Treace Medical Concepts, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report; it does not provide a clear standalone fourth-quarter income statement or cash-flow statement.
Business context
Treace is a medical technology company focused on bunion and related midfoot surgery. It sells the Lapiplasty 3D Bunion Correction System, alongside Adductoplasty, Mini-Incision and ancillary products, primarily in the United States. Sales are made through employee representatives and independent agencies. The company reported 24,656 Lapiplasty Procedure Kits sold in 2022, 2,387 active surgeons, and average annual utilization of 10.3 kits per active surgeon.
Key financial metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $141.8 million | $94.4 million | +50.2% |
| Gross profit / margin | $114.3 million / 80.6% | $76.6 million / 81.1% | Margin down 0.5 percentage points |
| Operating expenses | $149.2 million | $93.1 million | +60.2% |
| Operating loss | $(34.8) million | $(16.5) million | Loss widened |
| Net loss | $(42.8) million | $(20.6) million | Loss widened 108.3% |
| Basic and diluted loss per share | $(0.77) | $(0.43) | Loss per share increased |
| Cash used in operating activities | $(30.6) million | $(17.2) million | Cash use increased |
At year-end, cash and cash equivalents were $19.5 million and short-term marketable securities were $61.8 million. Current assets were $133.4 million versus current liabilities of $30.2 million. Total assets were $159.0 million, total liabilities $98.5 million, and stockholders’ equity $60.5 million. Debt principal outstanding was $54.0 million; its balance-sheet carrying amount, net of discount and issuance costs, was $52.7 million.
Investing activities used $76.5 million, primarily reflecting $63.4 million of marketable-security purchases and $14.8 million of property and equipment purchases. Financing activities provided $20.8 million, including MidCap borrowings, offset in part by repayment of prior debt. The company reported an accumulated deficit of $84.7 million.
Changes, outlook and notable items
- Revenue growth was driven mainly by a 41.0% increase in Lapiplasty kits sold; the company attributed about 70% of revenue growth to higher kit volume, with the remainder from newer technologies and ancillary products.
- Gross margin eased modestly, primarily due to depreciation on surgical instruments and higher payroll costs. Sales and marketing expense rose 59.1%, R&D 33.1%, and general and administrative expense 79.0%, reflecting expansion, hiring, marketing, headquarters costs and other growth-related spending.
- Management expects continued investment in sales, patient education, R&D and infrastructure, and said near-term operating losses are expected. It expects revenue to increase over the foreseeable future but provided no specific numerical revenue or earnings guidance.
- Management said inflation, higher interest rates, supply-chain challenges and uncertainty around elective-procedure demand may affect 2023 results. It believed COVID-19 had no significant impact on 2022 results, while noting future disruption remains possible.
- Commercial release of Micro-Lapiplasty instrumentation and SpeedPlate implants was expected in the second half of 2023. These plans are subject to development and regulatory requirements.
- In April 2022, Treace refinanced debt with a five-year MidCap facility: up to $120 million of term loans and a $30 million revolving facility. At year-end, $50 million of term debt and $4 million of revolving debt had been drawn. The loans are secured by substantially all assets, including intellectual property; stated interest rates at year-end were 9% on term debt and 7% on the revolver.
- After year-end, on February 10, 2023, the company completed an equity offering of 5,476,190 shares at $21 per share, generating approximately $107.5 million net proceeds. This subsequent financing was not included in year-end cash balances.
- A $4.5 million debt-extinguishment loss arose from the 2022 refinancing. The company also recorded a $0.3 million impairment related to assets at its former headquarters. No material legal proceedings or accrued contingent liabilities were reported at year-end.
Risks and contingencies
Treace has a history of operating losses and substantial cash use, and profitability is not assured. Revenue depends heavily on Lapiplasty adoption, surgeon and facility access, reimbursement, training and sales-force effectiveness. Competition is increasing, including in three-dimensional bunion correction. Other key risks include product safety or liability claims, regulatory compliance and clearances, clinical-study outcomes, intellectual-property disputes, supplier and manufacturing availability, pricing pressure, and macroeconomic or pandemic-related disruption. Debt covenants and liens on substantially all assets may constrain financial flexibility. Management stated existing resources were expected to fund planned operations for at least 12 months from issuance of the financial statements; that assessment incorporates assumptions and the later equity offering materially increased available capital.
Investor facts to verify
- Whether kit sales, active-surgeon growth and utilization continue to translate into revenue growth and eventually improved operating leverage.
- Cash burn, working-capital needs and the use of the February 2023 offering proceeds; reconcile the offering proceeds with subsequent cash and securities balances.
- MidCap facility availability, revenue-related borrowing conditions, interest expense and compliance with liquidity and other covenants.
- Clinical evidence and regulatory status for new products, including the timing and commercial adoption of Micro-Lapiplasty and SpeedPlate.
- Whether gross margins withstand higher costs, pricing pressure, royalties and continued investment in the commercial organization.
- The longer-term outcomes of ALIGN3D and other studies, and whether published clinical results remain representative as broader use grows.
Audit and controls: Grant Thornton LLP gave an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2022; the auditor did not attest to internal-control effectiveness because the company qualified for the applicable exemption.