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® 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.

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 entered 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 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 primarily market and sell our products through a combination of a direct employee sales force and independent sales agencies in 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 surgeons, ambulatory surgery centers, hospitals, and stocking distributors. As part of our strategy for 2025, we began utilizing a limited number of stocking distributors in the first quarter of 2025. Our procedures can be performed in either hospital outpatient or ambulatory surgery center settings, and utilize existing, well-established reimbursement codes. We primarily 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 June 30, 2025, we had cash and cash equivalents of $8.1 million and marketable securities of $61.2 million available for sale to fund operations, an accumulated deficit of $223.3 million and $54.0 million of principal outstanding under our term loan and revolving loan agreements.

Current wording

As of September 30, 2025, we had cash and cash equivalents of $7.7 million and marketable securities of $49.7 million available for sale to fund operations, an accumulated deficit of $239.6 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 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 evolving U.S. tariff policies on imports, along with retaliatory tariffs, that may change 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.

Current wording

The economy is expected to slow in the remainder of 2025 and 2026 amid continuing macroeconomic uncertainty. Inflation, recession fears, reduced consumer confidence, higher insurance deductibles and other costs, and other adverse economic conditions have and may continue to negatively impact consumer demand for our products that are used in elective surgeries. 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 macroeconomic challenges to continue for the foreseeable future, which likely will impact the demand for our products and our results of operations. Adding to these uncertainties are the protracted government shutdown and evolving U.S. tariff policies on imports, along with retaliatory tariffs, that may change 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 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.

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, market share, and results of operations. In order to drive increased penetration into the bunion market, we have introduced new bunion systems, including two minimally invasive osteotomy systems and a great toe fusion system. While the adoption of these new systems is increasing, we generally sell them at lower average selling prices than our Lapiplasty System. To the extent we lose market share or experience further declines in sales of our Lapiplasty System and we are unable to sufficiently increase sales of our new bunion systems to offset the declines in sales of our Lapiplasty System, our revenues and results of operations will be adversely affected.

Previous 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 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 half of 2025, we began the limited market release of the SpeedAkin™ implant used in Akin osteotomy procedures, the SpeedPlate Micro-Quad implant, and single use osteotomes, including the FeatherRasp™ Rapid Bone Contouring Tool, the GreatRelease™ Rapid MTP Release Instrument, Akinator™ Single-cut Akin Wedge Osteotomy Tool, and Sterile CornerChisel™ Instrument. We expect to continue to expand the commercial availability of these new products and to release other new solutions during 2025.

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 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 half of 2025, we began the limited market release of the SpeedAkin™ implant used in Akin osteotomy procedures, the SpeedPlate Micro-Quad implant, and four new single use osteotomes. We have continued to expand the commercial availability of these new products and to release other new solutions during 2025, including the Percuplasty™ MIS Power System, a specialized and scalable power drill that operates the single-use cutting burrs used in the Percuplasty™ procedure as well as other minimally invasive procedures throughout the foot, and biologics commonly used in foot and ankle fusion procedures. We plan to begin offering additional innovations in 2026, including the Lapiplasty Lightning platform designed to further increase the precision and speed of the Lapiplasty 3D correction, a new line of compression screws, and additional procedure specific SpeedPlate implants and sterile instruments.

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 June 30, 2025, our patent portfolio included 82 granted U.S. patents, with an additional 27 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 and its subsidiary Wright Medical Technology, Inc. (collectively, "Stryker") 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. In addition, on May 12, 2025, we filed a lawsuit against Zimmer Biomet Holdings, Inc. and Paragon 28, Inc. (collectively, "ZB") alleging infringement of 4 patents related to our innovative Lapiplasty 3D Bunion Correction technologies. The suit was filed in the United States District Court for the District of Delaware and seeks injunctive relief and damages. On August 5, 2025, we filed an amended complaint alleging infringement of an additional patent.

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 September 30, 2025, our patent portfolio included 90 granted U.S. patents, with an additional 31 granted patents worldwide and over 175 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 and its subsidiary Wright Medical Technology, Inc. (collectively, "Stryker") 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. In addition, on May 12, 2025, we filed a lawsuit against Zimmer Biomet Holdings, Inc. and Paragon 28, Inc. (collectively, "ZB") alleging infringement of 4 patents related to our innovative Lapiplasty 3D Bunion Correction technologies. The suit was filed in the United States District Court for the District of Delaware and seeks injunctive relief and damages. On August 5, 2025, we filed an amended complaint alleging infringement of an additional patent.

Previous 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.

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. To continue to build our market share, in 2025, we have added new commercial and sales leadership as well as experienced foot and ankle sales professionals to our team. While we have experienced overall increases in bunion procedure kit sales and in our market share, our flagship Lapiplasty System is expected to contribute less to our market share growth in future quarters, which could result in reduced revenues and impact our liquidity if product sales from our new bunion systems do not increase sufficiently to offset the decline in sales of the Lapiplasty System. 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. In addition to the seasonality noted above, we expect 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.

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. In addition to the seasonality noted above, we generally expect 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

Medicare payment rates to hospital outpatient departments are set under the Medicare hospital outpatient prospective payment system, which groups clinically similar hospital outpatient procedures and services with similar costs to ambulatory payment classifications ("APCs"). Each APC is assigned a single lump sum payment rate, which includes payment for the primary procedure as well as any integral, ancillary, and adjunctive services. The primary current procedure terminology ("CPT") codes for the Lapiplasty Procedure, CPT 28297 and CPT 28740, are grouped together under APC 5114. For Lapiplasty Procedures in which fusion is performed on multiple tarsometatarsal ("TMT") joints, CPT 28730 applies and is classified under APC 5115. For Adductoplasty Procedures in which fusion is performed on multiple TMT joints, either CPT 28730 or CPT 27835 applies and are classified under APC 5115.

Current wording

Medicare payment rates to hospital outpatient departments are set under the Medicare hospital outpatient prospective payment system, which groups clinically similar hospital outpatient procedures and services with similar costs to ambulatory payment classifications ("APCs"). Each APC is assigned a single lump sum payment rate, which includes payment for the primary procedure as well as any integral, ancillary, and adjunctive services. The primary current procedure terminology ("CPT") codes for the Lapiplasty Procedure, CPT 28297 and CPT 28740, are grouped together under APC 5114. For Lapiplasty Procedures in which fusion is performed on multiple tarsometatarsal ("TMT") joints, CPT 28730 applies and is classified under APC 5115. For Adductoplasty Procedures in which fusion is performed on multiple TMT joints, either CPT 28730 or CPT 27835 applies and are classified under APC 5115. For the Nanoplasty and Percuplasty Procedures, CPT 28306 applies. For MTP fusions using the SpeedMTP implant or our other plates, CPT 28750 applies.

Previous 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.

Current wording

We currently generate revenue from the sale of our bunion 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 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 six months ended June 30, 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.

Current wording

No single customer accounted for 10% or more of our revenue during the nine months ended September 30, 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 that use our products perform more procedures using our products, although our rate of revenue growth may fluctuate from quarter to quarter due to a variety of factors, including seasonality, the macroeconomic 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.

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-consumer outreach program and advertising, market research and analysis and conferences and trade shows.

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 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.

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.

Previous wording

Revenue. Revenue increased by $2.9 million, or 6.6%, for the three months ended June 30, 2025 as compared to the same period in 2024. The increase was primarily driven by an increase in the number of bunion procedure kits sold, partially offset by lower average selling prices of our newest bunion procedure kits.

Current wording

Revenue. Revenue increased by $5.1 million, or 11.4%, for the three months ended September 30, 2025 as compared to the same period in 2024. The increase was primarily driven by an increase in the number of bunion procedure kits sold, partially offset by lower average selling prices of our newest bunion procedure kits. While the number of bunion procedure kits sold are increasing overall, our flagship Lapiplasty System is experiencing lower sales primarily due to evolving surgeon preferences for minimally invasive osteotomy procedures, competition, and lower patient demand for elective bunion surgery due to macroeconomic conditions. Revenue for the three months ended September 30, 2025 included $6.0 million in sales to stocking distributors, a majority of which was attributable to initial stocking orders, compared to no stocking distributor sales during the same period in 2024. As of the end of third quarter, our stocking distributors have purchased their initial stock of inventory; therefore, we do not expect sales at this level in future quarters.

Previous wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $0.9 million, or 9.7%, for the three months ended June 30, 2025 as compared to the same period in 2024. The increase in cost of goods sold was primarily due to a $0.6 million increase in direct cost of goods sold resulting from increased sales and a $0.2 increase in inventory provisions. During the three months ended June 30, 2025, gross profit increased by $2.1 million, or 5.8%, as compared to the same period in 2024, due to increased sales. Gross profit margin for the three months ended June 30, 2025 decreased from 80.2% to 79.7%, as compared to the same period in 2024, primarily due to lower margin sales to stocking distributors and increases in inventory provisions, partially offset by a shift in product mix.

Current wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $1.6 million, or 17.4%, for the three months ended September 30, 2025 as compared to the same period in 2024. The increase in cost of goods sold was primarily due to a $1.2 million increase in direct cost of goods sold resulting from increased sales. During the three months ended September 30, 2025, gross profit increased by $3.6 million, or 9.9%, as compared to the same period in 2024, due to increased sales. Gross profit margin for the three months ended September 30, 2025 decreased from 80.1% to 79.1%, as compared to the same period in 2024, primarily due to lower margin sales to stocking distributors, partially offset by a shift in product mix.

Previous wording

Sales and Marketing Expenses. Sales and marketing expenses decreased by $4.6 million, or 12.2%, for the three months ended June 30, 2025 as compared to the same period in 2024. Sales and marketing expenses decreased due to a $2.9 million decrease in payroll and related costs primarily from optimizing the size and structure of our direct employee sales force, a $2.6 million decrease in direct to consumer advertising costs, and a $0.7 million decrease in commissions from a shift in customer mix, partially offset by a $0.6 million increase for surgeon training and clinical-related expenses, a $0.5 million increase from higher costs for conferences and events, and a $0.3 million increase in surgical instrument expense from a higher volume of surgical instruments.

Current wording

Sales and Marketing Expenses. Sales and marketing expenses increased by $1.6 million, or 5.0%, for the three months ended September 30, 2025 as compared to the same period in 2024. Sales and marketing expenses increased due to a $1.2 million increase in commissions, a $0.5 million increase in surgical instrument expense from higher volume of surgical instruments, a $0.4 million increase in payroll and related costs, a $0.4 million increase for surgeon training and clinical-related expenses, and a $0.2 million increase from higher costs for conferences and events, partially offset by a $1.3 million decrease in direct to consumer advertising costs. Of the $0.4 million increase in payroll and related costs, $1.0 million was related to a non-recurring restructuring charge that includes severance and other post-employment benefits, partially offset by a decrease in other payroll-related costs.

Previous wording

Research and Development Expenses. R&D expenses increased by $0.3 million, or 6.6%, for the three months ended June 30, 2025 as compared to the same period in 2024. The increase in R&D expenses was primarily due to a $0.8 million increase in payroll and related costs from increased headcount of R&D personnel, including stock compensation expense, partially offset by a $0.3 million decrease in compensation expense related to the milestone obligation for our acquisition of RPM-3D that was incurred in the second quarter of 2024 but not in the second quarter of 2025.

Current wording

Research and Development Expenses. R&D expenses decreased by $0.3 million, or 5.7%, for the three months ended September 30, 2025 as compared to the same period in 2024. The decrease in R&D expenses was primarily due to a $0.2 million decrease in purchases of prototypes.

Previous wording

General and Administrative Expenses. General and administrative expenses increased by $1.9 million, or 13.5%, for the three months ended June 30, 2025 as compared to the same period in 2024. The increase in general and administrative expenses was due to $3.2 million in higher payroll and related costs, including stock compensation expense, and a $0.6 million increase in legal fees, partially offset by a $2.0 million decrease in the provision for allowance for credit losses related to a $2.1 million write-off of receivables from a customer that filed bankruptcy in the second quarter of 2024 and a $0.2 million decrease in compensation expense related to the milestone obligation for our acquisition of RPM-3D that was incurred in the second quarter of 2024 but not in the second quarter of 2025.

Current wording

General and Administrative Expenses. General and administrative expenses increased by $2.8 million, or 20.4%, for the three months ended September 30, 2025 as compared to the same period in 2024. The increase in general and administrative expenses was due to a $2.9 million increase in legal fees primarily driven by ongoing litigation matters, partially offset by a $0.2 million decrease in the provision for allowance for credit losses.

Previous wording

Interest Income. Interest income decreased $0.6 million, or 43.7%, for the three months ended June 30, 2025 as compared to the same period in 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period.

Current wording

Interest Income. Interest income decreased $0.4 million, or 40.6%, for the three months ended September 30, 2025 as compared to the same period in 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period.

Previous wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $1.4 million, or 7.4%, for the six months ended June 30, 2025 as compared to the same period in 2024. The increase in cost of goods sold was primarily due to a $1.0 million increase in inventory provisions and a $0.5 million increase in direct costs of goods sold resulting from increased sales. During the six months ended June 30, 2025, gross profit increased by $3.0 million, or 3.9%, as compared to the same period in 2024, due to increased sales. Gross profit margin for the six months ended June 30, 2025 decreased from 80.2% to 79.7%, as compared to the same period in 2024, primarily due to increases in inventory provisions and lower margin sales to stocking distributors, partially offset by a shift in product mix.

Current wording

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $3.0 million, or 10.6%, for the nine months ended September 30, 2025 as compared to the same period in 2024. The increase in cost of goods sold was primarily due to a $1.7 million increase in direct costs of goods sold resulting from increased sales and a $1.1 million increase in inventory provisions. During the nine months ended September 30, 2025, gross profit increased by $6.6 million, or 5.8%, as compared to the same period in 2024, due to increased sales. Gross profit margin for the nine months ended September 30, 2025 decreased from 80.2% to 79.5%, as compared to the same period in 2024, primarily due to lower margin sales to stocking distributors and increases in inventory provisions, partially offset by a shift in product mix.

Previous wording

Sales and Marketing Expenses. Sales and marketing expenses decreased by $8.8 million, or 11.3%, for the six months ended June 30, 2025 as compared to the same period in 2024. Sales and marketing expenses decreased due to a $6.4 million decrease in payroll and related costs primarily from optimizing the size and structure of our direct employee sales force, a $6.3 million decrease in direct to consumer advertising costs, partially offset by a $2.1 million increase for surgeon training and clinical-related expenses, a $0.8 million increase in surgical instrument expense from a higher volume of surgical instruments, and a $0.6 million increase in commissions from higher sales.

Current wording

Sales and Marketing Expenses. Sales and marketing expenses decreased by $7.2 million, or 6.5%, for the nine months ended September 30, 2025 as compared to the same period in 2024. Sales and marketing expenses decreased due to a $7.6 million reduction in direct to consumer advertising costs and a $6.0 million decrease in payroll and related costs primarily from optimizing the size and structure of our direct employee sales force, partially offset by a $2.7 million increase for surgeon training and clinical-related expenses, a $1.7 million increase in commissions, and a $1.4 million increase in surgical instrument expense from higher volume of surgical instruments.

Previous wording

Research and Development Expenses. R&D expenses increased by $0.6 million, or 6.2%, for the six months ended June 30, 2025 as compared to the same period in 2024. 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 R&D personnel, including stock compensation expense, partially offset by a $0.5 million decrease in compensation expense related to the milestone obligation for our acquisition of RPM-3D that was incurred in the six months ended June 30, 2024 but not in the six months ended June 30, 2025.

Current wording

Research and Development Expenses. R&D expenses increased by $0.4 million, or 2.3%, for the nine months ended September 30, 2025 as compared to the same period in 2024. The increase in R&D expenses was primarily due to a $0.9 million increase in payroll and related costs resulting from increased headcount of R&D personnel, partially offset by a $0.5 million decrease in compensation expense related to the milestone obligation for our acquisition of MIOS Marketing, LLC d/b/a RedPoint Medical3D ("RPM-3D") that was incurred in the nine months ended September 30, 2024, but not in the nine months ended September 30, 2025.

Previous wording

General and Administrative Expenses. General and administrative expenses increased by $3.4 million, or 11.7%, for the six months ended June 30, 2025 as compared to the same period in 2024. The increase in general and administrative expenses was due to $5.1 million in higher payroll and related costs, primarily due to higher stock compensation expense, and a $0.7 million increase in legal fees, partially offset by a $1.6 million decrease in the provision for allowance for credit losses as compared to the second quarter of 2024 that included a $2.1 million write-off of receivables due from a customer that filed bankruptcy in the second quarter of 2024 and a decrease of $1.3 million in compensation expense related to the milestone obligation for our acquisition of RPM-3D that was incurred in the six months ended June 30, 2024 but not in the six months ended June 30, 2025.

Current wording

General and Administrative Expenses. General and administrative expenses increased by $6.1 million, or 14.5%, for the nine months ended September 30, 2025 as compared to the same period in 2024. The increase in general and administrative expenses was due to a $4.9 million increase in payroll and related costs, including stock compensation expense, and a $3.6 million increase in legal fees primarily driven by ongoing litigation matters, partially offset by a $1.9 million decrease in the provision for allowance for credit losses as compared to the second quarter of 2024 that included a $2.1 million write-off of receivables due from a customer that filed bankruptcy in the second quarter of 2024 and a decrease of $1.3 million in compensation expense related to the milestone obligation for our acquisition of RPM-3D that was incurred in the nine months ended September 30, 2024 but not in the nine months ended September 30, 2025.

Previous wording

Interest Income. Interest income decreased $1.3 million for the six months ended June 30, 2025 as compared to the same period in 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period.

Current wording

Interest Income. Interest income decreased $1.7 million, or 43.4%, for the nine months ended September 30, 2025 as compared to the same period in 2024. The decrease in interest income was primarily due to lower balances invested in marketable securities during the current year period.

Previous wording

As of June 30, 2025, we had cash and cash equivalents of $8.1 million and marketable securities of $61.2 million available for sale, an accumulated deficit of $223.3 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.

Current wording

As of September 30, 2025, we had cash and cash equivalents of $7.7 million and marketable securities of $49.7 million available for sale, an accumulated deficit of $239.6 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

Net cash provided by operating activities for the six months ended June 30, 2025 was $1.1 million, consisting primarily of a net loss of $33.3 million, adjusted for non-cash charges of $25.3 million and a decrease in net operating assets. The non-cash charges consist primarily of share-based compensation expense of $18.3 million, depreciation and amortization expense of $5.0 million, non-cash lease expense of $1.1 million, and provision for allowance for credit losses of $0.6 million. The decrease in net operating assets was primarily due to a decrease of $10.0 million in accounts receivable from collection on higher sales in the fourth quarter of 2024 and an increase in accounts payable of $9.4 million due to timing of payments, partially offset by a decrease of $5.3 million in accrued liabilities, specifically from a decrease in accrued commissions from lower sales in the second quarter of 2025 compared to the fourth quarter of 2024, a decrease of $1.6 million in operating lease liabilities, and an increase of $3.1 million in inventory.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2025 was $7.9 million, consisting primarily of a net loss of $49.6 million, adjusted for non-cash charges of $37.1 million and a decrease in net operating assets. The non-cash charges consist primarily of $26.3 million in share-based compensation expense, $7.8 million in depreciation and amortization, $1.7 million in non-cash lease expense, and $0.5 million in provision for allowance for credit losses. The decrease in net operating assets was primarily due to a $7.4 million decrease in accounts receivable from collection on higher sales in the fourth quarter of 2024 and a $5.6 million increase in accounts payable due to timing of payments, partially offset by a $2.4 million decrease in operating lease liabilities, a $3.2 million decrease in accrued liabilities, and a $2.2 million increase in inventory. The decrease in accrued liabilities was primarily from a decrease in accrued commissions from lower sales in the third quarter of 2025 compared to the fourth quarter of 2024, partially offset by increased accrued compensation from timing of payroll and a non-recurring restructuring charge that includes severance and other post-employment benefits.

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 $22.0 million in share-based compensation expense, $6.2 million in depreciation and amortization expense, and $2.4 million in provision for allowance for credit losses, primarily due to a significant customer that filed for bankruptcy. The increase in net operating assets was primarily due to a $14.4 million increase in inventories to meet demand for new products and a $12.8 million decrease in accrued liabilities due to timing of payments, and a $0.3 million increase 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, a $6.8 million increase 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 investing activities was $5.2 million for the six months ended June 30, 2025, consisting primarily of $30.2 million in purchases of available-for-sale marketable securities and $8.3 million in purchases of property and equipment, partially offset by $33.4 million in sales and maturities of available-for-sale marketable securities. The net of marketable securities sales and maturities and purchases of $3.2 million were primarily used to fund our current operations. The purchases in property and equipment included $7.2 million in capitalized surgical instruments for the reusable instrument trays related to new products, and $1.1 million primarily for equipment, software, and leasehold improvements, to support the growth of our business.

Current wording

Net cash provided by investing activities was $3.6 million for the nine months ended September 30, 2025, consisting primarily of $49.6 million in sales and maturities of available-for-sale marketable securities, partially offset by $34.9 million in purchases of available-for-sale marketable securities and $11.1 million in purchases of property and equipment. The net cash generated from marketable securities sales and maturities and purchases of $14.7 million were primarily used to fund our current operations. The purchases in property and equipment included $9.4 million in capitalized surgical instruments for the reusable instrument trays related to our new products, and $1.6 million primarily for equipment, software, and leasehold improvements, to support the growth of our business.

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

Previous wording

Net cash provided by financing activities was $0.7 million for the six months ended June 30, 2025, consisting primarily of $1.0 million in proceeds from insurance premium financing and $0.2 million in proceeds from stock option exercises, partially offset by $0.4 million of shares repurchased for tax withholding on vested RSUs.

Current wording

Net cash provided by financing activities was $0.7 million for the nine months ended September 30, 2025, consisting primarily of $1.6 million in proceeds from insurance premium financing and $0.5 million in proceeds from stock option exercises, partially offset by $0.8 million of shares repurchased for tax withholding on vested RSUs and $0.5 million in payments on insurance premium financing.

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

We recognized royalty expense of $1.5 million and $1.4 million for the three months ended June 30, 2025 and 2024, respectively. For the three months ended June 30, 2025 and 2024, the aggregate royalty rate was 3.2% and 3.3%, respectively. We recognized royalty expense of $3.1 million and $3.2 million for the six months ended June 30, 2025 and 2024, respectively. For the six months ended June 30, 2025 and 2024, the aggregate royalty rate was 3.1% and 3.3% 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 $1.4 million for the three months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025 and 2024, the aggregate royalty rate was 3.1% and 3.2%, respectively. We recognized royalty expense of $4.7 million and $4.6 million for the nine months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, the aggregate royalty rate was 3.1% and 3.3%, 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 consultants 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 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 $21.7 million under these leases as of June 30, 2025.

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 $20.8 million under these leases as of September 30, 2025.

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 were no material changes to these accounting policies during the six months ended June 30, 2025.

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 were no material changes to these accounting policies during the nine months ended September 30, 2025.