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 March 31, 2023


☐	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)

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 May 5, 2023, the registrant had 24,447,187 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	27

Item 4.	Controls and Procedures	28

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	Signatures	31

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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 and 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:

●

the ongoing and possible future effects arising from the COVID-19 pandemic, or other pandemics, epidemics or outbreaks of a contagious illness, and associated economic disruptions, including the frequency of surgical procedures using our products, labor and hospital staffing shortages, supply chain integrity, and inflation, impacting our business, financial condition, results of operations and cash flows;

●

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;

●

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 portfolio 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;

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●

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, geopolitical tensions or the outbreak of hostilities or war;

●

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 recent and any 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, 2022 (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)


	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	30,124	$	42,019
Accounts receivable, net		6,654		6,621
Inventory		15,105		11,792
Prepaid expenses and other assets		1,619		2,015
Total current assets		53,502		62,447
Property and equipment, net		1,695		1,682
Intangible assets, net		2,404		2,499
Right-of-use assets		1,187		1,227
Total assets	$	58,788	$	67,855

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,216	$	1,534
Accrued expenses and other current liabilities		9,190		10,869
Total current liabilities		14,406		12,403
Long‑term debt		40,063		39,916
Other long‑term liabilities		1,178		1,231
Total liabilities		55,647		53,550

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; 19,227,777 and 19,165,027 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		19		19
Additional paid-in capital		289,254		288,361
Accumulated other comprehensive income		120		150
Accumulated deficit		(286,252)		(274,225)
Total stockholders’ equity		3,141		14,305
Total liabilities and stockholders’ equity	$	58,788	$	67,855

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 March 31,
	2023		2022
Revenue	$	11,909	$	8,231
Cost of revenue (excluding amortization of intangible assets)		3,916		3,156
Amortization of intangible assets		95		76
Gross profit		7,898		4,999
Operating expenses:
Sales and marketing		13,466		9,378
General and administrative		3,634		3,458
Research and development		2,052		2,007
Total operating expenses		19,152		14,843
Loss from operations		(11,254)		(9,844)
Other expense:
Interest expense		(1,246)		(911)
Other income (expense)		473		(107)
Total other expense		(773)		(1,018)
Net loss	$	(12,027)	$	(10,862)
Net loss per common share, basic and diluted	$	(0.63)	$	(0.75)
Weighted average common shares outstanding, basic and diluted		19,185,621		14,538,864
Comprehensive loss:
Net loss	$	(12,027)	$	(10,862)
Foreign currency translation adjustment		(30)		47
Comprehensive loss	$	(12,057)	$	(10,815)

See accompanying notes to unaudited interim consolidated financial statements.

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TELA Bio, Inc.

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2023 and 2022

(In thousands, except share amounts)

(Unaudited)


						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 share-based awards and exercise of stock options	88,588		—		44		—		—		44
Shares withheld for employee taxes	(25,838)		—		(279)		—		—		(279)
Foreign currency translation adjustment	—		—		—		(30)		—		(30)
Stock‑based compensation expense	—		—		1,128		—		—		1,128
Net loss	—		—		—		—		(12,027)		(12,027)
Balance at March 31, 2023	19,227,777	$	19	$	289,254	$	120	$	(286,252)	$	3,141


						Accumulated
				Additional		other
	Common stock			paid‑in		comprehensive		Accumulated
	Shares	Amount		capital		income		deficit		Total
Balance at January 1, 2022	14,529,577	$	15	$	250,064	$	(52)	$	(229,929)	$	20,098
Vesting of common stock previously subject to repurchase	27		—		—		—		—		—
Vesting of share-based awards and exercise of stock options	40,062		—		7		—		—		7
Shares withheld for employee taxes	(12,918)		—		(153)		—		—		(153)
Foreign currency translation adjustment	—		—		—		47		—		47
Stock‑based compensation expense	—		—		901		—		—		901
Net loss	—		—		—		—		(10,862)		(10,862)
Balance at March 31, 2022	14,556,748	$	15	$	250,819	$	(5)	$	(240,791)	$	10,038

See accompanying notes to unaudited interim consolidated financial statements.

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TELA Bio, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three months ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(12,027)	$	(10,862)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		120		78
Noncash interest expense		147		178
Amortization of intangible assets		95		76
Net changes in operating lease ROU assets and liabilities		(10)		(8)
Inventory excess and obsolescence charge		576		845
Stock‑based compensation expense		1,128		901
Change in operating assets and liabilities:
Accounts receivable, net		(18)		(85)
Inventory		(3,860)		(3,505)
Prepaid expenses and other current assets		398		497
Accounts payable		3,662		3,274
Accrued expenses and other current and long-term liabilities		(1,691)		(1,920)
Foreign currency remeasurement loss		(94)		101
Net cash used in operating activities		(11,574)		(10,430)
Cash flows from investing activities:
Purchase of property and equipment		(115)		(336)
Net cash used in investing activities		(115)		(336)
Cash flows from financing activities:
Proceeds from exercise of stock options		44		7
Payment of withholding taxes related to stock-based compensation to employees		(279)		(153)
Net cash used in financing activities		(235)		(146)
Effect of exchange rate on cash and cash equivalents		29		(3)
Net decrease in cash and cash equivalents		(11,895)		(10,915)
Cash and cash equivalents, beginning of period		42,019		43,931
Cash and cash equivalents, end of period	$	30,124	$	33,016
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	1,099	$	733
Supplemental disclosures of noncash investing and financing activities:
Property and equipment in accounts payable and accrued expenses and other current liabilities	$	18	$	16
Operating lease ROU asset exchanged for operating lease liabilities	$	—	$	1,374
Tenant improvement and deferred rent reclassified to operating lease liabilities	$	—	$	380
Operating lease liabilities assumed for operating lease ROU assets	$	—	$	(1,754)

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.

The Company has been directly impacted by the COVID-19 pandemic since the onset of the pandemic in 2020. To date, among other impacts on the Company’s business related to the pandemic, physicians and their patients have been required by state mandates, or have chosen to, defer elective surgery procedures in which the Company’s products otherwise would be used. There remains uncertainty and lack of visibility regarding the Company’s near-term revenue growth prospects and product development plans due to the volatility in the frequency of surgical procedures using the Company’s products, including through labor and hospital staffing shortages and the allocation of hospital resources due to financial strain experienced during the COVID-19 pandemic. Although the Company continues to monitor developments related to hospital capacity and the volume of elective procedures, there is uncertainty regarding the pace to which surgical volumes will normalize to their pre-pandemic levels and the timing to address the backlog of deferred procedures. The full extent of the impact of the COVID-19 pandemic on the Company’s business, results of operations and financial condition, including revenue, expenses, manufacturing capability, supply chain integrity, staffing availability, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain.

(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 $286.3 million as of March 31, 2023. The Company anticipates incurring additional losses until such time, if ever, it can generate sufficient revenue from its products to cover its expenses.

In August 2022, the Company completed an underwritten public offering in which the Company issued and sold 4,600,000 shares of its common stock at a public offering price of $8.00 per share. The Company received net proceeds of $34.4 million after deducting underwriting discounts, commissions and other offering expenses.

Subsequent to March 31, 2023, the Company completed an additional underwritten public offering which is described in Note 10, Subsequent Event.

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 the COVID-19 pandemic, general economic uncertainty, including as a result of inflationary pressures and the measures undertaken by various governments to address them, banking instability, geopolitical factors such as the ongoing war in Ukraine, 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.

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(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, 2022. 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 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, 2022.

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 customers 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

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TELA Bio, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

SEC Form 10-Q filed by TELA Bio Inc.