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 September 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, a 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 November 3, 2023, 61,675,861 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 SEPTEMBER 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

18

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

29

Item 4.

Controls and Procedures

29

 

 

Part II: Other Information

 

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

 

Signatures

32

 

 


 

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,” or “the Company,” 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;
the impact of geopolitical tensions and international conflicts on the economy and 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 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 1A-Risk Factors”, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 in the section titled "Part II, Item 1A-Risk Factors," and in the section titled "Risk Factors" included 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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,278

 

 

$

19,473

 

Marketable securities, short-term

 

 

114,885

 

 

 

61,779

 

Accounts receivable, net of allowance for doubtful accounts of $639 and $735 as of September 30, 2023 and December 31, 2022, respectively

 

 

24,996

 

 

 

29,196

 

Inventories

 

 

29,312

 

 

 

19,330

 

Prepaid expenses and other current assets

 

 

10,671

 

 

 

3,624

 

Total current assets

 

 

187,142

 

 

 

133,402

 

Property and equipment, net

 

 

21,536

 

 

 

15,338

 

Intangible assets, net of accumulated amortization of $238 and $0 as of September 30, 2023 and December 31, 2022, respectively

 

 

9,262

 

 

 

 

Goodwill

 

 

12,815

 

 

 

 

Operating lease right-of-use assets

 

 

9,459

 

 

 

10,138

 

Other non-current assets

 

 

146

 

 

 

146

 

Total assets

 

$

240,360

 

 

$

159,024

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

8,680

 

 

$

8,668

 

Accrued liabilities

 

 

8,936

 

 

 

6,216

 

Accrued commissions

 

 

5,278

 

 

 

7,356

 

Accrued compensation

 

 

5,070

 

 

 

7,666

 

Other liabilities

 

 

5,190

 

 

 

339

 

Total current liabilities

 

 

33,154

 

 

 

30,245

 

Long-term debt, net of discount of $1,066 and $1,289 as of September 30, 2023 and December 31, 2022, respectively

 

 

52,934

 

 

 

52,711

 

Operating lease liabilities, net of current portion

 

 

16,375

 

 

 

15,539

 

Other long-term liabilities

 

 

37

 

 

 

 

Total liabilities

 

 

102,500

 

 

 

98,495

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 shares authorized; 61,606,926 issued and outstanding as of September 30, 2023; 300,000,000 shares authorized; 55,628,208 issued and outstanding as of December 31, 2022

 

 

62

 

 

55

 

Additional paid-in capital

 

 

265,912

 

 

 

145,221

 

Accumulated deficit

 

 

(127,966

)

 

 

(84,720

)

Accumulated other comprehensive (loss) income

 

 

(148

)

 

 

(27

)

Total stockholders’ equity

 

 

137,860

 

 

 

60,529

 

Total liabilities and stockholders’ equity

 

$

240,360

 

 

$

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

$

40,758

 

 

$

33,055

 

 

$

124,906

 

 

$

92,069

 

Cost of goods sold

 

 

7,998

 

 

 

6,090

 

 

$

23,712

 

 

$

16,511

 

Gross profit

 

 

32,760

 

 

 

26,965

 

 

 

101,194

 

 

 

75,558

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

33,542

 

 

 

25,568

 

 

 

100,970

 

 

 

74,477

 

Research and development

 

 

4,350

 

 

 

3,799

 

 

 

11,288

 

 

 

9,835

 

General and administrative

 

 

12,686

 

 

 

8,916

 

 

 

33,582

 

 

 

22,593

 

Total operating expenses

 

 

50,578

 

 

 

38,283

 

 

 

145,840

 

 

 

106,905

 

Loss from operations

 

 

(17,818

)

 

 

(11,318

)

 

 

(44,646

)

 

 

(31,347

)

Interest income

 

 

1,570

 

 

 

420

 

 

 

5,017

 

 

 

560

 

Interest expense

 

 

(1,296

)

 

 

(1,190

)

 

 

(3,863

)

 

 

(3,087

)

Debt extinguishment loss

 

 

 

 

 

 

 

 

 

 

 

(4,483

)

Other income, net

 

 

23

 

 

 

(45

)

 

 

246

 

 

 

(46

)

Other non-operating income (expense), net

 

 

297

 

 

 

(815

)

 

 

1,400

 

 

 

(7,056

)

Net loss

 

$

(17,521

)

 

$

(12,133

)

 

$

(43,246

)

 

$

(38,403

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

71

 

 

 

 

 

 

(121

)

 

 

 

Comprehensive loss

 

$

(17,450

)

 

$

(12,133

)

 

$

(43,367

)

 

$

(38,403

)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.28

)

 

$

(0.22

)

 

$

(0.71

)

 

$

(0.70

)

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

 

 

61,562,494

 

 

 

55,429,211

 

 

 

60,566,655

 

 

 

55,190,587

 

 

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

 

Issuance of common stock upon exercise of stock options

 

 

46,001

 

 

 

 

 

 

159

 

 

 

 

 

 

 

 

 

159

 

Issuance of common stock for vesting of restricted stock units

 

 

32,516

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

5,192

 

 

 

 

 

 

 

 

 

5,192

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,521

)

 

 

 

 

 

(17,521

)

Unrealized loss on available-for-sale marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

71

 

Balances at September 30, 2023

 

 

61,606,926

 

 

$

62

 

 

$

265,912

 

 

$

(127,966

)

 

$

(148

)

 

$

137,860

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Issuance of common stock upon exercise of stock options

 

 

107,933

 

 

 

 

 

 

353

 

 

 

 

 

 

 

 

 

353

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,269

 

 

 

 

 

 

 

 

 

2,269

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,133

)

 

 

 

 

 

(12,133

)

Balances at September 30, 2022

 

 

55,499,242

 

 

$

46

 

 

$

142,463

 

 

$

(80,308

)

 

$

 

 

$

62,201

 

 

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

5


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(43,246

)

 

$

(38,403

)

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

3,583

 

 

 

1,216

 

(Recovery) provision for allowance for doubtful accounts

 

 

79

 

 

 

(38

)

Share-based compensation expense

 

 

11,480

 

 

 

5,641

 

Non-cash lease expense

 

 

1,868

 

 

 

2,010

 

Amortization of debt issuance costs

 

 

223

 

 

 

169

 

Recovery of inventory obsolescence

 

 

 

 

 

(206

)

Gain on fair value adjustment to derivative liability

 

 

 

 

 

(173

)

Debt extinguishment loss

 

 

 

 

 

4,483

 

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

 

 

(1,031

)

 

 

 

Other, net

 

 

164

 

 

 

25

 

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

 

 

 

 

 

 

Accounts Receivable

 

 

4,121

 

 

 

58

 

Inventory

 

 

(9,915

)

 

 

(6,027

)

Prepaid expenses and other assets

 

 

(1,028

)

 

 

(1,058

)

Other non-current assets

 

 

 

 

 

(146

)

Other liabilities

 

 

497

 

 

 

3,112

 

Accounts payable

 

 

12

 

 

 

3,825

 

Accrued liabilities

 

 

(1,954

)

 

 

222

 

Other, net

 

 

40

 

 

 

 

Net cash used in operating activities

 

 

(35,107

)

 

 

(25,290

)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of available-for-sale marketable securities

 

 

(140,075

)

 

 

 

Sales and maturities of available-for-sale marketable securities

 

 

82,979

 

 

 

 

Purchases of property and equipment

 

 

(9,210

)

 

 

(12,506

)

Acquisition, net of cash acquired

 

 

(20,000

)

 

 

 

Net cash used in investing activities

 

 

(86,306

)

 

 

(12,506

)

 

 

 

 

 

 

 

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

 

 

1,691

 

 

 

1,890

 

Net cash provided by financing activities

 

 

109,218

 

 

 

20,509

 

Net decrease in cash and cash equivalents

 

 

(12,195

)

 

 

(17,287

)

Cash and cash equivalents at beginning of period

 

 

19,473

 

 

 

105,833

 

Cash and cash equivalents at end of period

 

$

7,278

 

 

$

88,546

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

3,863

 

 

$

3,087

 

Operating lease right-of-use assets obtained in exchange for new lease liabilities

 

$

 

 

$