10-Q 1 tmci-20240331.htm 10-Q 10-Q
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"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 March 31, 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 May 1, 2024, 62,008,135 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

 

 


 

TREACE MEDICAL CONCEPTS, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

 

Table of Contents

 

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 (Deficit)

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 Disclosure About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

Part II: Other Information

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

26

 

Signatures

28

 

 


 

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," "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:

the expected use of our products by physicians;
the expected growth of our business and our organization;
the extensive competition in our industry and new product introductions from other industry participants, both in the Lapidus market and the minimally invasive osteotomy market;
our ability to effectively respond to and mitigate the impact of challenges in the current market environment, including in response to increased competition;
the anticipated pace of growth in the foot and ankle market and our ability to increase our market share;
our ability to control and reduce expenses to help offset potential changes in revenue growth rates and other events;
our ability to maintain sufficient balance sheet strength and flexibility to continue executing on our strategic investments and growth initiatives for the foreseeable future;
our plans and expected timeline related to our products, or developing or acquiring new products, to address additional indications or otherwise;
our anticipated future product launches and the timing and market acceptance of such product launches;
expected seasonality;
our expectations regarding government and third-party payor coverage and reimbursement;
the economic success and viability of the hospitals, ambulatory surgery centers and other health care facilities and surgeons that use our products;
the impact of a bankruptcy filing by any of our customers;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;
our expected uses of our existing cash, cash equivalents and marketable securities and the sufficiency of such resources to fund our planned operations;
our ability to retain and recruit key personnel, including the continued development of a sales and marketing infrastructure;
our ability to obtain an adequate supply of materials and components for our products from our third-party suppliers, some of which are single-source suppliers;
our ability to obtain and maintain intellectual property protection for our products;
our ability to protect and enforce our intellectual property, and the time and expense involved in monitoring unauthorized uses of our intellectual property;

1


 

our ability to successfully defend against infringement of our intellectual property by third parties, including our competitors;
our ability to accurately forecast our future results of operations and financial goals or targets, including as a result of fluctuations in demand for our products and increased competition;
our ability to realize the anticipated benefits of our acquisitions, including the acquisition of MIOS Marketing, LLC d/b/a RedPoint Medical3D ("RPM-3D") assets, as rapidly or to the extent anticipated, if at all;
our ability to obtain, maintain and expand regulatory clearances for our products and any new products we develop or acquire;
our ability to expand our business in current and new geographic markets;
our compliance with Nasdaq requirements and government laws, rules and regulations;
the impact of inflationary pressures, interest rate changes, and general economic conditions on our business;
the impact of geopolitical tensions and international conflicts on the economy and our business;
our plans to conduct further clinical studies;
the impact of failures, defaults or instability of financial institutions where we have cash accounts; and
the effect of any infectious disease outbreak and its impact or potential impact on our business.

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. Our stockholders 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.

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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,334

 

 

$

12,982

 

Marketable securities, short-term

 

 

100,672

 

 

 

110,216

 

Accounts receivable, net of allowance for doubtful accounts of $1,076 and $980 as of March 31, 2024 and December 31, 2023, respectively

 

 

30,083

 

 

 

38,063

 

Inventories

 

 

35,860

 

 

 

29,245

 

Prepaid expenses and other current assets

 

 

11,448

 

 

 

7,853

 

Total current assets

 

 

187,397

 

 

 

198,359

 

Property and equipment, net

 

 

24,517

 

 

 

22,298

 

Intangible assets, net of accumulated amortization of $713 and $475 as of March 31, 2024 and December 31, 2023, respectively

 

 

8,787

 

 

 

9,025

 

Goodwill

 

 

12,815

 

 

 

12,815

 

Operating lease right-of-use assets

 

 

9,064

 

 

 

9,264

 

Other non-current assets

 

 

146

 

 

 

146

 

Total assets

 

$

242,726

 

 

$

251,907

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

21,149

 

 

$

11,835

 

Accrued liabilities

 

 

15,155

 

 

 

10,458

 

Accrued commissions

 

 

5,527

 

 

 

10,759

 

Accrued compensation

 

 

4,196

 

 

 

7,549

 

Other liabilities

 

 

1,022

 

 

 

4,432

 

Total current liabilities

 

 

47,049

 

 

 

45,033

 

Long-term debt, net of discount of $917 and $992 as of March 31, 2024 and December 31, 2023, respectively

 

 

53,083

 

 

 

53,008

 

Operating lease liabilities, net of current portion

 

 

16,166

 

 

 

15,891

 

Other long-term liabilities

 

 

37

 

 

 

37

 

Total liabilities

 

 

116,335

 

 

 

113,969

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 shares authorized; 61,948,776 and 61,749,654 issued, and 61,929,172 and 61,749,654 outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

62

 

 

62

 

Additional paid-in capital

 

 

279,433

 

 

 

271,973

 

Accumulated deficit

 

 

(152,923

)

 

 

(134,247

)

Accumulated other comprehensive (loss) income

 

 

69

 

 

 

163

 

Treasury stock, at cost; 19,604 and 1,218 shares as of March 31, 2024 and December 31, 2023, respectively

 

 

(250

)

 

 

(13

)

Total stockholders’ equity

 

 

126,391

 

 

 

137,938

 

Total liabilities and stockholders’ equity

 

$

242,726

 

 

$

251,907

 

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

3


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$

51,108

 

 

$

42,195

 

Cost of goods sold

 

 

10,127

 

 

 

8,039

 

Gross profit

 

 

40,981

 

 

 

34,156

 

Operating expenses

 

 

 

 

 

 

Sales and marketing

 

 

40,328

 

 

 

33,655

 

Research and development

 

 

5,259

 

 

 

3,412

 

General and administrative

 

 

14,362

 

 

 

10,865

 

Total operating expenses

 

 

59,949

 

 

 

47,932

 

Loss from operations

 

 

(18,968

)

 

 

(13,776

)

Interest income

 

 

1,535

 

 

 

1,479

 

Interest expense

 

 

(1,317

)

 

 

(1,285

)

Other income, net

 

 

74

 

 

 

128

 

Other non-operating income (expense), net

 

 

292

 

 

 

322

 

Net loss

 

$

(18,676

)

 

$

(13,454

)

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

(94

)

 

 

(29

)

Comprehensive loss

 

$

(18,770

)

 

$

(13,483

)

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.30

)

 

$

(0.23

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

 

61,792,788

 

 

 

58,723,760

 

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

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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

5


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(18,676

)

 

$

(13,454

)

Adjustments to reconcile net loss to net cash used in operating
   activities

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,909

 

 

 

924

 

Provision for allowance for doubtful accounts

 

 

159

 

 

 

38

 

Share-based compensation expense

 

 

7,408

 

 

 

2,692

 

Non-cash lease expense

 

 

592

 

 

 

626

 

Amortization of debt issuance costs

 

 

75

 

 

 

74

 

Recovery of loss reserve for surgical instruments

 

 

 

 

 

(23

)

Accretion (amortization) of discount (premium) on marketable securities, net

 

 

(335

)

 

 

(297

)

Other, net

 

 

90

 

 

 

 

Net changes in operating assets and liabilities, net of acquisitions

 

 

 

 

 

 

Accounts receivable

 

 

7,821

 

 

 

3,793

 

Inventory

 

 

(6,615

)

 

 

(3,189

)

Prepaid expenses and other assets

 

 

(1,495

)

 

 

(963

)

Other non-current assets

 

 

 

 

 

(69

)

Payable to broker for unsettled marketable security purchases

 

 

 

 

 

710

 

Operating lease liabilities

 

 

(657

)

 

 

(478

)

Accounts payable

 

 

9,314

 

 

 

(3,592

)

Accrued liabilities

 

 

(6,918

)

 

 

(4,076

)

Other, net

 

 

107

 

 

 

25

 

Net cash used in operating activities

 

 

(7,221

)

 

 

(17,259

)

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of available-for-sale marketable securities

 

 

(28,711

)

 

 

(99,550

)

Sales and maturities of available-for-sale marketable securities

 

 

36,396

 

 

 

20,548

 

Purchases of property and equipment

 

 

(3,927

)

 

 

(1,478

)

Net cash provided by (used in) investing activities

 

 

3,758

 

 

 

(80,480

)

 

 

 

 

 

 

 

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 and $10.6 million

 

 

 

 

 

107,527

 

Proceeds from exercise of employee stock options

 

 

52

 

 

 

352

 

Taxes from withheld shares

 

 

(237

)

 

 

 

Net cash provided by (used in) financing activities

 

 

(185

)

 

 

107,879

 

Net increase (decrease) in cash and cash equivalents

 

 

(3,648

)

 

 

10,140

 

Cash and cash equivalents at beginning of period

 

 

12,982

 

 

 

19,473

 

Cash and cash equivalents at end of period

 

$

9,334

 

 

$

29,613

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

1,317

 

 

$

1,285

 

Operating lease right-of-use asset and lease liability adjustment due to lease incentive

 

$

 

 

$

(35

)

Noncash investing activities

 

 

 

 

 

 

Unrealized (gains) losses, net on marketable securities

 

$

94

 

 

$

29

 

Unsettled matured marketable security and receivable from broker

 

$

2,100

 

 

$

 

The accompanying notes are an integral part of these 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 July 29, 2013, as a Florida limited liability company. Effective July 1, 2014, the entity converted to a Delaware corporation and changed its name to Treace Medical Concepts, Inc. (the "Company"). The Company is a medical technology company with the goal of advancing the standard of care for the surgical management of bunion and related midfoot deformities. The Company received 510(k) clearance for the Lapiplasty System in March 2015 and began selling its surgical medical devices in September 2015. The Company has pioneered the 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. In addition, the Company offers advanced instrumentation and implants for use in other procedures performed in high frequency with bunion surgery. The Company operates from its corporate headquarters located in Ponte Vedra, Florida.

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 $107.6 million from the IPO. On February 10, 2023, the Company completed a follow-on offering that resulted in net proceeds of $107.5 million.

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 expand and reinforce the Company's global intellectual property portfolio covering technologies for the correction of bunion and related deformities.

The Company paid $20.0 million in exchange for certain assets used in providing pre-operative planning and patient-specific guides for the surgical correction of foot and ankle deformities and agreed to make additional payments upon completion of certain milestones. The original terms are as follows: $3.5 million upon completion of certain transition services at 12 months from the closing date, $3.5 million upon completion of certain technological advancements milestone within 12 months of the closing date, and, subject to prior completion of the transition services and the technological advancements milestone, up to $3.0 million upon the issuance of certain patent claims. Payments made for the transition services and patent claims require satisfaction of such milestones, as well as the continued service of key individuals.

In the first quarter of 2024, the Company and RPM-3D evaluated the status of the three milestones and amended the original terms associated with the milestone payments. The maximum amount to be paid upon the achievement of the milestone payments has been reduced from $10.0 million to $8.1 million and is subject to successful completion of the transition services milestone at the first anniversary date of the acquisition. Upon successful completion of the transition services milestone, the payments are scheduled as follows: $6.0 million on July 15, 2024 and $2.1 million on January 15, 2025. No milestone payments would be made if the transition services milestone is not achieved by the acquisition anniversary date.

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 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 three months ended March 31, 2024 are

7


 

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 no accrued contingent liabilities as of March 31, 2024 and December 31, 2023.

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 and cash equivalents balances 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. If any of the financial institutions where the Company holds deposits were to fail or be taken over by the FDIC, its access to these accounts could be temporarily unavailable or permanently lost for the amounts in excess of the FDIC insured limits. The Company did not have material cash deposits in excess of the FDIC insured limits at March 31, 2024.

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 March 31, 2024 and December 31, 2023, no customer accounted for more than 10% of accounts receivable. For the three months ended March 31, 2024 and 2023, there were no customers that represented 10% or more of revenue.

 

Accounts receivable as of March 31, 2024 includes $2.0 million, prior to an allowance for credit losses, due from a customer that has filed for bankruptcy in May 2024. The Company is assessing the impact of the bankruptcy filing related to this accounts receivable and its relationship with this customer. While the Company maintains an allowance for doubtful accounts, there can be no assurance that this receivable will be timely collected, if at all, or that the current allowance for doubtful accounts will be adequate to offset the credit risk related to this matter, and no assurance that the Company will have an ongoing relationship with this customer.

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

8


 

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 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 March 31, 2024 and December 31, 2023 (in thousands):

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

4,562

 

 

$

 

 

$

 

 

$

4,562

 

Short-term marketable securities at fair value

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agencies

 

 

19,779

 

 

 

5,275

 

 

 

 

 

 

25,054

 

Commercial paper

 

 

 

 

 

1,933

 

 

 

 

 

 

1,933

 

Corporate debt

 

 

 

 

 

44,486

 

 

 

 

 

 

44,486

 

Asset-backed securities

 

 

 

 

 

23,042

 

 

 

 

 

 

23,042

 

Yankee CD

 

 

 

 

 

6,157

 

 

 

 

 

 

6,157

 

Total assets

 

$

24,341

 

 

$

80,893

 

 

$

 

 

$

105,234

 

 

9


 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,160

 

 

$

 

 

$

 

 

$

3,160

 

Short-term marketable securities at fair value

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agencies

 

 

14,005

 

 

 

15,364

 

 

 

 

 

 

29,369

 

Commercial paper

 

 

 

 

 

2,895

 

 

 

 

 

 

2,895

 

Corporate debt

 

 

 

 

 

46,586

 

 

 

 

 

 

46,586

 

Asset-backed securities

 

 

 

 

 

24,756

 

 

 

 

 

 

24,756

 

Yankee CD

 

 

 

 

 

6,610

 

 

 

 

 

 

6,610

 

Total assets

 

$

17,165

 

 

$

96,211

 

 

$

 

 

$

113,376

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

 

$

 

 

$

2,977

 

 

$

2,977

 

Total liabilities

 

$

 

 

$

 

 

$

2,977

 

 

$

2,977

 

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 term loan approximates fair value.

The Company's available-for-sale securities portfolio consists 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

 

$

2,977

 

Change in fair value prior to contract modification

 

 

53

 

Reclassification of contingent consideration due to contract modification

 

 

(3,030

)

Fair value as of March 31, 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 and 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. The Company has made no cash payments for contingent consideration since the acquisition date.

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 $3.5 million. See Note 1, "Formation and Business of the Company," of the Notes to Condensed Financial Statements for additional information on the acquisition of RPM-3D.

There were no assets or liabilities measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023.

10


 

5. Balance Sheet Components

Cash and Cash Equivalents

The Company’s cash and cash equivalents consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Cash

 

$

4,772

 

 

$

9,822

 

Cash equivalents:

 

 

 

 

 

 

Money market funds

 

 

4,562

 

 

 

3,160

 

Total cash and cash equivalents

 

$

9,334

 

 

$

12,982

 

Marketable Securities

The Company's available-for-sale marketable securities consisted of the following (in thousands):

 

 

 

March 31, 2024

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Marketable securities - short-term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agencies

 

$

25,069

 

 

$

2

 

 

$

(17

)

 

$

25,054

 

Commercial paper

 

 

1,933

 

 

 

-

 

 

 

-

 

 

 

1,933

 

Corporate debt

 

 

44,438

 

 

 

73

 

 

 

(25

)

 

 

44,486

 

Asset-backed securities

 

 

23,007

 

 

 

54

 

 

 

(19

)

 

 

23,042

 

Yankee CD

 

 

6,156

 

 

 

2

 

 

 

(1

)

 

 

6,157

 

Total marketable securities - short-term

 

$

100,603

 

 

$

131

 

 

$

(62

)

 

$

100,672

 

 

 

 

December 31, 2023

 

 

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Marketable securities - short-term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and government agencies

 

$

29,377

 

 

$

8

 

 

$

(16

)

 

$

29,369

 

Commercial paper

 

 

2,893

 

 

 

2

 

 

 

 

 

 

2,895

 

Corporate debt

 

 

46,467

 

 

 

123

 

 

 

(4

)

 

 

46,586

 

Asset-backed securities

 

 

24,712

 

 

 

56

 

 

 

(12

)

 

 

24,756

 

Yankee CD

 

 

6,604

 

 

 

7

 

 

 

(1

)

 

 

6,610

 

Total marketable securities - short-term

 

$

110,053

 

 

$

196

 

 

$

(33

)

 

$

110,216

 

As of March 31, 2024, there were no available-for-sale securities with unrealized losses greater than 12 months. There was not an allowance for credit losses required as of March 31, 2024 and December 31, 2023.

As of March 31, 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 months ended March 31, 2024 and 2023, there were no material gains or losses from sales of available-for-sale securities.

As of March 31, 2024 and December 31, 2023, accrued interest of $1.0 million and $1.0 million, respectively, is excluded from the amortized cost basis of available-for-sale securities in the tables above and is recorded in prepaid expenses and other current assets on the Condensed Balance Sheets.

As of March 31, 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):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Furniture and fixtures, and equipment

 

$

2,564

 

 

$

2,494

 

Construction in progress

 

 

388

 

 

 

1,115

 

Machinery and equipment

 

 

2,711

 

 

 

2,423

 

Capitalized surgical equipment

 

 

17,726

 

 

 

14,253

 

Computer equipment

 

 

1,055

 

 

 

1,020

 

Leasehold improvements

 

 

10,097

 

 

 

9,425

 

Software

 

 

395

 

 

 

316

 

Total property and equipment

 

 

34,936

 

 

 

31,046

 

Less: accumulated depreciation and amortization

 

 

(10,419

)

 

 

(8,748

)

Property and equipment, net

 

$

24,517

 

 

$

22,298

 

Depreciation and amortization expense on property and equipment was $1.7 million and $0.9 million for the three months ended March 31, 2024 and 2023, respectively.

The Company did not record impairment charges for its property and equipment, net for the three months ended March 31, 2024 and 2023.

Accrued liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued royalties expense

 

$

1,860

 

 

$

2,305

 

Accrued interest

 

 

425

 

 

 

417

 

Accrued professional services

 

 

774

 

 

 

424

 

Accrued compensation expense for RPM-3D earn-out

 

 

7,602

 

 

 

3,340

 

Other accrued expense

 

 

4,494

 

 

 

3,972

 

Total accrued liabilities

 

$

15,155

 

 

$

10,458

 

Other liabilities

Other liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Current portion of operating lease liabilities

 

$

864

 

 

$

1,404

 

Contingent consideration

 

 

 

 

 

2,977

 

Other

 

 

158

 

 

 

51

 

Total other liabilities

 

$

1,022

 

 

$

4,432

 

 

Due to renegotiated terms, the Company is no longer classifying the technological advancements milestone as contingent consideration. See discussion of RPM3-D 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):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Revolving line of credit

 

 

 

 

 

 

MidCap revolving loan facility

 

$

4,000

 

 

$

4,000

 

Term loans

 

 

 

 

 

 

MidCap term loan facility

 

 

50,000

 

 

 

50,000

 

Total term and revolving loans

 

 

54,000

 

 

 

54,000

 

Less: debt discount and issuance costs

 

 

(917

)

 

 

(992

)

Total long-term debt, net

 

$

53,083

 

 

$

53,008

 

As of March 31, 2024, future payments of long-term debt were as follows (in thousands):

 

Fiscal Year

 

 

 

2024

 

$

 

2025

 

 

 

2026

 

 

33,333

 

2027

 

 

20,667

 

Total principal payments

 

 

54,000

 

Less: Unamortized debt discount and debt issuance costs

 

 

(917

)

Total long-term debt, net

 

$

53,083

 

MidCap Loan and Revolving Loan Facility

On April 29, 2022, the Company entered into a five-year $150.0 million loan facility with entities affiliated with MidCap Financial Trust ("MidCap"), providing up to $120.0 million in a term loan facility and a $30.0 million revolving loan facility.

The term loan facility provides for a 60-month term loan up to $120.0 million in borrowing capacity to the Company, over four tranches. At term loan closing, the Company drew $50.0 million under tranche one. At December 31, 2023, tranche two for $30.0 million expired. The remaining tranches provide up to an additional $40.0 million in borrowing capacity in the aggregate, subject to the achievement of certain revenue targets for the third and fourth tranches.

The revolving loan facility provides up to $30.0 million in borrowing capacity to the Company based on the borrowing base. The borrowing base is calculated based on certain accounts receivable and inventory assets. On March 31, 2024, the borrowing base allows a total of $20.2