Treace(TMCI) - 2022 Q2 - Quarterly Report

Special Notes Regarding Forward-Looking Statements 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] - 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] - 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] Forward-Looking Statements Disclaimer 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] - 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] - 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] Item 1. Unaudited Condensed Financial Statements 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 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 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) 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 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][135][136] - 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][138] Notes to Condensed Financial Statements 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 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] - The company completed its IPO on April 27, 2021, raising approximately $107.6 million in net proceeds[30] - 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][32] 2. Summary of Significant Accounting Policies 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][34] - Preparation of financial statements requires management to make estimates and assumptions, which may materially differ from actual results[37] - 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][40] - 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] 3. Recent Accounting Pronouncements 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] - 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][48] 4. Fair Value Measurements 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][50][51] 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][56][57] 5. Balance Sheet Components 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] 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 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][63][64] - 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] - 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] 7. Commitments and Contingencies 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][140] - 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][153] 8. Operating Leases 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] 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][75][141] 9. Stockholders' Equity 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][77] 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 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition, operational results, key business drivers, and future outlook 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][83] - Offerings expanded with the Adductoplasty™ Midfoot Correction System for hallux valgus patients[82] - 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] COVID-19 Impact and Economic Environment 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] - 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] Key Business Metrics 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] - 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] - 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] Factors Affecting Our Business 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] - 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][94][95][96] - 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] Coverage and Reimbursement 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] - Based on 2017 data, approximately 63% of Lapidus cases and 60% of all bunion surgical cases were paid by private payors[98] - 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] Components of Our Results of Operations 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] - Cost of goods sold includes manufacturing costs, royalties, allocated overhead, shipping, and personnel costs, with adjustments for excess and obsolete inventories[103] - 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][106][107][108] - 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][103][104][105][106][107] Results of Operations 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 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] - 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][114] - 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][117] - A $4.5 million debt extinguishment loss was recognized due to debt refinancing[120] Comparison of the six months ended June 30, 2022 and 2021 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] - 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] - 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][125] - A $4.5 million debt extinguishment loss was recorded due to debt refinancing[128] Liquidity and Capital Resources 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] - 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][133] - Funding requirements include manufacturing costs, sales and marketing expansion, R&D for new products, general and administrative growth, and public company operating expenses[131][132] 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 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] - Actual results may differ materially from these estimates under different assumptions or conditions[143] - 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] Recently Issued Accounting Pronouncements 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] Item 3. Quantitative and Qualitative Disclosure About Market Risk 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 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] - A hypothetical 10% change in interest rates is not expected to have a significant impact on the condensed financial statements[146] - The company does not currently use or plan to use financial derivatives in its investment portfolio[146] Foreign Currency Risk 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] - Foreign currency transactions are not expected to have a material effect on the company's results of operations, financial position, or cash flows[147] Item 4. Controls and Procedures 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 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] - These controls provide reasonable assurance that required information is recorded, processed, summarized, and reported within SEC specified time periods[148] Changes in internal control over financial reporting 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] Inherent limitation on the effectiveness of internal control 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] - Limitations include faulty judgments, simple errors, circumvention by individuals or collusion, and management override[150][151] - Controls may become inadequate over time due to changing conditions or deteriorating compliance[151] Part II: Other Information This section provides additional information, including legal proceedings, risk factors, equity sales, defaults, exhibits, and executive signatures Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - Existing or additional unknown risk factors could significantly or materially adversely affect the company's results of operations or financial conditions[154] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - The company received net proceeds of approximately $107.6 million from its IPO on April 27, 2021[156] - The IPO proceeds are maintained in a savings account, and there has been no material change in their planned use[157] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[159] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[160] Item 5. Other Information No other information is reported under this item - No other information is reported[161] Item 6. Exhibits 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] - 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] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are also filed[162][163] 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][168]