TREACE MEDICAL CONCEPTS INC

Previous wording

We are a medical technology company with the goal of advancing the standard of care for the surgical management of bunion and related midfoot deformities. We have pioneered our proprietary Lapiplasty 3D Bunion Correction System—a combination of instruments, implants and surgical methods designed to surgically correct all three planes of the bunion deformity and secure the unstable joint, addressing the root cause of the bunion and helping patients get back to their active lifestyles. Although bunions are deformities typically caused by an unstable joint in the middle of the foot that leads to a three-dimensional ("3D") misalignment in the foot's anatomical structure, the majority of traditional surgical approaches focus on correcting the deformity from a two-dimensional ("2D") perspective and therefore fail to address the root cause of the disorder. To effectively restore the normal anatomy of bunion patients and improve clinical outcomes, we believe addressing the root cause of the bunion is critical and have developed the Lapiplasty System to correct the deformity across all three anatomic dimensions. Our other products often used in conjunction with bunion surgery include the Adductoplasty System, the Hammertoe PEEK Fixation System, the SpeedPlate Rapid Compression Implant System, and specialized osteotomes and release instruments.

Current wording

We are a medical technology company with the goal of advancing the standard of care for the surgical management of bunion and related midfoot deformities. We have pioneered our proprietary Lapiplasty 3D Bunion Correction System—a combination of instruments, implants and surgical methods designed to surgically correct all three planes of the bunion deformity and secure the unstable joint, addressing the root cause of the bunion and helping patients get back to their active lifestyles. Although bunions are deformities typically caused by an unstable joint in the middle of the foot that leads to a three-dimensional ("3D") misalignment in the foot's anatomical structure, the majority of traditional surgical approaches focus on correcting the deformity from a two-dimensional ("2D") perspective and therefore fail to address the root cause of the disorder. To effectively restore the normal anatomy of bunion patients and improve clinical outcomes, we believe addressing the root cause of the bunion is critical and have developed the Lapiplasty System to correct the deformity across all three anatomic dimensions. Our other products often used in conjunction with bunion surgery include the Adductoplasty System, the Hammertoe PEEK Fixation System, the SpeedPlate™ Rapid Compression Implant System, and specialized osteotomes and release instruments. In addition, we recently announced our entrance into the metatarsal osteotomy segment with the Nanoplasty™ Procedure, which allows for a 3D correction of the bunion through a cosmetically appealing, hidden incision on the side of the foot. With the Lapiplasty and Nanoplasty Procedures and other new products, we are continuing to execute our strategy of becoming a comprehensive bunion solutions company and supporting further penetration into the bunion market opportunity. See the Innovation and Growth section below for more information on our new products.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $18.2 million and marketable securities of $76.9 million available for sale to fund operations, an accumulated deficit of $174.1 million and $54.0 million of principal outstanding under our term loan and revolving loan agreements.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $12.1 million and marketable securities of $70.7 million available for sale to fund operations, an accumulated deficit of $189.5 million and $54.0 million of principal outstanding under our term loan and revolving loan agreements.

Previous wording

There is continuing uncertainty in the macro-economic environment. Inflationary pressures, interest rate changes, recession fears and reduced consumer confidence, and ongoing supply chain challenges have resulted, and may continue to result, in higher costs and longer lead times from suppliers and potentially reduced demand for our procedure kits and other products. General economic conditions may also negatively impact demand for elective surgeries. While we continuously work with suppliers to mitigate higher costs and longer lead times and continue to invest in our direct sales channel, patient education initiatives, clinical evidence and product innovations to build demand for our products, we expect these macro-economic challenges to continue for the foreseeable future, which likely will impact our results of operations.

Current wording

There is continuing uncertainty in the macro-economic environment. Inflationary pressures, interest rate changes, recession fears and reduced consumer confidence may continue to result, in higher costs and potentially reduced demand for our procedure kits and other products. General economic conditions may also negatively impact demand for elective surgeries. While we continuously work with suppliers to mitigate higher costs and longer lead times and continue to invest in our direct sales channel, patient education initiatives, clinical evidence and product innovations to build demand for our products, we expect these macro-economic challenges to continue for the foreseeable future, which likely will impact our results of operations.

Previous wording

We expect to continue to focus on long-term revenue growth through investments in our business and new products. In sales and marketing, we have dedicated meaningful resources and believe that by early 2025 will have our sales force and management team in place that can support our future growth as well as our patient focused outreach and education campaigns.

Current wording

We expect to continue to focus on long-term revenue growth through investments in our business and new products. In sales and marketing, we have dedicated meaningful resources and believe that we have built a sales force and management team that can support our future growth as well as our patient focused outreach and education campaigns.

Previous wording

In research and development, our team and surgeon consultants are continually working on next-generation innovations for the surgical correction of bunions and other conditions that often present with bunions. In 2023, in addition to the acquisition of the assets of RPM-3D, we began the market release of (1) the SpeedPlate fixation platform, which can be used in the Lapiplasty and Adductoplasty Procedures, as well as other common bone fusion procedures of the foot, (2) the Hammertoe PEEK Fixation System designed to address hammertoe, claw toe and mallet toe deformities, which often present concomitantly with bunions, and (3) LapiTome and RazorTome Osteotomes, which are sterile, single-use instruments that are designed to facilitate more efficient removal and release of bone slices and soft tissue in Lapiplasty and Adductoplasty cases. In 2024 and 2025, we plan to introduce a series of new products designed to address the evolving needs of bunion surgeons and their patients. We intend to continue to invest in research and development to support the new product innovations.

Current wording

In research and development, our team and surgeon consultants are continually working on next-generation innovations for the surgical correction of bunions and other conditions that often present with bunions. In 2023, in addition to the acquisition of the assets of RPM-3D, we began the market release of (1) the SpeedPlate fixation platform, which can be used in the Lapiplasty and Adductoplasty Procedures, as well as other common bone fusion procedures of the foot, (2) the Hammertoe PEEK Fixation System designed to address hammertoe, claw toe and mallet toe deformities, which often present concomitantly with bunions, and (3) LapiTome and RazorTome Osteotomes, which are sterile, single-use instruments that are designed to facilitate more efficient removal and release of bone slices and soft tissue in Lapiplasty and Adductoplasty cases.

Previous wording

We have experienced and expect to continue to experience seasonality in our business, with higher sales volumes in the fourth calendar quarter, historically accounting for approximately 30% to 40% of full year revenues, and lower sales volumes in the subsequent first calendar quarter. Our sales volumes in the fourth quarter tend to be higher as many patients elect to have surgery after meeting their annual deductible and having time to recover over the winter holidays. Our sales volumes in subsequent first calendar quarters also tend to be lower versus the prior year fourth quarter as a result of adverse weather and by resetting annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures; however, in some years the first quarter may benefit from additional sales volumes when high patient demand for surgeries in the fourth quarter cannot be fully accommodated and those surgical procedures are rolled over into the first quarter. Similar to the rest of the orthopaedic industry, we have experienced and expect to continue to experience lower sales volumes in the third quarter than throughout the rest of the year as elective procedures generally decline during the summer months.

Current wording

We have experienced and expect to continue to experience seasonality in our business, with higher sales volumes in the fourth calendar quarter, historically accounting for approximately 30% to 40% of full year revenues, and lower sales volumes in the subsequent first calendar quarter. Our sales volumes in the fourth quarter tend to be higher as many patients elect to have surgery after meeting their annual deductible and having time to recover over the winter holidays. Our sales volumes in subsequent first calendar quarters also tend to be lower versus the prior year fourth quarters as a result of adverse weather and by resetting annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures; however, in some years the first quarter may benefit from additional sales volumes when high patient demand for surgeries in the fourth quarter cannot be fully accommodated and those surgical procedures are rolled over into the first quarter. Similar to the rest of the orthopaedic industry, we have experienced and expect to continue to experience lower sales volumes in the third quarter than throughout the rest of the year as elective procedures generally decline during the summer months.

Previous wording

No single customer accounted for 10% or more of our revenue during the six months ended June 30, 2024. We expect our revenue to increase in absolute dollars in the foreseeable future as we expand our product offerings, sales territories, new accounts and trained physician base and as existing physician customers perform more Lapiplasty and other procedures using our products, though it may fluctuate from quarter to quarter due to a variety of factors, including seasonality and the macro-economic environment.

Current wording

No single customer accounted for 10% or more of our revenue during the nine months ended September 30, 2024. We expect our revenue to increase in absolute dollars in the foreseeable future as we expand our product offerings, sales territories, new accounts and trained physician base and as existing physician customers perform more Lapiplasty and other procedures using our products, though it may fluctuate from quarter to quarter due to a variety of factors, including seasonality, the macro-economic environment and competition.

Previous wording

Sales and marketing expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, sales commissions and share-based compensation, related to selling and marketing functions, surgical instrument expense, physician education programs, training, shipping costs related to sending products to our sales representatives, travel expenses, marketing initiatives including our direct-to-patient outreach program and advertising, market research and analysis and conferences and trade shows. We expect sales and marketing expenses to continue to increase in absolute dollars as we continue to support sales and marketing efforts, though it may fluctuate from quarter to quarter.

Current wording

Sales and marketing expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, sales commissions and share-based compensation, related to selling and marketing functions, surgical instrument expense, physician education programs, training, shipping costs related to sending products to our sales representatives, travel expenses, marketing initiatives including our direct-to-patient outreach program and advertising, market research and analysis and conferences and trade shows.

Previous wording

Comparison of the three and six months ended June 30, 2024 and 2023

Current wording

Comparison of the three and nine months ended September 30, 2024 and 2023

Previous wording

Revenue. Revenue increased by $2.5 million, or 6.0%, for the three months ended June 30, 2024 as compared to the same period in 2023. The increase was driven primarily by a product mix shift that resulted from increased adoption of newer technologies and an increase in our active surgeon base.

Current wording

Revenue. Revenue increased by $4.3 million, or 10.6%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase was driven primarily by a product mix shift that resulted from increased adoption of newer technologies and increased sales of ancillary products used in bunion cases and an increase in active surgeons.

Previous wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $1.1 million, or 14.4%, for the three months ended June 30, 2024 as compared to the same period in 2023. The increase in cost of goods sold was primarily due to a $0.7 million increase in direct costs of goods sold resulting from increased sales and a $0.4 million increase in allocations of payroll and related costs. During the three months ended June 30, 2024, gross profit increased by $1.4 million, or 4.1%, as compared to the same period in 2023, due to increased revenue from a product mix shift. Gross profit margin for the three months ended June 30, 2024 decreased from 81.7% to 80.2%, as compared to the same period in 2023, primarily due to a product mix shift to newer products, an increase in allocations of payroll and related costs, and an increase in inventory provisions, partially offset by lower royalty rates.

Current wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $1.0 million, or 12.0%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase in cost of goods sold was primarily due to a $0.6 million increase in direct costs of goods sold resulting from increased sales, a $0.3 million increase in inventory provisions, and a $0.2 million increase in allocations of payroll and related costs. During the three months ended September 30, 2024, gross profit increased by $3.4 million, or 10.3%, as compared to the same period in 2023, due to increased revenue from a product mix shift. Gross profit margin for the three months ended September 30, 2024 decreased from 80.4% to 80.1%, as compared to the same period in 2023, primarily due to increases in inventory provisions, a product mix shift to newer products, and allocations of payroll and related costs, partially offset by lower royalty rates.

Previous wording

Sales and Marketing Expenses. Sales and marketing expenses increased by $10.6 million, or 15.7%, for the six months ended June 30, 2024 as compared to the same period in 2023. Sales and marketing expenses increased due to $8.3 million in higher payroll and related expenses primarily from increased headcount of sales and marketing personnel, including stock compensation expense, an increase of $0.9 million in surgical instrument expense due to an increase in volume of surgical instruments, an increase of $0.8 million due to higher costs for conferences and events due to an expanding sales force and surgeon base, and a $0.6 million increase in commissions due to higher sales. Of the $8.3 million increase in payroll and related expenses, $0.9 million was related to a non-recurring restructuring charge that includes severance and other post-employment benefits.

Current wording

Sales and Marketing Expenses. Sales and marketing expenses decreased by $0.8 million, or 2.3%, for the three months ended September 30, 2024 as compared to the same period in 2023. Sales and marketing expenses decreased due to $0.9 million lower advertising fees for direct to consumer campaigns, a $0.5 million decrease in surgeon training and clinical-related expenses, a $0.3 million decrease in professional services related to marketing, and a decrease of $0.3 million due to lower costs for conferences and events, partially offset by an increase of $0.6 million in commissions due to higher sales, an increase of $0.4 million in surgical instrument expense due to an increase in volume of surgical instruments, and $0.3 million in higher payroll and related expenses primarily from increased headcount of sales and marketing personnel, including stock compensation expense.

Previous wording

Research and Development Expenses. R&D expenses increased by $3.5 million, or 50.1%, for the six months ended June 30, 2024 as compared to the same period in 2023. The increase in R&D expenses was primarily due to a $2.7 million increase in payroll and related costs resulting from increased headcount of research and development personnel, including stock compensation expense, and a $0.5 million increase related to the technological advancements milestone obligation from our acquisition of RPM-3D.

Current wording

Research and Development Expenses. R&D expenses increased by $0.6 million, or 14.1%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase in R&D expenses was primarily due to a $1.1 million increase in payroll and related costs resulting from increased headcount of research and development personnel, including stock compensation expense, partially offset by a $0.4 million decrease in healthcare professional costs for R&D activities.

Previous wording

General and Administrative Expenses. General and administrative expenses increased by $4.2 million, or 41.7%, for the three months ended June 30, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was due to a $2.0 million increase in the provision for allowance for credit losses that includes a $2.1 million write-off of receivables due from a customer that filed bankruptcy in the second quarter, $1.4 million in higher payroll and related costs, primarily due to higher stock compensation expense, a $0.6 million increase in professional services primarily related to legal fees, and a $0.3 million increase in amortization of finite-lived intangible assets from our acquisition of RPM-3D.

Current wording

General and Administrative Expenses. General and administrative expenses increased by $0.8 million, or 6.6%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was due to $1.5 million in higher payroll and related cost, due to higher stock compensation expense, a $0.6 million increase in professional services primarily related to legal fees, and a $0.2 million increase in the provision for allowance for credit losses partially offset by a decrease of $1.5 million in compensation expense related to the milestone obligations for our acquisition of RPM-3D that were fully expensed in the second quarter of 2024.

Previous wording

Interest Income. Interest income decreased $0.6 million during the three months ended June 30, 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period as we fund current operations.

Current wording

Interest Income. Interest income decreased $0.5 million, or 32.0%, during the three months ended September 30, 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period and slightly lower interest rates.

Previous wording

Revenue. Revenue increased by $11.4 million, or 13.6%, for the six months ended June 30, 2024 as compared to the same period in 2023. The increase was driven primarily by a product mix shift that resulted from increased adoption of newer technologies and an increase in our active surgeon base.

Current wording

Revenue. Revenue increased by $15.7 million, or 12.6%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase was driven primarily by a product mix shift that resulted from increased adoption of newer technologies and increased sales of ancillary products used in bunion cases and an increase in active surgeons.

Previous wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $3.2 million, or 20.3%, for the six months ended June 30, 2024 as compared to the same period in 2023. The increase in cost of goods sold was primarily due to a $2.3 million increase in direct costs of goods sold resulting from increased sales, a $0.5 million increase in allocations of payroll and related costs, and a $0.3 million increase in inventory provisions. During the six months ended June 30, 2024, gross profit increased by $8.2 million, or 12.0%, as compared to the same period in 2023, due to increased sales. Gross profit margin for the six months ended June 30, 2024 decreased from 81.3% to 80.2%, as compared to the same period in 2023, primarily due to a product mix shift to newer products, an increase in allocations of payroll and related costs, and an increase in inventory provisions, partially offset by lower royalty rates.

Current wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $4.2 million, or 17.5%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase in cost of goods sold was primarily due to a $3.0 million increase in direct costs of goods sold resulting from increased sales, a $0.7 million increase in allocations of payroll and related costs, and a $0.5 million increase in inventory provisions. During the nine months ended September 30, 2024, gross profit increased by $11.6 million, or 11.5%, as compared to the same period in 2023, due to increased sales. Gross profit margin for the nine months ended September 30, 2024 decreased from 81.0% to 80.2%, as compared to the same period in 2023, primarily due to a product mix shift to newer products, an increase in inventory provisions, and an increase in allocations of payroll and related costs, partially offset by lower royalty rates.

Previous wording

Sales and Marketing Expenses. Sales and marketing expenses increased by $3.9 million, or 11.6%, for the three months ended June 30, 2024 as compared to the same period in 2023. Sales and marketing expenses increased due to $3.7 million in higher payroll and related expenses primarily from increased headcount of sales and marketing personnel, including stock compensation expense, an increase of $0.9 million in commissions due to higher sales, and an increase of $0.3 million in surgical instrument expense due to an increase in volume of surgical instruments, partially offset by a decrease of $0.5 million due to lower advertising fees for direct to consumer campaigns, and a decrease of $0.4 million due to lower costs for conferences and events. Of the $3.7 million increase in payroll and related expenses, $0.9 million was related to a non-recurring restructuring charge that includes severance and other post-employment benefits.

Current wording

Sales and Marketing Expenses. Sales and marketing expenses increased by $9.8 million, or 9.7%, for the nine months ended September 30, 2024 as compared to the same period in 2023. Sales and marketing expenses increased due to $8.6 million in higher payroll and related expenses primarily from increased headcount of sales and marketing personnel, including stock compensation expense, an increase of $1.4 million in surgical instrument expense due to an increase in the volume of surgical instruments, a $1.1 million increase in commissions due to higher sales, and an increase of $0.5 million due to higher costs for conferences and events from an expanding sales force and surgeon base, partially offset by a decrease of $1.0 million in surgeon training and clinical-related costs and a decrease of $0.8 million in advertising fees for direct to consumer campaigns. Of the $8.6 million increase in payroll and related expenses, $0.9 million was related to a non-recurring restructuring charge that includes severance and other post-employment benefits.

Previous wording

Research and Development Expenses. R&D expenses increased by $1.6 million, or 46.3%, for the three months ended June 30, 2024 as compared to the same period in 2023. The increase in R&D expenses was primarily due to a $1.1 million increase in payroll and related costs resulting from increased headcount of research and development personnel, including stock compensation expense, and a $0.3 million increase related to the technological advancements milestone obligation from our acquisition of RPM-3D.

Current wording

Research and Development Expenses. R&D expenses increased by $4.1 million, or 36.2%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase in R&D expenses was primarily due to a $3.8 million increase in payroll and related costs resulting from increased headcount of research and development personnel, including stock compensation expense, and a $0.4 million increase related to the technological advancements milestone obligation from our acquisition of RPM-3D.

Previous wording

General and Administrative Expenses. General and administrative expenses increased by $7.7 million, or 36.8%, for the six months ended June 30, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was primarily related to $4.6 million in higher payroll and related costs, primarily due to higher stock compensation expense, a $2.1 million increase in the provision for allowance for credit losses that includes a $2.1 million write-off of receivables due from a customer that filed bankruptcy in the second quarter, a $1.0 million increase in compensation expense related to the milestone obligations for our acquisition of RPM-3D, and a $0.5 million increase in amortization of finite-lived intangible assets from our acquisition of RPM-3D, partially offset by a $0.8 million decrease in legal fees.

Current wording

General and Administrative Expenses. General and administrative expenses increased by $8.5 million, or 25.4%, for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase in general and administrative expenses was primarily related to $6.2 million in higher payroll and related costs, due to higher stock compensation expense, a $2.3 million increase in the provision for allowance for credit losses that includes a $2.1 million write-off of receivables due from a customer that filed bankruptcy in the second quarter, and a $0.5 million increase in amortization of finite-lived intangible assets from our acquisition of RPM-3D, partially offset by a $0.5 million decrease in compensation expense related to the milestone obligations for our acquisition of RPM-3D that was fully expensed in the second quarter of 2024.

Previous wording

Interest Income. Interest income decreased $0.5 million during the six months ended June 30, 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period as we fund current operations.

Current wording

Interest Income. Interest income decreased $1.0 million, or 20.7%, during the nine months ended September 30, 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period and slightly lower interest rates.

Previous wording

As of June 30, 2024, we had cash and cash equivalents of $18.2 million and marketable securities of $76.9 million available for sale, an accumulated deficit of $174.1 million and $54.0 million principal outstanding under the term and revolving loans with MidCap. We believe that our existing cash and cash equivalents, marketable securities and available debt borrowings and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least twelve months from the issuance of our condensed financial statements. We may be required or decide to raise additional financing to support further growth of our operations.

Current wording

As of September 30, 2024, we had cash and cash equivalents of $12.1 million and marketable securities of $70.7 million available for sale, an accumulated deficit of $189.5 million and $54.0 million principal outstanding under the term and revolving loans with MidCap. We believe that our existing cash and cash equivalents, marketable securities and available debt borrowings and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least twelve months from the issuance of our condensed financial statements. We may be required or decide to raise additional debt or equity financing to support further growth of our operations.

Previous wording

We use our cash, marketable securities, and revenues to fund our operations, which primarily include the costs of manufacturing our Lapiplasty, Adductoplasty, and, SpeedPlate Systems, and other ancillary products, as well as our sales and marketing, R&D, and general and administrative expenses. We expect our sales and marketing expenses to increase as we continue to support sales and marketing efforts. We also expect R&D expenses to increase as we continue to hire personnel and invest in next-generation innovations of our existing products and new products. The timing and amount of our operating and capital expenditures will depend on many factors, including:

Current wording

We use our cash, marketable securities, and revenues to fund our operations, which primarily include the costs of manufacturing our Lapiplasty, Adductoplasty, SpeedPlate, and other products, as well as our sales and marketing, R&D, and general and administrative expenses. We expect R&D expenses to increase as we continue to hire personnel and invest in next-generation innovations of our existing products and new products. The timing and amount of our operating and capital expenditures will depend on many factors, including:

Previous wording

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including enforcing our intellectual property rights against infringing products or technologies or enforcing contractual rights against parties breaching agreements with us;

Current wording

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including enforcing our intellectual property rights against infringing products or technologies or enforcing contractual rights against parties breaching agreements with us, including the litigation proceeding we initiated against Stryker;

Previous wording

the research and development activities we intend to undertake in order to improve the Lapiplasty System and other products, to commercialize PSI technologies, and to develop or acquire additional products;

Current wording

the research and development activities we intend to undertake in order to improve the Lapiplasty System and other products, to commercialize PSI technologies, to gain share in the minimally invasive osteotomy market, and to develop or acquire additional products;

Previous wording

the impact of any infectious disease outbreak on our business.

Current wording

the impact of any infectious disease outbreak or natural or other disaster or event beyond our control on our business or on the healthcare industry, particularly elective surgeries where our products are used.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2024 was $21.1 million, consisting primarily of a net loss of $39.9 million, adjusted for non-cash charges of $21.3 million and an increase in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $14.1 million, depreciation and amortization expense of $4.0 million, provision for allowance for credit losses of $2.2 million primarily due to a significant customer that filed for bankruptcy, and non-cash lease expense of $1.2 million. The increase in net operating assets was primarily due to an increase of $12.0 million in inventories to meet demand for new products and a decrease of $5.9 million in accrued liabilities due to timing of payments, and a $1.3 million decrease to operating lease liabilities, partially offset by a $10.3 million decrease in accounts receivable from higher sales in the fourth quarter of 2023 and an increase of $6.2 million in accounts payable due to timing of payments.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 was $33.0 million, consisting primarily of a net loss of $55.2 million, adjusted for non-cash charges of $30.6 million and an increase in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $22.0 million, depreciation and amortization expense of $6.2 million, and provision for allowance for credit losses of $2.4 million primarily due to a significant customer that filed for bankruptcy. The increase in net operating assets was primarily due to an increase of $14.4 million in inventories to meet demand for new products and a decrease of $12.8 million in accrued liabilities due to timing of payments, and an increase of $0.3 million in other non-current assets, partially offset by a $11.5 million decrease in accounts receivable from higher sales in the fourth quarter of 2023, an increase of $6.8 million in accounts payable due to timing of payments, and a $0.8 million decrease in prepaid expenses and other current assets.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2023 was $25.6 million, consisting primarily of a net loss of $25.7 million, adjusted for non-cash charges of $9.1 million and an increase in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $6.3 million, depreciation and amortization expense of $2.0 million and non-cash lease expense of $1.3 million. The increase in net operating assets was primarily due to an increase of $6.7 million in inventories for added safety stock to meet demand for new products and to avoid potential supply chain issues, an increase of $1.6 million in prepaid expenses and other assets, and a decrease of $3.7 million in accrued liabilities and accounts payable due to timing of payments, which were partially offset by a $1.9 million decrease in accounts receivable from higher sales in the fourth quarter of 2022 and a $1.1 million increase to operating lease liabilities primarily due to timing of lease incentives.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2023 was $35.1 million, consisting primarily of a net loss of $43.2 million, adjusted for non-cash charges of $16.4 million and an increase in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $11.5 million, depreciation and amortization expense of $3.6 million and non-cash lease expense of $1.9 million, partially offset by amortization and accretion of marketable securities of $1.0 million. The increase in net operating assets was primarily due to an increase of $9.9 million in inventories for added safety stock to meet demand for new products and to avoid potential supply chain issues, an increase of $1.0 million in prepaid expenses and other assets (excluding unsettled securities transactions) and a decrease of $2.0 million in accrued liabilities, which were partially offset by a $4.1 million decrease in accounts receivable from higher sales in the fourth quarter of 2022 and a $0.5 million increase to operating lease liabilities primarily due to timing of lease incentives. The decrease of $2.0 million in accrued liabilities consisted of a decrease of $3.8 million due to timing of payments, offset by an increase of $1.8 million due to increased accrued compensation expense related to our acquisition of RPM-3D in the second quarter 2023.

Previous wording

Net cash provided by investing activities was $26.2 million for the six months ended June 30, 2024, consisting primarily of $60.6 million in sales and maturities of available for sale marketable securities, partially offset by $28.7 million in purchases of available for sale marketable securities and $5.7 million in purchases of property and equipment. The net of marketable securities sales and maturities and purchases of $31.9 million were primarily used to fund our current operations and provide additional liquidity for the third quarter. The purchases in property and equipment included $4.9 million in capitalized surgical instruments for the reusable instrument trays related to new products, and $0.8 million for equipment and leasehold improvements to support the growth of our business.

Current wording

Net cash provided by investing activities was $32.0 million for the nine months ended September 30, 2024, consisting primarily of $93.4 million in sales and maturities of available for sale marketable securities, partially offset by $52.9 million in purchases of available for sale marketable securities and $8.5 million in purchases of property and equipment. The net of marketable securities sales and maturities and purchases of $40.5 million were primarily used to fund our current operations. The purchases in property and equipment included $6.7 million in capitalized surgical instruments for the reusable instrument trays related to new products, and $1.8 million for equipment and leasehold improvements to support the growth of our business.

Previous wording

Net cash used in investing activities was $90.9 million for the six months ended June 30, 2023, consisting primarily of $121.0 million in purchases of marketable securities available for sale, $20.0 million for the acquisition of the RPM-3D assets, and $5.7 million in purchases of property and equipment, partially offset by $55.8 million in sales and maturities of marketable securities available for sale. The purchases of marketable securities were the result of cash invested from our public offering of common stock during the first quarter of 2023. The purchases in property and equipment were $2.1 million in capitalized surgical instruments for our reusable instrument trays and $3.6 million for furniture, equipment, and leasehold improvements to continue to complete our new corporate headquarters.

Current wording

Net cash used in investing activities was $86.3 million for the nine months ended September 30, 2023, consisting primarily of $140.1 million in purchases of marketable securities available for sale, $20.0 million for the acquisition of the RPM-3D assets, and $9.2 million in purchases of property and equipment, partially offset by $83.0 million in sales and maturities of marketable securities available for sale. The purchases of marketable securities were the result of cash invested from our public offering of common stock during the first quarter of 2023. The purchases in property and equipment were $3.6 million in capitalized surgical instruments for our reusable instrument trays and $5.6 million for furniture, equipment, and leasehold improvements to continue to complete our new corporate headquarters.

Previous wording

Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2024, consisting primarily of $0.4 million in proceeds from stock option exercises, partially offset by $0.2 million of shares repurchased for tax withholding on vested RSUs.

Current wording

Net cash provided by financing activities was $0.1 million for the nine months ended September 30, 2024, consisting primarily of $0.4 million in proceeds from stock option exercises, partially offset by $0.2 million of shares repurchased for tax withholding on vested RSUs.

Previous wording

Net cash provided by financing activities was $109.1 million for the six months ended June 30, 2023, consisting primarily of $107.5 million of net cash proceeds from our public offering of common stock and $1.5 million from exercise of stock options.

Current wording

Net cash provided in financing activities was $109.2 million for the nine months ended September 30, 2023, consisting primarily of $107.5 million of net cash proceeds from our public offering of common stock and $1.7 million from exercise of stock options.

Previous wording

We recognized royalty expense of $1.4 million and $1.6 million for the three months ended June 30, 2024 and 2023, respectively, and $3.2 million and $3.2 million for the six months ended June 30, 2024 and 2023, respectively. For the three months ended June 30, 2024 and 2023, the aggregate royalty rate was 3.3% and 3.7%, respectively. For the six months ended June 30, 2024 and 2023, the aggregate royalty rate was 3.3% and 3.8%, respectively. Each of the royalty agreements with our surgeon consultants prohibits the payment of royalties on products sold to entities and/or individuals with whom any of the surgeon advisors is affiliated.

Current wording

We recognized royalty expense of $1.4 million and $1.5 million for the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $4.7 million for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024 and 2023, the aggregate royalty rate was 3.2% and 3.8%, respectively. For the nine months ended September 30, 2024 and 2023, the aggregate royalty rate was 3.3% and 3.8%, respectively. Each of the royalty agreements with our surgeon consultants prohibits the payment of royalties on products sold to entities and/or individuals with whom any of the surgeon advisors is affiliated.

Previous wording

We have commitments for future payments related to our corporate headquarters office located in Ponte Vedra, Florida. We entered into a 10-year lease in February 2022 for our headquarters which expires in July 2032. Lease payments comprise the base rent plus operating costs which includes taxes, insurance, and common area maintenance. We also have commitments for future payments related to our former headquarters which expire in April 2026. We have obtained subleases for this space. The remaining lease obligations are $24.5 million under these leases as of June 30, 2024.

Current wording

We have commitments for future payments related to our corporate headquarters office located in Ponte Vedra, Florida. We entered into a 10-year lease in February 2022 for our headquarters which expires in July 2032. Lease payments comprise the base rent plus operating costs which includes taxes, insurance, and common area maintenance. We also have commitments for future payments related to our former headquarters which expire in April 2026. We have obtained subleases for this space. The remaining lease obligations are $24.3 million under these leases as of September 30, 2024.

Previous wording

Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report. There had been no material changes to these accounting policies during the six months ended June 30, 2024.

Current wording

Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report. There had been no material changes to these accounting policies during the nine months ended September 30, 2024.