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. 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.

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 and Percuplasty Procedures, which both allow for a 3D correction of the bunion through cosmetically appealing, minimally invasive solutions. With our Lapiplasty System, new osteotomy systems, and other complementary 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

We were formed in 2013, and since receiving 510(k) clearance for the Lapiplasty System in March 2015, we have sold more than 100,000 Lapiplasty Procedure kits in the United States. We market and sell our Lapiplasty Systems to physicians, surgeons, ambulatory surgery centers and hospitals. The Lapiplasty Procedure can be performed in either hospital outpatient or ambulatory surgery centers settings, and utilizes existing, well-established reimbursement codes. We currently market and sell the Lapiplasty System and other products through a combination of a direct employee sales force and independent sales agencies across the United States.

Current wording

We were formed in 2013, and since receiving 510(k) clearance for the Lapiplasty System in March 2015, we have expanded our bunion related products in the United States. We market and sell our products to physicians, surgeons, ambulatory surgery centers, hospitals, and stocking distributors. Our procedures can be performed in either hospital outpatient or ambulatory surgery centers settings, and utilize existing, well-established reimbursement codes. We currently market and sell our products through a combination of a direct employee sales force and independent sales agencies in the United States.

Previous 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.

Current wording

As of March 31, 2025, we had cash and cash equivalents of $13.4 million and marketable securities of $62.7 million available for sale to fund operations, an accumulated deficit of $205.9 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 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.

Current wording

There is continuing uncertainty in the macro-economic environment. Inflationary pressures and interest rate changes may result in higher costs for us. Inflation, recession fears, reduced consumer confidence and other adverse economic conditions also have in the past and may continue to negatively impact consumer demand for the elective surgeries that use our products. While we continuously work with suppliers to mitigate higher costs 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. Adding to these uncertainties are recently announced U.S. tariff policies on imports, along with retaliatory tariffs, that are changing rapidly. While we expect that the tariffs are likely to increase our inventory costs and reduce gross margins, we do not expect these impacts to be material at the most recently announced tariff rates.

Previous wording

Before we launched our flagship Lapiplasty system, there were no other products in the market that provided a 3D solution and specialized procedural instrumentation for these traditionally freehand, difficult Lapidus surgeries, which allowed us to capitalize on our pioneering technology and grow our market share quickly. We are experiencing increased competition from the accelerating adoption of minimally invasive osteotomy solutions and from new Lapidus products, which has, and may continue to, negatively impact our growth rates and market share.

Current wording

Before we launched our flagship Lapiplasty System, there were no other products in the market that provided a 3D solution and specialized procedural instrumentation for traditionally freehand, difficult Lapidus surgeries. This allowed us to capitalize on our pioneering technology and grow our market share quickly. We are experiencing increased competition from the accelerating adoption of minimally invasive osteotomy solutions and from new Lapidus products, which has, and may continue to, negatively impact our growth rates and market share.

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.

Current wording

In research and development, our employee 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 MIOS Marketing, LLC d/b/a RedPoint Medical3D ("RPM-3D") used in offering pre-operative planning and patient-specific guides for foot surgeries, 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 expect to introduce new products on a steady cadence through 2025, including launching the limited market releases of the following new products during the fourth quarter of 2024 or soon thereafter: (1) the Nanoplasty™ system, a minimally invasive 3D osteotomy system, (2) IntelliGuide™ PSI Cut Guides for Lapiplasty and Adductoplasty procedures, which are cut guides created specifically for an individual patient’s foot anatomy, (3) expanded SpeedPlate configurations designed to address additional fusion procedures throughout the foot, (4) the Micro-Lapiplasty system, which is designed to allow the Lapiplasty Procedure to be performed through a minimally-invasive 2cm incision; and (5) the Mini-Adductoplasty System, which is designed to allow the Adductoplasty midfoot correction procedure to be performed through an approximately 50% smaller incision.

Current wording

In early 2024, we introduced expanded SpeedPlate configurations designed to address additional fusion procedures throughout the foot, and in the fourth quarter of 2024, we began the limited market releases of the following new products: (1) the Nanoplasty™ and Percuplasty™ Systems, which are minimally-invasive 3D osteotomy systems; (2) IntelliGuide™ PSI Cut Guides for Lapiplasty and Adductoplasty Procedures, which are cut guides created specifically for an individual patient’s foot anatomy; (3) the Micro-Lapiplasty™ System, which is designed to allow the Lapiplasty Procedure to be performed through a minimally-invasive 2cm incision; (4) the Mini-Adductoplasty™ System, which is designed to allow the Adductoplasty midfoot correction procedure to be performed through an approximately 50% smaller incision; and (5) the SpeedMTP™ Rapid Compression Implant, a specialized implant for addressing bunions through MTP fusions. In the first quarter of 2025, we launched the SpeedAkin™ implant used in Akin osteotomy procedures and the SpeedPlate™ Micro-Quad implant. We expect to continue to expand the commercial availability of these new products and to release other new solutions during 2025.

Previous wording

We actively seek to protect the technology, inventions, and improvements that we consider important to our business using patents, trade secrets, trademarks and copyrights in the United States and foreign markets. As of September 30. 2024, our patent portfolio included 65 granted U.S. patents, with an additional 24 granted patents worldwide and over 100 pending patent applications. In keeping with our strategy of protecting our intellectual property rights, on October 14, 2024, we filed a lawsuit against Stryker Corporation ("Stryker") and its subsidiary Wright Medical Technology, Inc. alleging infringement of 9 patents related to our innovative Lapiplasty® 3D Bunion Correction® technologies and unfair competition. The suit was filed in the United States District Court for the District of New Jersey, and seeks injunctive relief and damages.

Current wording

We actively seek to protect the technology, inventions, and improvements that we consider important to our business using patents, trade secrets, trademarks and copyrights in the United States and foreign markets. As of March 31, 2025, our patent portfolio included 75 granted U.S. patents, with an additional 26 granted patents worldwide and over 150 pending patent applications. In keeping with our strategy of protecting our intellectual property rights, on October 14, 2024, we filed a lawsuit against Stryker Corporation (collectively, "Stryker") and its subsidiary Wright Medical Technology, Inc. alleging infringement of 9 patents related to our innovative Lapiplasty® 3D Bunion Correction® technologies and unfair competition. The suit was filed in the United States District Court for the District of New Jersey, and seeks injunctive relief and damages.

Previous wording

The growth of our business depends on our ability to gain broader acceptance of the Lapiplasty System as well as our other existing products and the new systems that we intend to introduce by successfully marketing and distributing these products. While surgeon adoption of the Lapiplasty Procedure and our other products and procedures remains critical to supporting procedure growth, hospital and ambulatory surgery center facility approvals are necessary for both existing and future surgeon customers to access our products. To facilitate greater access to our products and support future sales growth, we intend to continue educating hospitals and facility administrators on the differentiated benefits associated with the Lapiplasty System as well as new systems we plan to introduce, supported by our robust portfolio of clinical data on our existing procedures and additional clinical data we expect to develop on our new products. If we are unable to successfully continue to commercialize our Lapiplasty System and to successfully introduce new products, we may not be able to generate sufficient revenue to achieve or sustain profitability. In the near term, we expect we will continue to operate at a loss, and we anticipate we will finance our operations principally through the use of our cash and cash equivalents, marketable securities, and expected revenues. We may also raise funds by incurring debt and through offerings of our capital stock.

Current wording

The growth of our business depends on our ability to gain broader acceptance of our proprietary procedures and systems by successfully marketing and distributing these products. While surgeon adoption of our products and procedures remains critical to supporting revenue growth, hospital and ambulatory surgery center facility approvals are necessary for existing and future surgeon customers to access our products. To facilitate greater access to our products and support future sales growth, we intend to continue educating hospitals and facility administrators on the differentiated benefits associated with our procedures and systems, supported by our robust portfolio of clinical data on our existing procedures and additional clinical data we expect to develop on our new products. If we are unable to successfully continue to commercialize our procedures and systems, we may not be able to generate sufficient revenue to achieve or sustain profitability. In the near term, we expect we will continue to operate at a loss, and we anticipate we will finance our operations principally through the use of our cash and cash equivalents, marketable securities, and expected revenues. We may also raise funds by incurring debt and through offerings of our capital stock.

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 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.

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. We have experienced and expect to continue to experience seasonality, with lower sales volumes in the second and third quarters than throughout the rest of the year as elective procedures generally decline during the spring and summer months.

Previous wording

We currently generate revenue from the sale of our proprietary Lapiplasty System and the minimally invasive variations, Adductoplasty System, Hammertoe PEEK Fixation System, SpeedPlate Implant Fixation Platform, single use osteotomes and release instruments, and other ancillary products. These systems bring together single-use implant kits, reusable instrument trays, and surgical techniques. We sell the kits and single use instruments and other products to physicians, surgeons, hospitals and ambulatory surgery centers in the United States through a network of employee sales representatives and independent sales agencies.

Current wording

We currently generate revenue from the sale of our implant kit systems, single-use sterile instruments, and other complementary products. Our systems bring together single-use implant kits, reusable instrument trays, and surgical techniques. We sell the kits and single-use instruments and other products to physicians, surgeons, hospitals, ambulatory surgery centers, and stocking distributors in the United States through a network of employee sales representatives and independent sales agencies.

Previous 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.

Current wording

No single customer accounted for 10% or more of our revenue during the three months ended March 31, 2025. We expect our revenue to increase in absolute dollars in the foreseeable future as we expand our product offerings, new accounts and trained physician base, and as existing physician customers perform more Lapiplasty and other procedures using our products, though our rate of revenue growth may fluctuate from quarter to quarter due to a variety of factors, including seasonality, the macro-economic environment and competition.

Previous wording

Cost of goods sold consists primarily of costs for the purchase of our products from third-party manufacturers. Direct costs from our third-party manufacturers include costs for raw materials plus the markup for the assembly of the components. Cost of goods sold also includes royalties, allocated overhead for indirect labor, certain direct costs such as those incurred for shipping our products, sterilization, packaging, and personnel costs. We expense all inventory provisions for excess, obsolete and field losses as cost of goods sold. We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. We expect our cost of goods sold to increase in absolute dollars in the foreseeable future to the extent more of our products are sold, though it may fluctuate from quarter to quarter.

Current wording

Cost of goods sold consists primarily of costs for the purchase of our products from third-party manufacturers. Direct costs from our third-party manufacturers include costs for raw materials plus the markup for the assembly of the components. Cost of goods sold also includes royalties, allocated overhead for indirect labor, certain direct costs such as those incurred for shipping our products, sterilization, packaging, and personnel costs. We expense all inventory provisions for excess, obsolete and field losses as cost of goods sold. We evaluate the carrying value of our inventories in relation to historical sales, current inventory levels, and consideration of the life cycle of the product. A significant decrease in demand or development of products could result in an increase in the amount of excess or obsolete inventory on hand, which could lead to additional provisions. We expect our cost of goods sold to increase in absolute dollars in the foreseeable future to the extent more of our products are sold, though it may fluctuate from quarter to quarter.

Previous wording

Research and development ("R&D") expenses consist primarily of engineering, product development, clinical studies to develop and support our products, regulatory expenses, and other costs associated with products and technologies that are in development. These expenses include compensation for personnel, including salaries, bonuses, benefits and share-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation, and an allocation of facility overhead expenses. We expect R&D expenses to continue to increase in absolute dollars in the foreseeable future as we continue to hire personnel and invest in next-generation innovations of the Lapiplasty System and other products, though it may fluctuate from quarter to quarter due to a variety of factors, including the level and timing of our new product development efforts, as well as our clinical development, clinical studies and other related activities.

Current wording

Research and development ("R&D") expenses consist primarily of engineering, product development, clinical studies to develop and support our products, regulatory expenses, and other costs associated with products and technologies that are in development. These expenses include compensation for personnel, including salaries, bonuses, benefits and share-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation, and allocated facilities-related expenses. We expect R&D expenses to continue to increase in absolute dollars in the foreseeable future as we continue to hire personnel and invest in next-generation innovations of our existing products and new products, though it may fluctuate from quarter to quarter due to a variety of factors, including the level and timing of our new product development efforts, as well as our clinical development, clinical studies and other related activities.

Previous wording

General and administrative expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, and share-based compensation, related to finance, information technology, legal and human resource functions, as well as professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses and allocated facilities-related expenses. We have the infrastructure and personnel in place to support the growth of our organization.

Current wording

General and administrative expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, and share-based compensation, related to finance, information technology, legal and human resource functions, as well as professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses, and allocated facilities-related expenses.

Previous 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.

Current wording

Revenue. Revenue increased by $1.5 million, or 2.9%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase was driven primarily by an increase in the number of bunion procedure kits sold.

Previous 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.

Current wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $0.6 million, or 5.4%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase in cost of goods sold was primarily due to a $0.8 million increase in inventory provisions. During the three months ended March 31, 2025, gross profit increased by $0.9 million, or 2.2%, as compared to the same period in 2024, due to increased sales. Gross profit margin for the three months ended March 31, 2025 decreased from 80.2% to 79.7%, as compared to the same period in 2024, primarily due to increases in inventory provisions.

Previous 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.

Current wording

Sales and Marketing Expenses. Sales and marketing expenses decreased by $4.2 million, or 10.4%, for the three months ended March 31, 2025 as compared to the same period in 2024. Sales and marketing expenses decreased due to lower advertising spend of $3.7 million for direct to consumer campaigns, a $3.5 million decrease in payroll and related costs primarily due to optimizing the size and structure of our direct employee sales force, and a decrease of $0.6 million due to lower costs for conferences and events, partially offset by an increase of $1.5 million for surgeon training and clinical-related expenses, an increase of $1.3 million in commissions due to higher sales, and an increase of $0.5 million in surgical instrument expense due to an increase in volume of surgical instruments.

Previous 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.

Current wording

Research and Development Expenses. R&D expenses increased by $0.3 million, or 5.8%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase in R&D expenses was primarily due to a $0.3 million increase in the Company's products and instrumentation used for the R&D process, a $0.2 million increase in payroll and related costs, partially offset by a $0.2 million decrease in compensation expense related to the milestone obligation for our acquisition of RPM-3D.

Previous 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.

Current wording

General and Administrative Expenses. General and administrative expenses increased by $1.4 million, or 9.9%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase in general and administrative expenses was due to $1.9 million in higher payroll and related costs, including stock compensation expense and a $0.3 million increase in the provision for allowance for credit losses, partially offset by a decrease of $1.1 million in compensation expense related to the milestone obligation for our acquisition of RPM-3D.

Previous 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.

Current wording

Interest Income. Interest income decreased $0.7 million, or 45.2%, during the three months ended March 31, 2025. 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

Before our IPO, our primary sources of capital were private placements of common stock and convertible preferred stock, debt financing agreements and revenue from the sale of our products. In April 2021, we received net proceeds of $107.6 million from our IPO. On February 10, 2023, we received net proceeds of $107.5 million from a follow-on public offering of our common stock.

Current wording

Before our initial public offering ("IPO"), our primary sources of capital were private placements of common stock and convertible preferred stock, debt financing agreements and revenue from the sale of our products. In April 2021, we received net proceeds of $107.6 million from our IPO. On February 10, 2023, we received net proceeds of $107.5 million from a follow-on public offering of our common stock.

Previous 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.

Current wording

As of March 31, 2025, we had cash and cash equivalents of $13.4 million and marketable securities of $62.7 million available for sale, an accumulated deficit of $205.9 million and $54.0 million of principal outstanding under our term loan and revolving loan agreements. We believe that our existing cash and cash equivalents, marketable securities, 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 date of issuance of these 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, 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:

Current wording

We use our cash, marketable securities, and revenues to fund our operations, which primarily include the costs of manufacturing our products, capital expenditures, as well as our operating 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 and use of available funding will depend on many factors, including:

Previous wording

the degree and rate of market acceptance of the Lapiplasty System and our other products;

Current wording

the degree and rate of market acceptance of our products;

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, to gain share in the minimally invasive osteotomy market, and to develop or acquire additional products;

Current wording

the research and development activities we intend to undertake 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 effect of inflation, interest rate changes, and other general economic conditions on our operations and business;

Current wording

the effect of inflation, interest rate changes, new or increased tariffs, changes in trade policy or global trade disruptions and other general economic conditions on our operations and business;

Previous wording

the expenses needed to attract and retain skilled personnel;

Current wording

the expenses needed to attract and retain skilled personnel; and

Previous wording

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities, and available debt borrowings will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong or that may change in the future, and we could utilize our available capital resources sooner than we expect. We may seek to raise any necessary additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these or other funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts, sales and marketing initiatives, or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.

Current wording

Based upon our current operating plan, we believe that our existing cash, cash equivalents, marketable securities, and available debt borrowings will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong or that may change in the future, and we could utilize our available capital resources sooner than we expect. We may seek to raise any necessary additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these or other funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts, sales and marketing initiatives, or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution, and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to provide additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.

Previous 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.

Current wording

Net cash provided by operating activities for the three months ended March 31, 2025 was $4.2 million, consisting primarily of a net loss of $15.9 million, adjusted for non-cash charges of $12.4 million and a decrease in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $8.7 million, depreciation and amortization expense of $2.5 million, non-cash lease expense of $0.6, and provision for allowance for credit losses of $0.4 million. The decrease in net operating assets was primarily due to a decrease of $9.3 million in accounts receivable from higher sales in the fourth quarter of 2024, a decrease of $1.4 million in prepaid expenses and other current assets, and a decrease of $1.3 million in inventory, and an increase in accounts payable of $2.7 million due to timing of payments, partially offset by a decrease of $6.2 million in accrued liabilities due to timing of payments and a decrease of $0.8 million in operating lease liabilities.

Previous 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.

Current wording

Net cash used in operating activities for the three months ended March 31, 2024 was $7.2 million, consisting primarily of a net loss of $18.7 million, adjusted for non-cash charges of $9.9 million and a decrease in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $7.4 million, depreciation and amortization expense of $1.9 million, and non-cash lease expense of $0.6 million. The decrease in net operating assets was primarily due to an increase of $9.3 million in accounts payable primarily due to higher inventory and direct to consumer advertising purchases and a $7.8 million decrease in accounts receivable from higher sales in the fourth quarter of 2023, partially offset by a decrease of $6.9 million in accrued liabilities due to timing of payments, and an increase of $6.6 million in inventories to meet demand for new products.

Previous 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.

Current wording

Net cash used in investing activities was $1.9 million for the three months ended March 31, 2025, consisting primarily of $15.1 million in purchases of available for sale marketable securities, $3.5 million in purchases of property and equipment, partially offset by $16.7 million in sales and maturities of available for sale marketable securities. The net of marketable securities sales and maturities and purchases of $1.6 million were primarily used to fund our current operations. The purchases in property and equipment included $2.8 million in capitalized surgical instruments for the reusable instrument trays related to new products, and $0.7 million for equipment and leasehold improvements to support the growth of our business.

Previous 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.

Current wording

Net cash provided by investing activities was $3.8 million for the three months ended March 31, 2024, consisting primarily of $36.4 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 $3.9 million in purchases of property and equipment. The net of marketable securities maturities and purchases of $7.7 million was primarily used to fund our current operations. The purchases in property and equipment included $3.5 million in capitalized surgical instruments for the reusable instrument trays related to new products, and $0.4 million for furniture, equipment, and leasehold improvements to support the growth of our business.

Previous 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.

Current wording

Net cash used in financing activities was $0.3 million for the three months ended March 31, 2025, consisting primarily of $0.4 million of shares repurchased for tax withholding on vested RSUs, partially offset by $0.1 million in proceeds from stock option exercises.

Previous 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.

Current wording

We recognized royalty expense of $1.6 million and $1.7 million for the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025 and 2024, the aggregate royalty rate was 3.1% and 3.4%, 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 $24.3 million under these leases as of September 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 include taxes, insurance, and common area maintenance. We also have commitments for future payments related to our former headquarters which expire in April 2026 and have subleased this space for the remainder of our lease term. The remaining lease obligations are $22.5 million under these leases as of March 31, 2025.

Previous wording

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

Current wording

Management’s discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of the condensed financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

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 nine months ended September 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 three months ended March 31, 2025.