Treace(TMCI) - 2022 Q3 - Quarterly Report

Part I: Financial Information This section provides the company's financial statements and related disclosures for the period ended September 30, 2022 Financial Statements 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 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 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) 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 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 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] - 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][30] - 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][57] - 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][64] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] 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 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][112][119] Liquidity and Capital Resources 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] - Management believes existing cash, available debt, and expected revenues are sufficient to fund operations for at least the next twelve months[121] - 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][127] - 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] Quantitative and Qualitative Disclosure About Market Risk 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] - The company does not have material foreign currency risk as its business is conducted in U.S. dollars[140] Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[143] Part II: Other Information This section covers other required disclosures, including legal proceedings, risk factors, equity sales, and various other items Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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][151] Other Items (3, 4, 5, 6) 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] - Item 4: Mine safety disclosures are not applicable[154] - Item 6: The report lists several exhibits, including amendments to credit agreements and certifications by the CEO and CFO[156]