash and cash equivalents

 

 

(7,438

)

 

 

(4,300

)

Cash and cash equivalents at beginning of period

 

 

19,473