Financial Performance - First quarter 2024 revenue was $51.1 million, a 21% increase from $42.2 million in the same period of 2023[4] - Net loss attributable to common stockholders for the first quarter 2024 was ($18.7) million, or ($0.30) per share, compared to ($13.5) million, or ($0.23) per share, for the same period in 2023[8] - Adjusted EBITDA loss improved to ($8.3) million in the first quarter 2024, compared to a loss of ($10.0) million for the same period in 2023[5] - The company expects full-year 2024 revenue to be between $201 million and $211 million, a growth of 7% to 13% compared to 2023[10] - The company aims for a significant improvement in Adjusted EBITDA for full-year 2024, anticipating approximately 50% improvement compared to 2023[10] Operating Expenses and Liabilities - Total operating expenses increased to $59.9 million in the first quarter 2024, up from $47.9 million in the first quarter 2023[7] - Total current liabilities rose from $45,033 million as of December 31, 2023, to $47,049 million as of March 31, 2024, an increase of 4.5%[25] - Accounts payable increased significantly from $11,835 million in December 2023 to $21,149 million in March 2024, reflecting a rise of 78.5%[25] - The company reported a depreciation and amortization expense of $1,909 million for Q1 2024, up from $924 million in Q1 2023, marking a 106.5% increase[27] Cash and Assets - Cash, cash equivalents, marketable securities, and investment receivable totaled $112.1 million as of March 31, 2024[9] - Cash and cash equivalents decreased from $12,982 million at the end of 2023 to $9,334 million by March 31, 2024, a reduction of 28.5%[27] - Total assets decreased from $251,907 million as of December 31, 2023, to $242,726 million as of March 31, 2024, a decline of approximately 3.5%[25] Equity and Capital - The company’s additional paid-in capital increased from $271,973 million to $279,433 million, reflecting a growth of 2.7%[25] - The total stockholders' equity decreased from $137,938 million at the end of 2023 to $126,391 million by March 31, 2024, a decline of approximately 8.4%[25] Product Development - The company plans to introduce two innovative 3D MIS Osteotomy solutions later this year to enhance its product offerings[3] - The patent portfolio expanded to 63 granted U.S. patents, with an additional 20 granted patents worldwide and 83 pending U.S. patent applications[5] Cash Flow - Cash flows used in operating activities improved to $(7,221) million in Q1 2024 from $(17,259) million in Q1 2023, a positive change of 58%[27]

Treace Medical Concepts Inc (NASDAQ:TMCI) Q4 2023 Results Conference Call February 27, 2024 4:30 PM ET Company Participants Julie Dewey - Chief Communications & Investor Relations Officer John Treace - CEO, Founder & Director Mark Hair - Chief Financial Officer Conference Call Participants Drew Ranieri - Morgan Stanley Robbie Marcus - JPMorgan Rick Wise - Stifel Simon Nigan - UBS Richard Newitter - Truist Securities Ryan Zimmerman - BTIG George Sellers - Stephens Operator Good day, and thank you for standin ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Treace Medical specializes in bunion and midfoot deformity correction with its Lapiplasty® System, driving substantial revenue growth - The company's core focus is advancing the standard of care for bunion surgery with its patented **Lapiplasty® 3D Bunion Correction System®**, which addresses the complex 3D deformity by correcting the unstable joint at the root of the problem[18](index=18&type=chunk)[22](index=22&type=chunk) Market Opportunity for Bunion Treatment | Metric | Value | | :--- | :--- | | **Americans Affected by Bunions** | Approx. 67 million | | **Annual Surgical Candidates (U.S.)** | Approx. 1.1 million | | **Total Annual Addressable Market** | > $5 billion | | **Current Annual Bunion Surgeries** | Approx. 450,000 | Historical Revenue and Kit Sales Growth | Year | Revenue ($) | Lapiplasty® Procedure Kits Sold | | :--- | :--- | :--- | | **2020** | $57.4 million | 11,113 | | **2023** | $187.1 million | 29,675 | | **CAGR (2020-2023)** | 48.3% | 38.7% | - The company's commercial strategy relies on a direct employee sales force, supplemented by independent agencies, covering 249 territories in the U.S. In 2023, employee sales representatives generated approximately **81%** of total revenue[29](index=29&type=chunk)[66](index=66&type=chunk) [Our Solutions](index=11&type=section&id=Our%20Solutions) Treace's solutions include the Lapiplasty® System for 3D bunion correction, minimally invasive options, and patient-specific instrumentation - The **Lapiplasty® System** is a comprehensive solution combining procedural instruments (Positioner, Compressor, 3-n-1® Guide) and single-use implant kits (Biplanar Plating, SpeedPlate™ Implants) to enable a reproducible **3D bunion correction**[47](index=47&type=chunk)[49](index=49&type=chunk) - In 2023, the company launched the **SpeedPlate™ Rapid Compression Implant System**, an enabling technology for its **Micro-Lapiplasty™ minimally invasive procedure**, and the **Hammertoe PEEK Fixation System** to address common co-occurring deformities[52](index=52&type=chunk)[55](index=55&type=chunk) - The company acquired assets from **RedPoint Medical3D (RPM-3D)** in **June 2023** to develop 3D-printed, patient-specific cut guides based on CT scans, with full commercialization planned for the **second half of 2024**[56](index=56&type=chunk) [Clinical Advantages and Data](index=17&type=section&id=Clinical%20Advantages%20and%20Data) The Lapiplasty® System is supported by robust clinical evidence, including the ALIGN3D™ study, showing low recurrence and improved patient outcomes Interim ALIGN3D Clinical Study Outcomes (Mean Follow-up: 33.8 months) | Key Outcome | Result | | :--- | :--- | | **Recurrence Rate** | 0.9% | | **Time to Start Weight-Bearing** | Average of 8.4 days (in a walking boot) | | **Symptomatic Non-Union Rate** | 1.8% | | **Hardware Removal (due to pain)** | 6.9% | | **Patient-Reported Pain Improvement** | 81% | | **Patient-Reported Walking/Standing Improvement** | 86% | - The company has completed enrollment in its **ALIGN3D™ (173 patients)** and **Mini3D™ (105 patients)** prospective clinical studies and is actively enrolling for its **MTA3D™ study**, demonstrating a commitment to generating supportive clinical evidence[79](index=79&type=chunk) [Commercial Strategy](index=21&type=section&id=Commercial%20Strategy) The commercial strategy emphasizes product innovation, direct sales, surgeon training, patient education, and clinical evidence, boosting surgeon utilization - The company requires surgeons to complete a **simulated surgical training program** before performing their first Lapiplasty® Procedure, supported by **12 clinical specialists** who assist with training and live surgery support[68](index=68&type=chunk)[69](index=69&type=chunk) - Surgeon utilization of the Lapiplasty® System increases with experience. As of **year-end 2023**, surgeons who started using the system in 2018 performed an average of **17.7 procedures** in the trailing twelve months, compared to **8.0 procedures** for those who started in 2020[71](index=71&type=chunk)[74](index=74&type=chunk) - A differentiated **direct-to-patient outreach program** educates potential surgical candidates through digital and traditional marketing, directing them to an educational website and a **"Find a Doctor" tool** to locate trained local surgeons[74](index=74&type=chunk)[75](index=75&type=chunk) [Intellectual Property](index=25&type=section&id=Intellectual%20Property) Treace Medical protects its technology with a robust IP portfolio, including 52 owned U.S. patents and 141 pending applications as of December 2023 Patent Portfolio (as of Dec 31, 2023) | Patent Type | Count | | :--- | :--- | | **Owned U.S. Patents** | 52 | | **Licensed U.S. Patents** | 1 | | **Owned Foreign Patents** | 15 | | **Pending Patent Applications (Global)** | 141 | - The company owns U.S. trademark registrations for key marks including **"Lapiplasty®"**, **"Adductoplasty®"**, and **"3D Bunion Correction®"**, and has several other applications pending for newer product names like **"Micro-Lapiplasty™"** and **"SpeedPlate™"**[90](index=90&type=chunk) [Government Regulation](index=28&type=section&id=Government%20Regulation) The company's medical devices are subject to FDA Class I/II regulations, 510(k) clearance, and ongoing compliance with QSR and healthcare fraud and abuse laws - The company's currently marketed products are **Class I exempt devices** and **Class II devices**, which require **FDA 510(k) premarket notification clearance** rather than the more stringent Premarket Approval (PMA) process[108](index=108&type=chunk) - After receiving **510(k) clearance**, any significant modification to a device's safety, effectiveness, or intended use requires a **new 510(k) submission**[111](index=111&type=chunk) - The company is subject to numerous healthcare laws, including the **federal Anti-Kickback Statute**, the **False Claims Act**, and the **Physician Payments Sunshine Act**, which govern its relationships with physicians and require reporting of payments and transfers of value[127](index=127&type=chunk)[128](index=128&type=chunk)[131](index=131&type=chunk) [Human Capital](index=34&type=section&id=Human%20Capital) As of December 2023, Treace Medical had 516 employees, a 22% increase, with a focus on talent development, low turnover, and high equity participation Employee Statistics (2023) | Metric | Value | | :--- | :--- | | **Total Full-Time Employees (Year-End)** | 516 | | **Year-over-Year Employee Growth** | 22% | | **New Hires in Sales Team** | 76% | | **Undesired Turnover Rate** | < 7% | | **Employees with Equity Grants** | ~80% | - A 2022 employee engagement survey showed an **87% engagement rate**, comparing favorably to the **76%** average for benchmark medical device and biotechnology companies[138](index=138&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks including net losses, intense competition, Lapiplasty® dependence, payor reimbursement, product liability, supply chain, and healthcare regulations - The company has a history of net losses, incurring **$49.5 million in 2023** and **$42.8 million in 2022**, with an accumulated deficit of **$134.2 million** as of December 31, 2023[148](index=148&type=chunk) - Revenue is primarily generated from the **Lapiplasty® System**, making the company highly dependent on its continued market adoption by surgeons, patients, and payors[161](index=161&type=chunk) - The business is subject to intense competition from larger, more established medical device manufacturers like **Stryker**, **Johnson & Johnson (DePuy Synthes)**, and **Zimmer Biomet**, who may have greater financial resources and market presence[153](index=153&type=chunk)[154](index=154&type=chunk) - Relationships with physicians and third-party payors are subject to extensive **federal and state healthcare fraud and abuse laws (e.g., Anti-Kickback Statute)**, with potential for substantial penalties for non-compliance[219](index=219&type=chunk) [Cybersecurity](index=74&type=section&id=Item%201C.%20Cybersecurity) The company maintains a cybersecurity risk management program guided by industry standards, overseen by the CIO and Audit Committee, with no material incidents - The cybersecurity program is guided by industry frameworks including **CIS**, **NIST**, and **ISO 27000**, and is integrated into the company's overall risk management framework[297](index=297&type=chunk) - Governance is managed by the **CIO**, who reports to the **CFO** and provides regular updates to the **Audit Committee**. The Audit Committee is delegated responsibility for cybersecurity oversight by the full Board of Directors[304](index=304&type=chunk)[305](index=305&type=chunk) - The company has **not experienced any cybersecurity incidents in the past three years** that have materially affected its business, operations, or financial condition[303](index=303&type=chunk) [Properties](index=75&type=section&id=Item%202.%20Properties) As of December 2023, the company leases a 125,000 square foot corporate headquarters in Ponte Vedra, Florida, with the lease expiring in July 2032 - The company's corporate headquarters is a leased facility of approximately **125,000 square feet** in Ponte Vedra, Florida, with the lease expiring in **July 2032**[307](index=307&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=75&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under "TMCI" since April 2021, has never paid dividends, and repurchased shares in Q4 2023 for tax obligations - The company's common stock has been trading on the NASDAQ Global Select Market under the symbol **"TMCI"** since its IPO on **April 23, 2021**[311](index=311&type=chunk) - The company has **never declared or paid cash dividends** and does not intend to in the foreseeable future, with future earnings planned for reinvestment into the business[313](index=313&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=77&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2023, revenue grew 31.9% to $187.1 million, but increased operating expenses led to a $49.5 million net loss, despite a $107.5 million stock offering - In June 2023, the company acquired assets from RPM-3D for **$20.0 million** in cash, with up to **$10.0 million** in additional milestone payments, to add patient-specific instrumentation (PSI) capabilities to its portfolio[323](index=323&type=chunk) Key Business Metrics (2023 vs. 2022) | Metric | 2023 | % Change from 2022 | | :--- | :--- | :--- | | **Lapiplasty® Kits Sold** | 29,675 | +20% | | **Blended Avg. Revenue per Kit** | $6,306 | +10% | | **Active Surgeons (Year-End)** | 2,855 | +20% | | **Avg. Kits per Active Surgeon** | 10.4 | +0.6% | - The business experiences seasonality, with the fourth quarter historically being the strongest (**30-40% of annual revenue**) due to patients meeting insurance deductibles, and the first and third quarters being comparatively weaker[333](index=333&type=chunk) [Results of Operations](index=82&type=section&id=Results%20of%20Operations) In 2023, revenue grew 31.9% to $187.1 million, but a 34.5% increase in operating expenses, particularly sales and marketing, led to a $49.5 million net loss Comparison of Operations for Years Ended December 31 ($ in thousands) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $187,118 | $141,838 | 31.9% | | **Gross Profit** | $151,937 | $116,306 | 30.6% | | **Gross Margin** | 81.2% | 82.0% | (0.8) pts | | **Sales and Marketing** | $140,894 | $104,567 | 34.7% | | **Research and Development** | $15,440 | $13,584 | 13.7% | | **General and Administrative** | $47,031 | $32,999 | 42.5% | | **Loss from Operations** | $(51,428) | $(34,844) | 47.6% | | **Net Loss** | $(49,527) | $(42,815) | 15.7% | - The increase in G&A expenses was primarily driven by an **$8.9 million** increase in payroll-related costs and a **$4.2 million** increase in professional services, which included **$3.3 million** in accrued compensation for RPM-3D acquisition milestones[349](index=349&type=chunk) [Liquidity and Capital Resources](index=84&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 2023, the company held $123.2 million in cash and marketable securities, bolstered by a $107.5 million stock offering, with $54.0 million outstanding on its loan facility Cash Flow Summary (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash used in operating activities** | $(34,575) | $(30,648) | | **Net cash used in investing activities** | $(81,299) | $(76,518) | | **Net cash provided by financing activities** | $109,383 | $20,806 | - Net cash from financing activities in 2023 was primarily driven by **$107.5 million** in net proceeds from a public stock offering in February[366](index=366&type=chunk) - Net cash used in investing activities in 2023 included **$20.0 million** for the RPM-3D acquisition, **$11.5 million** for property and equipment, and a net **$49.9 million** for the purchase of marketable securities[363](index=363&type=chunk) [Financial Statements and Supplementary Data](index=91&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Audited 2023 financial statements show total assets grew to $251.9 million and revenue to $187.1 million, but net loss widened to $49.5 million due to operating investments Balance Sheet Highlights (as of Dec 31, in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | **Cash, cash equivalents & marketable securities** | $123,198 | $81,252 | | **Total Assets** | $251,907 | $159,024 | | **Total Liabilities** | $113,969 | $98,495 | | **Total Stockholders' Equity** | $137,938 | $60,529 | Statement of Operations Highlights (Year ended Dec 31, in thousands) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Revenue** | $187,118 | $141,838 | $94,419 | | **Gross Profit** | $151,937 | $116,306 | $77,531 | | **Loss from Operations** | $(51,428) | $(34,844) | $(16,510) | | **Net Loss** | $(49,527) | $(42,815) | $(20,552) | - The company acquired assets from RPM-3D on June 12, 2023, for **$20.0 million** in cash and up to **$10.0 million** in contingent consideration, resulting in the recognition of **$12.8 million** in goodwill and **$9.5 million** in intangible assets[468](index=468&type=chunk)[469](index=469&type=chunk)[470](index=470&type=chunk) [Controls and Procedures](index=126&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified auditor opinion - Management concluded that as of **December 31, 2023**, the company's disclosure controls and procedures were effective[532](index=532&type=chunk) - Based on the **COSO 2013 framework**, management concluded that the company's internal control over financial reporting was effective as of **December 31, 2023**[533](index=533&type=chunk) - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting for the year ended **December 31, 2023**[538](index=538&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters](index=129&type=section&id=Items%2010-14) Information for Items 10-14, covering directors, executive compensation, and governance, is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) is incorporated by reference from the forthcoming **2024 Proxy Statement**[550](index=550&type=chunk)[551](index=551&type=chunk)[552](index=552&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=130&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits, including a valuation and qualifying account roll-forward and an exhibit index Schedule II: Valuation and Qualifying Accounts (in thousands) | Account | 2021 Balance | 2022 Balance | 2023 Balance | | :--- | :--- | :--- | :--- | | **Allowance for doubtful accounts** | $414 | $735 | $980 | | **Deferred tax asset valuation allowance** | $11,941 | $22,864 | $35,211 |

Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $40.8 million, representing a 23% increase year-over-year, impacted by lower-than-anticipated demand due to patient travel and vacations [10][22] - Year-to-date revenue growth was 36%, significantly above foot-and-ankle peers, with an updated full-year revenue guidance of $182 million to $186 million, reflecting a 30% increase over 2022 [7][11][24] - Gross margin decreased to 80.4% from 81.6% year-over-year, primarily due to changes in product mix and increased overhead [23] Business Line Data and Key Metrics Changes - Sold 6,459 Lapiplasty procedure kits in Q3, a 13% increase compared to the same quarter last year [22] - Record blended average selling price of $6,311 per Lapiplasty kit, up 9% year-over-year, driven by market adoption of complementary products [10][22] - Active surgeon users increased to 2,691, up 21% year-over-year, with a trailing 12-month surgeon utilization average of 10.6 kits per active surgeon [10][15] Market Data and Key Metrics Changes - Approximately 6.3% penetration of the estimated 450,000 annual surgical bunion corrections in the U.S., up from 5% in Q3 2022 [9] - The company identified a $5 billion U.S. market for bunion surgery, with only 450,000 surgeries performed annually, indicating significant growth potential [8] Company Strategy and Development Direction - The company continues to execute its strategic plan, focusing on expanding market penetration through new product launches, including SpeedPlate and Micro-Lapiplasty [7][12][20] - Investments in direct sales channels and patient awareness initiatives are expected to drive growth and improve market share [13][15] - The company aims to maintain a strong focus on bunion and related midfoot procedures while expanding its product portfolio [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a strong Q4 rebound, citing record surgeon additions in September and continued strength into October [36][56] - The company anticipates a positive contribution from new product launches in 2024, including SpeedPlate and Hammertoe systems, which are expected to enhance market opportunities [26][27] - Management acknowledged the impact of summer seasonality on Q3 results but remains optimistic about the fundamentals of the business [52][66] Other Important Information - The company has a robust product development pipeline with 10 new innovations slated for launch over the next 12 months [20] - Cash, cash equivalents, and marketable securities totaled $128.2 million as of September 30, 2023, providing a strong balance sheet for strategic investments [23] Q&A Session Summary Question: Impact of guidance cut by $10 million at the midpoint - Management noted that both fewer surgeons and delays in SpeedPlate contributed to the guidance cut, with unexpected summer seasonality affecting case volumes [29][30] Question: Confidence in Q4 rebound despite summer seasonality - Management highlighted strong surgeon additions in September and October, along with historical trends of Q4 being the highest revenue quarter [36][56] Question: Lower expected new surgeon additions for next year - Management explained that while the pace of new surgeon additions may slow, they expect increased utilization from the existing surgeon base and new product adoption to drive growth [39][40] Question: Decision to delay full launch of SpeedPlate - The delay was due to the opportunity to enhance the product based on early feedback, aiming for broader appeal across various surgical applications [42] Question: Gross margin performance and future expectations - Management indicated that gross margin fluctuations are common due to product mix and overhead, but they expect to maintain margins above 80% [55]

Part I: Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed financial statements for the period ended September 30, 2023, detail the company's financial position, operational results, and cash flows [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) As of September 30, 2023, total assets increased to $240.4 million from $159.0 million at year-end 2022, driven by marketable securities and acquired intangible assets, while stockholders' equity more than doubled due to a stock offering | Balance Sheet Items (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $7,278 | $19,473 | | Marketable securities, short-term | $114,885 | $61,779 | | Inventories | $29,312 | $19,330 | | Goodwill & Intangible assets, net | $22,077 | $0 | | **Total Assets** | **$240,360** | **$159,024** | | **Liabilities & Equity** | | | | Total liabilities | $102,500 | $98,495 | | Total stockholders' equity | $137,860 | $60,529 | | **Total Liabilities and Stockholders' Equity** | **$240,360** | **$159,024** | - The increase in **Goodwill and Intangible assets** is a direct result of the acquisition of RPM-3D assets in June 2023[18](index=18&type=chunk)[57](index=57&type=chunk) - The significant increase in stockholders' equity was primarily driven by a follow-on public offering in February 2023, which raised net proceeds of **$107.5 million**[18](index=18&type=chunk)[30](index=30&type=chunk) [Condensed Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Revenue grew significantly year-over-year for both Q3 and the nine-month period, but increased operating expenses led to a wider net loss compared to the prior year | Metric (in thousands, except EPS) | Q3 2023 | Q3 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $40,758 | $33,055 | +23.3% | | Gross Profit | $32,760 | $26,965 | +21.5% | | Loss from Operations | $(17,818) | $(11,318) | +57.4% | | Net Loss | $(17,521) | $(12,133) | +44.4% | | Net Loss Per Share | $(0.28) | $(0.22) | +27.3% | | Metric (in thousands, except EPS) | 9M 2023 | 9M 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $124,906 | $92,069 | +35.7% | | Gross Profit | $101,194 | $75,558 | +33.9% | | Loss from Operations | $(44,646) | $(31,347) | +42.4% | | Net Loss | $(43,246) | $(38,403) | +12.6% | [Condensed Statements of Cash Flows](index=9&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased, while investing activities saw significant outflows for acquisitions and securities, largely offset by substantial cash inflow from financing activities, primarily a stock offering | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(35,107) | $(25,290) | | Net cash used in investing activities | $(86,306) | $(12,506) | | Net cash provided by financing activities | $109,218 | $20,509 | | **Net decrease in cash and cash equivalents** | **$(12,195)** | **$(17,287)** | - Financing activities were dominated by **$107.5 million** in net proceeds from a public stock offering[26](index=26&type=chunk) - Investing activities included **$20.0 million** for an acquisition (net of cash acquired) and a net outflow of **$57.1 million** for marketable securities transactions[26](index=26&type=chunk) [Notes to Condensed Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) The notes detail a $107.5 million public offering, the $20.0 million RPM-3D acquisition, a $150.0 million loan facility with $54.0 million drawn, and increased share-based compensation expense - On June 12, 2023, the Company acquired certain assets of RPM-3D for **$20.0 million** in cash, with up to **$10.0 million** in additional contingent payments[57](index=57&type=chunk)[58](index=58&type=chunk) - The company has a five-year, **$150.0 million** loan facility with MidCap, with **$54.0 million** drawn as of September 30, 2023[71](index=71&type=chunk)[72](index=72&type=chunk) - Share-based compensation expense for the nine months ended September 30, 2023, was **$11.5 million**, a significant increase from **$5.6 million** in the same period of 2022[84](index=84&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes revenue growth to expanded Lapiplasty® System adoption and increased surgeon utilization, while continued investments in sales, R&D, and patient outreach led to higher operating expenses and net losses, with current liquidity deemed sufficient [Overview and Key Business Metrics](index=22&type=section&id=Overview%20and%20Key%20Business%20Metrics) The company's Lapiplasty® System drives growth through an expanding direct sales force and increasing surgeon adoption, with key metrics showing positive trends in procedure kits sold and active surgeons | Key Business Metric | Q3 2023 | YoY Change | | :--- | :--- | :--- | | Lapiplasty Procedure Kits Sold | 6,454 (est.) | +13% | | Blended Avg. Revenue per Kit | $6,311 | +9% | | Active Surgeons (as of Sep 30) | 2,691 | +21.3% | | Surgeon Utilization Rate (9M 2023) | 10.6 kits/surgeon | +4.3% | - The company acquired assets from **RPM-3D** in June 2023 to add patient-specific instrumentation (PSI) technologies to its portfolio, with commercial introduction expected in the second half of 2024[90](index=90&type=chunk)[96](index=96&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Q3 2023 revenue grew 23.3% driven by increased Lapiplasty kit sales and higher average revenue per kit, but a slight gross margin decrease and significant increases in Sales & Marketing and G&A expenses led to a wider operating loss - Q3 2023 revenue growth of **23.3%** was driven by a **13%** increase in the number of Lapiplasty Procedure Kits sold and a **9%** increase in average blended revenue per kit[113](index=113&type=chunk) - Sales and Marketing expenses for Q3 2023 increased by **$8.0 million** (**31.2%**) year-over-year, primarily due to increased headcount, higher commissions, and marketing initiatives[116](index=116&type=chunk) - General and Administrative expenses for Q3 2023 increased by **$3.8 million** (**42.3%**) year-over-year, driven by higher payroll costs and **$1.5 million** in compensation expense related to the RPM-3D acquisition milestones[118](index=118&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity, comprising cash and marketable securities, was significantly bolstered by a $107.5 million public offering, and management believes these resources, along with expected revenues, are sufficient to fund operations for at least the next twelve months - Primary sources of capital have been private placements, debt financing, the IPO in April 2021 (**$107.6 million** net proceeds), and a follow-on offering in February 2023 (**$107.5 million** net proceeds)[129](index=129&type=chunk) | Liquidity Position (in millions) | As of Sep 30, 2023 | | :--- | :--- | | Cash and cash equivalents | $7.3 | | Marketable securities | $114.9 | | **Total Cash & Marketable Securities** | **$122.2** | | Outstanding Debt (Principal) | $54.0 | - Net cash used in operating activities for the first nine months of 2023 was **$35.1 million**, an increase from **$25.3 million** in the prior year period, reflecting the net loss and investment in inventory[134](index=134&type=chunk)[135](index=135&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - As a **smaller reporting company**, Treace Medical Concepts, Inc. is not required to provide quantitative and qualitative disclosures about market risk[147](index=147&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of the end of the period covered by the report, the company's disclosure controls and procedures were **effective**[148](index=148&type=chunk) - No changes to internal control over financial reporting occurred during the quarter that materially affected or are reasonably likely to materially affect these controls[149](index=149&type=chunk) Part II: Other Information [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any legal proceedings that it believes would have a material effect on its business or results of operations - The company reports **no material legal proceedings**[152](index=152&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K and the Q1 2023 Form 10-Q - **No material changes** to risk factors have been reported since the last disclosure[153](index=153&type=chunk)

Financial Performance - Revenue in the second quarter was $42 million, representing a 40% increase year-over-year, driven by higher procedure volumes and an increase in blended average selling price due to the adoption of newer technologies [1][53] - Gross margin was 81.7% in Q2 2023, down from 82.3% in Q2 2022, primarily due to changes in product mix and increased inventory provisions [4] - Net loss for the second quarter was $12.3 million, or $0.20 per share, an improvement from a net loss of $17.2 million, or $0.31 per share in the same period of 2022 [6] - Cash, cash equivalents, and marketable securities totaled $139.5 million as of June 30, 2023, reflecting a decrease of approximately $31 million during the quarter, mainly due to acquisition payments [7] Business Line Performance - The company sold 6,793 Lapiplasty procedure kits in Q2, a 30% increase compared to the same period last year [2] - The blended average selling price for Lapiplasty kits was $6,176, an 8% increase year-over-year [3][54] - Active surgeons increased to 2,581, a 26% year-over-year growth, with an average utilization of 10.7 kits per active surgeon, up from 10.1 kits a year ago [54][75] Market Data - The company has penetrated approximately 6.2% of the estimated 450,000 annual surgical bunion procedures in the U.S., up from 4.6% in Q2 2022 [52] - The total addressable market for bunion surgery in the U.S. is estimated to be over $5 billion, with 1.1 million annual surgical candidates [51] Company Strategy and Industry Competition - The company is focused on expanding its direct sales channel and increasing market penetration through strategic investments in R&D and DTC initiatives [56][59] - The acquisition of RedPoint Medical3D adds FDA-cleared patient-specific instrumentation technologies to the company's portfolio, aligning with its strategy to enhance product offerings [35] - The company anticipates continued growth in its active surgeon base and utilization of its products, supported by ongoing training and education programs [75][76] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the underlying strength and momentum of the business, raising full-year 2023 revenue guidance to $191 million to $197 million, reflecting a 35% to 39% increase over 2022 [8][55] - The company expects Q3 revenue to be similar to Q2 due to seasonality, with Q4 anticipated to be the strongest quarter driven by typical seasonal tailwinds and new product launches [9][10] Other Important Information - The company has a robust pipeline of new product launches, including the SpeedPlate implant and micro Lapiplasty instrumentation, expected to launch in Q4 2023 [81][82] - The proposed 2024 Medicare payment rates for surgical procedures are expected to see low-to-mid single-digit increases, which would benefit the company's reimbursement landscape [36][37] Q&A Session Summary Question: Guidance and cadence commentary - Management noted that the orthopedic industry typically experiences lower sales volumes in Q3 due to seasonal factors, which justifies the guidance range provided [14][15] Question: ASP trends and variability - Management acknowledged that while ASP may fluctuate quarter-to-quarter, they expect overall year-over-year increases due to new product launches and complementary products [16][17] Question: Doctor additions and education - Management reported strong interest in training programs and expressed confidence in onboarding new surgeons, with a focus on increasing utilization over time [21][22][24] Question: Product penetration rates - Management discussed the potential for increased adoption of new products like Adductoplasty and SpeedPlate, with a target of reaching 15% penetration over time [27][29] Question: Balancing DTC investments and expense leverage - Management emphasized the importance of executing commercial strategies while maintaining a focus on profitability and expense management [39][40]

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) 100 Palmetto Park Place Ponte V ...

Special Notes Regarding Forward-Looking Statements This section provides important disclaimers and context for forward-looking statements, highlighting inherent risks and uncertainties that could impact future results [Forward-Looking Statements Overview](index=3&type=section&id=Forward-Looking%20Statements%20Overview) This section provides a standard disclaimer regarding forward-looking statements, outlining various factors that could cause actual results to differ materially from expectations - Forward-looking statements are identified by terms such as 'anticipate,' 'believe,' 'expect,' 'plan,' 'will,' and similar expressions, indicating future events or trends[10](index=10&type=chunk) - Key areas covered by forward-looking statements include product use, business growth, cash utilization, reimbursement, personnel, supply chain, product development, regulatory clearances, market expansion, compliance, financial estimates, economic impacts, clinical studies, and the effects of the COVID-19 pandemic[11](index=11&type=chunk) - Actual results may differ materially from expectations due to unpredictable events and various known and unknown risks, uncertainties, and other factors, some of which are beyond the company's control[12](index=12&type=chunk) PART I—FINANCIAL INFORMATION This section presents the company's unaudited condensed financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Unaudited Condensed Financial Statements](index=5&type=section&id=Item%201.%20Unaudited%20Condensed%20Financial%20Statements) This section presents the company's unaudited condensed financial statements, detailing balance sheets, operations, equity, cash flows, and related notes [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) This section presents the company's condensed balance sheets, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric (in thousands) | March 31, 2023 | December 31, 2022 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $29,613 | $19,473 | +$10,140 | | Marketable securities, short-term | $141,049 | $61,779 | +$79,270 | | Total current assets | $223,133 | $133,402 | +$89,731 | | Total assets | $249,170 | $159,024 | +$90,146 | | Total current liabilities | $23,296 | $30,245 | -$6,949 | | Total liabilities | $91,553 | $98,495 | -$6,942 | | Total stockholders' equity | $157,617 | $60,529 | +$97,088 | [Condensed Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section presents the company's condensed statements of operations and comprehensive loss, outlining revenues, expenses, and net loss over specified periods | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Revenue | $42,195 | $29,047 | +45.3% | | Cost of goods sold | $8,039 | $5,130 | +56.7% | | Gross profit | $34,156 | $23,917 | +42.8% | | Sales and marketing | $33,655 | $22,299 | +50.9% | | Research and development | $3,412 | $3,052 | +11.8% | | General and administrative | $10,865 | $6,662 | +63.1% | | Total operating expenses | $47,932 | $32,013 | +49.7% | | Loss from operations | $(13,776) | $(8,096) | +70.2% | | Net loss | $(13,454) | $(9,036) | +48.9% | | Net loss per share (basic & diluted) | $(0.23) | $(0.16) | +43.8% | [Condensed Statements of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section details changes in the company's stockholders' equity (deficit), including common stock, additional paid-in capital, and accumulated deficit | Metric (in thousands) | December 31, 2022 | March 31, 2023 | Change | | :-------------------- | :---------------- | :------------- | :----- | | Common Stock (shares) | 55,628,208 | 61,280,703 | +5,652,495 | | Common Stock (amount) | $55 | $61 | +$6 | | Additional Paid-In Capital | $145,221 | $255,786 | +$110,565 | | Accumulated Deficit | $(84,720) | $(98,174) | -$(13,454) | | Total Stockholders' Equity | $60,529 | $157,617 | +$97,088 | - The issuance of common stock from a public offering, net of issuance costs and underwriting discount of **$7.5 million**, contributed **$107.5 million** to additional paid-in capital[23](index=23&type=chunk) [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) This section presents the company's condensed statements of cash flows, categorizing cash movements from operating, investing, and financing activities | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(17,259) | $(7,241) | | Net cash used in investing activities | $(80,480) | $(1,481) | | Net cash provided by financing activities | $107,879 | $1,372 | | Net increase (decrease) in cash and cash equivalents | $10,140 | $(7,350) | | Cash and cash equivalents at end of period | $29,613 | $98,483 | - Proceeds from the public offering of common stock, net of costs, provided **$107.5 million** in financing activities in Q1 2023[26](index=26&type=chunk) - Investing activities included **$99.6 million** in purchases of marketable securities, partially offset by **$20.5 million** in maturities[26](index=26&type=chunk) [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed financial statements, covering accounting policies, fair value measurements, and specific balance sheet components [Formation and Business of the Company](index=9&type=section&id=1.%20Formation%20and%20Business%20of%20the%20Company) This section describes the company's core business, its focus on surgical management of bunion and midfoot deformities, and recent capital-raising activities - Treace Medical Concepts, Inc. is a medical technology company focused on advancing the standard of care for surgical management of bunion and related midfoot deformities, primarily through its Lapiplasty® 3D Bunion Correction System and Adductoplasty® Midfoot Correction System[28](index=28&type=chunk) - The company completed a follow-on public offering on February 10, 2023, generating net proceeds of **$107.5 million** after deducting underwriting discounts and offering expenses[29](index=29&type=chunk) - As of March 31, 2023, the company had an accumulated deficit of **$98.2 million** but held **$29.6 million** in cash and cash equivalents and **$141.0 million** in marketable securities[30](index=30&type=chunk) - Management believes that the company's existing cash, cash equivalents, and marketable securities will allow it to continue planned operations for at least the next **12 months**[31](index=31&type=chunk) [Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and policies applied in preparing the interim condensed financial statements, including estimates and assumptions - The interim condensed financial statements are prepared in accordance with U.S. GAAP and SEC rules, relying on management's estimates and assumptions[32](index=32&type=chunk)[36](index=36&type=chunk) - A **$0.4 million** reclassification of surgical instrument expense from cost of goods sold to sales and marketing expense was made for the three months ended March 31, 2022, with no effect on net loss[34](index=34&type=chunk) - The company did not have material cash deposits at Silicon Valley Bank at the time of the FDIC takeover or as of March 31, 2023, mitigating concentration of credit risk concerns[38](index=38&type=chunk) [Recent Accounting Pronouncements](index=10&type=section&id=3.%20Recent%20Accounting%20Pronouncements) This section discusses the adoption and impact of recent accounting standards on the company's financial reporting - The company adopted ASU 2016-13, Financial Instruments – Credit Losses, as of January 1, 2023[40](index=40&type=chunk) - Adoption of ASU 2016-13 did not have a material impact on the company's financial position, results of operations, or disclosures[40](index=40&type=chunk) [Fair Value Measurements](index=11&type=section&id=4.%20Fair%20Value%20Measurements) This section details the categorization and valuation methodologies for assets and liabilities measured at fair value, primarily cash equivalents and marketable securities - Assets and liabilities recorded at fair value are categorized into **Level 1** (unadjusted quoted prices in active markets for identical assets) and **Level 2** (observable inputs for similar assets or liabilities), with no **Level 3** assets or liabilities[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) | Asset Category (in thousands) | March 31, 2023 (Total Fair Value) | December 31, 2022 (Total Fair Value) | | :---------------------------- | :-------------------------------- | :----------------------------------- | | Cash equivalents | $26,147 | $16,211 | | Short-term marketable securities | $141,049 | $61,779 | | Total | $167,196 | $77,990 | - The fair value of **Level 1** securities is determined by trade prices in active markets, while **Level 2** securities use valuation models with observable inputs such as interest rates, yield curves, and credit spreads[46](index=46&type=chunk) [Balance Sheet Components](index=12&type=section&id=5.%20Balance%20Sheet%20Components) This section provides a detailed breakdown of specific balance sheet accounts, including cash, marketable securities, property and equipment, and accrued liabilities | Category | March 31, 2023 | December 31, 2022 | | :---------------- | :------------- | :---------------- | | Cash | $3,466 | $3,262 | | Money market funds | $12,289 | $13,141 | | Commercial paper | $998 | $323 | | Corporate debt | $8,358 | $2,197 | | Yankee CD | $4,502 | $550 | | Total | $29,613 | $19,473 | | Category | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | U.S. treasury and government agencies | $56,765 | $16,443 | | Commercial paper | $2,550 | - | | Corporate debt | $33,570 | $23,372 | | Asset-backed securities | $29,845 | $13,896 | | Yankee CD | $18,319 | $8,068 | | Total | $141,049 | $61,779 | | Category | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Capitalized surgical equipment | $9,886 | $9,248 | | Total property and equipment, net | $15,915 | $15,338 | | Category | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Accrued royalties expense | $1,827 | $2,299 | | Accrued professional services | $2,083 | $1,727 | | Other accrued expense | $3,649 | $1,778 | | Total accrued liabilities | $7,971 | $6,216 | [Long-Term Debt](index=14&type=section&id=6.%20Long-Term%20Debt) This section details the company's long-term debt obligations, including loan facilities and their terms, interest rates, and future principal payment schedules | Category | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | MidCap revolving loan facility | $4,000 | $4,000 | | MidCap term loan facility | $50,000 | $50,000 | | Total long-term debt, net | $52,785 | $52,711 | - The company entered into a new five-year **$150.0 million** loan facility with MidCap in April 2022, comprising up to **$120.0 million** in term loans and a **$30.0 million** revolving loan facility[55](index=55&type=chunk) - As of March 31, 2023, the term loan and revolving loan facility are accruing interest at capped rates of **9%** and **7%**, respectively[58](index=58&type=chunk) - Future principal payments for long-term debt are scheduled for **2026 ($33.3 million)** and **2027 ($20.7 million)**[54](index=54&type=chunk) [Commitments and Contingencies](index=15&type=section&id=7.%20Commitments%20and%20Contingencies) This section outlines the company's contractual commitments, such as royalty expenses, and any contingent liabilities - Royalty expense under agreements with surgeon advisory board members was **$1.6 million** for the three months ended March 31, 2023, at an aggregate rate of **3.9%**, compared to **$1.4 million (4.8%)** for the same period in 2022[60](index=60&type=chunk) - There were no accrued contingent liabilities as of March 31, 2023, and December 31, 2022[61](index=61&type=chunk) [Stockholders' Equity](index=16&type=section&id=8.%20Stockholders'%20Equity) This section details changes in stockholders' equity, including stock option and restricted stock unit grants, and share-based compensation expenses - During Q1 2023, the company granted **727,650 stock options** (weighted-average fair value of **$10.58 per share**) and **571,565 restricted stock units (RSUs)** (weighted-average fair value of **$24.07 per share**)[63](index=63&type=chunk)[64](index=64&type=chunk) | Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Cost of goods sold | $76 | $0 | | Sales and marketing expense | $822 | $531 | | Research and development expense | $257 | $150 | | General and administrative expense | $1,537 | $728 | | Total | $2,692 | $1,409 | [Net Loss Per Share Attributable to Common Stockholders](index=16&type=section&id=9.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) This section presents the calculation of basic and diluted net loss per share, considering common stock outstanding and potentially dilutive securities | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss (in thousands) | $(13,454) | $(9,036) | | Weighted-average common stock outstanding | 58,723,760 | 54,827,665 | | Net loss per share (basic and diluted) | $(0.23) | $(0.16) | - Potentially dilutive securities, including **7,717,414 common stock options** and **1,086,697 unvested full value awards** as of March 31, 2023, were excluded from diluted EPS computation because their inclusion would be antidilutive due to the net loss[67](index=67&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of the company's financial condition and operational results, including business developments, external impacts, and comparative performance [Overview](index=18&type=section&id=Overview) This section provides a high-level introduction to the company's business, its primary products, and recent financial activities - Treace Medical Concepts is a medical technology company focused on advancing the standard of care for surgical management of bunion and related midfoot deformities, primarily through its Lapiplasty® 3D Bunion Correction System and Adductoplasty® Midfoot Correction System[70](index=70&type=chunk) - The company has sold more than **70,000 Lapiplasty Procedure Kits** in the United States since receiving 510(k) clearance in March 2015[71](index=71&type=chunk) - A follow-on public offering completed on February 10, 2023, generated net proceeds of **$107.5 million**, adding to the company's liquidity[72](index=72&type=chunk) [COVID-19 Impact](index=18&type=section&id=COVID-19%20Impact) This section assesses the historical and potential future impacts of the COVID-19 pandemic on the company's business operations and financial results - The COVID-19 pandemic intermittently impacted business operations and financial results in 2020 and 2021 due to reduced elective procedures and limited hospital staffing[73](index=73&type=chunk) - The company believes the COVID-19 pandemic did not have a significant impact on its 2022 or first quarter 2023 operations and financial results[73](index=73&type=chunk) - Uncertainty remains regarding potential future negative impacts if more contagious and virulent variants of the virus emerge[74](index=74&type=chunk) [Economic Environment](index=19&type=section&id=Economic%20Environment) This section discusses the anticipated effects of macro-economic challenges, such as inflation and rising interest rates, on the company's costs and demand - The company expects macro-economic challenges, including inflationary pressures, rising interest rates, and ongoing supply chain issues, to continue throughout 2023[75](index=75&type=chunk) - These challenges may result in higher costs, longer lead times from suppliers, and potentially reduced demand for elective surgeries[75](index=75&type=chunk) [Key Business Metrics](index=19&type=section&id=Key%20Business%20Metrics) This section presents key operational metrics, including Lapiplasty Procedure Kits sold, average sales price, active surgeons, and surgeon utilization rates | Metric | Three Months Ended March 31, 2023 | Change (YoY) | | :------------------------------------ | :-------------------------------- | :----------- | | Lapiplasty Procedure Kits sold | +1,480 units | +28% | | Blended average sales price per kit | $6,244 | +13% | | Active surgeons | 2,499 | +31.5% | | Surgeon utilization rate (kits per active surgeon) | 10.5 | +3.2% | [Factors Affecting Our Business](index=19&type=section&id=Factors%20Affecting%20Our%20Business) This section outlines various internal and external factors influencing the company's business performance, including product adoption, innovation, seasonality, and reimbursement [Adoption of the Lapiplasty System](index=19&type=section&id=Adoption%20of%20the%20Lapiplasty%20System) This section discusses the company's strategy for increasing market acceptance and distribution of its Lapiplasty System and ancillary products - Business growth depends on gaining broader acceptance and successful marketing and distribution of the Lapiplasty System and ancillary products[79](index=79&type=chunk) - The company has approval at over **2,000 facilities** across the United States and plans to increase access by educating surgeons and facility administrators[79](index=79&type=chunk) - The company expects to continue operating at a loss in the near term, financing operations primarily through offerings of capital stock and debt[79](index=79&type=chunk) [Investments in Innovation and Growth](index=20&type=section&id=Investments%20in%20Innovation%20and%20Growth) This section details the company's strategic investments in sales force expansion, patient outreach, and research and development for new product innovations - The company is expanding its U.S. sales force and management team, and increasing patient-focused outreach and education campaigns[81](index=81&type=chunk) - Ongoing research and development focuses on next-generation Lapiplasty System innovations, including Mini-Incision and Micro-Lapiplasty Minimally Invasive Systems, and improving core instrumentation[81](index=81&type=chunk) - New products introduced in **2022** include the 3-n-1™ Guide, S4A™ plating system, and SpeedRelease™ Instrument[81](index=81&type=chunk) - The Adductoplasty System was commercially launched in September 2021 to address midfoot deformities[82](index=82&type=chunk) - These investments are expected to increase net losses in the near term but are anticipated to positively impact business and results of operations in the longer term[83](index=83&type=chunk) [Seasonality](index=20&type=section&id=Seasonality) This section explains the seasonal patterns in the company's sales volumes, with higher activity in the fourth quarter and lower in the first - The company experiences seasonality with higher sales volumes in the **fourth calendar quarter** (historically **35% to 40% of full-year revenues**) and lower sales volumes in the **first calendar quarter**[84](index=84&type=chunk) - Fourth-quarter sales are typically higher as patients elect surgery after meeting annual deductibles and having time to recover over winter holidays[84](index=84&type=chunk) - First-quarter sales tend to be lower due to adverse weather and the resetting of annual patient healthcare insurance plan deductibles[84](index=84&type=chunk) [Coverage and Reimbursement](index=20&type=section&id=Coverage%20and%20Reimbursement) This section addresses the importance of third-party payor coverage and reimbursement for the company's products and procedures - Sales of the company's products depend, in part, on the extent to which procedures using its products are covered by third-party payors, including government programs and private insurance plans[85](index=85&type=chunk) - Based on **2017 claims data**, private payors covered approximately **63% of Lapidus cases** and **60% of all bunion surgical cases**[85](index=85&type=chunk) - Primary CPT codes for the Lapiplasty Procedure (CPT 28297 and CPT 28740) are grouped under Medicare APC 5114, while CPT 28730 for multiple tarsometatarsal joint fusion is classified under APC 5115[86](index=86&type=chunk) [Components of Our Results of Operations](index=21&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section breaks down the key components of the company's financial performance, including revenue, cost of goods sold, gross profit, and operating expenses [Revenue](index=21&type=section&id=Revenue) This section describes the primary sources of the company's revenue and factors influencing its growth and fluctuations - Significant revenue is derived from the sale of proprietary Lapiplasty and Adductoplasty Systems and ancillary products to physicians, surgeons, hospitals, and ambulatory surgery centers in the United States[87](index=87&type=chunk) - No single customer accounted for **10% or more** of the company's revenue during the three months ended March 31, 2023[88](index=88&type=chunk) - Revenue is expected to increase in absolute dollars with the expansion of sales territories, new accounts, and trained physician base, though it may fluctuate due to seasonality and macro-economic conditions[88](index=88&type=chunk) [Cost of Goods Sold](index=21&type=section&id=Cost%20of%20Goods%20Sold) This section details the components of the cost of goods sold, including manufacturing costs, royalties, and inventory provisions - Cost of goods sold primarily consists of manufacturing costs for products purchased from third-party manufacturers, including materials and assembly markup[89](index=89&type=chunk) - Other components include royalties, allocated overhead for indirect labor, direct shipping costs, personnel costs, and provisions for excess and obsolete inventories[89](index=89&type=chunk) - Cost of goods sold is expected to increase in absolute dollars as more products are sold[89](index=89&type=chunk) [Gross Profit and Gross Margin](index=21&type=section&id=Gross%20Profit%20and%20Gross%20Margin) This section defines gross profit and gross margin, and discusses factors impacting their levels - Gross profit is calculated as revenue less cost of goods sold, and gross margin as gross profit divided by revenue[90](index=90&type=chunk) - Gross margin is affected by average selling prices, production and ordering volumes, changes in customer mix, third-party manufacturing costs, and cost-reduction strategies[90](index=90&type=chunk) [Operating Expenses](index=21&type=section&id=Operating%20Expenses) This section outlines the various categories of operating expenses, including sales and marketing, research and development, and general and administrative costs [Sales and Marketing](index=21&type=section&id=Sales%20and%20Marketing) This section details the components of sales and marketing expenses and their expected trends due to growth investments - Sales and marketing expenses primarily include compensation for personnel (salaries, bonuses, commissions, share-based compensation), surgical instrument expense, physician education, training, shipping, direct-to-patient outreach, advertising, and market research[91](index=91&type=chunk) - These expenses are expected to continue increasing in absolute dollars due to ongoing investments in the direct sales force and expanded marketing efforts[91](index=91&type=chunk) [Research and Development](index=22&type=section&id=Research%20and%20Development) This section describes the nature of research and development expenses and anticipated increases from innovation investments - R&D expenses cover engineering, product development, clinical studies, regulatory expenses, and other costs associated with products and technologies in development, including personnel compensation, supplies, and consulting[93](index=93&type=chunk) - R&D expenses are expected to increase in absolute dollars due to continued hiring and investment in next-generation Lapiplasty System innovations and related products[93](index=93&type=chunk) [General and Administrative](index=22&type=section&id=General%20and%20Administrative) This section outlines the components of general and administrative expenses and their expected growth due to infrastructure expansion and public company costs - G&A expenses primarily consist of compensation for finance, IT, legal, and human resource functions, professional services fees (legal, audit, tax), insurance costs, and general corporate expenses[94](index=94&type=chunk) - These expenses are expected to increase in absolute dollars due to hiring personnel, expanding infrastructure to support growth, and costs associated with operating as a public company[94](index=94&type=chunk) [Interest income](index=22&type=section&id=Interest%20income) This section describes the sources of the company's interest income, primarily from money market funds and marketable securities - Interest income is derived from interest received on the company's money market funds and marketable securities[95](index=95&type=chunk) [Interest Expense](index=22&type=section&id=Interest%20Expense) This section details the components of interest expense, including interest incurred and amortization of debt-related costs - Interest expense consists of interest incurred and amortization of debt discount and issuance costs related to outstanding borrowings[96](index=96&type=chunk) [Results of Operations (Comparison of the three months ended March 31, 2023 and 2022)](index=22&type=section&id=Results%20of%20Operations) This section provides a detailed comparative analysis of the company's financial performance for the three months ended March 31, 2023, versus 2022 | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (Amount) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :-------------- | :--------- | | Revenue | $42,195 | $29,047 | $13,148 | 45.3% | | Cost of goods sold | $8,039 | $5,130 | $2,909 | 56.7% | | Gross profit | $34,156 | $23,917 | $10,239 | 42.8% | | Sales and marketing | $33,655 | $22,299 | $11,356 | 50.9% | | Research and development | $3,412 | $3,052 | $360 | 11.8% | | General and administrative | $10,865 | $6,662 | $4,203 | 63.1% | | Total operating expenses | $47,932 | $32,013 | $15,919 | 49.7% | | Loss from operations | $(13,776) | $(8,096) | $(5,680) | 70.2% | | Interest income | $1,479 | $9 | $1,470 | * | | Interest expense | $(1,285) | $(951) | $(334) | 35.1% | | Net loss | $(13,454) | $(9,036) | $(4,418) | 48.9% | - Revenue increased by **$13.1 million (45.3%)** in Q1 2023, driven by a **28% increase** in Lapiplasty Procedure Kits sold and a **13% increase** in average blended revenue per case due to increased adoption of newer technologies and ancillary products[98](index=98&type=chunk) - Gross profit margin decreased from **82.3%** in Q1 2022 to **80.9%** in Q1 2023, primarily due to increased payroll costs and inventory provisions, partially offset by lower royalty rates on newer products[99](index=99&type=chunk) - Sales and marketing expenses increased by **$11.4 million (50.9%)** due to higher payroll and related expenses from increased headcount, higher commissions, increased advertising spending for direct-to-consumer campaigns, and increased training and clinical-related expenses[100](index=100&type=chunk) - General and administrative expenses increased by **$4.2 million (63.1%)** due to higher payroll and related costs from increased headcount, increased rent expense for the new headquarters, and a rise in legal expenses[102](index=102&type=chunk) - Interest income increased significantly by **$1.5 million** due to higher cash balances invested in marketable securities following the equity offering and higher interest rates[103](index=103&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's financial position, sources of capital, and ability to meet its short-term and long-term funding requirements [Liquidity and Capital Resources Overview](index=24&type=section&id=Liquidity%20and%20Capital%20Resources%20Overview) This section provides an overview of the company's capital sources, current liquidity, and management's assessment of future funding sufficiency - The company's capital sources include **$107.6 million** net proceeds from its IPO in April 2021, a **$150.0 million** loan facility with MidCap (April 2022), and **$107.5 million** net proceeds from a follow-on public offering in February 2023[106](index=106&type=chunk) - As of March 31, 2023, the company had **$29.6 million** in cash and cash equivalents, **$141.0 million** in marketable securities, and **$54.0 million** in principal outstanding under term and revolving loans[107](index=107&type=chunk) - Management believes existing cash, cash equivalents, marketable securities, available debt borrowings, and expected revenues are sufficient to meet capital requirements and fund operations for at least the next **twelve months**[107](index=107&type=chunk) [Funding Requirements](index=24&type=section&id=Funding%20Requirements) This section outlines the company's anticipated future capital needs and potential methods for securing additional funding - The company expects increased operating expenditures for sales and marketing, R&D, and general and administrative functions to support anticipated growth and public company operations[108](index=108&type=chunk) - Future funding requirements depend on factors such as investment in commercial infrastructure, marketing efforts, market acceptance of products, intellectual property costs, and potential acquisitions[109](index=109&type=chunk)[114](index=114&type=chunk) - Additional capital may be sought through public or private equity offerings or debt financings, which could lead to stockholder dilution or restrictive covenants[110](index=110&type=chunk) [Cash Flows](index=25&type=section&id=Cash%20Flows) This section analyzes the company's cash flow activities from operations, investing, and financing for the reported periods | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(17,259) | $(7,241) | | Net cash used in investing activities | $(80,480) | $(1,481) | | Net cash provided by financing activities | $107,879 | $1,372 | | Net increase (decrease) in cash and cash equivalents | $10,140 | $(7,350) | - Net cash provided by financing activities was **$107.9 million** for Q1 2023, primarily from **$107.5 million** in net proceeds from the public offering of common stock[116](index=116&type=chunk) - Net cash used in operating activities for Q1 2023 was **$17.3 million**, driven by a net loss of **$13.5 million** and an increase in net operating assets (e.g., inventories, prepaid expenses), partially offset by accounts receivable collections[112](index=112&type=chunk) - Net cash used in investing activities for Q1 2023 was **$80.5 million**, mainly due to **$99.6 million** in purchases of marketable securities, partially offset by **$20.5 million** in maturities[114](index=114&type=chunk) [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the accounting policies and estimates that require significant management judgment and could materially affect financial results - The company's financial statements are based on management's estimates and assumptions, which are informed by historical experience and current events, and actual results may differ materially[119](index=119&type=chunk) - There were no material changes to the company's critical accounting policies and estimates during the three months ended March 31, 2023[120](index=120&type=chunk) [Recently Issued Accounting Pronouncements](index=26&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section addresses the impact of new accounting standards on the company's interim financial statements - No newly issued accounting pronouncements impacted the company's unaudited interim financial statements during the period[121](index=121&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) As a smaller reporting company, Treace Medical Concepts, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[122](index=122&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance for timely and accurate reporting - Management concluded that disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[123](index=123&type=chunk) - There was no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting during the period[124](index=124&type=chunk) - Management acknowledges the inherent limitations of any control system, which can provide only reasonable, not absolute, assurance against errors and fraud[125](index=125&type=chunk) PART II—OTHER INFORMATION This section contains additional information not included in the financial statements, such as legal proceedings, risk factors, and equity sales [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that would have a material effect on its business or results of operations, though it may be involved in various legal actions in the ordinary course of business - The company is not a party to any legal proceedings that would have a material effect on its business or results of operations[128](index=128&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were disclosed from the Annual Report on Form 10-K, except for an updated risk regarding potential losses from cash accounts due to financial institution failures or marketable securities defaults - No material changes from the risk factors disclosed in the Annual Report on Form 10-K, except for an updated risk concerning financial institution failures[129](index=129&type=chunk) - A new risk factor highlights potential losses from cash accounts if financial institutions fail (e.g., Silicon Valley Bank) or from marketable securities if issuers default on obligations[129](index=129&type=chunk) - Such events could lead to temporary or permanent loss of access to funds, impacting the company's ability to meet contractual obligations, its financial condition, cash flows, and stock price[129](index=129&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and no material change in the planned use of proceeds from its April 2021 IPO - There were no unregistered sales of equity securities during the period[131](index=131&type=chunk) - The company completed its IPO on April 27, 2021, receiving net proceeds of approximately **$107.6 million**[132](index=132&type=chunk) - There has been no material change in the planned use of proceeds from the IPO[133](index=133&type=chunk) [Item 3. Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[134](index=134&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[135](index=135&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - No other information was reported under this item[136](index=136&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report, including certifications from the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - The exhibits include certifications of the Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[137](index=137&type=chunk) Signatures This section contains the official signatures of the company's executive officers, certifying the accuracy and completeness of the report [Report Signatures](index=30&type=section&id=Report%20Signatures) The Quarterly Report is duly signed on behalf of Treace Medical Concepts, Inc. by John T. Treace, Chief Executive Officer and Director, and Mark L. Hair, Chief Financial Officer, on May 9, 2023 - The report was signed by John T. Treace, Chief Executive Officer and Director, and Mark L. Hair, Chief Financial Officer, on May 9, 2023[142](index=142&type=chunk)

Financial Data and Key Metrics Changes - Revenue in Q1 2023 was $42.2 million, representing a 45% increase compared to Q1 2022 [9][23] - Gross margin was 80.9% in Q1 2023, down from 82.3% in Q1 2022, primarily due to increased payroll and related costs [25] - Net loss attributable to common stockholders was $13.5 million or $0.23 per share, compared to a net loss of $9 million or $0.16 per share for the same period in 2022 [26] Business Line Data and Key Metrics Changes - The direct sales force accounted for 79% of Q1 revenue, up from 63% in Q1 2022 [9][12] - The number of active surgeons increased by 31% year-over-year to 2,499, achieving approximately 25% penetration of the estimated 10,000 foot and ankle surgeons in the U.S. [23][24] - Average surgeon utilization increased to 10.5 kits per active surgeon in Q1, up from 10.1 kits a year ago [10][24] Market Data and Key Metrics Changes - The company has penetrated approximately 5.8% of the estimated 450,000 annual bunion surgical procedures in the U.S., up from 4.3% in Q1 2022 [8] - The addressable U.S. market for bunion surgery is estimated at over $5 billion, with 1.1 million annual surgical candidates [7][8] Company Strategy and Development Direction - The company is raising its full-year 2023 revenue guidance to $190 million to $196 million, reflecting a 34% to 38% increase over 2022 revenue [11][27] - Strategic investments in expanding the direct sales channel and increasing patient awareness through DTC initiatives are ongoing [11][12] - The company aims to maintain a scalable commercial strategy while balancing expense leverage [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth momentum and the effectiveness of its strategic investments [22][27] - The company is focused on increasing market penetration and expanding its product portfolio to drive future growth [11][12] Other Important Information - The company has 47 granted U.S. patents and 51 pending applications, indicating a strong commitment to innovation [16] - The company published its inaugural environmental, social, and governance report, highlighting its focus on ESG initiatives [22] Q&A Session Summary Question: Trends in Q1 and growth drivers - Management noted that growth was driven by investments in the direct sales channel, DTC initiatives, and an expanded product portfolio [30][31] Question: Competitive landscape and impact on growth - Management indicated that competition has not impeded growth, as their product remains unmatched in performance [32][34] Question: Pricing trends and ASP expectations - Management expects continued growth in blended average selling price due to new product adoption and expanding sales force [36][38] Question: Direct sales rep expansion and growth momentum - Management confirmed ongoing efforts to increase the ratio of direct sales reps, which is expected to enhance growth [40][41] Question: DTC spending and ROI - Management reported a 30%-40% increase in DTC spending for 2023, with positive results anticipated [58] Question: Surgeon adoption and progression - Management noted that new surgeons are adopting Lapiplasty more aggressively, contributing to growth [52][62]

PART I [Business](index=6&type=section&id=Item%201.%20Business) Treace Medical Concepts, Inc. develops the Lapiplasty® 3D Bunion Correction System™ to surgically correct bunions by addressing the underlying 3D deformity and unstable joint - The company's mission is to establish the Lapiplasty System as the standard of care for bunion surgery by addressing the **3D root cause** of the deformity, which traditional 2D approaches often fail to correct[16](index=16&type=chunk)[19](index=19&type=chunk) Annual U.S. Market Opportunity for Bunion Surgery | Market Segment | Patient/Procedure Count | Estimated Market Value | | :--- | :--- | :--- | | Annual Surgical Candidates | 1.1 million | > $5 billion | | Current Annual Procedures | ~450,000 | > $2.3 billion | | Potential Patient Conversion | N/A | $3 billion (incremental) | Revenue and Procedure Kit Growth (CAGR) | Metric | 2020 | 2022 | CAGR | | :--- | :--- | :--- | :--- | | Revenue | $57.4 million | $141.8 million | 57.2% | | Lapiplasty Procedure Kits Sold | 11,113 | 24,656 | 49.0% | [Overview of Bunions](index=8&type=section&id=Overview%20of%20Bunions) Bunions are a progressive, painful 3D deformity affecting approximately 65 million Americans, caused by an unstable midfoot joint - A bunion is a complex **3D deformity** caused by an unstable joint in the middle of the foot, not simply an overgrowth of bone; a 2015 study indicates that **87%** of bunions have a rotational component[19](index=19&type=chunk)[31](index=31&type=chunk)[41](index=41&type=chunk) - Bunions affect approximately **65 million** Americans, with prevalence increasing with age; about **4.4 million** patients seek medical attention annually, and **1.1 million** are considered surgical candidates[17](index=17&type=chunk) [Limitations of Traditional Surgical Treatment Approaches](index=9&type=section&id=Limitations%20of%20Traditional%20Surgical%20Treatment%20Approaches) Traditional bunion surgeries, 2D Osteotomy and Lapidus Fusion, have limitations including high recurrence rates and failure to correct the 3D deformity's root cause Comparison of Traditional Bunion Surgeries | Feature | 2D Osteotomy | Lapidus Fusion | | :--- | :--- | :--- | | **% of Cases** | ~75% | ~25% | | **Procedure** | Cuts and shifts metatarsal bone | Fuses the unstable TMT joint | | **Recurrence Rate** | 1.8% to 78% | 0% to 38% | | **Recovery** | 1 day to 6 weeks non-weight bearing | 6 to 8 weeks non-weight bearing | | **Limitation** | Does not address root cause or 3D deformity | Technically challenging; inconsistent rotation correction | - Failure to correct the third "rotational" dimension of the bunion deformity has been reported to result in a **10 to 12 times** increase in the chance of bunion recurrence compared to 3D surgeries[41](index=41&type=chunk) [Our Solution](index=11&type=section&id=Our%20Solution) The Lapiplasty® 3D Bunion Correction System™ corrects all three planes of the bunion deformity, with innovations for smaller incisions and related midfoot issues - The Lapiplasty System is designed to correct, cut, compress, and fixate the unstable joint, restoring normal anatomy in **all three dimensions** and allowing for an early return to weight-bearing[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - Product innovations include the Lapiplasty Mini-Incision System (**3.5cm** incision), the upcoming Micro-Lapiplasty System (**2cm** incisions), and the Adductoplasty System for midfoot deformities that occur in up to **30%** of bunion patients[54](index=54&type=chunk)[55](index=55&type=chunk) [Key Clinical Advantages of the Lapiplasty System](index=17&type=section&id=Key%20Clinical%20Advantages%20of%20the%20Lapiplasty%20System) The Lapiplasty System offers significant clinical advantages, including consistent 3D correction, low recurrence rates, and rapid return to weight-bearing, supported by strong patient satisfaction data Published Lapiplasty Procedure Outcomes | Key Outcome | Lapiplasty Procedure Result | | :--- | :--- | | **Recurrence Rate** | 0.9% – 3.2% | | **Time to Weight-Bearing** | 1 – 11 days (in post-op boot) | | **Non-Union Rate** | 0% – 2.6% | | **Hardware Removal Rate** | 0% – 5.1% | - Interim data from the ALIGN3D™ clinical study at 36 months showed a **97%** patient satisfaction rating, with a low recurrence rate of **0.9%** observed at 24 months post-surgery[61](index=61&type=chunk) [Commercial Strategy](index=18&type=section&id=Commercial%20Strategy) The company's commercial strategy focuses on product innovation, a hybrid sales force, comprehensive surgeon education, and direct-to-patient marketing to drive Lapiplasty System adoption - The sales force is a hybrid model with **168** employee sales representatives and **25** independent sales agencies as of Dec 31, 2022; employee representatives generated **72%** of total revenue in 2022, up from **52%** in 2021[66](index=66&type=chunk) - Surgeon utilization of the Lapiplasty System increases with experience; surgeons who started using the system in 2019 performed an average of **12.0** procedures in the last twelve months, while those who started in 2018 performed an average of **17.7**[72](index=72&type=chunk)[76](index=76&type=chunk) - A direct-to-patient outreach program educates potential surgical candidates and directs them to a "Find a Doctor" tool on the company's website to locate experienced Lapiplasty surgeons[78](index=78&type=chunk)[79](index=79&type=chunk) [Intellectual Property](index=21&type=section&id=Intellectual%20Property) The company protects its technology with 39 owned U.S. patents and 81 pending global applications, covering core Lapiplasty hardware and surgical techniques Patent Portfolio (as of Dec 31, 2022) | Patent Type | Count | | :--- | :--- | | Owned U.S. Patents | 39 | | Licensed U.S. Patent | 1 | | Owned Foreign Patents | 10 | | Pending Patent Applications (Global) | 81 | - The company owns U.S. trademark registrations for key brands including "Treace Medical Concepts®", "Lapiplasty®", and "Adductoplasty®"[91](index=91&type=chunk) [Competition](index=23&type=section&id=Competition) The company faces intense competition in the orthopaedic foot and ankle market from larger, well-resourced medical device manufacturers like Stryker and DePuy Synthes - Key competitors in the orthopaedic foot and ankle market include Stryker Corporation, DePuy Synthes Products, Inc. (Johnson & Johnson), Zimmer Biomet Holdings, Inc., Paragon 28, Inc., and Enovis Corporation[103](index=103&type=chunk) [Government Regulation](index=23&type=section&id=Government%20Regulation) The company's medical devices are regulated by the FDA, requiring 510(k) clearance for Class II products and adherence to post-market regulations and healthcare fraud and abuse laws - The company's currently marketed products are **Class I exempt** devices and **Class II** devices subject to **510(k)** premarket clearance from the FDA[109](index=109&type=chunk) - After a device receives **510(k)** clearance, any modification that could significantly affect its safety or effectiveness may require a new **510(k)** submission[112](index=112&type=chunk) - The company is subject to extensive healthcare laws, including the federal Anti-Kickback Statute, which prohibits offering remuneration to induce the purchase of items reimbursable by federal healthcare programs, and the Physician Payments Sunshine Act, which requires reporting of payments to physicians[131](index=131&type=chunk)[136](index=136&type=chunk) [Employees and Human Capital Resources](index=29&type=section&id=Employees%20and%20Human%20Capital%20Resources) As of December 31, 2022, the company had 423 full-time employees, a 70% increase, with strong focus on talent development and high employee engagement Human Capital Metrics (2022) | Metric | Value | | :--- | :--- | | **Total Full-Time Employees (YE)** | 423 | | **Year-over-Year Employee Growth** | 70% | | **Promotions/New Roles** | 18% of employees | | **Undesired Turnover** | < 7% | | **Employee Engagement Rate** | 87% | [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including net losses, intense competition, product dependency, intellectual property litigation, supply chain reliance, and complex regulatory compliance - The company has a history of net losses, incurring a net loss of **$42.8 million** in 2022 and **$20.7 million** in 2021, with an accumulated deficit of **$84.7 million** as of December 31, 2022[150](index=150&type=chunk) - The company's revenue is primarily generated from the Lapiplasty System, making it highly dependent on this single product line for success[170](index=170&type=chunk) - The business is subject to intense competition from larger medical device manufacturers with greater financial resources, such as Stryker, DePuy Synthes (Johnson & Johnson), and Zimmer Biomet[157](index=157&type=chunk)[158](index=158&type=chunk) - Relationships with physicians and payors are subject to federal and state healthcare fraud and abuse laws (e.g., Anti-Kickback Statute), and violations could lead to substantial penalties[226](index=226&type=chunk)[227](index=227&type=chunk) [Unresolved Staff Comments](index=60&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) None [Properties](index=60&type=section&id=Item%202.%20Properties) The company leases approximately **125,000 square feet** for its corporate headquarters in Ponte Vedra, Florida, under a lease expiring in July 2032 - The company leases approximately **125,000 square feet** for its corporate headquarters in Ponte Vedra, Florida, with the lease expiring in July 2032[305](index=305&type=chunk) [Legal Proceedings](index=60&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings, though it may face claims in the ordinary course of business [Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=61&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under "TMCI" since April 2021, has not paid dividends, and retained **$107.6 million** IPO proceeds for growth - The company's common stock trades on the NASDAQ Global Select Market under the symbol "TMCI" since April 23, 2021[310](index=310&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, retaining funds for business operations and growth[312](index=312&type=chunk) - The company received net proceeds of approximately **$107.6 million** from its IPO in April 2021[314](index=314&type=chunk) [Reserved](index=61&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2022, revenue grew **50.2%** to **$141.8 million**, but increased operating expenses led to a net loss of **$42.8 million**, despite strong product sales and a **$107.5 million** public offering Key Financial Results (2022 vs. 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $141.8M | $94.4M | 50.2% | | **Gross Profit** | $114.3M | $76.6M | 49.2% | | **Gross Margin** | 80.6% | 81.1% | (0.5 p.p.) | | **Loss from Operations** | ($34.8M) | ($16.5M) | 111.0% | | **Net Loss** | ($42.8M) | ($20.6M) | 108.3% | - The number of Lapiplasty Procedure Kits sold increased by **41.0%** in 2022, and the number of active surgeons grew by **33.9%** to **2,387**[327](index=327&type=chunk) - In February 2023, the company completed a public offering of common stock, resulting in net proceeds of approximately **$107.5 million**[322](index=322&type=chunk) - The company expects seasonality to continue, with higher sales in the fourth quarter and lower sales in the first quarter due to patient insurance deductibles resetting and weather[335](index=335&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Treace Medical Concepts, Inc. is not required to provide this information [Financial Statements and Supplementary Data](index=72&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) FY2022 consolidated financial statements show revenue growth but increased net loss of **$42.8 million**, with total assets at **$159.0 million** and liabilities at **$98.5 million**, bolstered by a new loan and public offering Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash, cash equivalents & marketable securities | $81,252 | $105,833 | | Total Current Assets | $133,402 | $137,972 | | Total Assets | $159,024 | $140,821 | | **Liabilities & Equity** | | | | Total Current Liabilities | $30,245 | $18,210 | | Long-term debt, net | $52,711 | $29,365 | | Total Liabilities | $98,495 | $47,748 | | Total Stockholders' Equity | $60,529 | $93,073 | Consolidated Statement of Operations Data (in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $141,838 | $94,419 | | Gross Profit | $114,315 | $76,593 | | Total Operating Expenses | $149,159 | $93,103 | | Net Loss | $(42,815) | $(20,552) | Consolidated Cash Flow Data (in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(30,648) | $(17,193) | | Net cash used in investing activities | $(76,518) | $(2,705) | | Net cash provided by financing activities | $20,806 | $107,652 | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=97&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) None [Controls and Procedures](index=97&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes identified - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[526](index=526&type=chunk) - Management concluded that as of December 31, 2022, the company's internal control over financial reporting was effective based on the COSO 2013 framework[527](index=527&type=chunk) [Other Information](index=97&type=section&id=Item%209B.%20Other%20Information) None [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=98&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) Not applicable PART III [Directors, Executive Officers and Corporate Governance](index=99&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement [Executive Compensation](index=99&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the company's 2023 Proxy Statement [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=99&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership is incorporated by reference from the company's 2023 Proxy Statement [Certain Relationships and Related Transactions, and Director Independence](index=99&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement [Principal Accounting Fees and Services](index=99&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the company's 2023 Proxy Statement; GRANT THORNTON LLP is the auditor PART IV [Exhibits, Financial Statement Schedules](index=100&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements, notes the omission of schedules, and provides an index of exhibits filed with the Form 10-K [Form 10-K Summary](index=102&type=section&id=Item%2016.%20Form%2010-K%20Summary) None