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Treace Medical Concepts Reports Third Quarter 2023 Financial Results

PONTE VEDRA, Fla., Nov. 09, 2023 (GLOBE NEWSWIRE) -- Treace Medical Concepts, Inc. (“Treace” or the “Company”) (NasdaqGS: TMCI), a medical technology company driving a fundamental shift in the surgical treatment of hallux valgus (commonly known as bunions) through its Lapiplasty® 3D Bunion Correction® Procedure, today reported financial results for the third quarter ended September 30, 2023.

Recent Highlights:

  • Revenue of $40.8 million in the third quarter, a 23% increase over same period last year and a 36% increase year to date over prior year
     
  • Blended average revenue per Lapiplasty® procedure kit sold was record high $6,311, a 9% increase over same period last year
     
  • Gross margin of 80.4% in the third quarter 2023 and 81.0% year to date
     
  • Third quarter 2023 revenue contribution from direct sales channel, the industry’s only direct bunion-focused salesforce, increased to 81% of sales compared to 74% during third quarter 2022
     
  • Initiated commercialization of several new technologies, including the 2nd generation SpeedPlate™ fixation platform, the Micro-Lapiplasty™ System, Hammertoe PEEK Fixation System, and LapiTome™ and RazorTome™ sterile instruments
     
  • Patent portfolio expands to 52 granted U.S. patents, with an additional 12 patents worldwide and 78 pending U.S. patent applications

“We’re pleased to report substantial gains in our key performance metrics during the third quarter, including 36% year-to-date revenue growth and a significant increase in our surgeon base, which now totals 2,691, a 21% increase over the prior year,” said John T. Treace, CEO, Founder and Board Member of Treace. “We also achieved a record blended average selling price of $6,311, driven by the early impact of our new technologies, and we are particularly excited about the opportunity for our SpeedPlate™ fixation platform.”

Mr. Treace stated, “Our updated guidance reflects our year-to-date surgeon count, which was impacted by prioritized travel and vacations for our patient demographic that started in the second quarter and continued through most of the third quarter. We also made the strategic decision to further refine our SpeedPlate™ platform, extending our timeline to achieve full commercial supply until the first quarter of 2024. This decision has enabled us to make our Gen 2 SpeedPlate™ technology more broadly applicable across a greater range of clinical applications, which we believe will expand our footprint in the foot and ankle market.”

Mr. Treace continued, “With accelerating additions to our surgeon base, increasing productivity of our direct sales channel and several new technologies that are already starting to make a positive impact on customer demand, I’m confident that we have the right strategy in place to outpace our competitors, drive continued market penetration and deliver strong growth for the remainder of this year and beyond.”

Third Quarter 2023 Financial Results

Revenue for the second quarter of 2023 was $40.8 million, representing an increase of 23% compared to $33.1 million in the third quarter of 2022. The increase was driven by an increased number of Lapiplasty® procedure kits sold as a result of an expanded surgeon customer base, increased utilization and increased blended average selling prices due to increased adoption of the Company’s newer technologies and expanding portfolio of complementary products.

Gross profit for the third quarter of 2023 was $32.8 million, representing an increase of 21% compared to a gross profit of $27.0 million in the third quarter of 2022. Gross margin totaled 80.4% in the third quarter of 2023, compared to 81.6% in third quarter of 2022, primarily due to changes in product mix, an increase in inventory provisions, and an increase in overhead costs due to headcount to support the growing business, partially offset by lower royalty rates.

Total operating expenses were $50.6 million in the third quarter of 2023, compared to total operating expenses of $38.3 million in the third quarter of 2022. Increased operating expenses in the third quarter of 2023 reflect strategic investments in its expanding direct sales channel, investments in product innovation, increased capacity requirements, as well as support for other commercial initiatives.

Third quarter net loss attributable to common stockholders was ($17.5) million, or ($0.28) per share, compared to ($12.1) million, or ($0.22) per share, for the same period of 2022. Third quarter adjusted net loss was ($17.5) million, or ($0.28) per share, compared to ($12.1) million, or ($0.22) per share for the same period of 2022. Adjusted EBITDA was a loss of ($9.2) million in the third quarter of 2023 compared to a loss of ($8.6) million for the same period in 2022. See below for additional information and a reconciliation of non-GAAP financial information.

Cash, cash equivalents, marketable securities and investment receivable totaled $128.2 million as of September 30, 2023. The Company believes it has sufficient balance sheet strength and flexibility to continue aggressively executing on its strategic investments and growth initiatives.

Financial Outlook

Treace is updating its full-year 2023 revenue guidance to $182 million to $186 million, which represents approximately 28% to 31% growth over the Company’s 2022 revenue. This compares to the prior full-year 2023 revenue guidance of $191 million to $197 million.

The Company expects positive adjusted EBITDA in the fourth quarter of 2023 and continues to expect to show modest improvement in adjusted EBITDA for full-year 2023 compared to 2022.

An investor presentation for the Company’s third quarter 2023 financial results is available in the "Investors" section of Treace's website at investors.treace.com.

Webcast and Conference Call Details

Treace will host a conference call today, November 9, 2023, at 4:30 p.m. ET to discuss its third quarter 2023 financial results. Investors interested in listening to the conference call may do so by registering. Once registered, participants will receive dial-in numbers and a unique pin to join the call and ask questions. The live webcast of the conference call will be available on the Investor Relations section of the Company’s website at https://investors.treace.com/. The webcast will be archived on the website following the completion of the call.

Use of Non-GAAP Financial Measures

To supplement the financial results presented in accordance with GAAP, this earnings release presents Adjusted EBITDA, which the Company defines as net loss before depreciation and amortization expense, interest income, interest expense, taxes, share-based compensation expense, acquisition-related costs and debt extinguishment loss. As of March 31, 2023, in its calculation of Adjusted EBITDA, the Company began subtracting interest income from net loss as interest income is expected to be significant for the full-year 2023. Prior period results for Adjusted EBITDA have been updated to be consistent with the updated presentation as described above. This earning release also presents net loss attributable to common stockholders excluding the debt extinguishment loss on an aggregate and per share basis (“Adjusted Net Loss”). Non-GAAP financial measures such as Adjusted EBITDA and Adjusted Net Loss are presented in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Management uses these non-GAAP financial measures to evaluate the Company’s operating performance and trends, as well as for making planning decisions. The Company believes that Adjusted EBITDA and Adjusted Net Loss helps to identify underlying trends in the Company’s business that may otherwise be masked by the effect of the income and expenses and other items that it excludes in its calculation of Adjusted EBITDA and Adjusted Net Loss. Accordingly, the Company believes these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s operating results, enhancing the overall understanding of its past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by the Company’s management in their financial and operational decision-making. The Company also presents these non-GAAP financial measures because it believes investors, analysts and rating agencies consider them to be a useful metrics in measuring the Company’s performance against other companies and its ability to meet its debt service obligations.

There are limitations related to the use of non-GAAP financial measures such as Adjusted EBITDA and Adjusted Net Loss because they are not prepared in accordance with GAAP, may exclude significant income and expenses required by GAAP to be recognized in the Company’s financial statements, and may not be comparable to non-GAAP financial measures used by other companies. The Company encourages investors to carefully consider its results under GAAP, as well as its supplemental non‐GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non‐GAAP results are presented below.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements, including, but not limited to the Company’s expectations about the opportunity for its SpeedPlate™ fixation platform, including its expansion of the Company’s footprint in the foot and ankle market and the timeline to achieve full commercial supply of that product; the Company’s confidence that it has the right strategy in place to outpace its competitors, drive continued market penetration and deliver strong growth for the remainder of 2023 and beyond; the Company’s belief that it has sufficient balance sheet strength and flexibility to continue aggressively executing on its strategic investments and growth initiatives; the Company’s revenue guidance and revenue growth rates for full-year 2023; and the Company’s expectation of positive adjusted EBITDA in the fourth quarter of 2023 and modest improvement in adjusted EBITDA for full-year 2023 compared to 2022. Forward-looking statements are based on management’s current assumptions and expectations of future events and trends, which affect or may affect the Company’s business, strategy, operations or financial performance, and actual results and other events may differ materially from those expressed or implied in such statements due to numerous risks and uncertainties. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Factors that could cause actual results or other events to differ materially from those contemplated in this press release can be found in the Risk Factors section of Treace’s public filings with the Securities and Exchange Commission (SEC), including its Annual Report on Form 10-K for the year ended December 31, 2022, and any subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K. Because forward-looking statements are inherently subject to risks and uncertainties, you should not rely on these forward-looking statements as predictions of future events. These forward-looking statements speak only as of their date and, except to the extent required by law, the Company undertakes no obligation to update these statements, whether as a result of any new information, future developments or otherwise. The Company’s results for the quarter ended September 30, 2023 are not necessarily indicative of its operating results for any future periods.

Internet Posting of Information

Treace routinely posts information that may be important to investors in the “Investor Relations” section of its website at www.treace.com. The Company encourages investors and potential investors to consult the Treace website regularly for important information about Treace.

About Treace Medical Concepts

Treace Medical Concepts, Inc. is a medical technology company with the goal of advancing the standard of care for the surgical management of bunion and related midfoot deformities. Bunions are complex 3-dimensional deformities that originate from an unstable joint in the middle of the foot and affect approximately 65 million Americans, of which Treace estimates 1.1 million are annual surgical candidates. Treace has pioneered and patented the Lapiplasty® 3D Bunion Correction® System – a combination of instruments, implants, and surgical methods designed to surgically correct all 3 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. Treace expanded its offering with the Adductoplasty® Midfoot Correction System, designed for reproducible surgical correction of the midfoot to provide further support to hallux valgus patients, and the Hammertoe PEEK Fixation System, designed to address hammertoe, claw toe and mallet toe deformities. For more information, please visit www.treace.com.

To learn more about Treace, connect with us on LinkedIn, Twitter, Facebook, and Instagram.

Contacts:

Treace Medical Concepts, Inc.
Julie Dewey, IRC
Chief Communications & Investor Relations Officer
jddewey@treace.com | 209-613-6945

 
Treace Medical Concepts, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2023  2022  2023  2022 
Revenue $40,758  $33,055  $124,906  $92,069 
Cost of goods sold  7,998   6,090   23,712   16,511 
Gross profit  32,760   26,965   101,194   75,558 
Operating expenses            
Sales and marketing  33,542   25,568   100,970   74,477 
Research and development  4,350   3,799   11,288   9,835 
General and administrative  12,686   8,916   33,582   22,593 
Total operating expenses  50,578   38,283   145,840   106,905 
Loss from operations  (17,818)  (11,318)  (44,646)  (31,347)
Interest income  1,570   420   5,017   560 
Interest expense  (1,296)  (1,190)  (3,863)  (3,087)
Debt extinguishment loss           (4,483)
Other income, net  23   (45)  246   (46)
Other non-operating income (expense), net  297   (815)  1,400   (7,056)
Net loss $(17,521) $(12,133) $(43,246) $(38,403)
             
Other comprehensive income (loss):            
Unrealized gain (loss) on marketable securities $71  $  $(121) $ 
Comprehensive loss $(17,450) $(12,133) $(43,367) $(38,403)
             
Net loss per share attributable to common stockholders, basic and diluted $(0.28) $(0.22) $(0.71) $(0.70)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted  61,562,494   55,429,211   60,566,655   55,190,587 

Note: A change in presentation has been made within the Statement of Operations and Comprehensive Loss for the three months and nine months ended September 30, 2022, reclassifying $0.5 million and $1.3 million of surgical instrument expense from cost of goods sold to sales and marketing expense to conform with the current year’s presentation. Please refer to supplemental materials related to quarterly 2022 results available on our investor relations website.

 
Treace Medical Concepts, Inc.
Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
 
  September 30,  December 31, 
  2023  2022 
Assets      
Current assets      
Cash and cash equivalents $7,278  $19,473 
Marketable securities, short-term  114,885   61,779 
Accounts receivable, net of allowance for doubtful accounts of $639 and $735 as of September 30, 2023 and December 31, 2022, respectively  24,996   29,196 
Inventories  29,312   19,330 
Prepaid expenses and other current assets  10,671   3,624 
Total current assets  187,142   133,402 
Property and equipment, net  21,536   15,338 
Intangible assets, net of accumulated amortization of $238 and $0 as of September 30, 2023 and December 31, 2022, respectively  9,262    
Goodwill  12,815    
Operating lease right-of-use assets  9,459   10,138 
Other non-current assets  146   146 
Total assets $240,360  $159,024 
Liabilities and Stockholders’ Equity      
Current liabilities      
Accounts payable $8,680  $8,668 
Accrued liabilities  8,936   6,216 
Accrued commissions  5,278   7,356 
Accrued compensation  5,070   7,666 
Other liabilities  5,190   339 
Total current liabilities  33,154   30,245 
Long-term debt, net of discount of $1,066 and $1,289 as of September 30, 2023 and December 31, 2022, respectively  52,934   52,711 
Operating lease liabilities, net of current portion  16,375   15,539 
Other long-term liabilities  37    
Total liabilities  102,500   98,495 
Commitments and contingencies (Note 8)      
Stockholders’ equity      
Preferred stock, $0.001 par value, 5,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022      
Common stock, $0.001 par value, 300,000,000 shares authorized; 61,606,926 issued and outstanding as of September 30, 2023; 300,000,000 shares authorized; 55,628,208 issued and outstanding as of December 31, 2022  62  55 
Additional paid-in capital  265,912   145,221 
Accumulated deficit  (127,966)  (84,720)
Accumulated other comprehensive (loss) income  (148)  (27)
Total stockholders’ equity  137,860   60,529 
Total liabilities and stockholders’ equity $240,360  $159,024 


 
Treace Medical Concepts, Inc.
Statements of Cash Flows
(in thousands)
(unaudited)
 
  Nine Months Ended September 30, 
  2023  2022 
Cash flows from operating activities      
Net loss $(43,246) $(38,403)
Adjustments to reconcile net loss to net cash used in operating
activities
      
Depreciation and amortization expense  3,583   1,216 
(Recovery) provision for allowance for doubtful accounts  79   (38)
Share-based compensation expense  11,480   5,641 
Non-cash lease expense  1,868   2,010 
Amortization of debt issuance costs  223   169 
Recovery of inventory obsolescence     (206)
Gain on fair value adjustment to derivative liability     (173)
Debt extinguishment loss     4,483 
Accretion (amortization) of discount
(premium) on marketable securities, net
  (1,031)   
Other, net  164   25 
Net changes in operating assets and liabilities, net of acquisitions:      
Accounts Receivable  4,121   58 
Inventory  (9,915)  (6,027)
Prepaid expenses and other assets  (1,028)  (1,058)
Other non-current assets     (146)
Other liabilities  497   3,112 
Accounts payable  12   3,825 
Accrued liabilities  (1,954)  222 
Other, net  40    
Net cash used in operating activities  (35,107)  (25,290)
       
Cash flows from investing activities      
Purchases of available-for-sale marketable securities  (140,075)   
Sales and maturities of available-for-sale marketable securities  82,979    
Purchases of property and equipment  (9,210)  (12,506)
Acquisition, net of cash acquired  (20,000)   
Net cash used in investing activities  (86,306)  (12,506)
       
Cash flows from financing activities      
Proceeds from interest bearing term debt     49,651 
Proceeds from interest bearing revolving debt     3,850 
Debt issuance costs     (989)
Repayment of term loan     (33,893)
Proceeds from issuance of common stock from public offering, net of issuance costs and underwriting discount of $7.5 million  107,527    
Proceeds from exercise of employee stock options  1,691   1,890 
Net cash provided by financing activities  109,218   20,509 
Net decrease in cash and cash equivalents  (12,195)  (17,287)
Cash and cash equivalents at beginning of period  19,473   105,833 
Cash and cash equivalents at end of period $7,278  $88,546 
       
Supplemental disclosure of cash flow information:      
Cash paid for interest $3,863  $3,087 
Operating lease right-of-use assets obtained in exchange for new lease liabilities $  $15,300 
Operating lease right-of-use asset and lease liability adjustment due to lease incentive $(22) $ 
Noncash investing activities:      
Unrealized losses on marketable securities $121  $ 
Unsettled marketable security purchase and payable to broker $(1,100) $ 
Unsettled matured marketable security and receivable from broker $6,000  $ 


 
Treace Medical Concepts, Inc.
Reconciliation of GAAP Net Loss to Adjusted Net Loss
(in thousands, except share and per share amounts)
 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2023  2022  2023  2022 
Net loss $(17,521) $(12,133) $(43,246) $(38,403)
Adjustment:            
Debt extinguishment loss           4,483 
Adjusted net loss $(17,521) $(12,133) $(43,246) $(33,920)
Per share            
Net loss $(0.28)  (0.22)  (0.71)  (0.70)
Adjustment:            
Debt extinguishment loss           0.08 
Adjusted net loss $(0.28) $(0.22) $(0.71) $(0.62)
Weighted average common shares outstanding per share attributable to common stockholders, basic and diluted  61,562,494   55,429,211   60,566,655   55,190,587 


 
Treace Medical Concepts, Inc.
Reconciliation of GAAP Net Loss to EBITDA & Adjusted EBITDA
(in thousands)
 
 Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 2023  2022  2023  2022 
Net loss$(17,521) $(12,133) $(43,246) $(38,403)
Adjustments:           
Interest income (1,570)  (420)  (5,017)  (560)
Interest expense 1,296   1,190   3,863   3,087 
Taxes           
Depreciation & Amortization 1,564   459   3,583   1,216 
EBITDA$(16,231) $(10,904) $(40,817) $(34,660)
Share-based compensation expense 5,192   2,269   11,480   5,641 
Acquisition-related costs 1,802      2,322    
Debt extinguishment loss          4,483 
Adjusted EBITDA$(9,237) $(8,635) $(27,015) $(24,536)


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