Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-39130

TELA Bio, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		45-5320061 (I.R.S. Employer Identification No.)

1 Great Valley Parkway, Suite 24 Malvern, Pennsylvania (Address of principal executive offices)		19355 (Zip Code)

(484) 320-2930
(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value per share	TELA	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes ◻ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧ Yes ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ◻			Accelerated filer ◻
			Smaller reporting company ☒
Non-accelerated filer ⌧			Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

As of August 3, 2024, the registrant had 24,713,798 shares of Common Stock, $0.001 par value per share, outstanding.

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TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	31

	Signatures	32

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) and the documents incorporated by reference herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may, through our officers and other authorized representatives, make certain forward-looking statements in publicly released materials, both written and oral, including statements contained in filings with the Securities and Exchange Commission, press releases, and our communications with our stockholders.

Forward-looking statements are neither statements of historical facts nor assurances of future performance, but instead discuss the future of our business, operations, future financial performance, future financial condition, plans, anticipated growth strategies, anticipated or perceived trends in our business, the industry in which we operate or the broader economy, and other objectives of management. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would,” the negative of such terms, and other similar expressions although not all forward-looking statements contain these identifying words.

You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

●

estimates regarding future results of operations, financial position, research and development costs, capital requirements and our needs for additional financing;

●

the commercial success and degree of market acceptance of our products;

●

the introduction of new products or product enhancements by us or others in our industry, including new products which may be perceived to negatively impact the demand for our products now or in the future;

●

our ability to expand, manage and maintain our direct sales and marketing organization and to market and sell our products in the U.S. and Europe;

●

the performance of our exclusive contract manufacturer for our OviTex and OviTex PRS products, Aroa Biosurgery Ltd. (“Aroa”), in connection with the supply of product and in the development of additional products and product configurations within these product lines;

●

our ability to maintain our supply chain integrity and expand our supply chain to manage increased demand for our products;

●

our ability to compete successfully with larger competitors in our highly competitive industry;

●

our ability to achieve and maintain adequate levels of coverage or reimbursement for our current products and any future products we may seek to commercialize;

●

our ability to enhance our products, expand our indications and develop and commercialize additional products;

●

the development, regulatory approval, efficacy and commercialization of competing products;

●

our business model and strategic plans for our products, technologies and business, including our implementation thereof;

●

the size of the markets for our current and future products;

●

our ability to recruit and retain senior management and other highly qualified personnel;

●

our ability to obtain additional capital to finance our planned operations;

●

our ability to maintain regulatory approval for our products;

●

our ability to commercialize or obtain regulatory approvals for our future products, or the effect of delays in commercializing or obtaining regulatory approvals;

●

decreasing selling prices and pricing pressures;

●

regulatory developments in the U.S. and European markets;

●

the potential impact of healthcare reform in the U.S., including the Inflation Reduction Act of 2022, and measures being taken worldwide designed to reduce healthcare costs;

●

the possible effects arising from pandemics, epidemics or outbreaks of a contagious illness, including coronavirus disease, influenza, or respiratory syncytial virus among others and associated economic disruptions, including the frequency of surgical procedures using our products, labor and hospital staffing shortages, supply

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chain integrity, and adverse healthcare economic factors affecting our products or the procedures in which they are used;

●

the impact of external cybersecurity events, including ransomware attacks, infiltration and hacking and other system outages, affecting hospitals, third-party payors and other vendors within the healthcare industry may result in a decrease in surgical procedures using our products;

●

the volatility of capital markets and other adverse macroeconomic factors, including due to inflationary pressures, interest rate and currency rate fluctuations, economic slowdown or recession, banking instability, monetary policy changes, geopolitical tensions or the outbreak of hostilities or war, including from the ongoing Russia-Ukraine conflict, the current conflict in Israel and Gaza (including any escalation or expansion) and increasing tensions between China and Taiwan;

●

our ability to develop and maintain our corporate infrastructure, including our internal controls;

●

our ability to establish and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing the intellectual property rights of others;

●

our expectations regarding the use of proceeds from future financings, if any;

●

the occurrence of adverse safety events, restrictions on use with our products or product liability claims; and

●

other risks and uncertainties, including those listed under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (our “Annual Report”), our subsequent Quarterly Reports on Form 10-Q and the other documents we file with the Securities and Exchange Commission (the “SEC”).

These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management's beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements may not be achieved or occur at all.

You should refer to the section titled “Risk Factors” in our Annual Report, this Quarterly Report and any subsequent Quarterly Reports for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

TELA Bio, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)


	June 30,		December 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	26,496	$	46,729
Accounts receivable, net of allowances of $298 and $416		9,097		9,737
Inventory		13,372		13,162
Prepaid expenses and other assets		2,144		2,098
Total current assets		51,109		71,726
Property and equipment, net		2,349		1,984
Intangible assets, net		1,929		2,119
Right-of-use assets		1,851		1,954
Other long-term assets		2,701		—
Restricted cash		265		265
Total assets	$	60,204	$	78,048

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,314	$	1,667
Accrued expenses and other current liabilities		12,675		15,300
Total current liabilities		14,989		16,967
Long‑term debt		40,817		40,515
Other long‑term liabilities		1,528		1,685
Total liabilities		57,334		59,167

Stockholders’ equity:
Preferred stock; $0.001 par value: 10,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock; $0.001 par value: 200,000,000 shares authorized; 24,675,832 and 24,494,675 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively		25		24
Additional paid-in capital		341,897		339,655
Accumulated other comprehensive income		98		91
Accumulated deficit		(339,150)		(320,889)
Total stockholders’ equity		2,870		18,881
Total liabilities and stockholders’ equity	$	60,204	$	78,048

See accompanying notes to unaudited interim consolidated financial statements.

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TELA Bio, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Revenue	$	16,091	$	14,494	$	32,694	$	26,403
Cost of revenue (excluding amortization of intangible assets)		4,923		4,198		10,095		8,114
Amortization of intangible assets		95		95		190		190
Gross profit		11,073		10,201		22,409		18,099
Operating expenses:
Sales and marketing		16,699		14,577		34,219		28,043
General and administrative		3,621		3,472		7,450		7,106
Research and development		2,323		2,514		4,716		4,566
Total operating expenses		22,643		20,563		46,385		39,715
Other operating income:
Gain on sale of product line		—		—		(7,580)		—
Loss from operations		(11,570)		(10,362)		(16,396)		(21,616)
Other expense:
Interest expense		(1,331)		(1,298)		(2,663)		(2,544)
Other income		301		870		798		1,343
Total other expense		(1,030)		(428)		(1,865)		(1,201)
Net loss	$	(12,600)	$	(10,790)	$	(18,261)	$	(22,817)
Net loss per common share, basic and diluted	$	(0.51)	$	(0.46)	$	(0.74)	$	(1.08)
Weighted average common shares outstanding, basic and diluted		24,663,234		23,239,262		24,621,310		21,223,639
Comprehensive loss:
Net loss	$	(12,600)	$	(10,790)	$	(18,261)	$	(22,817)
Foreign currency translation adjustment		1		(36)		7		(66)
Comprehensive loss	$	(12,599)	$	(10,826)	$	(18,254)	$	(22,883)

See accompanying notes to unaudited interim consolidated financial statements.

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TELA Bio, Inc.

Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 30, 2024

(In thousands, except share amounts)

(Unaudited)


						Accumulated
				Additional		other
	Common stock			paid‑in		comprehensive		Accumulated
	Shares	Amount		capital		income		deficit		Total
Balance at April 1, 2024	24,653,939	$	25	$	340,812	$	97	$	(326,550)	$	14,384
Vesting of restricted stock units and exercise of stock options	24,332		—		6		—		—		6
Shares withheld for employee taxes	(2,439)		—		(11)		—		—		(11)
Foreign currency translation adjustment	—		—		—		1		—		1
Stock‑based compensation expense	—		—		1,090		—		—		1,090
Net loss	—		—		—		—		(12,600)		(12,600)
Balance at June 30, 2024	24,675,832	$	25	$	341,897	$	98	$	(339,150)	$	2,870


						Accumulated
				Additional		other
	Common stock			paid‑in		comprehensive		Accumulated
	Shares	Amount		capital		income		deficit		Total
Balance at January 1, 2024	24,494,675	$	24	$	339,655	$	91	$	(320,889)	$	18,881
Vesting of restricted stock units and exercise of stock options	202,565		1		225		—		—		226
Issuance of common stock under the employee stock purchase plan	27,969		—		164		—		—		164
Shares withheld for employee taxes	(49,377)		—		(339)		—		—		(339)
Foreign currency translation adjustment	—		—		—		7		—		7
Stock‑based compensation expense	—		—		2,192		—		—		2,192
Net loss	—		—		—		—		(18,261)		(18,261)
Balance at June 30, 2024	24,675,832	$	25	$	341,897	$	98	$	(339,150)	$	2,870

See accompanying notes to unaudited interim consolidated financial statements.

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TELA Bio, Inc.

Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 30, 2023

(In thousands, except share amounts)

(Unaudited)



						Accumulated
				Additional		other
	Common stock			paid‑in		comprehensive		Accumulated
	Shares	Amount		capital		income		deficit		Total
Balance at April 1, 2023	19,227,777	$	19	$	289,254	$	120	$	(286,252)	$	3,141
Vesting of restricted stock units and exercise of stock options	28,650		—		56		—		—		56
Shares withheld for employee taxes	(113)		—		(1)		—		—		(1)
Foreign currency translation adjustment	—		—		—		(36)		—		(36)
Stock‑based compensation expense	—		—		1,294		—		—		1,294
Sale of common stock, net of underwriting discounts, commissions and offering costs	5,219,190		5		46,336		—		—		46,341
Net loss	—		—		—		—		(10,790)		(10,790)
Balance at June 30, 2023	24,475,504	$	24	$	336,939	$	84	$	(297,042)	$	40,005



						Accumulated
				Additional		other
	Common stock			paid‑in		comprehensive		Accumulated
	Shares	Amount		capital		income		deficit		Total
Balance at January 1, 2023	19,165,027	$	19	$	288,361	$	150	$	(274,225)	$	14,305
Vesting of restricted stock units and exercise of stock options	117,238		—		100		—		—		100
Shares withheld for employee taxes	(25,951)		—		(280)		—		—		(280)
Foreign currency translation adjustment	—		—		—		(66)		—		(66)
Stock‑based compensation expense	—		—		2,422		—		—		2,422
Sale of common stock, net of underwriting discounts, commissions and offering costs	5,219,190		5		46,336		—		—		46,341
Net loss	—		—		—		—		(22,817)		(22,817)
Balance at June 30, 2023	24,475,504	$	24	$	336,939	$	84	$	(297,042)	$	40,005

See accompanying notes to unaudited interim consolidated financial statements.

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TELA Bio, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Six months ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(18,261)	$	(22,817)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		293		239
Noncash interest expense		302		296
Amortization of intangible assets		190		190
Net changes in operating lease ROU assets and liabilities		(47)		(22)
Inventory excess and obsolescence charge		908		704
Stock‑based compensation expense		2,192		2,422
Gain on sale of product line		(7,580)		—
Change in operating assets and liabilities:
Accounts receivable, net		263		(1,219)
Inventory		(1,545)		(2,936)
Prepaid expenses and other current assets		253		107
Accounts payable		594		651
Accrued expenses and other current and long-term liabilities		(2,627)		(104)
Foreign currency translation loss		(16)		(349)
Net cash used in operating activities		(25,081)		(22,838)
Cash flows from investing activities:
Purchase of property and equipment		(603)		(272)
Proceeds from the sale of product line		5,366		—
Net cash provided by (used in) investing activities		4,763		(272)
Cash flows from financing activities:
Proceeds from sale of common stock, net of underwriting discounts, commissions and offering costs		—		46,354
Proceeds from exercise of stock options		226		100
Payment of withholding taxes related to stock-based compensation to employees		(339)		(280)
Proceeds from issuance of common stock under the employee stock purchase plan		164		—
Net cash provided by financing activities		51		46,174
Effect of exchange rate on cash and cash equivalents		34		183
Net (decrease) increase in cash and cash equivalents and restricted cash		(20,233)		23,247
Cash and cash equivalents and restricted cash, beginning of period		46,994		42,019
Cash and cash equivalents and restricted cash, end of period	$	26,761	$	65,266
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	2,361	$	2,248
Supplemental disclosures of noncash investing and financing activities:
Offering costs in accounts payable and accrued expenses and other current liabilities	$	—	$	13
Property and equipment in accounts payable and accrued expenses and other current liabilities	$	55	$	49

See accompanying notes to unaudited interim consolidated financial statements.

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(1) Background

TELA Bio, Inc. (the “Company”) was incorporated in the state of Delaware on April 17, 2012 and wholly owns TELA Bio Limited, a company incorporated in the United Kingdom. The Company is a commercial-stage medical technology company focused on providing innovative soft-tissue reconstruction solutions that optimize clinical outcomes by prioritizing the preservation and restoration of the patient’s own anatomy. OviTex Reinforced Tissue Matrix (“OviTex”), the Company’s first portfolio of products, addresses unmet needs in hernia repair and abdominal wall reconstruction by combining the benefits of biologic matrices and polymer materials while minimizing their shortcomings, at a cost-effective price. OviTex PRS Reinforced Tissue Matrix (“OviTex PRS”), the Company’s second portfolio of products, addresses unmet needs in plastic and reconstructive surgery. The Company’s principal corporate office and research facility is located in Malvern, Pennsylvania.

(2) Risks and Liquidity

The Company’s operations to date have focused on commercializing products, developing and acquiring technology and assets, business planning, raising capital and organization and staffing. The Company has incurred recurring losses and negative cash flows from operations since inception and has an accumulated deficit of $339.2 million as of June 30, 2024. The Company anticipates incurring additional losses until such time, if ever, it can generate sufficient revenue from its products to cover its expenses.

In March 2024, the Company sold its distribution rights for NIVIS Fibrillar Collagen Pack to MiMedx Group, Inc. in exchange for an initial $5.0 million payment and additional future payments aggregating between a minimum of $3.0 million and a maximum of $7.0 million based on net sales of NIVIS during the first two years following its launch by MiMedx Group, Inc.

The operations of the Company are subject to certain risks and uncertainties including, among others, the uncertainty of product development, the impact of macroeconomic conditions, including any lingering effects of the COVID-19 pandemic or other public health crises, general economic uncertainty, including as a result of inflationary pressures and the measures undertaken by various governments to address them, banking instability, monetary policy changes, geopolitical factors such as the ongoing Russia-Ukraine conflict, the current conflict in Israel and Gaza (including any escalation or expansion) and increasing tensions between China and Taiwan, cybersecurity events affecting or disrupting normal hospital operations, technological uncertainty, commercial acceptance of any developed products, alternative competing technologies, dependence on collaborative partners, uncertainty regarding patents and proprietary rights, comprehensive government regulations, and dependence on key personnel.

(3) Summary of Significant Accounting Policies

The Company’s complete summary of significant accounting policies can be found in “Note 3, Summary of Significant Accounting Policies” in the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Any reference in these notes to applicable guidance is meant to refer to generally accepted accounting principles (“GAAP”) in the U.S. as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

Interim Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared from the books and records of the Company in accordance with GAAP for interim financial information and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”), which permits reduced disclosures for interim periods. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying consolidated balance sheets and statements of operations and comprehensive loss, stockholders’ equity and cash flows have been made. Although these interim consolidated financial statements do not include all of the information and footnotes required for complete annual consolidated financial statements, management believes the

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

disclosures are adequate to make the information presented not misleading. The unaudited interim results of operations and cash flows are not necessarily indicative of the results that may be expected for the full year. The unaudited interim consolidated financial statements and footnotes should be read in conjunction with the consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the year ended December 31, 2023.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant judgments are employed in estimates used to determine the recoverability of the carrying value of the Company’s inventory. As future events and their effects cannot be determined with precision, actual results may differ significantly from these estimates.

Revenue Recognition

Under ASC Topic 606, Revenue from Contracts with Customers, (“ASC 606”), an entity recognizes revenue when its customer obtains control of the promised good, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods. The Company performs the following five steps to recognize revenue under ASC 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only recognizes revenue when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that will be transferred to the customer.

A significant portion of the Company’s revenue is generated from product shipped to a customer or from consigned inventory maintained at hospitals or other surgical facilities. Revenue from the sale of consigned products is recognized when control is transferred to the customer, which occurs at the time the product is used in a surgical procedure. For product that is not held on consignment, the Company recognizes revenue when control transfers to the customer which occurs at the time the product is shipped or delivered. For all of the Company’s customer contracts, the only identified performance obligation is providing the product to the customer.

Revenue is recognized at the estimated net sales price, which includes estimates of variable consideration. The Company enters into contracts with certain third-party payors for the payment of rebates with respect to the utilization of its products. These rebates are based on contractual percentages. The Company estimates and records these rebates in the same period the related revenue is recognized, resulting in a reduction of product revenue.

Payment terms with customers do not exceed one year and, therefore, the Company does not account for a financing component in these arrangements. There are no incremental costs of obtaining a contract that would rise to or enhance an asset other than product costs, which are a component of inventory. The Company expenses incremental costs of obtaining a contract with a customer (e.g., sales commissions) when incurred as the period of benefit is less than one year. Fees charged to customers for shipping are recognized as revenue.

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

The following table presents revenue disaggregated by the Company’s portfolio of products (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
OviTex	$	11,124	$	10,058	$	21,659	$	18,081
OviTex PRS		4,796		4,390		10,741		8,251
Other		171		46		294		71
Total revenue	$	16,091	$	14,494	$	32,694	$	26,403

Sales outside of the U.S. were $2.4 million and $1.5 million, respectively, for the three months ended June 30, 2024 and 2023 and $4.7 million and $2.5 million, respectively, for the six months ended June 30, 2024 and 2023.

Fair Value of Financial Instruments

Fair value is the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction among market participants. Fair value determination in accordance with applicable accounting guidance requires that a number of significant judgments are made. Additionally, fair value is used on a nonrecurring basis to evaluate assets for impairment or as required for disclosure purposes by applicable accounting guidance on disclosures about fair value of financial instruments. Depending on the nature of the assets and liabilities, various valuation techniques and assumptions are used when estimating fair value. The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other assets, and accounts payable are shown at cost, which approximates fair value due to the short-term nature of these instruments. The carrying amounts of the Company’s Credit and Security Agreement approximates fair value due to its variable interest rate.

The Company follows the provisions of ASC Topic 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:

●

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

●

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liabilities.

●

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):


	Fair value measurement at reporting date using
	Quoted prices in
	active markets		Significant other		Significant
	for identical		observable		unobservable
	assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
June 30, 2024:
Cash equivalents – money market fund	$	24,498	$	—	$	—

December 31, 2023:
Cash equivalents – money market fund	$	41,561	$	—	$	—

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

Net Loss per Common Share

Basic and diluted net loss per common share is determined by dividing net loss by the weighted-average shares of common stock outstanding during the reporting period. In periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share since dilutive shares are not assumed to have been issued if their effect is antidilutive. Therefore, the weighted-average shares used to calculate both basic and diluted net loss per share are the same.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding for the periods presented, as they would be antidilutive.


	Six months ended June 30,
	2024	2023
Stock options	2,239,140	2,218,832
Unvested restricted stock units	991,391	781,011
Common stock warrants	88,556	88,556
Total	3,319,087	3,088,399

Recently Issued Accounting Pronouncements

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those annual periods. The adoption of this guidance did not have a significant impact on the consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. This guidance is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the expected impact that the standard could have on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, requiring entities to provide additional information in the income tax rate reconciliation and additional disclosures about income taxes paid. The new accounting guidance requires entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

some categories if the items meet a quantitative threshold. This guidance is effective for annual periods beginning after December 15, 2024, and should be applied prospectively, but entities have the option to apply it retrospectively for each period presented. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the expected impact that the standard could have on its consolidated financial statements and related disclosures.

(4) Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	June 30,		December 31,
	2024		2023
Compensation and related benefits	$	6,609	$	9,216
Third-party and professional fees		2,685		2,828
Amounts due to contract manufacturer		1,945		2,024
Current portion of operating lease liabilities		571		565
Research and development expenses		99		140
Other		766		527
Total accrued expenses and other current liabilities	$	12,675	$	15,300

(5) Long-term Debt

Long-term debt consisted of the following (in thousands):


	June 30,		December 31,
	2024		2023
MidCap term loan	$	40,000	$	40,000
End of term charge		2,000		2,000
Unamortized end of term charge and issuance costs		(1,183)		(1,485)
Long-term debt	$	40,817	$	40,515

MidCap Term Loan

On May 26, 2022, the Company entered into the Credit and Security Agreement (the “MidCap Credit Agreement”) with MidCap Financial Trust, as agent, and certain lender parties thereto. The MidCap Credit Agreement consists of $40.0 million in a term loan. Upon closing, the Company used a portion of the proceeds to repay borrowings under a previous credit facility and intends to use the remaining proceeds to fund operations and other general corporate purposes.

Pursuant to the MidCap Credit Agreement, the Company provided a first priority security interest in all existing and future acquired assets, including intellectual property, owned by the Company. The MidCap Credit Agreement contains certain covenants that limit the Company’s ability to engage in certain transactions that may be in the Company’s long-term best interests, including the incurrence of additional indebtedness, effecting certain corporate changes, making certain investments, acquisitions or dispositions and paying dividends.

The MidCap Credit Agreement also contains customary indemnification obligations and customary events of default, including, among other things, (i) non-payment, (ii) breach of warranty, (iii) non-performance of covenants and obligations, (iv) default on other indebtedness, (v) judgments, (vi) change of control, (vii) bankruptcy and insolvency, (viii) impairment of security, (ix) key permit events, (x) termination of a pension plan, (xi) regulatory matters, (xii) material adverse effect and (xiii) breach of material contracts.

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

In addition, the Company must maintain minimum net revenue levels tested quarterly. In the event of default under the MidCap Credit Agreement, the Company would be required to pay interest on principal and all other due and unpaid obligations at the current rate in effect plus 2%.

The MidCap term loan matures on May 1, 2027 and bears interest at a rate equal to 6.25% plus the greater of one-month Term SOFR (as defined in the MidCap Credit Agreement) or 1.0%. The Company is required to make 36 monthly interest payments beginning on June 1, 2022 (the “Interest-Only Period”). If the Company is in covenant compliance at the end of the Interest-Only Period, the Company will have the option to extend the Interest-Only Period by 12 months to 48 monthly interest payments, followed by 12 months of straight-line amortization, with the entire principal payment due at maturity. If the Company is not in covenant compliance at the end of the Interest-Only Period, the Company is required to make 24 months of straight-line amortization payments, with the entire principal amount due at maturity.

Subject to certain limitations, the MidCap term loan has a prepayment fee equal to 3.0% of the prepaid principal amount for the first year following the closing date of the MidCap term loan, 2.0% of the prepaid principal amount for the second year following the closing date and 1.0% of the prepaid principal amount for the third year following the closing date and thereafter. The Company is also required to pay an exit fee at the time of maturity or prepayment event equal to 5% of all principal borrowings (the “End of Term Charge”) (or in the event of a prepayment event, the amount of principal being prepaid).

Interest expense associated with the MidCap Credit Facility recorded for the three and six months ended June 30, 2024 was $1.3 million and $2.7 million, respectively, of which $0.2 million and $0.3 million, respectively, was related to the amortization of debt issuance costs. Interest expense associated with the MidCap Credit Facility recorded for the three and six months ended June 30, 2023 was $1.3 million and $2.5 million, respectively, of which $0.2 million and $0.3 million, respectively, was related to the amortization of debt issuance costs.

(6) Stockholders’ Equity

In November 2023, the Company entered into an Equity Distribution Agreement (the “2023 Equity Agreement”) with Piper Sandler & Co, (“Piper”) in connection with the establishment of an at-the-market offering program under which the Company may sell shares of its common stock, from time to time through Piper as sales agent, in an initial amount of up to $50.0 million. The 2023 Equity Agreement superseded and replaced the Company’s previous Equity Distribution Agreement with Piper dated December 18, 2020 (the “2020 Equity Agreement”), which is no longer effective. No sales were made under the 2023 Equity Agreement or the 2020 Equity Agreement during the six months ended June 30, 2024 or 2023.

Warrants

The Company had the following warrants outstanding to purchase common stock at June 30, 2024:


			Exercise	Expiration
	Outstanding		price	dates
Common stock warrants	8,379	$	28.65	2028
Common stock warrants	80,177		28.65	2027
	88,556

(7) Sale of Product Line

In March 2024, the Company entered into an Asset Purchase Agreement (“APA”) with MiMedx Group, Inc. (“MDXG”) to sell certain assets (the “Transaction”) related to NIVIS Fibrillar Collagen Pack Device (“NIVIS”). These assets mainly included the Company’s existing inventory of NIVIS, with a net carrying value of $0.8 million, and certain intellectual property rights to sell NIVIS, with no carrying value. MDXG assumed the Company’s existing supply agreements, including the minimum obligations for NIVIS that the Company entered into in 2022 ahead of the initial sales of NIVIS.

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

In exchange for entering into the Transaction, the Company received an initial $5.0 million upfront payment and is entitled to receive future revenue-sharing payments based on the net sales of NIVIS during the first two years following its launch by MDXG, which revenue-sharing payments would range from a minimum of $3.0 million to a maximum of $7.0 million in the aggregate. Any consideration in excess of $3.0 million up to $7.0 million is considered variable consideration that is fully constrained.

The Company accounted for the Transaction as a sale of a nonfinancial asset group in accordance with ASC 610-20 and followed the principals of ASC 606 to determine the consideration of $8.4 million related to the Transaction. The Company transferred control of the nonfinancial asset group in March 2024 and recognized a gain of $7.6 million on the consolidated statement of operations and comprehensive loss during the three months ended March 31, 2024. Additionally, the Company recorded the minimum revenue-share payment of $3.0 million as a receivable at June 30, 2024, with $0.3 million representing the current portion in prepaid expenses and other assets in the consolidated balance sheet and $2.7 million representing the long-term portion in other long-term assets in the consolidated balance sheet. At each reporting date, the Company assesses the constraint of variable consideration and records increases in the transaction price in the period that the estimate of variable consideration changes. For the three and six months ended June 30, 2024, no changes were made to the variable consideration.

(8) Stock-Based Compensation

The Company has two equity incentive plans: the 2012 Stock Incentive Plan and the Amended and Restated 2019 Equity Incentive Plan. New awards can only be granted under the Amended and Restated 2019 Equity Incentive Plan (the “Plan”). At June 30, 2024, 806,609 shares of common stock were available for future issuances under the Plan. The Plan is subject to an annual increase, subject to prior approval by the Company’s board of directors, equal to the lesser of (i) 432,442 shares, (ii) 4% of the shares outstanding on the last day of the immediately preceding fiscal year and (iii) such smaller number of shares as determined by the board of directors. The Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors. The Company estimates forfeitures that it expects will occur and adjusts expense for actual forfeitures in the periods they occur.

The Company measures employee and nonemployee stock-based awards at grant-date fair value and records compensation expense ratably over the vesting period of the award. The Company recorded stock-based compensation expense in the following expense categories of the accompanying consolidated statements of operations and comprehensive loss (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Sales and marketing	$	302	$	467	$	675	$	868
General and administrative		624		637		1,197		1,191
Research and development		164		190		320		363
Total stock‑based compensation	$	1,090	$	1,294	$	2,192	$	2,422

Stock Options

The Company’s stock options vest based on the terms in each award agreement and generally vest over four years and have a term of 10 years.

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

The following table summarizes stock option activity:


				Weighted
				average
		Weighted		remaining
	Number of	average exercise		contractual term
	shares	price per share		(years)
Outstanding at January 1, 2024	2,162,453	$	11.48
Granted	259,900		6.86
Exercised	(38,431)		5.88
Canceled/forfeited	(144,782)		11.07
Outstanding at June 30, 2024	2,239,140	$	11.07	6.11
Vested and expected to vest at June 30, 2024	2,202,926	$	11.10	6.06
Exercisable at June 30, 2024	1,667,647	$	11.60	5.24

Included in outstanding options at June 30, 2024 were 334,907 stock options granted outside of the Plan. These grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq listing rule 5635(c)(4). At June 30, 2024, the aggregate intrinsic value of both outstanding options and exercisable options was immaterial.

The weighted average grant-date fair value per share of options granted was $4.67 during the six months ended June 30, 2024. The aggregate intrinsic value of options exercised was immaterial and $41,000 for the three and six months ended June 30, 2024, respectively. At June 30, 2024, the total unrecognized compensation expense related to unvested employee and nonemployee stock option awards was $3.2 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.3 years.

Estimating Fair Value of Stock Options

The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Certain of these inputs are subjective and generally require judgment to determine.

Expected term – The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term as provided by the SEC. The simplified method calculates the expected term as the average time to vesting and the contractual term of the options.

Expected volatility – Due to the Company’s limited operating history and lack of sufficient company-specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers, including the Company, whose share prices are publicly available.

Risk-free interest rate – The risk-free rate assumption is based on U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

Expected dividend – The Company has not paid and does not intend to pay dividends.

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

The fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model and the weighted average assumptions in the table below:


	Six months ended
	June 30, 2024
Expected dividend yield	—
Expected volatility	73.2	%
Risk‑free interest rate	4.29	%
Expected term (in years)	6.14

Restricted Stock Units

The Company has issued service-based and performance-based restricted stock units (“RSUs”). Vesting of the service-based RSUs is based on the terms in each award agreement and is generally over four years. Vesting of the performance-based RSUs is subject to continued service through 2026 and the achievement of certain performance milestones for fiscal year 2026. The amount of performance-based RSUs that will vest can range from 0% to 110% of the original number of RSUs granted. Expense for the performance-based RSUs is not recognized until the performance conditions are deemed probable of achievement. The Company has not recorded any expense related to the performance-based RSUs.

The following table summarizes the service-based RSUs for the Plan:


		Number of
		shares
Outstanding at January 1, 2024		657,054 </

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