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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

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, 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 November 3, 2022, 55,501,742 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 SEPTEMBER 30, 2022

Table of Contents

Item 1.	Unaudited 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	25
Item 4.	Controls and Procedures	26

	Part II: Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
	Signatures	29

SPECIAL NOTES 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,” “the Company,” and similar references 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;

•our expected uses of our existing cash and cash equivalents and the sufficiency of such resources to fund our planned operations;

•our expectations regarding government and third-party payor coverage and reimbursement;

•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 plans and expected timeline related to our products, or developing new products, to address additional indications or otherwise;

•our ability to manufacture sufficient quantities of our products with sufficient quality;

•our ability to obtain and maintain intellectual property protection for our products;

•our ability to identify and develop new and planned products and/or acquire new products;

•our ability to obtain, maintain and expand regulatory clearances for our products and any new products we create;

•our ability to expand our business into new geographic markets;

•our compliance with Nasdaq requirements and government laws, rules and regulations both in the United States and internationally;

•our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;

•the effect of the COVID-19 pandemic and its impact on our business;

•the impact of inflationary pressures, higher interest rates and general economic conditions on our business;

•developments and projections relating to our competitors or our industry;

•our plans to conduct further clinical trials; and

•our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

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

1

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 that are in some cases 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 under “Part I, Item 1A-Risk Factors” and listed under “Risk Factors” and elsewhere in this Quarterly Report. Potential investors 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.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with the Securities and Exchange Commission (“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. Financial Statements (Unaudited).

TREACE MEDICAL CONCEPTS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

	September 30,			December 31,
	2022			2021
Assets
Current assets
Cash and cash equivalents	$	88,546		$	105,833
Accounts receivable, net of allowance for doubtful accounts of $423 and $414 as of September 30, 2022 and December 31, 2021, respectively		18,548			18,568
Inventories		16,794			10,561
Prepaid expenses and other current assets		4,014			3,010
Total current assets		127,902			137,972
Property and equipment, net		14,148			2,849
Operating lease right-of-use assets		14,247			—
Other non-current assets		146			—
Total assets	$	156,443		$	140,821
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	7,881		$	4,056
Accrued liabilities		5,189			4,518
Accrued commissions		4,131			5,181
Accrued compensation		5,049			4,455
Operating lease liabilities		330			—
Total current liabilities		22,580			18,210
Derivative liability on term loan		—			173
Long-term debt, net of discount of $1,364 and $635 as of September 30, 2022 and December 31, 2021, respectively		52,636			29,365
Operating lease liabilities, net of current portion		19,026			—
Total liabilities		94,242			47,748
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.001 par value, 5,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value, 300,000,000 shares authorized; 55,499,242 issued and outstanding as of September 30, 2022; 300,000,000 shares authorized; 54,181,082 issued and outstanding as of December 31, 2021		46			45
Additional paid-in capital		142,463			134,933
Accumulated deficit		(80,308	)		(41,905	)
Total stockholders’ equity		62,201			93,073
Total liabilities and stockholders’ equity	$	156,443		$	140,821

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

3

TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue	$	33,055		$	21,619		$	92,069		$	60,980
Cost of goods sold		6,624			4,248			17,781			11,519
Gross profit		26,431			17,371			74,288			49,461
Operating expenses
Sales and marketing		25,034			15,984			73,207			42,142
Research and development		3,799			2,537			9,835			6,827
General and administrative		8,916			4,310			22,593			11,405
Total operating expenses		37,749			22,831			105,635			60,374
Loss from operations		(11,318	)		(5,460	)		(31,347	)		(10,913	)
Interest and other income, net		375			5			514			12
Interest expense		(1,190	)		(963	)		(3,087	)		(3,032	)
Debt extinguishment loss		—			—			(4,483	)		—
Other expense, net		(815	)		(958	)		(7,056	)		(3,020	)
Net loss and comprehensive loss		(12,133	)		(6,418	)		(38,403	)		(13,933	)
Convertible preferred stock cumulative and undeclared dividends		—			—			—			(196	)
Net loss attributable to common stockholders	$	(12,133	)	$	(6,418	)	$	(38,403	)	$	(14,129	)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.22	)	$	(0.12	)	$	(0.70	)	$	(0.30	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		55,429,211			52,766,150			55,190,587			46,603,487

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

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(unaudited)

	Convertible										Additional						Total
	Preferred Stock						Common Stock				Paid-In			Accumulated			Stockholders’
	Shares			Amount			Shares		Amount		Capital			Deficit			Equity (Deficit)
Balances at December 31, 2021		—		$	—			54,181,082	$	45	$	134,933		$	(41,905	)	$	93,073
Issuance of common stock upon exercise of stock options		—			—			1,097,860		1		1,371			—			1,372
Share-based compensation expense		—			—			—		—		1,409			—			1,409
Net loss		—			—			—		—		—			(9,036	)		(9,036	)
Balances at March 31, 2022		—			—			55,278,942		46		137,713			(50,941	)		86,818
Issuance of common stock upon exercise of stock options		—			—			112,367		—		165			—			165
Share-based compensation expense		—			—			—		—		1,963			—			1,963
Net loss		—			—			—		—		—			(17,234	)		(17,234	)
Balances at June 30, 2022		—			—			55,391,309		46		139,841			(68,175	)		71,712
Issuance of common stock upon exercise of stock options		—			—			107,933		—		353			—			353
Share-based compensation expense		—			—			—		—		2,269			—			2,269
Net loss		—			—			—		—		—			(12,133	)		(12,133	)
Balances at September 30, 2022		—		$	—			55,499,242	$	46	$	142,463		$	(80,308	)	$	62,201
Balances at December 31, 2020		6,687,475		$	7,935			37,366,865	$	28	$	14,166		$	(21,353	)	$	776
Issuance of common stock upon exercise of stock options		—			—			690,551		2		568			—			570
Share-based compensation expense		—			—			—		—		402			—			402
Net loss		—			—			—		—		—			(2,432	)		(2,432	)
Balances at March 31, 2021		6,687,475			7,935			38,057,416		30		15,136			(23,785	)		(684	)
Issuance of common stock upon exercise of stock options		—			—			272,082		—		193			—			193
Vesting of restricted stock awards		—			—			5,866		—		—			—			—
Share-based compensation expense		—			—			—		—		875			—			875
Issuance of common stock from initial public offering, net of issuance costs and underwriting discount of $10.6 million		—			—			6,953,125		7		107,603			—			107,610
Issuance of common stock upon net exercise of warrants		—			—			621,570		1		(1	)		—			—
Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock		(6,687,475	)		(7,935	)		6,845,922		7		7,928			—			—
Net loss		—			—			—		—		—			(5,083	)		(5,083	)
Balances at June 30, 2021		—			—			52,755,981		45		131,734			(28,868	)		102,911
Issuance of common stock upon exercise of stock options		—			—			—		—		41			—			41
Share-based compensation expense		—			—			—		—		839			—			839
Net loss		—			—			—		—		—			(6,418	)		(6,418	)
Balances at September 30, 2021		—		$	—			52,755,981	$	45	$	132,614		$	(35,286	)	$	97,373

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

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities
Net loss	$	(38,403	)	$	(13,933	)
Adjustments to reconcile net loss to net cash used in operating    activities
Depreciation and amortization expense		1,216			409
Recovery for allowance for doubtful accounts		(38	)		(56	)
Share-based compensation expense		5,641			2,116
Non-cash lease expense		2,010			—
Amortization of debt issuance costs		169			133
(Recovery of) provision for inventory obsolescence		(206	)		179
Gain on fair value adjustment to derivative liability		(173	)		(72	)
Debt extinguishment loss		4,483			—
Other, net		25			—
Net changes in operating assets and liabilities:
Accounts Receivable		58			2,747
Inventory		(6,027	)		(2,710	)
Prepaid expenses and other assets		(1,058	)		(3,168	)
Other non-current assets		(146	)		—