0."333
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark one)
For the quarterly period ended
or
For the transition period from___ to___
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(
(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 |
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.
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).
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.
☒ |
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,
TREACE MEDICAL CONCEPTS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
Table of Contents
1 |
Part I: Financial Information
Item 1. |
3 |
|
|
3 |
|
|
4 |
|
|
5 |
|
|
6 |
|
|
7 |
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
16 |
Item 3. |
25 |
|
Item 4. |
25 |
|
第二部分：其他信息 |
|
項目1。 |
27 |
|
項目1A。 |
27 |
|
事項二 |
27 |
|
第3項。 |
27 |
|
事項4。 |
27 |
|
項目5。 |
27 |
|
項目6。 |
27 |
|
|
28 |
有關前瞻性聲明之特別說明
在本季度10-Q表（「季度報告」）中使用的術語，除非明確指示或上下文另有要求，否則對「Treace Medical Concepts」，「我們」，「我們的」，「公司」均指Treace Medical Concepts，Inc。本季度報告包含根據1995年《私有證券訴訟改革法案》第二十七A條（作爲修訂版的證券法）和1934年《證券交易所法案》第二十一E節（作爲修訂版的證券交易所法案）中的規定，有關我們業務、運營和財務表現和狀況的前瞻性聲明，以及我們業務、運營和財務表現和狀況的計劃、目標和預期。任何在此處包含的非歷史事實陳述可能被視爲前瞻性陳述。在某些情況下，您可以通過類似於「預測」，「假設」，「相信」，「思考」，「繼續」，「可能」，「估計」，「期望」，「目標」，「打算」，「可能」，「客觀」，「計劃」，「預測」，「潛力」，「定位」，「尋求」，「應該」，「安排」，「目標」，「將」，「將」諸如此類的術語來識別前瞻性陳述，這些術語預示着未來事件和未來趨勢，或這些術語的否定或其他可比較的術語。
這些前瞻性陳述包括但不限於以下方面:
1
我們認爲將我們未來的預期與投資者進行溝通是非常重要的。然而，未來可能會發生我們無法準確預測或控制的事件，這可能導致我們的實際結果與我們在前瞻性聲明中描述的預期有實質性差異。這些前瞻性聲明是基於管理層對我們業務和我們所在行業的當前預期、估計、預測和投影，以及管理層的信念和假設，不是未來業績或發展的保證，並涉及已知和未知的風險、不確定性和其他因素，其中很多因素超出了我們的控制範圍。因此，本季度報告中的任何或全部前瞻性聲明可能會被證明是不準確的。導致實際結果與當前預期有實質性差異的因素包括，但不限於《2023年12月31日結束的年度報告》和我們向美國證券交易委員會（"SEC"）提交的任何後續季度報告的 "Risk Factors"，以及本季度報告其他地方。我們敦促讀者在評估前瞻性聲明時仔細考慮這些因素。
這些前瞻性陳述僅適用於本季度報告的日期。除非法律要求，我們不承擔更新或修訂這些前瞻性陳述的義務，即使將來有新信息可用。您不應將前瞻性陳述視爲未來事件的預測。儘管我們相信前瞻性陳述中反映的期望是合理的，但我們不能保證前瞻性陳述所反映的未來結果、活動水平、表現或事件和情況將會實現或發生。我們不承擔公開更新任何前瞻性陳述的義務，無論是在本季度報告的日期之後還是爲了符合這些陳述與實際結果或我們的期望變化。如果我們更新一個或多個前瞻性陳述，不應推斷我們將對這些或其他前瞻性陳述進行其他更新。
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.
2
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, |
|
|
12月31日, |
|
||
|
|
2024 |
|
|
2023 |
|
||
資產 |
|
|
|
|
|
|
||
流動資產 |
|
|
|
|
|
|
||
現金及現金等價物 |
|
$ |
|
|
$ |
|
||
短期可交易證券 |
|
|
|
|
|
|
||
應收賬款，減去2024年4月30日和2024年1月31日的信用損失準備，分別爲 |
|
|
|
|
|
|
||
存貨 |
|
|
|
|
|
|
||
預付費用和其他流動資產 |
|
|
|
|
|
|
||
總流動資產 |
|
|
|
|
|
|
||
資產和設備，淨值 |
|
|
|
|
|
|
||
無形資產淨額（攤銷數累計$89.5） |
|
|
|
|
|
|
||
商譽 |
|
|
|
|
|
|
||
經營租賃權使用資產 |
|
|
|
|
|
|
||
其他非流動資產 |
|
|
|
|
|
|
||
資產總額 |
|
$ |
|
|
$ |
|
||
負債和股東權益 |
|
|
|
|
|
|
||
流動負債 |
|
|
|
|
|
|
||
應付賬款 |
|
$ |
|
|
$ |
|
||
應計負債 |
|
|
|
|
|
|
||
應計佣金 |
|
|
|
|
|
|
||
應計的薪資 |
|
|
|
|
|
|
||
其他負債 |
|
|
|
|
|
|
||
流動負債合計 |
|
|
|
|
|
|
||
長期負債，淨額爲$ |
|
|
|
|
|
|
||
經營租賃負債，淨值超過流動資產 |
|
|
|
|
|
|
||
其他長期負債 |
|
|
|
|
|
|
||
負債合計 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
股東權益 |
|
|
|
|
|
|
||
優先股，$0.0001 |
|
|
|
|
|
|
||
普通股，每股面值爲 $0.0001； |
|
|
|
|
|
|||
額外實收資本 |
|
|
|
|
|
|
||
累積赤字 |
|
|
( |
) |
|
|
( |
) |
已實現其他綜合收益 (損失) |
|
|
|
|
|
|
||
即期收購庫藏股；截至2022年9月25日，共計157,773股，截至2022年6月26日，共計157,087股。 |
|
|
( |
) |
|
|
( |
) |
股東權益總額 |
|
|
|
|
|
|
||
負債和股東權益總額 |
|
$ |
|
|
$ |
|
||
附註是這份基本報表的一個組成部分。
3
TREACE醫療概念股份有限公司
Operat 的簡要陳述離子和綜合損失
(以千爲單位，除每股數據外)
(未經審計)
|
|
截至9月30日的三個月 |
|
|
截至9月30日的九個月 |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
收入 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
售出商品的成本 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
毛利潤 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
運營費用 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
銷售和營銷 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
研究和開發 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
一般和行政 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
運營費用總額 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
運營損失 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
利息收入 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
利息支出 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
其他收入，淨額 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
其他非營業收入（支出），淨額 |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
淨虧損 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
其他綜合收益（虧損） |
|
|
|
|
|
|
|
|
|
|
|
|
||||
有價證券的未實現收益（虧損） |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
綜合損失 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
基本和攤薄後的每股淨虧損 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
用於計算基本和攤薄後每股淨虧損的加權平均股數 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
附註是這份基本報表的一個組成部分。
4
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 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Issuance of common stock upon exercise of stock options |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for vesting of restricted stock units |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Unrealized loss on available-for-sale marketable securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Shares directly withheld from employees for tax payment |
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balances at March 31, 2024 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Issuance of common stock upon exercise of stock options |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for vesting of restricted stock units |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Unrealized loss on available-for-sale marketable securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balances at June 30, 2024 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Issuance of common stock upon exercise of stock options |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for vesting of restricted stock units |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Unrealized gain on available-for-sale marketable securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balances at September 30, 2024 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balances at December 31, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Issuance of common stock upon exercise of stock options |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for vesting of restricted stock units |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of common stock from public offering, net of issuance costs and underwriting discount of $ |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Unrealized loss on available-for-sale marketable securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balances at March 31, 2023 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Issuance of common stock for vesting of restricted stock units |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Unrealized loss on available-for-sale marketable securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balances at June 30, 2023 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Issuance of common stock upon exercise of stock options |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock for vesting of restricted stock units |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share-based compensation expense |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net loss |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Unrealized gain on available-for-sale marketable securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balances at September 30, 2023 |
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
The accompanying notes are an integral part of these condensed financial statements.
5
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 |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating |
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
|
|
|
|
||
Provision for allowance for credit losses |
|
|
|
|
|
|
||
Share-based compensation expense |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Accretion (amortization) of discount (premium) on marketable securities, net |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
|
|
|
|
||
Net changes in operating assets and liabilities, net of acquisitions |
|
|
|
|
|
|
||
Accounts receivable |
|
|
|
|
|
|
||
Inventory |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Other non-current assets |
|
|
( |
) |
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
|
|
|
|
Accounts payable |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
|
|
|
|
||
Net cash provided by (used in) operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchases of available-for-sale marketable securities |
|
|
( |
) |
|
|
( |
) |
Sales and maturities of available-for-sale marketable securities |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Acquisition, net of cash acquired |
|
|
|
|
|
( |
) |
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of common stock from public offering, net of issuance costs and underwriting discount of $ |
|
|
|
|
|
|
||
Proceeds from exercise of employee stock options |
|
|
|
|
|
|
||
Taxes from withheld shares |
|
|
( |
) |
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Operating lease right-of-use asset and lease liability adjustment due to lease incentive |
|
$ |
|
|
$ |
( |
) |
|
Noncash investing activities |
|
|
|
|
|
|
||
Unrealized (gains) losses, net on marketable securities |
|
$ |
( |
) |
|
$ |
|
|
Unsettled marketable security purchase and payable to broker |
|
$ |
|
|
$ |
( |
) |
|
Unsettled matured marketable security and receivable from broker |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed financial statements.
6
TREACE MEDICAL CONCEPTS, INC.
Notes to Condensed Financial Statements
(unaudited)
1. Formation and Business of the Company
The Company
Treace Medical Concepts, LLC was formed on
Initial Public Offering and Follow-on Offering
On April 27, 2021, the Company completed its initial public offering ("IPO"). The Company received net proceeds of $
Acquisition of RedPoint Medical3D
On June 12, 2023 (the "closing date"), the Company acquired certain assets of MIOS Marketing, LLC d/b/a RedPoint Medical3D ("RPM-3D"), a medical technology company offering pre-operative planning and patient-specific guides designed to deliver accurate surgical correction of deformities tailored to the patient's unique foot anatomy. RPM-3D's 22 patent applications further expanded and reinforced the Company's global intellectual property portfolio covering technologies for the correction of bunion and related deformities.
The Company paid $
In the first quarter of 2024, the Company and RPM-3D evaluated the status of the
2. Summary of Significant Accounting Policies
The Company prepared the unaudited interim condensed financial statements included in this report in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC") related to quarterly reports on Form 10-Q.
Basis of Presentation
The condensed financial statements have been prepared on the same basis as the Company’s annual financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on
7
February 27, 2024. The condensed financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending December 31, 2024.
Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates ("ASU") of the Financial Accounting Standards Board ("FASB").
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.
Significant estimates and assumptions include valuation of intangible assets and goodwill, reserves and write-downs related to accounts receivable, inventories, the recoverability of long-term assets, deferred tax assets and related valuation allowances, contingencies, and stock-based compensation. The Company had
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents, marketable securities, and accounts receivable. The Company maintains its cash with established financial institutions and, at times, such balances with any one financial institution may be in excess of the Federal Deposit Insurance Corporation ("FDIC") insured limits. The Company's available-for-sale securities portfolio primarily consists of U.S. treasury and agency securities, money market funds, commercial paper, Yankee CDs, high credit quality asset-backed securities and corporate debt securities. The Company's investment policy requires its available-for-sale securities to meet certain criteria including investment type, credit ratings, and a maximum portfolio duration of one year.
The Company earns revenue from the sale of its products to customers such as hospitals and ambulatory surgery centers. The Company’s accounts receivable is derived from revenue earned from customers. On September 30, 2024 and December 31, 2023, no customer accounted for more than
3. Recent Accounting Pronouncements
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) ("ASC 280"). The update requires all public business entities to identify their reportable segments, including the basis of organization, types of products and services from which each reportable segment derives its revenues, and the title and position of the individual or the name of the group or committee identified as the chief operating decision maker ("CODM") and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Public entities shall disclose on an annual and interim basis for each reportable segment including entities that only have one reportable segment, certain significant expense categories and amounts that are regularly provided to the CODM and included in reported segment profit or loss. ASC 280 is applied retrospectively to all prior periods presented in the financial statements. This new guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the new standard on its financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) ("ASC 740"). The update requires all public business entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold and an explanation, if not otherwise evident, of the individual reconciling items disclosed, such as the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items. In addition, the update requires certain new disclosures of the amount of
8
income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid (net of refunds received). Other new disclosures required include income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. The new guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments are to be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the impact of the new standard on its financial statements and related disclosures.
4. Fair Value Measurements
Assets and liabilities recorded at fair value in the condensed financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3—Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis – The following assets and liabilities are measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):
|
|
September 30, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Short-term marketable securities at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury and government agencies |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Corporate debt |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Asset-backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Yankee CD |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Short-term marketable securities at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury and government agencies |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Commercial paper |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Corporate debt |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Asset-backed securities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Yankee CD |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Total liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
9
The carrying amounts of the Company's money market funds classified as cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate their fair value due to the short-term nature of these assets and liabilities. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the debt approximates fair value.
The Company's available-for-sale securities portfolio may consist of investments in U.S. treasury and government agency securities, commercial paper, corporate debt securities, asset-backed securities, and Yankee CDs. Yankee CDs are certificates of deposit issued in the United States by a branch of a foreign bank and are denominated in U.S. dollars. The fair value of Level 1 securities is determined on trade prices in active markets for identical assets. The fair value of Level 2 securities is determined using valuation models using inputs that are observable either directly or indirectly, such as quoted prices for similar assets, interest rates, yield curves, credit spreads, default rates, loss severity, broker and dealer quotes, as well as other relevant economic measures. The Level 3 contingent consideration was recorded at fair value on the date of the acquisition and thereafter based on the consideration expected to be transferred on the projected payment date estimated as the probability weighted future cash flows, discounted back to the present value. This calculation uses unobservable inputs that reflect the Company's own assumptions as to the ability of the acquired business to meet the targeted benchmarks and the discount rate used in the determination of fair value.
Fair value as of December 31, 2023 |
|
$ |
|
|
Change in fair value prior to contract modification |
|
|
|
|
Reclassification of contingent consideration due to contract modification |
|
|
( |
) |
Fair value as of September 30, 2024 |
|
$ |
|
Contingent consideration is included in other liabilities on the Condensed Balance Sheets. As of December 31, 2023, the balance was classified as current due to the timing of the expected payment. The change in fair value for the contingent consideration related to the technological advancements milestone payment was classified as research and development expense within the Condensed Statements of Operations and Comprehensive Loss.
During the first quarter of 2024, the Company renegotiated with RPM-3D the terms for payment of the technological advancements milestone that was initially accounted for as contingent consideration. The renegotiated contract specifies that the technological advancements milestone payment will not be paid unless the transition services milestone is achieved. The technological advancements milestone payment is now tied to the continued service of key individuals from the date of the new contract until the transition services milestone determination date (which is the first anniversary date of the acquisition). Therefore, the Company is no longer accounting for the technological advancements milestone payment as contingent consideration at fair value, but rather as research and development expense over the remaining service period. The Company expects to pay the full amount for the technological advancements milestone of $
There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023.
5. Balance Sheet Components
Cash and Cash Equivalents
The Company’s cash and cash equivalents consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Cash |
|
$ |
|
|
$ |
|
||
Cash equivalents: |
|
|
|
|
|
|
||
Money market funds |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
$ |
|
|
$ |
|
||
10
Marketable Securities
The Company's available-for-sale marketable securities consisted of the following (in thousands):
|
|
September 30, 2024 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
Marketable securities - short-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury and government agencies |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Corporate debt |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Yankee CD |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total marketable securities - short-term |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
Marketable securities - short-term |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury and government agencies |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Asset-backed securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Yankee CD |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total marketable securities - short-term |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
As of September 30, 2024, there were no available-for-sale securities with unrealized losses greater than 12 months. There was not an allowance for credit losses required for available-for-sale securities as of September 30, 2024 and December 31, 2023.
As of September 30, 2024, the Company had no plans to sell securities with unrealized losses, and believes it is more likely than not that it would not be required to sell such securities before recovery of their amortized cost. For the three and nine months ended September 30, 2024 and 2023, there were no material gains or losses from sales of available-for-sale securities.
As of September 30, 2024 and December 31, 2023, accrued interest of $
As of September 30, 2024, all marketable securities mature within two years, except for asset-backed securities. Asset-backed securities are not due at a single maturity date. As such, these securities were not included.
11
Property and equipment, net
The Company’s property and equipment, net consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Furniture and fixtures |
|
$ |
|
|
$ |
|
||
Construction in progress |
|
|
|
|
|
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Capitalized surgical equipment1 |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Software and website development |
|
|
|
|
|
|
||
Total property and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
1 Capitalized surgical equipment includes $
Depreciation and amortization expense on property and equipment was $
The Company did
Accrued liabilities
Accrued liabilities consist of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Accrued royalties expense |
|
$ |
|
|
$ |
|
||
Accrued interest |
|
|
|
|
|
|
||
Accrued professional services |
|
|
|
|
|
|
||
Accrued compensation expense for RPM-3D earn-out |
|
|
|
|
|
|
||
Other accrued expense |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
||
Other liabilities
Other liabilities consist of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
$ |
|
|
$ |
|
|||
Contingent consideration |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other liabilities |
|
$ |
|
|
$ |
|
||
Due to renegotiated terms, the Company is no longer classifying the technological advancements milestone as contingent consideration. See discussion of RPM-3D renegotiation in Note 4, "Fair Value Measurements" of the Notes to Condensed Financial Statements.
12
6. Long-Term Debt
The Company’s long-term debt consisted of the following (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Revolving line of credit |
|
|
|
|
|
|
||
MidCap revolving loan facility |
|
$ |
|
|
$ |
|
||
Term loans |
|
|
|
|
|
|
||
MidCap term loan facility |
|
|
|
|
|
|
||
Total term and revolving loans |
|
|
|
|
|
|
||
Less: debt discount and issuance costs |
|
|
( |
) |
|
|
( |
) |
Total long-term debt, net |
|
$ |
|
|
$ |
|
||
As of September 30, 2024, future payments of long-term debt were as follows (in thousands):
Fiscal Year |
|
|
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Total principal payments |
|
|
|
|
Less: Unamortized debt discount and debt issuance costs |
|
|
( |
) |
Total long-term debt, net |
|
$ |
|
|
MidCap Loan and Revolving Loan Facility
On April 29, 2022, the Company entered into a
The term loan facility provides for a 60-month term loan up to $
The revolving loan facility provides up to $
13
The loans are secured by substantially all of the Company’s assets, including intellectual property. The loan agreements and other ancillary documents contain customary representations and warranties and affirmative and negative covenants. Under the loan agreements, the Company is not required to meet any minimum level of revenue if liquidity (defined as unrestricted cash plus undrawn availability under the revolving loan agreement) is greater than the outstanding balance under the term loan. If liquidity falls below such outstanding balance, then the Company is subject to a minimum trailing twelve-month revenue covenant. The Company is not subject to this covenant on September 30, 2024.
7. Commitments and Contingencies
License and Royalty Commitments
The Company has entered into product development and fee for service agreements with members of its Surgeon Advisory Board and other surgeon consultants that specify the terms under which the consultant is compensated for his or her consulting services and grants the Company rights to the intellectual property created by the consultant in the course of such services. As products are commercialized with the assistance of members of the Surgeon Advisory Board and other surgeon consultants, the Company may agree to enter into a royalty agreement if such consultant's contributions to the product are novel, significant and innovative. Each of the royalty agreements may be subsequently amended to add the license of additional intellectual property covering new products, and as a result, multiple royalty rates and duration of royalty payments may be included in one royalty agreement.
As of September 30, 2024 and 2023, the Company has royalty agreements with certain surgeon consultants. The Company recognized royalty expense of $
Contingencies
From time to time, the Company may be a party to various litigation claims in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. The Company assesses, in conjunction with legal counsel, the need to record a liability for litigation and contingencies. Accrual estimates are recorded when and if it is determinable that such a liability for litigation and contingencies are both probable and reasonably estimable. There were
8. Stockholders’ Equity
Stock Options
During the nine months ended September 30, 2024 and 2023, the Company granted stock options to employees to purchase
Restricted Stock Units
During the nine months ended September 30, 2024 and 2023, the Company granted
Performance Share Units
The Company granted performance-based restricted stock unit ("PSU") awards in the first quarter of 2024 subject to market and service vesting conditions to certain executives under the Company's 2021 Incentive Award Plan. The actual number of PSUs that will vest at the end of the measurement period is determined based on the Company's total stockholder return ("TSR") ranking relative to the TSR of a published index of the Company's peers. The measurement period is
14
During the nine months ended September 30, 2024 and 2023, the Company granted performance stock units ("PSUs") for
Share-Based Compensation Expense
Share-based compensation expense is reflected in operating expenses in the Condensed Statements of Operations and Comprehensive Loss as follows (in thousands):
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Cost of goods sold |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales and marketing expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders which is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common stock outstanding, |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an antidilutive impact due to the Company’s net loss, in common stock equivalent shares:
|
|
As of September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Common stock options issued and outstanding |
|
|
|
|
|
|
||
Unvested full value awards |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
15
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
16
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.
17
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.
18
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.
19
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
20
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.
21
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
22
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.
23
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.
24
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
25
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.
26
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.
Item 6. Exhibits.
Exhibit Number |
|
Description |
31.1* |
|
|
31.2* |
|
|
32.1† |
|
|
32.2† |
|
|
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. |
27
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) |
|
28