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

Treace Medical Concepts, Inc. (NASDAQ:TMCI) Q4 2022 Earnings Conference Call March 7, 2023 4:30 PM ET Company Participants Vivian Cervantes - Investor Relations, Gilmartin Group John Treace - Chief Executive Officer Mark Hair - Chief Financial Officer Conference Call Participants Robbie Marcus - JPMorgan Drew Ranieri - Morgan Stanley Ryan Zimmerman - BTIG Operator Hello, and welcome to Treace Medical Concepts Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only m ...

Financial Data and Key Metrics Changes - Revenue in Q3 2022 was $33.1 million, representing a 53% increase from $21.6 million in Q3 2021 [9][46] - Year-to-date revenue increased by 51% for the first nine months of 2022 [7] - Gross margin was 80% in Q3 2022, slightly down from 80.4% in Q3 2021 [51] - Net loss for Q3 2022 was $12.1 million, or $0.22 per share, compared to a net loss of $6.4 million, or $0.12 per share, in Q3 2021 [54] Business Line Data and Key Metrics Changes - The direct bunion-focused sales team accounted for 74% of Q3 revenue, exceeding the 70% target for the year [10][24] - The number of active surgeons increased by 39% year-over-year to 2,218, achieving 22% penetration of the estimated 10,000 U.S. surgeons performing bunion procedures [47][19] - Average surgeon utilization increased to 10.1 kits per surgeon in Q3, up from 10.0 kits a year ago [11][47] - The company sold 5,705 Lapiplasty procedure kits in Q3, a 44% increase from the prior year [49][75] Market Data and Key Metrics Changes - The company identified a $5 billion U.S. market for bunion surgery, with only 450,000 surgeries performed annually [8] - Market penetration for the Lapiplasty solution reached approximately 5% of the annual surgical bunion procedures in the U.S., up from 3.5% in Q3 2021 [8] Company Strategy and Development Direction - The company is focused on increasing market penetration through patient awareness, surgeon education, and expanding the direct sales channel [14][15] - Investments in direct-to-consumer (DTC) programs and surgeon training are key components of the commercial strategy [15][17] - The company raised its full-year 2022 revenue guidance to $135 million to $138 million, reflecting a 43% to 46% increase over 2021 revenue [13][55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth momentum and the effectiveness of strategic investments [55] - The company is poised to scale operations beginning in Q4 2022, with expectations for continued growth in 2023 [55][67] - Management acknowledged macroeconomic pressures but emphasized a focus on executing strategic initiatives [91][92] Other Important Information - The company has 38 granted U.S. patents and over 45 pending applications as part of its commitment to innovation [28] - New product innovations, including the Lapiplasty Micro-Incision System and SpeedPlate, are expected to enhance patient outcomes and drive future growth [29][30] Q&A Session Summary Question: How is the company balancing between driving adoption in new accounts and deeper penetration in existing ones? - Management is focused on both acquiring new surgeon relationships and increasing utilization among existing users through training and outreach initiatives [58][59] Question: What impact has the expansion of the product portfolio had on Lapiplasty adoption? - The introduction of Adductoplasty has generated significant interest and has a compound effect on overall product utilization [60][61] Question: What should investors consider for 2023? - Management is optimistic about growth potential but will provide more specifics in the next earnings call [66][67] Question: How is the company addressing potential staffing shortages and macroeconomic pressures? - Management is focused on executing plans and initiatives while building a stronger sales force [91][92] Question: What is the current status of the Adductoplasty product and its market penetration? - The company is in the early stages of Adductoplasty adoption, with positive feedback and increasing interest from surgeons [93][95]

[Part I: Financial Information](index=5&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section provides the company's financial statements and related disclosures for the period ended September 30, 2022 [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed financial statements for the period ended September 30, 2022, including the balance sheet, statement of operations, statement of stockholders' equity, and statement of cash flows, along with accompanying notes, reporting a net loss of **$38.4 million** and cash and cash equivalents of **$88.5 million** [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) This table summarizes the company's financial position as of September 30, 2022, and December 31, 2021 | Balance Sheet Items (in thousands) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $88,546 | $105,833 | | Inventories | $16,794 | $10,561 | | Total current assets | $127,902 | $137,972 | | Property and equipment, net | $14,148 | $2,849 | | Total assets | $156,443 | $140,821 | | **Liabilities & Equity** | | | | Total current liabilities | $22,580 | $18,210 | | Long-term debt, net | $52,636 | $29,365 | | Total liabilities | $94,242 | $47,748 | | Accumulated deficit | ($80,308) | ($41,905) | | Total stockholders' equity | $62,201 | $93,073 | [Condensed Statement of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Statement%20of%20Operations%20and%20Comprehensive%20Loss) This table presents the company's revenues, expenses, and net loss for the three and nine months ended September 30, 2022, and 2021 | Income Statement (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $33,055 | $21,619 | $92,069 | $60,980 | | Gross Profit | $26,431 | $17,371 | $74,288 | $49,461 | | Total Operating Expenses | $37,749 | $22,831 | $105,635 | $60,374 | | Loss from Operations | ($11,318) | ($5,460) | ($31,347) | ($10,913) | | Net Loss | ($12,133) | ($6,418) | ($38,403) | ($13,933) | | Net Loss Per Share (basic & diluted) | ($0.22) | ($0.12) | ($0.70) | ($0.30) | [Condensed Statement of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Statement%20of%20Stockholders%27%20Equity%20%28Deficit%29) This section details changes in the company's stockholders' equity, including the impact of net losses on the accumulated deficit - The company's accumulated deficit increased from **$41.9 million** at the end of 2021 to **$80.3 million** as of September 30, 2022, primarily due to the net loss incurred during the period - Total stockholders' equity decreased from **$93.1 million** to **$62.2 million** over the same period [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) This table summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2022, and 2021 | Cash Flow Summary (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($25,290) | ($13,441) | | Net cash used in investing activities | ($12,506) | ($1,805) | | Net cash provided by financing activities | $20,509 | $106,626 | | Net (decrease) increase in cash | ($17,287) | $91,380 | | Cash at end of period | $88,546 | $109,459 | [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) This section provides additional details and context for the financial statements, including business overview, liquidity, and significant transactions - The company is a medical technology firm focused on the surgical treatment of bunions with its Lapiplasty® System, also offering the Adductoplasty™ Midfoot Correction System[27](index=27&type=chunk) - Despite an accumulated deficit of **$80.3 million** as of September 30, 2022, management believes existing cash and cash equivalents of **$88.5 million** are sufficient to fund planned operations for at least the next 12 months[29](index=29&type=chunk)[30](index=30&type=chunk) - In April 2022, the company entered into a new five-year **$150.0 million** credit facility with MidCap, drawing an initial **$50.0 million** term loan and **$4.0 million** from a revolving credit facility to refinance previous debt[56](index=56&type=chunk)[57](index=57&type=chunk) - The company entered into a new 10-year operating lease for its corporate headquarters in February 2022, resulting in the recognition of a **$14.2 million** operating lease right-of-use asset and a **$19.4 million** operating lease liability on the balance sheet as of September 30, 2022[17](index=17&type=chunk)[64](index=64&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting strong revenue growth driven by increased sales of Lapiplasty® Procedure Kits, the impact of COVID-19 and macroeconomic factors, key business metrics like surgeon adoption, and significant increases in operating expenses due to investments in sales, marketing, and R&D, detailing its liquidity position following a major debt refinancing in April 2022, which resulted in a **$4.5 million** debt extinguishment loss [Overview and Key Business Metrics](index=18&type=section&id=Overview%20and%20Key%20Business%20Metrics) This section outlines the company's strategic mission and provides key operational metrics demonstrating the adoption and utilization of its Lapiplasty® System - The company's mission is to establish its Lapiplasty® System as the standard of care for the surgical treatment of bunions[76](index=76&type=chunk) - As of September 30, 2022, the sales force consisted of 143 direct sales representatives and 29 independent sales agencies, with direct reps generating approximately **74% of revenue** in Q3 2022[77](index=77&type=chunk) Key Business Metrics | Key Business Metrics | Change vs. Prior Year Period | | :--- | :--- | | Lapiplasty Procedure Kits Sold (Q3 2022) | +44% | | Active Surgeons (as of Sep 30, 2022) | +39% (to 2,218) | | Surgeon Utilization Rate (YTD 2022) | +1.6% (to 10.1 kits/surgeon) | [Results of Operations](index=22&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing revenue growth, gross margin, and significant increases in operating expenses for the reported periods Financial Performance Summary | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $33.1M | $21.6M | +52.9% | | Gross Margin | 80.0% | 80.4% | -0.4 p.p. | | Sales & Marketing Expense | $25.0M | $16.0M | +56.6% | | R&D Expense | $3.8M | $2.5M | +49.7% | | G&A Expense | $8.9M | $4.3M | +106.9% | | Loss from Operations | ($11.3M) | ($5.5M) | +107.3% | - For the nine months ended September 30, 2022, revenue grew **51.0%** to **$92.1 million**, while the net loss expanded to **$38.4 million** from **$13.9 million** in the prior year period, partly due to a **$4.5 million** debt extinguishment loss from refinancing[104](index=104&type=chunk)[112](index=112&type=chunk)[119](index=119&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash position, debt obligations, and ability to fund future operations - As of September 30, 2022, the company had **$88.5 million** in cash and cash equivalents and **$54.0 million** in principal outstanding under its term and revolving loans[121](index=121&type=chunk) - Management believes existing cash, available debt, and expected revenues are sufficient to fund operations for at least the next twelve months[121](index=121&type=chunk) - Net cash used in operating activities for the first nine months of 2022 was **$25.3 million**, an increase from **$13.4 million** in the same period of 2021, driven by a larger net loss and investments in inventory[126](index=126&type=chunk)[127](index=127&type=chunk) - Net cash used in investing activities increased to **$12.5 million** for the nine months ended September 30, 2022, primarily for leasehold improvements for the new headquarters and purchases of surgical instruments[129](index=129&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) The company's market risk is primarily limited to interest rate risk on its cash equivalents, which are low-yield overnight investments, with management believing a 10% change in interest rates would not have a significant impact, and no material foreign currency risk as its business is conducted in U.S. dollars - The company's primary market risk is interest rate risk associated with its cash equivalents, which are carried at quoted market prices, and this risk is considered minimal[139](index=139&type=chunk) - The company does not have material foreign currency risk as its business is conducted in U.S. dollars[140](index=140&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of the end of the reporting period, disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, and reported in a timely manner[142](index=142&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[143](index=143&type=chunk) [Part II: Other Information](index=29&type=section&id=Part%20II%3A%20Other%20Information) This section covers other required disclosures, including legal proceedings, risk factors, equity sales, and various other items [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not a party to any legal proceedings that would have a material effect on its business or results of operations - The company is not currently party to any material legal proceedings[147](index=147&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) The company states there have been no material changes to the risk factors disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K[148](index=148&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities during the period and confirms no material change in the planned use of proceeds from its April 2021 Initial Public Offering (IPO) - The company had no unregistered sales of equity securities in the period[149](index=149&type=chunk) - There has been no material change in the planned use of proceeds from the April 2021 IPO, from which the company received net proceeds of approximately **$107.6 million**[150](index=150&type=chunk)[151](index=151&type=chunk) [Other Items (3, 4, 5, 6)](index=30&type=section&id=Other%20Items) This section confirms that there were no defaults upon senior securities, mine safety disclosures are not applicable, there is no other information to report, and lists the exhibits filed with the report - Item 3: No defaults upon senior securities were reported[153](index=153&type=chunk) - Item 4: Mine safety disclosures are not applicable[154](index=154&type=chunk) - Item 6: The report lists several exhibits, including amendments to credit agreements and certifications by the CEO and CFO[156](index=156&type=chunk)

Financial Data and Key Metrics Changes - Revenue in Q2 2022 was $30 million, representing a 45% increase from $20.7 million in Q2 2021, driven by increased procedure volumes and higher blended average selling prices [17][36] - Gross margin improved to 81.1% in Q2 2022 from 80.9% in Q2 2021, reflecting operational efficiency [37] - The net loss for Q2 2022 was $17.2 million, compared to a net loss of $5.1 million in the same period of 2021 [41] Business Line Data and Key Metrics Changes - The number of active surgeons performing at least one case in the trailing 12 months increased by 37% year-over-year to 2,047 [36] - Surgeon utilization increased to an average of 10.1 kits per surgeon in Q2 2022, up from 9.8 kits a year ago [19][36] - 68% of revenue in Q2 2022 was generated by the direct sales force, up from 63% in Q1 2022 and 51% a year ago [12] Market Data and Key Metrics Changes - The company has penetrated approximately 4.6% of the estimated 450,000 annual bunion surgical procedures in the U.S., up from 3.3% in Q2 2021 [15] - The total addressable market for bunion surgery is estimated at over $5 billion, with 1.1 million annual surgical candidates [14] Company Strategy and Development Direction - The company is focused on building clinical evidence to become the standard of care for bunion surgery, with a growing body of clinical data supporting its procedures [8][21] - Investments are being made in expanding the direct sales channel and enhancing patient awareness through DTC programs [20][27] - The company is relocating to a larger headquarters to accommodate growth in training, R&D, and infrastructure needs [16][39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying strength and momentum of the business, raising the full-year 2022 revenue guidance to $130 million to $134 million, reflecting a 38% to 42% increase from 2021 [20][43] - The company anticipates typical seasonal softness in orthopedic elective surgeries during Q3 but expects strong year-over-year growth [43] Other Important Information - The company announced a new 5-year $150 million loan arrangement to enhance financial flexibility and support growth initiatives [42] - The company has 36 branded U.S. patents and over 40 U.S. patent applications pending, indicating a strong focus on innovation [29] Q&A Session Summary Question: Revenue per procedure has increased, how are reps compensated for adding more to the procedure? - Management noted that sales reps are commission-based, incentivizing them to sell both the Lapiplasty kit and ancillary products [47] Question: What drives higher utilization among surgeons? - The average user progresses from around four cases in their first year to approximately 20 cases by year four, driven by direct sales support and ongoing training [53] Question: Why is Q3 revenue expected to be flat compared to Q2? - Management cited seasonal softness in elective surgeries and staffing shortages as factors influencing the flat expectation, while still projecting strong year-over-year growth [55][56] Question: How do reimbursement trends affect pricing potential? - Management highlighted that reimbursement trends have been positive, and they monitor the relationship between pricing and reimbursement closely [62] Question: What is the outlook for gross margins with new ancillary products? - Management is focused on maintaining current gross margins while exploring opportunities for improvement amidst inflationary pressures [64]

[Special Notes Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTES%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section provides a disclaimer for forward-looking statements, emphasizing that actual results may differ due to various risks and uncertainties - The report contains forward-looking statements regarding business, operations, financial performance, and plans, identifiable by terms like 'anticipate,' 'expect,' 'will,' etc[9](index=9&type=chunk) - Key areas of forward-looking statements include expected product use, business growth, cash utilization, reimbursement, personnel, supply chain, product development, intellectual property, regulatory clearances, market expansion, compliance, financial estimates, COVID-19 impact, and competitive developments[11](index=11&type=chunk) - Actual results may differ materially from expectations due to risks and uncertainties, including those detailed in the Annual Report on Form 10-K and elsewhere in this Quarterly Report[12](index=12&type=chunk) [Forward-Looking Statements Disclaimer](index=3&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section outlines the company's forward-looking statements, which are predictions about future events and trends, and cautions investors that actual results may differ materially due to various known and unknown risks and uncertainties. The company does not undertake to update these statements - The report contains forward-looking statements regarding business, operations, financial performance, and plans, identifiable by terms like 'anticipate,' 'expect,' 'will,' etc[9](index=9&type=chunk) - Key areas of forward-looking statements include expected product use, business growth, cash utilization, reimbursement, personnel, supply chain, product development, intellectual property, regulatory clearances, market expansion, compliance, financial estimates, COVID-19 impact, and competitive developments[11](index=11&type=chunk) - Actual results may differ materially from expectations due to risks and uncertainties, including those detailed in the Annual Report on Form 10-K and elsewhere in this Quarterly Report[12](index=12&type=chunk) [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, including balance sheets, statements of operations, stockholders' equity, cash flows, and detailed explanatory notes [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) The company's balance sheet shows a slight decrease in total current assets but a significant increase in total assets and total liabilities from December 31, 2021, to June 30, 2022, primarily driven by increased property and equipment, operating lease assets, and long-term debt Metric (in thousands) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $101,533 | $105,833 | $(4,300) | -4.06% | | Total current assets | $135,197 | $137,972 | $(2,775) | -2.01% | | Property and equipment, net | $8,741 | $2,849 | $5,892 | 206.81% | | Operating lease right-of-use assets | $14,650 | — | $14,650 | N/A | | Total assets | $158,722 | $140,821 | $17,901 | 12.71% | | Total current liabilities | $16,637 | $18,210 | $(1,573) | -8.64% | | Long-term debt, net | $52,562 | $29,365 | $23,197 | 79.06% | | Total liabilities | $87,010 | $47,748 | $39,262 | 82.23% | | Total stockholders' equity | $71,712 | $93,073 | $(21,361) | -22.95% | [Condensed Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company experienced significant revenue growth for both the three and six months ended June 30, 2022, compared to the prior year. However, operating expenses grew at a faster rate, leading to a substantial increase in net loss and comprehensive loss for both periods Metric (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change (YoY) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | % Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------- | :------------------------------- | :------------------------------- | :------------- | | Revenue | $29,967 | $20,654 | 45.1% | $59,014 | $39,361 | 49.9% | | Gross profit | $24,316 | $16,710 | 45.5% | $47,857 | $32,090 | 49.1% | | Total operating expenses | $36,249 | $20,761 | 74.6% | $67,886 | $37,543 | 80.8% | | Loss from operations | $(11,933) | $(4,051) | 194.6% | $(20,029) | $(5,453) | 267.3% | | Debt extinguishment loss | $(4,483) | — | N/A | $(4,483) | — | N/A | | Net loss and comprehensive loss | $(17,234) | $(5,083) | 239.1% | $(26,270) | $(7,515) | 249.6% | | Net loss per share (basic and diluted)| $(0.31) | $(0.10) | 210.0% | $(0.48) | $(0.18) | 166.7% | [Condensed Statements of Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Stockholders' equity decreased from $93.1 million at December 31, 2021, to $71.7 million at June 30, 2022, primarily due to net losses incurred during the period, partially offset by increases in additional paid-in capital from stock option exercises and share-based compensation Metric (in thousands) | Metric (in thousands) | December 31, 2021 | March 31, 2022 | June 30, 2022 | | :-------------------- | :---------------- | :------------- | :------------ | | Common Stock Amount | $45 | $46 | $46 | | Additional Paid-In Capital | $134,933 | $137,713 | $139,841 | | Accumulated Deficit | $(41,905) | $(50,941) | $(68,175) | | Total Stockholders' Equity | $93,073 | $86,818 | $71,712 | **Key Changes (December 31, 2021 to June 30, 2022):** * **Issuance of common stock upon exercise of stock options:** Increased Additional Paid-In Capital by **$1,536 thousand** * **Share-based compensation expense:** Increased Additional Paid-In Capital by **$3,372 thousand** * **Net loss:** Increased Accumulated Deficit by **$26,270 thousand** [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) The company experienced a net decrease in cash and cash equivalents for the six months ended June 30, 2022, primarily due to increased cash used in operating and investing activities, partially offset by cash provided by financing activities, including new debt facilities Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(17,807) | $(4,177) | | Net cash used in investing activities | $(6,649) | $(866) | | Net cash provided by financing activities | $20,156 | $106,585 | | Net (decrease) increase in cash and cash equivalents | $(4,300) | $101,542 | | Cash and cash equivalents at end of period | $101,533 | $119,621 | - Operating activities used **$17.8 million** cash in H1 2022, a significant increase from **$4.2 million** in H1 2021, driven by higher net loss and changes in operating assets and liabilities[27](index=27&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) - Financing activities provided **$20.2 million** in H1 2022, primarily from new MidCap debt facilities (**$53.5 million** net proceeds) and stock option exercises, partially offset by the repayment of the CRG term loan (**$33.9 million**)[27](index=27&type=chunk)[138](index=138&type=chunk) [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) These notes provide detailed information supporting the condensed financial statements, covering the company's formation, business, significant accounting policies, recent accounting pronouncements, fair value measurements, balance sheet components, long-term debt, commitments, operating leases, stockholders' equity, and net loss per share [1. Formation and Business of the Company](index=9&type=section&id=1.%20Formation%20and%20Business%20of%20the%20Company) This section details the company's formation, core business in bunion and midfoot correction, and its financial position post-IPO - Treace Medical Concepts, Inc. is a medical technology company focused on surgical treatment of Hallux Valgus (bunions) with its proprietary Lapiplasty® 3D Bunion Correction System, and recently expanded with the Adductoplasty™ Midfoot Correction System[29](index=29&type=chunk) - The company completed its IPO on April 27, 2021, raising approximately **$107.6 million** in net proceeds[30](index=30&type=chunk) - As of June 30, 2022, the company had an accumulated deficit of **$68.2 million** and cash and cash equivalents of **$101.5 million**, with management believing existing cash will fund operations for at least the next **12 months**[31](index=31&type=chunk)[32](index=32&type=chunk) [2. Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's significant accounting policies, including GAAP compliance, management estimates, credit risk, and lease accounting - The interim condensed financial statements are prepared in accordance with GAAP for interim financial information and SEC rules for Form 10-Q, reflecting all necessary adjustments for fair presentation[33](index=33&type=chunk)[34](index=34&type=chunk) - Preparation of financial statements requires management to make estimates and assumptions, which may materially differ from actual results[37](index=37&type=chunk) - The company's financial instruments are subject to credit risk, primarily cash, cash equivalents, and accounts receivable, with no single customer accounting for more than **10%** of accounts receivable or revenue[39](index=39&type=chunk)[40](index=40&type=chunk) - Leases with terms greater than one year are recognized on the balance sheet as operating lease right-of-use assets and liabilities, using the incremental borrowing rate to determine present value[41](index=41&type=chunk) [3. Recent Accounting Pronouncements](index=11&type=section&id=3.%20Recent%20Accounting%20Pronouncements) This section discusses the company's evaluation and adoption of recent accounting pronouncements, including ASU 2016-13 and ASU 2016-02 - The company is evaluating the impact of ASU 2016-13, Financial Instruments – Credit Losses, effective for fiscal years beginning after December 15, 2022[46](index=46&type=chunk) - The company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2022, recognizing **$1.9 million** in right-of-use assets and lease liabilities for real estate operating leases[47](index=47&type=chunk)[48](index=48&type=chunk) [4. Fair Value Measurements](index=11&type=section&id=4.%20Fair%20Value%20Measurements) This section categorizes fair value measurements into Level 1, 2, and 3, detailing assets and liabilities measured at fair value - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) Assets and Liabilities Measured at Fair Value (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------- | :------------ | :---------------- | | **Assets:** | | | | Money market funds (Level 1) | $98,008 | $105,220 | | **Liabilities:** | | | | Derivative liability (Level 3) | $0 | $173 | - The derivative liability was extinguished on April 29, 2022, in connection with the refinancing of long-term debt, resulting in a **$0.2 million** change in fair value for the three and six months ended June 30, 2022[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) [5. Balance Sheet Components](index=12&type=section&id=5.%20Balance%20Sheet%20Components) This section provides detailed breakdowns of key balance sheet components, including cash, property and equipment, and accrued liabilities Cash and Cash Equivalents (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------- | :------------ | :---------------- | | Cash | $3,525 | $613 | | Money market funds | $98,008 | $105,220 | | **Total**| **$101,533** | **$105,833** | Property and Equipment, Net (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------- | :------------ | :---------------- | | Total property and equipment | $12,010 | $5,588 | | Less: accumulated depreciation and amortization | $(3,269) | $(2,739) | | **Property and equipment, net** | **$8,741** | **$2,849** | - Depreciation and amortization expense on property and equipment increased significantly to **$0.4 million** for Q2 2022 (from **$0.1 million** in Q2 2021) and **$0.8 million** for H1 2022 (from **$0.2 million** in H1 2021)[59](index=59&type=chunk) Accrued Liabilities (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------- | :------------ | :---------------- | | Accrued royalty expense | $1,397 | $1,522 | | Accrued interest | $315 | $975 | | Accrued professional services | $562 | $941 | | Other accrued expense | $2,535 | $1,080 | | **Total**| **$4,809** | **$4,518** | [6. Long-Term Debt](index=13&type=section&id=6.%20Long-Term%20Debt) This section details the company's long-term debt, including the new MidCap credit facility and the repayment of the CRG term loan Long-Term Debt (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :------- | :------------ | :---------------- | | MidCap revolving credit facility | $4,000 | — | | CRG term loan facility | — | $30,000 | | MidCap term loan facility | $50,000 | — | | Total term and revolving loans | $54,000 | $30,000 | | Less: debt discount and issuance costs | $(1,438) | $(635) | | **Total long-term debt** | **$52,562** | **$29,365** | - On April 29, 2022, the company entered a new five-year **$150.0 million** credit facility with MidCap, including **$120.0 million** in term loans (drew **$50.0 million**) and a **$30.0 million** revolving credit facility (drew **$4.0 million**)[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) - The new term loan proceeds were used to repay the outstanding CRG term loan facility of **$34.1 million**, including principal, interest, and fees[85](index=85&type=chunk) - The loans bear interest based on a 30-day SOFR plus **0.10%** (with a **1.0%-3.0%** floor/cap) plus **6.0%** for term loans and **4.0%** for revolving credit, with interest-only payments for the first **48-60 months**[65](index=65&type=chunk) [7. Commitments and Contingencies](index=14&type=section&id=7.%20Commitments%20and%20Contingencies) This section outlines the company's royalty expenses and confirms no material legal proceedings or contingent liabilities Royalty Expense (in thousands) | Period | 2022 | 2021 | | :----- | :--- | :--- | | Three Months Ended June 30 | $1,300 | $800 | | Six Months Ended June 30 | $2,700 | $1,600 | - The aggregate royalty rate for the three months ended June 30, 2022, was **4.4%** (**4.0%** in 2021), and for the six months ended June 30, 2022, was **4.6%** (**4.1%** in 2021)[68](index=68&type=chunk)[140](index=140&type=chunk) - The company is not a party to any legal proceedings that would have a material effect on its business or results of operations, and there were no accrued contingent liabilities as of June 30, 2022, or December 31, 2021[69](index=69&type=chunk)[153](index=153&type=chunk) [8. Operating Leases](index=15&type=section&id=8.%20Operating%20Leases) This section details the company's operating leases, including the new corporate headquarters lease and associated costs and terms - On February 9, 2022, the company entered a **10-year** operating lease for a new corporate headquarters in Ponte Vedra, Florida, with rental payments expected to begin in Q3 2022[70](index=70&type=chunk) Operating Lease Costs (in thousands) | Period | 2022 | 2021 | | :----- | :--- | :--- | | Three Months Ended June 30 | $700 | $100 | | Six Months Ended June 30 | $1,100 | $300 | - As of June 30, 2022, the weighted average remaining lease term is **9.5 years**, and the weighted average discount rate is **9.2%**. Total undiscounted lease payments are **$29.4 million**[73](index=73&type=chunk)[75](index=75&type=chunk)[141](index=141&type=chunk) [9. Stockholders' Equity](index=16&type=section&id=9.%20Stockholders'%20Equity) This section details changes in stockholders' equity, including stock option grants, restricted stock units, and share-based compensation expense - During the six months ended June 30, 2022, the company granted **1,171,175** stock options with a weighted-average grant-date fair value of **$7.37** per share, and **359,534** restricted stock units (RSUs) with a weighted-average grant-date fair value of **$18.28**[76](index=76&type=chunk)[77](index=77&type=chunk) Share-Based Compensation Expense (in thousands) | Operating Expense Category | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Sales and marketing | $690 | $370 | $1,221 | $517 | | Research and development | $176 | $103 | $326 | $166 | | General and administrative | $1,097 | $402 | $1,825 | $594 | | **Total** | **$1,963** | **$875** | **$3,372** | **$1,277** | [10. Net Loss Per Share Attributable to Common Stockholders](index=16&type=section&id=10.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) This section presents the net loss per share attributable to common stockholders and discusses the impact of potentially dilutive securities Net Loss Per Share Attributable to Common Stockholders | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net loss attributable to common stockholders (in thousands) | $(17,234) | $(5,122) | $(26,270) | $(7,711) | | Weighted-average common stock outstanding, basic and diluted | 55,308,273 | 49,187,285 | 55,071,368 | 43,556,107 | | **Net loss per share attributable to common stockholders, basic and diluted** | **$(0.31)** | **$(0.10)** | **$(0.48)** | **$(0.18)** | - Potentially dilutive securities, including common stock options (**7,285,776**) and unvested restricted stock units (**377,935**) as of June 30, 2022, were excluded from diluted EPS calculation due to the company's net loss, making their inclusion antidilutive[80](index=80&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, operational results, key business drivers, and future outlook [Overview](index=18&type=section&id=Overview) Treace Medical Concepts, Inc. is a medical technology company focused on 3D bunion correction with its Lapiplasty® System and recently expanded into midfoot correction with the Adductoplasty™ System. The company has sold over 52,000 Lapiplasty Procedure Kits since 2015 and markets through a direct sales force and independent agencies. Post-IPO, the company refinanced its debt, incurring a $4.5 million debt extinguishment loss - The company's core product is the Lapiplasty® 3D Bunion Correction™ System, designed to correct the root cause of bunions, with over **52,000 kits** sold in the U.S. since 2015[82](index=82&type=chunk)[83](index=83&type=chunk) - Offerings expanded with the Adductoplasty™ Midfoot Correction System for hallux valgus patients[82](index=82&type=chunk) - In April 2022, the company secured a new **$150.0 million** credit facility with MidCap, using part of the proceeds to repay a **$34.1 million** obligation to CRG Group LP, resulting in a **$4.5 million** debt extinguishment loss[85](index=85&type=chunk) [COVID-19 Impact and Economic Environment](index=19&type=section&id=COVID-19%20Impact%20and%20Economic%20Environment) The company's business continues to be affected by the COVID-19 pandemic, leading to elective surgery delays, hospital staffing shortages, and capacity constraints. Macroeconomic factors like inflation and supply chain issues are also increasing costs and potentially impacting demand for elective surgeries, which are expected to persist throughout 2022 - COVID-19 continues to impact the business through elective surgery delays, cancellations, and hospital staffing/capacity constraints due to infection surges[87](index=87&type=chunk) - Macroeconomic challenges, including inflationary pressures and supply chain issues, are expected to result in higher costs and longer lead times from suppliers, potentially affecting demand for elective surgeries[88](index=88&type=chunk) [Key Business Metrics](index=19&type=section&id=Key%20Business%20Metrics) The company tracks Lapiplasty Procedure Kits sold, active surgeons, and utilization rate to evaluate business performance. For Q2 2022, Lapiplasty Procedure Kits sold increased by 39%, active surgeons grew by 37% to 2,047, and the surgeon utilization rate for H1 2022 increased by 2.8% to an average of 10.1 kits per active surgeon - Lapiplasty Procedure Kits sold increased by **1,458 units**, or **39%**, for the three months ended June 30, 2022, compared to the same period in 2021[89](index=89&type=chunk) - The number of active surgeons using the Lapiplasty System reached **2,047** as of June 30, 2022, a **37% increase** from the prior year[89](index=89&type=chunk) - The surgeon utilization rate for the six months ended June 30, 2022, increased by **2.8%** to an average of **10.1 Lapiplasty Procedure Kits** per active surgeon[89](index=89&type=chunk) [Factors Affecting Our Business](index=19&type=section&id=Factors%20Affecting%20Our%20Business) The company's financial performance is influenced by the adoption rate of its Lapiplasty System, ongoing investments in innovation and growth (sales force expansion, R&D for next-gen products and ancillary procedures, infrastructure), and seasonality, with higher sales in Q4 and lower in Q1. The company expects to continue operating at a loss in the near term due to these investments - Business growth depends on broader acceptance and successful commercialization of the Lapiplasty System and ancillary products, requiring increased facility approvals and surgeon adoption[92](index=92&type=chunk) - The company is investing in sales and marketing (expanding direct sales force, patient outreach), R&D (next-generation Lapiplasty innovations, new ancillary products like Adductoplasty™ System), and general and administrative functions to support anticipated growth[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - The business experiences seasonality, with higher sales in Q4 (approx. **40% of full-year revenue**) and lower sales in Q1 due to patient deductibles and weather, and potentially lower sales in Q3 due to summer months[97](index=97&type=chunk) [Coverage and Reimbursement](index=20&type=section&id=Coverage%20and%20Reimbursement) Sales of the company's products are dependent on third-party payor coverage and reimbursement. Procedures using the Lapiplasty System are covered by government programs (Medicare, Medicaid) and private insurance, with private payors accounting for a significant portion of bunion surgical cases - Sales of products depend on third-party payor coverage (Medicare, Medicaid, private insurance) for procedures using the company's products[98](index=98&type=chunk) - Based on 2017 data, approximately **63% of Lapidus cases** and **60% of all bunion surgical cases** were paid by private payors[98](index=98&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 under APC 5115[99](index=99&type=chunk) [Components of Our Results of Operations](index=20&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section details the components of the company's financial results: revenue primarily from Lapiplasty and Adductoplasty Systems, cost of goods sold (manufacturing, royalties, overhead), gross profit, and operating expenses (sales & marketing, R&D, G&A). The company anticipates continued increases in revenue and expenses due to expansion and public company operations, expecting fluctuations quarter-to-quarter - Revenue is primarily derived from the sale of Lapiplasty and Adductoplasty Systems, consisting of single-use implant kits and reusable instrument trays, sold to healthcare providers in the U.S[100](index=100&type=chunk) - Cost of goods sold includes manufacturing costs, royalties, allocated overhead, shipping, and personnel costs, with adjustments for excess and obsolete inventories[103](index=103&type=chunk) - Operating expenses are categorized into Sales and Marketing (personnel, education, advertising), Research and Development (engineering, clinical studies, regulatory), and General and Administrative (finance, IT, legal, professional services, public company costs)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - The company expects revenue, cost of goods sold, and all operating expenses to increase in absolute dollars in the foreseeable future due to expansion and public company operations, with potential quarterly fluctuations[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) The company reported significant revenue growth for both the three and six months ended June 30, 2022, driven by increased Lapiplasty Procedure Kit sales and higher average selling prices. However, operating expenses, particularly sales and marketing, general and administrative, and R&D, grew at a faster pace, leading to a substantial increase in operating loss and net loss. A $4.5 million debt extinguishment loss further impacted the net loss Summary of Results of Operations (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | % Change | | :-------------------------- | :------------------------------- | :------------------------------- | :------- | :------------------------------- | :------------------------------- | :------- | | Revenue | $29,967 | $20,654 | 45.1% | $59,014 | $39,361 | 49.9% | | Gross profit | $24,316 | $16,710 | 45.5% | $47,857 | $32,090 | 49.1% | | Sales and marketing | $26,250 | $14,010 | 87.4% | $48,173 | $26,158 | 84.2% | | Research and development | $2,984 | $2,422 | 23.2% | $6,036 | $4,290 | 40.7% | | General and administrative | $7,015 | $4,329 | 62.0% | $13,677 | $7,095 | 92.8% | | Loss from operations | $(11,933) | $(4,051) | 194.6% | $(20,029) | $(5,453) | 267.3% | | Debt extinguishment loss | $(4,483) | — | N/A | $(4,483) | — | N/A | | Net loss and comprehensive loss | $(17,234) | $(5,083) | 239.1% | $(26,270) | $(7,515) | 249.6% | [Comparison of the three months ended June 30, 2022 and 2021](index=22&type=section&id=Comparison%20of%20the%20three%20months%20ended%20June%2030%2C%202022%20and%202021) This section provides a detailed comparison of the company's financial performance for the three months ended June 30, 2022, versus the same period in 2021 - Revenue increased by **$9.3 million (45.1%)** due to more Lapiplasty Procedure Kits sold, expanded surgeon base, increased surgeon utilization, and higher average sales prices from ancillary products[112](index=112&type=chunk) - Gross profit margin slightly increased from **80.9% to 81.1%**, despite a **$1.7 million (43.3%) increase** in cost of goods sold, driven by increased sales and volume efficiencies[113](index=113&type=chunk)[114](index=114&type=chunk) - Sales and marketing expenses surged by **$12.2 million (87.4%)** due to increased headcount, advertising, and commissions. General and administrative expenses rose by **$2.7 million (62.0%)** due to headcount, new headquarters lease, and increased business-related costs[115](index=115&type=chunk)[117](index=117&type=chunk) - A **$4.5 million** debt extinguishment loss was recognized due to debt refinancing[120](index=120&type=chunk) [Comparison of the six months ended June 30, 2022 and 2021](index=23&type=section&id=Comparison%20of%20the%20six%20months%20ended%20June%2030%2C%202022%20and%202021) This section provides a detailed comparison of the company's financial performance for the six months ended June 30, 2022, versus the same period in 2021 - Revenue increased by **$19.7 million (49.9%)** from expanded customer base and higher average sales prices[121](index=121&type=chunk) - Gross profit margin slightly decreased from **81.5% to 81.1%**, despite a **$3.9 million (53.4%) increase** in cost of goods sold, primarily due to higher royalty and depreciation expenses[122](index=122&type=chunk) - Sales and marketing expenses increased by **$22.0 million (84.2%)** due to investments in direct sales force, advertising, and commissions. General and administrative expenses rose by **$6.6 million (92.8%)** from increased headcount, business-related expenses, professional services, and rent[123](index=123&type=chunk)[125](index=125&type=chunk) - A **$4.5 million** debt extinguishment loss was recorded due to debt refinancing[128](index=128&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by $101.5 million in cash and cash equivalents and a new $150.0 million MidCap loan arrangement. Management believes these resources, along with expected revenues, are sufficient for at least the next 12 months. However, significant funding requirements are anticipated for continued investments in operations, sales, marketing, R&D, and public company expenses, which may necessitate additional financing - As of June 30, 2022, the company had **$101.5 million** in cash and cash equivalents and **$54.0 million** outstanding under MidCap term and revolving loans[130](index=130&type=chunk) - Management believes existing cash, available debt, and expected revenues will fund operations for at least the next **12 months**, but additional financing may be sought for further growth[130](index=130&type=chunk)[133](index=133&type=chunk) - Funding requirements include manufacturing costs, sales and marketing expansion, R&D for new products, general and administrative growth, and public company operating expenses[131](index=131&type=chunk)[132](index=132&type=chunk) Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------- | :------------------------------- | :------------------------------- | | Operating activities | $(17,807) | $(4,177) | | Investing activities | $(6,649) | $(866) | | Financing activities | $20,156 | $106,585 | | Net (decrease) increase in cash and cash equivalents | $(4,300) | $101,542 | [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on management's estimates and assumptions, which are based on historical experience and current events. No material changes to these critical accounting policies and estimates were reported during the six months ended June 30, 2022 - Financial statements are prepared using GAAP, requiring management to make estimates and assumptions that affect reported amounts and disclosures[142](index=142&type=chunk) - Actual results may differ materially from these estimates under different assumptions or conditions[143](index=143&type=chunk) - There have been no material changes to the critical accounting policies and estimates described in the Annual Report on Form 10-K during the six months ended June 30, 2022[144](index=144&type=chunk) [Recently Issued Accounting Pronouncements](index=27&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section refers to Note 3 of the condensed financial statements for details on new accounting pronouncements not yet adopted by the company - Information on new accounting pronouncements not yet adopted is provided in Note 3 to the condensed financial statements[145](index=145&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section assesses the company's exposure to market risks, specifically interest rate and foreign currency fluctuations, and their potential financial impact [Interest Rate Risk](index=27&type=section&id=Interest%20Rate%20Risk) The company's interest rate risk is primarily limited to its cash equivalents, which are low-yield overnight sweep investments. A hypothetical 10% change in interest rates is not expected to significantly impact the financial statements, and the company does not use financial derivatives for hedging - Interest rate risk is primarily limited to cash equivalents, which are low-yield overnight sweep investments[146](index=146&type=chunk) - A hypothetical **10% change** in interest rates is not expected to have a significant impact on the condensed financial statements[146](index=146&type=chunk) - The company does not currently use or plan to use financial derivatives in its investment portfolio[146](index=146&type=chunk) [Foreign Currency Risk](index=27&type=section&id=Foreign%20Currency%20Risk) The company conducts its business in U.S. dollars and does not have a program to hedge foreign currency exposures. Any foreign currency transactions are not expected to materially affect its financial results - The company's business is conducted in U.S. dollars, and it does not maintain a program to hedge exposures to non-U.S. dollar currencies[147](index=147&type=chunk) - Foreign currency transactions are not expected to have a material effect on the company's results of operations, financial position, or cash flows[147](index=147&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) This section evaluates the effectiveness of the company's disclosure controls and internal control over financial reporting, acknowledging inherent limitations [Evaluation of disclosure controls and procedures](index=27&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) Management, with CEO and CFO participation, evaluated the company's disclosure controls and procedures as of June 30, 2022, and concluded they are effective in providing reasonable assurance that required information is recorded, processed, summarized, and reported timely - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2022[148](index=148&type=chunk) - These controls provide reasonable assurance that required information is recorded, processed, summarized, and reported within SEC specified time periods[148](index=148&type=chunk) [Changes in internal control over financial reporting](index=27&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) No material changes in internal control over financial reporting were identified during the period covered by this Quarterly Report - No material changes in internal control over financial reporting occurred during the period covered by this Quarterly Report[149](index=149&type=chunk) [Inherent limitation on the effectiveness of internal control](index=27&type=section&id=Inherent%20limitation%20on%20the%20effectiveness%20of%20internal%20control) Management acknowledges that internal control systems, regardless of design, can only provide reasonable, not absolute, assurance against errors and fraud due to inherent limitations such as human judgment, resource constraints, circumvention, and potential deterioration over time - Control systems provide only reasonable, not absolute, assurance that objectives are met due to inherent limitations[150](index=150&type=chunk) - Limitations include faulty judgments, simple errors, circumvention by individuals or collusion, and management override[150](index=150&type=chunk)[151](index=151&type=chunk) - Controls may become inadequate over time due to changing conditions or deteriorating compliance[151](index=151&type=chunk) [Part II: Other Information](index=29&type=section&id=Part%20II%3A%20Other%20Information) This section provides additional information, including legal proceedings, risk factors, equity sales, defaults, exhibits, and executive signatures [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that would materially affect its business or results of operations, though it may be involved in ordinary course litigation from time to time - The company is not a party to any legal proceedings that would have a material effect on its business or results of operations[153](index=153&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021. These factors, or additional unknown risks, could adversely affect the business or financial results - No material changes to the risk factors disclosed in the Annual Report on Form 10-K as of March 4, 2022[154](index=154&type=chunk) - Existing or additional unknown risk factors could significantly or materially adversely affect the company's results of operations or financial conditions[154](index=154&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company had no unregistered sales of equity securities. It received net proceeds of approximately $107.6 million from its IPO on April 27, 2021, and these funds are held in a savings account, with no material change in their planned use from the original prospectus - No unregistered sales of equity securities occurred[155](index=155&type=chunk) - The company received net proceeds of approximately **$107.6 million** from its IPO on April 27, 2021[156](index=156&type=chunk) - The IPO proceeds are maintained in a savings account, and there has been no material change in their planned use[157](index=157&type=chunk) [Item 3. Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were no defaults upon senior securities[159](index=159&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[160](index=160&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - No other information is reported[161](index=161&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report, including credit and security agreements, certifications of executive officers, and Inline XBRL documents - Exhibits include Credit and Security Agreements with MidCap Financial Trust (Revolving Loan and Term Loan) dated April 29, 2022[162](index=162&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer are included pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[162](index=162&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are also filed[162](index=162&type=chunk)[163](index=163&type=chunk) [Signatures](index=31&type=section&id=Signatures) The report is duly signed on behalf of Treace Medical Concepts, Inc. by its Chief Executive Officer and Director, John T. Treace, and Chief Financial Officer, Mark L. Hair, on August 10, 2022 - The report is signed by John T. Treace, Chief Executive Officer and Director, and Mark L. Hair, Chief Financial Officer, on August 10, 2022[167](index=167&type=chunk)[168](index=168&type=chunk)

Treace Medical Concepts, Inc. (NASDAQ:TMCI) Q1 2022 Earnings Conference Call May 5, 2022 4:30 PM ET Company Participants Vivian Cervantes - Investor Relations John Treace - Chief Executive Officer Mark Hair - Chief Financial Officer Conference Call Participants Drew Ranieri - Morgan Stanley Danielle Antalffy - SVB Securities Operator Good day and thank you for standing by. Welcome to the Treace Medical Concepts’ First Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to hand th ...