Treace(TMCI) - 2023 Q3 - Quarterly Report

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