SEC Form 10-Q filed by Treace Medical Concepts Inc.

0."333

 

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 September 30, 2024

 

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)

 

Delaware	47-1052611
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 Palmetto Park Place

Ponte Vedra, Florida 32081

(Address of principal executive offices, including zip code)

(904) 373-5940

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	TMCI	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, 2024, 62,297,078 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

 

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TREACE MEDICAL CONCEPTS, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024

 

Table of Contents

 

Special Note Regarding Forward-Looking Statements	1

 

Part I: Financial Information

Item 1.	Condensed Financial Statements	3
	Condensed Balance Sheets	3
	Condensed Statements of Operations and Comprehensive Loss	4
	Condensed Statements of Stockholders' Equity	5
	Condensed Statements of Cash Flows	6
	Notes to Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

 

	Part II: Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
	Signatures	28

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

As used in this Quarterly Report on Form 10-Q ("Quarterly Report"), unless expressly indicated or the context otherwise requires, references to "Treace Medical Concepts," "we," "us," "our," or the "Company," refer to Treace Medical Concepts, Inc. This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "assume," "believe," "contemplate," "continue," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "seek," "should," "slated," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

These forward-looking statements include, but are not limited to, statements about:

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We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management's beliefs and assumptions, and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors many of which are beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2023 and any subsequent Quarterly Reports on Form 10-Q filed with the U.S. Securities and Exchange Commission ("SEC"), and this Quarterly Report under "Risk Factors" and elsewhere in this Quarterly Report. Readers are urged to consider these factors carefully in evaluating the forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with the SEC as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Financial Statements.

TREACE MEDICAL CONCEPTS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

		September 30,				December 31,
		2024				2023
Assets
Current assets
Cash and cash equivalents		$	12,110			$	12,982
Marketable securities, short-term			70,689				110,216
Accounts receivable, net of allowance for credit losses of $743 and $980 as of September 30, 2024 and December 31, 2023, respectively			24,177				38,063
Inventories			43,611				29,245
Prepaid expenses and other current assets			7,015				7,853
Total current assets			157,602				198,359
Property and equipment, net			25,168				22,298
Intangible assets, net of accumulated amortization of $1,188 and $475 as of September 30, 2024 and December 31, 2023, respectively			8,312				9,025
Goodwill			12,815				12,815
Operating lease right-of-use assets			8,569				9,264
Other non-current assets			458				146
Total assets		$	212,924			$	251,907
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	18,649			$	11,835
Accrued liabilities			8,098				10,458
Accrued commissions			5,347				10,759
Accrued compensation			5,598				7,549
Other liabilities			571				4,432
Total current liabilities			38,263				45,033
Long-term debt, net of discount of $769 and $992 as of September 30, 2024 and December 31, 2023, respectively			53,231				53,008
Operating lease liabilities, net of current portion			16,487				15,891
Other long-term liabilities			37				37
Total liabilities			108,018				113,969
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.001 par value, 5,000,000 shares authorized as of September 30, 2024 and December 31, 2023; 0 shares issued and outstanding as of September 30, 2024 and December 31, 2023			—				—
Common stock, $0.001 par value, 300,000,000 shares authorized; 62,294,975 and 61,749,654 issued, and 62,275,371 and 61,749,654 outstanding as of September 30, 2024 and December 31, 2023, respectively			62			62
Additional paid-in capital			294,392				271,973
Accumulated deficit			(189,489	)			(134,247	)
Accumulated other comprehensive (loss) income			191				163
Treasury stock, at cost; 19,604 and 1,218 shares as of September 30, 2024 and December 31, 2023, respectively			(250	)			(13	)
Total stockholders’ equity			104,906				137,938
Total liabilities and stockholders’ equity		$	212,924			$	251,907

The accompanying notes are an integral part of these condensed financial statements.

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2024				2023				2024				2023
Revenue		$	45,086			$	40,758			$	140,649			$	124,906
Cost of goods sold			8,954				7,998				27,862				23,712
Gross profit			36,132				32,760				112,787				101,194
Operating expenses
Sales and marketing			32,775				33,542				110,784				100,970
Research and development			4,963				4,350				15,379				11,288
General and administrative			13,528				12,686				42,108				33,582
Total operating expenses			51,266				50,578				168,271				145,840
Loss from operations			(15,134	)			(17,818	)			(55,484	)			(44,646	)
Interest income			1,067				1,570				3,978				5,017
Interest expense			(1,313	)			(1,296	)			(3,942	)			(3,863	)
Other income, net			20				23				206				246
Other non-operating income (expense), net			(226	)			297				242				1,400
Net loss		$	(15,360	)		$	(17,521	)		$	(55,242	)		$	(43,246	)
Other comprehensive income (loss)
Unrealized gain (loss) on marketable securities			217				71				28				(121	)
Comprehensive loss		$	(15,143	)		$	(17,450	)		$	(55,214	)		$	(43,367	)
Net loss per share, basic and diluted		$	(0.25	)		$	(0.28	)		$	(0.89	)		$	(0.71	)
Weighted-average shares used in computing net loss per share, basic and diluted			62,229,463				61,562,494				62,035,293				60,566,655

The accompanying notes are an integral part of these condensed financial statements.

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

 

																	Accumulated
									Additional								Other								Total
	Common Stock								Paid-In				Accumulated				Comprehensive				Treasury				Stockholders’
	Outstanding Shares				Amount				Capital				Deficit				Income (Loss)				Stock				Equity
Balances at December 31, 2023		61,749,654			$	62			$	271,973			$	(134,247	)		$	163			$	(13	)		$	137,938
Issuance of common stock upon exercise of stock options		20,294				—				52				—				—				—				52
Issuance of common stock for vesting of restricted stock units		177,610				—				—				—				—				—				—
Share-based compensation expense		—				—				7,408				—				—				—				7,408
Net loss		—				—				—				(18,676	)			—				—				(18,676	)
Unrealized loss on available-for-sale marketable securities		—				—				—				—				(94	)			—				(94	)
Shares directly withheld from employees for tax payment		(18,386	)			—				—				—				—				(237	)			(237	)
Balances at March 31, 2024		61,929,172			$	62			$	279,433			$	(152,923	)		$	69			$	(250	)		$	126,391
Issuance of common stock upon exercise of stock options		209,288				—				311				—				—				—				311
Issuance of common stock for vesting of restricted stock units		36,781				—				—				—				—				—				—
Share-based compensation expense		—				—				6,740				—				—				—				6,740
Net loss		—				—				—				(21,206	)			—				—				(21,206	)
Unrealized loss on available-for-sale marketable securities		—				—				—				—				(95	)			—				(95	)
Balances at June 30, 2024		62,175,241			$	62			$	286,484			$	(174,129	)		$	(26	)		$	(250	)		$	112,141
Issuance of common stock upon exercise of stock options		35,371				—				8				—				—				—				8
Issuance of common stock for vesting of restricted stock units		64,759				—				—				—				—				—				—
Share-based compensation expense		—				—				7,900				—				—				—				7,900
Net loss		—				—				—				(15,360	)			—				—				(15,360	)
Unrealized gain on available-for-sale marketable securities		—				—				—				—				217				—				217
Balances at September 30, 2024		62,275,371			$	62			$	294,392			$	(189,489	)		$	191			$	(250	)		$	104,906
Balances at December 31, 2022		55,628,208			$	55			$	145,221			$	(84,720	)		$	(27	)		$	—			$	60,529
Issuance of common stock upon exercise of stock options		125,890				—				352				—				—				—				352
Issuance of common stock for vesting of restricted stock units		50,415				—				—				—				—				—				—
Share-based compensation expense		—				—				2,692				—				—				—				2,692
Issuance of common stock from public offering, net of issuance costs and underwriting discount of $7.5 million		5,476,190				6				107,521				—				—				—				107,527
Net loss		—				—				—				(13,454	)			—				—				(13,454	)
Unrealized loss on available-for-sale marketable securities		—				—				—				—				(29	)			—				(29	)
Balances at March 31, 2023		61,280,703			$	61			$	255,786			$	(98,174	)		$	(56	)		$	—			$	157,617
Issuance of common stock upon exercise of stock options		205,244				1				1,179				—				—				—				1,180
Issuance of common stock for vesting of restricted stock units		42,462				—				—				—				—				—				—
Share-based compensation expense		—				—				3,596				—				—				—				3,596
Net loss		—				—				—				(12,271	)			—				—				(12,271	)
Unrealized loss on available-for-sale marketable securities		—				—				—				—				(163	)			—				(163	)
Balances at June 30, 2023		61,528,409			$	62			$	260,561			$	(110,445	)		$	(219	)		$	—			$	149,959
Issuance of common stock upon exercise of stock options		46,001				—				159				—				—				—				159
Issuance of common stock for vesting of restricted stock units		32,516				—				—				—				—				—				—
Share-based compensation expense		—				—				5,192				—				—				—				5,192
Net loss		—				—				—				(17,521	)			—				—				(17,521	)
Unrealized gain on available-for-sale marketable securities		—				—				—				—				71				—				71
Balances at September 30, 2023		61,606,926			$	62			$	265,912			$	(127,966	)		$	(148	)		$	—			$	137,860

The accompanying notes are an integral part of these condensed financial statements.

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

		Nine Months Ended September 30,
		2024				2023
Cash flows from operating activities
Net loss		$	(55,242	)		$	(43,246	)
Adjustments to reconcile net loss to net cash used in operating    activities
Depreciation and amortization expense			6,182				3,583
Provision for allowance for credit losses			2,381				79
Share-based compensation expense			22,048				11,480
Non-cash lease expense			607				1,868
Amortization of debt issuance costs			223				223
Accretion (amortization) of discount (premium) on marketable securities, net			(918	)			(1,031	)
Other, net			180				164
Net changes in operating assets and liabilities, net of acquisitions
Accounts receivable			11,505				4,121
Inventory			(14,366	)			(9,915	)
Prepaid expenses and other assets			838				(1,028	)
Other non-current assets			(312	)			—
Operating lease liabilities			(147	)			497
Accounts payable			6,814				12
Accrued liabilities			(12,753	)			(1,954	)
Other, net			—				40
Net cash provided by (used in) operating activities			(32,960	)			(35,107	)
Cash flows from investing activities
Purchases of available-for-sale marketable securities			(52,890	)			(140,075	)
Sales and maturities of available-for-sale marketable securities			93,363				82,979
Purchases of property and equipment			(8,519	)			(9,210	)
Acquisition, net of cash acquired			—				(20,000	)
Net cash provided by (used in) investing activities			31,954				(86,306	)
Cash flows from financing activities
Proceeds from issuance of common stock from public offering, net of issuance costs and underwriting discount of $7.5 million			—				107,527
Proceeds from exercise of employee stock options			371				1,691
Taxes from withheld shares			(237	)			—
Net cash provided by (used in) financing activities			134				109,218
Net increase (decrease) in cash and cash equivalents			(872	)			(12,195	)
Cash and cash equivalents at beginning of period			12,982				19,473
Cash and cash equivalents at end of period		$	12,110			$	7,278
Supplemental disclosure of cash flow information
Cash paid for interest		$	3,732			$	3,863
Operating lease right-of-use asset and lease liability adjustment due to lease incentive		$	88			$	(22	)
Noncash investing activities
Unrealized (gains) losses, net on marketable securities		$	(28	)		$	121
Unsettled marketable security purchase and payable to broker		$	—			$	(1,100	)
Unsettled matured marketable security and receivable from broker		$	—			$	6,000

The accompanying notes are an integral part of these condensed financial statements.

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TREACE MEDICAL CONCEPTS, INC.

Notes to Condensed Financial Statements

(unaudited)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes thereto included in this Quarterly Report on Form 10-Q (this "Quarterly Report") and our audited financial statements and related notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission ("SEC") on February 27, 2024 (our "Annual Report"). This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report under "Part I, Item 1A—Risk Factors," and in the section titled "Risk Factors" and elsewhere in this Quarterly Report. Please also see the section of this Quarterly Report titled "Special Note Regarding Forward-Looking Statements."

Overview

We are a medical technology company with the goal of advancing the standard of care for the surgical management of bunion and related midfoot deformities. We have pioneered our proprietary Lapiplasty 3D Bunion Correction System—a combination of instruments, implants and surgical methods designed to surgically correct all three planes of the bunion deformity and secure the unstable joint, addressing the root cause of the bunion and helping patients get back to their active lifestyles. Although bunions are deformities typically caused by an unstable joint in the middle of the foot that leads to a three-dimensional ("3D") misalignment in the foot's anatomical structure, the majority of traditional surgical approaches focus on correcting the deformity from a two-dimensional ("2D") perspective and therefore fail to address the root cause of the disorder. To effectively restore the normal anatomy of bunion patients and improve clinical outcomes, we believe addressing the root cause of the bunion is critical and have developed the Lapiplasty System to correct the deformity across all three anatomic dimensions. Our other products often used in conjunction with bunion surgery include the Adductoplasty System, the Hammertoe PEEK Fixation System, the SpeedPlate™ Rapid Compression Implant System, and specialized osteotomes and release instruments. In addition, we recently announced our entrance into the metatarsal osteotomy segment with the Nanoplasty™ Procedure, which allows for a 3D correction of the bunion through a cosmetically appealing, hidden incision on the side of the foot. With the Lapiplasty and Nanoplasty Procedures and other new products, we are continuing to execute our strategy of becoming a comprehensive bunion solutions company and supporting further penetration into the bunion market opportunity. See the Innovation and Growth section below for more information on our new products.

We were formed in 2013, and since receiving 510(k) clearance for the Lapiplasty System in March 2015, we have sold more than 100,000 Lapiplasty Procedure kits in the United States. We market and sell our Lapiplasty Systems to physicians, surgeons, ambulatory surgery centers and hospitals. The Lapiplasty Procedure can be performed in either hospital outpatient or ambulatory surgery centers settings, and utilizes existing, well-established reimbursement codes. We currently market and sell the Lapiplasty System and other products through a combination of a direct employee sales force and independent sales agencies across the United States.

As of September 30, 2024, we had cash and cash equivalents of $12.1 million and marketable securities of $70.7 million available for sale to fund operations, an accumulated deficit of $189.5 million and $54.0 million of principal outstanding under our term loan and revolving loan agreements.

Economic Environment

There is continuing uncertainty in the macro-economic environment. Inflationary pressures, interest rate changes, recession fears and reduced consumer confidence may continue to result, in higher costs and potentially reduced demand for our procedure kits and other products. General economic conditions may also negatively impact demand for elective surgeries. While we continuously work with suppliers to mitigate higher costs and longer lead times and continue to invest in our direct sales channel, patient education initiatives, clinical evidence and product innovations to build demand for our products, we expect these macro-economic challenges to continue for the foreseeable future, which likely will impact our results of operations.

Factors Affecting Our Business

We believe that our financial performance has been and in the foreseeable future, will continue to depend on many factors, including the macro-economic conditions as described above, those noted in our Annual Report, in the section titled "Special

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Note Regarding Forward-Looking Statements" and in the section titled "Risk Factors" and elsewhere in this Quarterly Report.

Increased Competition

Before we launched our flagship Lapiplasty system, there were no other products in the market that provided a 3D solution and specialized procedural instrumentation for these traditionally freehand, difficult Lapidus surgeries, which allowed us to capitalize on our pioneering technology and grow our market share quickly. We are experiencing increased competition from the accelerating adoption of minimally invasive osteotomy solutions and from new Lapidus products, which has, and may continue to, negatively impact our growth rates and market share.

Innovation and Growth

We expect to continue to focus on long-term revenue growth through investments in our business and new products. In sales and marketing, we have dedicated meaningful resources and believe that we have built a sales force and management team that can support our future growth as well as our patient focused outreach and education campaigns.

In research and development, our team and surgeon consultants are continually working on next-generation innovations for the surgical correction of bunions and other conditions that often present with bunions. In 2023, in addition to the acquisition of the assets of RPM-3D, we began the market release of (1) the SpeedPlate fixation platform, which can be used in the Lapiplasty and Adductoplasty Procedures, as well as other common bone fusion procedures of the foot, (2) the Hammertoe PEEK Fixation System designed to address hammertoe, claw toe and mallet toe deformities, which often present concomitantly with bunions, and (3) LapiTome and RazorTome Osteotomes, which are sterile, single-use instruments that are designed to facilitate more efficient removal and release of bone slices and soft tissue in Lapiplasty and Adductoplasty cases.

We expect to introduce new products on a steady cadence through 2025, including launching the limited market releases of the following new products during the fourth quarter of 2024 or soon thereafter: (1) the Nanoplasty™ system, a minimally invasive 3D osteotomy system, (2) IntelliGuide™ PSI Cut Guides for Lapiplasty and Adductoplasty procedures, which are cut guides created specifically for an individual patient’s foot anatomy, (3) expanded SpeedPlate configurations designed to address additional fusion procedures throughout the foot, (4) the Micro-Lapiplasty system, which is designed to allow the Lapiplasty Procedure to be performed through a minimally-invasive 2cm incision; and (5) the Mini-Adductoplasty System, which is designed to allow the Adductoplasty midfoot correction procedure to be performed through an approximately 50% smaller incision.

Intellectual Property Strategy

We actively seek to protect the technology, inventions, and improvements that we consider important to our business using patents, trade secrets, trademarks and copyrights in the United States and foreign markets. As of September 30. 2024, our patent portfolio included 65 granted U.S. patents, with an additional 24 granted patents worldwide and over 100 pending patent applications. In keeping with our strategy of protecting our intellectual property rights, on October 14, 2024, we filed a lawsuit against Stryker Corporation ("Stryker") and its subsidiary Wright Medical Technology, Inc. alleging infringement of 9 patents related to our innovative Lapiplasty® 3D Bunion Correction® technologies and unfair competition. The suit was filed in the United States District Court for the District of New Jersey, and seeks injunctive relief and damages.

Adoption of the Lapiplasty System and other products

The growth of our business depends on our ability to gain broader acceptance of the Lapiplasty System as well as our other existing products and the new systems that we intend to introduce by successfully marketing and distributing these products. While surgeon adoption of the Lapiplasty Procedure and our other products and procedures remains critical to supporting procedure growth, hospital and ambulatory surgery center facility approvals are necessary for both existing and future surgeon customers to access our products. To facilitate greater access to our products and support future sales growth, we intend to continue educating hospitals and facility administrators on the differentiated benefits associated with the Lapiplasty System as well as new systems we plan to introduce, supported by our robust portfolio of clinical data on our existing procedures and additional clinical data we expect to develop on our new products. If we are unable to successfully continue to commercialize our Lapiplasty System and to successfully introduce new products, we may not be able to generate sufficient revenue to achieve or sustain profitability. In the near term, we expect we will continue to operate at a loss, and we anticipate we will finance our operations principally through the use of our cash and cash equivalents, marketable securities, and expected revenues. We may also raise funds by incurring debt and through offerings of our capital stock.

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Seasonality

We have experienced and expect to continue to experience seasonality in our business, with higher sales volumes in the fourth calendar quarter, historically accounting for approximately 30% to 40% of full year revenues, and lower sales volumes in the subsequent first calendar quarter. Our sales volumes in the fourth quarter tend to be higher as many patients elect to have surgery after meeting their annual deductible and having time to recover over the winter holidays. Our sales volumes in subsequent first calendar quarters also tend to be lower versus the prior year fourth quarters as a result of adverse weather and by resetting annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures; however, in some years the first quarter may benefit from additional sales volumes when high patient demand for surgeries in the fourth quarter cannot be fully accommodated and those surgical procedures are rolled over into the first quarter. Similar to the rest of the orthopaedic industry, we have experienced and expect to continue to experience lower sales volumes in the third quarter than throughout the rest of the year as elective procedures generally decline during the summer months.

Coverage and Reimbursement

Hospitals, ambulatory surgery centers and surgeons that purchase or use our products generally rely on third-party payors to reimburse for all or part of the costs and fees associated with procedures using our products. As a result, sales of our products depend, in part, on the extent to which the procedures using our products are covered by third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs. Based on historical claims data from 2017, approximately 63% of Lapidus cases and 60% of all bunion surgical cases were paid by private payors.

Medicare payment rates to hospital outpatient departments are set under the Medicare hospital outpatient prospective payment system, which groups clinically similar hospital outpatient procedures and services with similar costs to ambulatory payment classifications ("APCs"). Each APC is assigned a single lump sum payment rate, which includes payment for the primary procedure as well as any integral, ancillary, and adjunctive services. The primary current procedure terminology ("CPT") codes for the Lapiplasty Procedure, CPT 28297 and CPT 28740, are grouped together under APC 5114. For Lapiplasty Procedures in which fusion is performed on multiple tarsometatarsal ("TMT") joints, CPT 28730 applies and is classified under APC 5115. For Adductoplasty Procedures in which fusion is performed on multiple TMT joints, either CPT 28730 or CPT 27835 applies and are classified under APC 5115.

Components of Our Results of Operations

Revenue

We currently generate revenue from the sale of our proprietary Lapiplasty System and the minimally invasive variations, Adductoplasty System, Hammertoe PEEK Fixation System, SpeedPlate Implant Fixation Platform, single use osteotomes and release instruments, and other ancillary products. These systems bring together single-use implant kits, reusable instrument trays, and surgical techniques. We sell the kits and single use instruments and other products to physicians, surgeons, hospitals and ambulatory surgery centers in the United States through a network of employee sales representatives and independent sales agencies.

No single customer accounted for 10% or more of our revenue during the nine months ended September 30, 2024. We expect our revenue to increase in absolute dollars in the foreseeable future as we expand our product offerings, sales territories, new accounts and trained physician base and as existing physician customers perform more Lapiplasty and other procedures using our products, though it may fluctuate from quarter to quarter due to a variety of factors, including seasonality, the macro-economic environment and competition.

Cost of Goods Sold

Cost of goods sold consists primarily of costs for the purchase of our products from third-party manufacturers. Direct costs from our third-party manufacturers include costs for raw materials plus the markup for the assembly of the components. Cost of goods sold also includes royalties, allocated overhead for indirect labor, certain direct costs such as those incurred for shipping our products, sterilization, packaging, and personnel costs. We expense all inventory provisions for excess, obsolete and field losses as cost of goods sold. We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. We expect our cost of goods sold to increase in absolute dollars in the foreseeable future to the extent more of our products are sold, though it may fluctuate from quarter to quarter.

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Gross Profit and Gross Margin

We calculate gross profit as revenue less cost of goods sold, and gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily average selling prices, production, and ordering volumes, change in mix of customers, third-party manufacturing costs and cost-reduction strategies. We expect our gross profit to increase in the foreseeable future as our revenue grows, though our gross margin may fluctuate from quarter to quarter due to changes in average selling prices as we introduce new products, and as we adopt new manufacturing processes and technologies.

Operating Expenses

Sales and Marketing

Sales and marketing expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, sales commissions and share-based compensation, related to selling and marketing functions, surgical instrument expense, physician education programs, training, shipping costs related to sending products to our sales representatives, travel expenses, marketing initiatives including our direct-to-patient outreach program and advertising, market research and analysis and conferences and trade shows.

Research and Development

Research and development ("R&D") expenses consist primarily of engineering, product development, clinical studies to develop and support our products, regulatory expenses, and other costs associated with products and technologies that are in development. These expenses include compensation for personnel, including salaries, bonuses, benefits and share-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation, and an allocation of facility overhead expenses. We expect R&D expenses to continue to increase in absolute dollars in the foreseeable future as we continue to hire personnel and invest in next-generation innovations of the Lapiplasty System and other products, though it may fluctuate from quarter to quarter due to a variety of factors, including the level and timing of our new product development efforts, as well as our clinical development, clinical studies and other related activities.

General and Administrative

General and administrative expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, and share-based compensation, related to finance, information technology, legal and human resource functions, as well as professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses and allocated facilities-related expenses. We have the infrastructure and personnel in place to support the growth of our organization.

Interest Income

Interest income consists of interest received on our money market funds and marketable securities.

Interest Expense

Interest expense consists of interest incurred and amortization of debt discount and issuance costs related to outstanding borrowings.

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Results of Operations

Comparison of the three and nine months ended September 30, 2024 and 2023

The following table summarizes our results of operations for the periods presented below ($ in thousands):

 

		Three Months Ended September 30,								Change						Nine Months Ended September 30,								Change
		2024				2023				Amount				%		2024				2023				Amount				%
Revenue		$	45,086			$	40,758			$	4,328			10.6%		$	140,649			$	124,906			$	15,743			12.6%
Cost of goods sold			8,954				7,998				956			12.0%			27,862				23,712				4,150			17.5%
Gross profit			36,132				32,760				3,372			10.3%			112,787				101,194				11,593			11.5%
Operating expenses
Sales and marketing			32,775				33,542				(767	)		(2.3%)			110,784				100,970				9,814			9.7%
Research and development			4,963				4,350				613			14.1%			15,379				11,288				4,091			36.2%
General and administrative			13,528				12,686				842			6.6%			42,108				33,582				8,526			25.4%
Total operating expenses			51,266				50,578				688			1.4%			168,271				145,840				22,431			15.4%
Loss from operations			(15,134	)			(17,818	)			2,684			(15.1%)			(55,484	)			(44,646	)			(10,838	)		24.3%
Interest income			1,067				1,570				(503	)		(32.0%)			3,978				5,017				(1,039	)		(20.7%)
Interest expense			(1,313	)			(1,296	)			(17	)		1.3%			(3,942	)			(3,863	)			(79	)		2.0%
Other income, net			20				23				(3	)		(13.0%)			206				246				(40	)		(16.3%)
Other non-operating income (expense), net			(226	)			297				(523	)		(176.1%)			242				1,400				(1,158	)		(82.7)%
Net loss		$	(15,360	)		$	(17,521	)		$	2,161			(12.3%)		$	(55,242	)		$	(43,246	)		$	(11,996	)		27.7%

Comparison of the three months ended September 30, 2024 and 2023

Revenue. Revenue increased by $4.3 million, or 10.6%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase was driven primarily by a product mix shift that resulted from increased adoption of newer technologies and increased sales of ancillary products used in bunion cases and an increase in active surgeons.

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $1.0 million, or 12.0%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase in cost of goods sold was primarily due to a $0.6 million increase in direct costs of goods sold resulting from increased sales, a $0.3 million increase in inventory provisions, and a $0.2 million increase in allocations of payroll and related costs. During the three months ended September 30, 2024, gross profit increased by $3.4 million, or 10.3%, as compared to the same period in 2023, due to increased revenue from a product mix shift. Gross profit margin for the three months ended September 30, 2024 decreased from 80.4% to 80.1%, as compared to the same period in 2023, primarily due to increases in inventory provisions, a product mix shift to newer products, and allocations of payroll and related costs, partially offset by lower royalty rates.

Sales and Marketing Expenses. Sales and marketing expenses decreased by $0.8 million, or 2.3%, for the three months ended September 30, 2024 as compared to the same period in 2023. Sales and marketing expenses decreased due to $0.9 million lower advertising fees for direct to consumer campaigns, a $0.5 million decrease in surgeon training and clinical-related expenses, a $0.3 million decrease in professional services related to marketing, and a decrease of $0.3 million due to lower costs for conferences and events, partially offset by an increase of $0.6 million in commissions due to higher sales, an increase of $0.4 million in surgical instrument expense due to an increase in volume of surgical instruments, and $0.3 million in higher payroll and related expenses primarily from increased headcount of sales and marketing personnel, including stock compensation expense.

Research and Development Expenses. R&D expenses increased by $0.6 million, or 14.1%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase in R&D expenses was primarily due to a $1.1 million increase in payroll and related costs resulting from increased headcount of research and development personnel, including stock compensation expense, partially offset by a $0.4 million decrease in healthcare professional costs for R&D activities.

General and Administrative Expenses. General and administrative expenses increased by $0.8 million, or 6.6%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was due to $1.5 million in higher payroll and related cost, due to higher stock compensation expense, a $0.6 million increase in professional services primarily related to legal fees, and a $0.2 million increase in the provision for allowance for

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credit losses partially offset by a decrease of $1.5 million in compensation expense related to the milestone obligations for our acquisition of RPM-3D that were fully expensed in the second quarter of 2024.

Interest Income. Interest income decreased $0.5 million, or 32.0%, during the three months ended September 30, 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period and slightly lower interest rates.

Comparison of the nine months ended September 30, 2024 and 2023

Revenue. Revenue increased by $15.7 million, or 12.6%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase was driven primarily by a product mix shift that resulted from increased adoption of newer technologies and increased sales of ancillary products used in bunion cases and an increase in active surgeons.

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $4.2 million, or 17.5%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase in cost of goods sold was primarily due to a $3.0 million increase in direct costs of goods sold resulting from increased sales, a $0.7 million increase in allocations of payroll and related costs, and a $0.5 million increase in inventory provisions. During the nine months ended September 30, 2024, gross profit increased by $11.6 million, or 11.5%, as compared to the same period in 2023, due to increased sales. Gross profit margin for the nine months ended September 30, 2024 decreased from 81.0% to 80.2%, as compared to the same period in 2023, primarily due to a product mix shift to newer products, an increase in inventory provisions, and an increase in allocations of payroll and related costs, partially offset by lower royalty rates.

Sales and Marketing Expenses. Sales and marketing expenses increased by $9.8 million, or 9.7%, for the nine months ended September 30, 2024 as compared to the same period in 2023. Sales and marketing expenses increased due to $8.6 million in higher payroll and related expenses primarily from increased headcount of sales and marketing personnel, including stock compensation expense, an increase of $1.4 million in surgical instrument expense due to an increase in the volume of surgical instruments, a $1.1 million increase in commissions due to higher sales, and an increase of $0.5 million due to higher costs for conferences and events from an expanding sales force and surgeon base, partially offset by a decrease of $1.0 million in surgeon training and clinical-related costs and a decrease of $0.8 million in advertising fees for direct to consumer campaigns. Of the $8.6 million increase in payroll and related expenses, $0.9 million was related to a non-recurring restructuring charge that includes severance and other post-employment benefits.

Research and Development Expenses. R&D expenses increased by $4.1 million, or 36.2%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase in R&D expenses was primarily due to a $3.8 million increase in payroll and related costs resulting from increased headcount of research and development personnel, including stock compensation expense, and a $0.4 million increase related to the technological advancements milestone obligation from our acquisition of RPM-3D.

General and Administrative Expenses. General and administrative expenses increased by $8.5 million, or 25.4%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was primarily related to $6.2 million in higher payroll and related costs, due to higher stock compensation expense, a $2.3 million increase in the provision for allowance for credit losses that includes a $2.1 million write-off of receivables due from a customer that filed bankruptcy in the second quarter, and a $0.5 million increase in amortization of finite-lived intangible assets from our acquisition of RPM-3D, partially offset by a $0.5 million decrease in compensation expense related to the milestone obligations for our acquisition of RPM-3D that was fully expensed in the second quarter of 2024.

Interest Income. Interest income decreased $1.0 million, or 20.7%, during the nine months ended September 30, 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period and slightly lower interest rates.

Liquidity and Capital Resources

Overview

Before our IPO, our primary sources of capital were private placements of common stock and convertible preferred stock, debt financing agreements and revenue from the sale of our products. In April 2021, we received net proceeds of $107.6 million from our IPO. On February 10, 2023, we received net proceeds of $107.5 million from a follow-on public offering of our common stock.

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As of September 30, 2024, we had cash and cash equivalents of $12.1 million and marketable securities of $70.7 million available for sale, an accumulated deficit of $189.5 million and $54.0 million principal outstanding under the term and revolving loans with MidCap. We believe that our existing cash and cash equivalents, marketable securities and available debt borrowings and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least twelve months from the issuance of our condensed financial statements. We may be required or decide to raise additional debt or equity financing to support further growth of our operations.

Funding Requirements

We use our cash, marketable securities, and revenues to fund our operations, which primarily include the costs of manufacturing our Lapiplasty, Adductoplasty, SpeedPlate, and other products, as well as our sales and marketing, R&D, and general and administrative expenses. We expect R&D expenses to increase as we continue to hire personnel and invest in next-generation innovations of our existing products and new products. The timing and amount of our operating and capital expenditures will depend on many factors, including:

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities, and available debt borrowings will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong or that may change in the future, and we could utilize our available capital resources sooner than we expect. We may seek to raise any necessary additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these or other funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts, sales and marketing initiatives, or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of

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insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.

Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below (in thousands):

 

		Nine Months Ended September 30,
		2024				2023
Net cash (used in) provided by:
Operating activities		$	(32,960	)		$	(35,107	)
Investing activities			31,954				(86,306	)
Financing activities			134				109,218
Net increase (decrease) in cash and cash equivalents		$	(872	)		$	(12,195	)

Cash Flows from Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2024 was $33.0 million, consisting primarily of a net loss of $55.2 million, adjusted for non-cash charges of $30.6 million and an increase in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $22.0 million, depreciation and amortization expense of $6.2 million, and provision for allowance for credit losses of $2.4 million primarily due to a significant customer that filed for bankruptcy. The increase in net operating assets was primarily due to an increase of $14.4 million in inventories to meet demand for new products and a decrease of $12.8 million in accrued liabilities due to timing of payments, and an increase of $0.3 million in other non-current assets, partially offset by a $11.5 million decrease in accounts receivable from higher sales in the fourth quarter of 2023, an increase of $6.8 million in accounts payable due to timing of payments, and a $0.8 million decrease in prepaid expenses and other current assets.

Net cash used in operating activities for the nine months ended September 30, 2023 was $35.1 million, consisting primarily of a net loss of $43.2 million, adjusted for non-cash charges of $16.4 million and an increase in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $11.5 million, depreciation and amortization expense of $3.6 million and non-cash lease expense of $1.9 million, partially offset by amortization and accretion of marketable securities of $1.0 million. The increase in net operating assets was primarily due to an increase of $9.9 million in inventories for added safety stock to meet demand for new products and to avoid potential supply chain issues, an increase of $1.0 million in prepaid expenses and other assets (excluding unsettled securities transactions) and a decrease of $2.0 million in accrued liabilities, which were partially offset by a $4.1 million decrease in accounts receivable from higher sales in the fourth quarter of 2022 and a $0.5 million increase to operating lease liabilities primarily due to timing of lease incentives. The decrease of $2.0 million in accrued liabilities consisted of a decrease of $3.8 million due to timing of payments, offset by an increase of $1.8 million due to increased accrued compensation expense related to our acquisition of RPM-3D in the second quarter 2023.

Cash Flows from Investing Activities

Net cash provided by investing activities was $32.0 million for the nine months ended September 30, 2024, consisting primarily of $93.4 million in sales and maturities of available for sale marketable securities, partially offset by $52.9 million in purchases of available for sale marketable securities and $8.5 million in purchases of property and equipment. The net of marketable securities sales and maturities and purchases of $40.5 million were primarily used to fund our current operations. The purchases in property and equipment included $6.7 million in capitalized surgical instruments for the reusable instrument trays related to new products, and $1.8 million for equipment and leasehold improvements to support the growth of our business.

Net cash used in investing activities was $86.3 million for the nine months ended September 30, 2023, consisting primarily of $140.1 million in purchases of marketable securities available for sale, $20.0 million for the acquisition of the RPM-3D assets, and $9.2 million in purchases of property and equipment, partially offset by $83.0 million in sales and maturities of marketable securities available for sale. The purchases of marketable securities were the result of cash invested from our public offering of common stock during the first quarter of 2023. The purchases in property and equipment were $3.6 million in capitalized surgical instruments for our reusable instrument trays and $5.6 million for furniture, equipment, and leasehold improvements to continue to complete our new corporate headquarters.

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Cash Flows from Financing Activities

Net cash provided by financing activities was $0.1 million for the nine months ended September 30, 2024, consisting primarily of $0.4 million in proceeds from stock option exercises, partially offset by $0.2 million of shares repurchased for tax withholding on vested RSUs.

Net cash provided in financing activities was $109.2 million for the nine months ended September 30, 2023, consisting primarily of $107.5 million of net cash proceeds from our public offering of common stock and $1.7 million from exercise of stock options.

Royalty Agreements

We recognized royalty expense of $1.4 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $4.7 million for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024 and 2023, the aggregate royalty rate was 3.2% and 3.8%, respectively. For the nine months ended September 30, 2024 and 2023, the aggregate royalty rate was 3.3% and 3.8%, respectively. Each of the royalty agreements with our surgeon consultants prohibits the payment of royalties on products sold to entities and/or individuals with whom any of the surgeon advisors is affiliated.

Operating Lease

We have commitments for future payments related to our corporate headquarters office located in Ponte Vedra, Florida. We entered into a 10-year lease in February 2022 for our headquarters which expires in July 2032. Lease payments comprise the base rent plus operating costs which includes taxes, insurance, and common area maintenance. We also have commitments for future payments related to our former headquarters which expire in April 2026. We have obtained subleases for this space. The remaining lease obligations are $24.3 million under these leases as of September 30, 2024.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

Goodwill

Our annual impairment testing date is July 1, 2024. We determined after performing the qualitative analysis that there was no evidence that it is more likely than not that the fair value of goodwill was less than the carrying amount. Therefore, it was not necessary to perform a quantitative impairment test. As of September 30, 2024 and December 31, 2023 goodwill was $12.8 million.

Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report. There had been no material changes to these accounting policies during the nine months ended September 30, 2024.

Recently Issued Accounting Pronouncements

Refer to Note 3, "Recent Accounting Pronouncements" of the Notes to Condensed Financial Statements for new accounting pronouncements not yet adopted as of this Quarterly Report.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Our primary market risk exposures are interest rate and credit risk.

Interest Rate Risk

The primary objectives of our investment activities are to preserve principal and provide liquidity. Since our investments may be used to fund operations, we performed sensitivity testing which measures the impact on the fair market value of the investments if a hypothetical 50 basis points increase and decrease in interest rates occurred. The interest rate risk analysis assumes using an immediate and parallel shift in interest rates.

The following table presents our estimate of the impact on fair value based on the scenario discussed above (in thousands):

 

September 30, 2024
		Change in fair value
Fair value of marketable securities		Down 50 bps		Up 50 bps
$78,464		$162		($165)

Under our current outstanding debt terms, we do not have a risk to rising interest rates as the interest rates are capped at 9% for the term debt and 7% for the revolving loan facility. If a 194-basis point decrease in the 30-day forward looking secured overnight financing rate occurred, we would start to experience a reduction in our interest rate expense from current levels.

Credit Risk

We manage our credit risk within the available-for-sale securities portfolio by maintaining a well-diversified investment portfolio that limits the investments to certain types of investments, such as U.S. Treasury and agency securities, money market funds, commercial paper, Yankee CDs, and high credit quality asset-backed securities and corporate debt securities. In addition, the overall portfolio requires a maximum portfolio duration of one year.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur

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because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any legal proceedings which we believe would have a material adverse effect on our business or results of operations. From time to time, we may become involved in various legal proceedings that arise in the ordinary course of our business.

On October 14, 2024, we filed a lawsuit against Stryker Corporation and its subsidiary Wright Medical Technology, Inc. alleging infringement of 9 patents related to our innovative Lapiplasty® 3D Bunion Correction® technologies and unfair competition. The suit was filed in the United States District Court for the District of New Jersey, and seeks injunctive relief and damages.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K under "Part I, Item 1A—Risk Factors" for the year ended December 31, 2023, filed with the SEC on February 27, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number		Description
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1†		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2†		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Filed herewith.
†	The certifications attached as Exhibit 32.1 and 32.2 to this Quarterly Report are deemed furnished and not filed with the U.S. Securities and Exchange Commission and are not to be incorporated by reference into any filing of Treace Medical Concepts, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in such filing.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Treace Medical Concepts, Inc.
Date: November 5, 2024		By:		/s/ John T. Treace
				Name:	John T. Treace
				Title:	Chief Executive Officer (Principal Executive Officer)
Date: November 5, 2024		By:		/s/ Mark L. Hair
				Name:	Mark L. Hair
				Title:	Chief Financial Officer (Principal Financial Officer)

 

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