UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
______________________
Date of Report (Date of earliest event reported): November 13, 2017
OrthoPediatrics Corp. |
(Exact name of registrant as specified in its charter) |
Delaware |
(State or other jurisdiction of incorporation) |
001-38242 | 26-1761833 |
(Commission File Number) | (I.R.S. Employer Identification Number) |
2850 Frontier Drive Warsaw, Indiana | 46582 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (574) 268-6379
Not Applicable |
(Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).
Emerging growth company [X]
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 [X]
Item 7.01. Regulation FD Disclosure.
OrthoPediatrics Corp. (the “Company”) will be presenting at the Stifel 2017 Healthcare Conference on Tuesday, November 14, 2017, in New York City. Mark Throdahl, President and Chief Executive Officer, and Fred Hite, Chief Financial Officer will be presenting on the Company at 10:15 (Eastern). An audio webcast of the presentation will be available at the Company’s investor relations website, http://ir.orthopediatrics.com. A replay of the presentation will also be available for 90 days. The officers also intend to use the material filed as Exhibit 99.1 herewith, in whole or in part, as part of the presentation.
The Company does not intend for this Item 7.01 or Exhibit 99.1 to be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) | Exhibits | |
Exhibit No. | Description | |
* * * * * *
17526818.1
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
OrthoPediatrics Corp. | ||
Date: November 13, 2017 | By: | /s/ Daniel J. Gerritzen |
Daniel J. Gerritzen, General Counsel and Secretary | ||
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OrthoPediatrics Corp.
November 2017
Mark Throdahl, CEO
Fred Hite, CFO
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Disclaimer
This presentation contains and related discussion may contain “forward-looking statements” within the meaning of U.S. federal securities laws. All statements
contained in this presentation and related discussion other than statements of historical facts are forward-looking statements. Forward-looking statements include
information concerning possible or assumed future results of operations, including descriptions of our business plans and strategies. You can identify forward-
looking statements by the use of words such as “may,” “might,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,”
“predict,” “intend,” “future,” “potential,” “suggest,” “target,” “forecast,” “continue” and other similar expressions. Forward-looking statements are not historical
facts, and are based upon management’s current expectations, beliefs, estimates, projections and various assumptions, many of which are inherently uncertain and
beyond our control. Such expectations, beliefs, estimates, projections and assumptions are expressed in good faith and management believes there is a reasonable
basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, projections and assumptions will be achieved, and actual
results may differ materially from what is expressed in or indicated by the forward-looking statements. Forward-looking statements are subject to risks and
uncertainties that could cause actual performance or results to differ materially from those expressed in the forward-looking statements, including risks detailed in
the registration statement on Form S-1 (as amended, the “Registration Statement”) filed by OrthoPediatrics Corp. (the “Company”) with the U.S. Securities and
Exchange Commission (the “SEC”). Forward-looking statements speak only as of the date the statements are made. The Company assumes no obligation to update
forward-looking statements to reflect actual results, subsequent events or circumstances or other changes affecting forward-looking information except to the
extent required by applicable securities laws. Certain information in this presentation is based upon management forecasts and reflects prevailing conditions and
management’s views as of this date, all of which are subject to change.
Before you invest, you should read the Registration Statement and other documents the Company has filed and will file with the SEC for more complete information
about the Company. You may obtain these documents for free by visiting EDGAR on the SEC website at http://www.sec.gov.
The Company owns or has rights to use a number of registered and common law trademarks, service marks and trade names in connection with its business in the
United States and in certain foreign jurisdictions, including the OrthoPediatrics name and logo. Solely for convenience, the trademarks, service marks and trade
names referred to in this presentation may be without the ® and ™ symbols, but such references are not intended to indicate, in any way, that the Company will not
assert, to the fullest extent under applicable law, its rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This
presentation contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service
marks and trade names appearing in this presentation are, to the Company’s knowledge, the property of their respective owners.
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Highlights
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Only diversified orthopedic company focused on pediatric orthopedics
Protected market opportunity: $1.1 billion U.S., $2.5 billion globally in 2016
High U.S. procedure concentration: <300 hospitals and ~1,200 surgeons
Focused call point: generalists who use our entire product portfolio
Broadest product offering: 22 systems specifically designed for children
Sustainable competitive advantage:
- Comprehensive product offering
- Clinical education programs
- Surgeon relationships
- Experienced sales organization
$37 million revenue in 2016 with 20% growth, accelerating in 2017
Recent IPO will, among other things, fund consigned sets and accelerate proven strategy
Large Market Proprietary Technology Scalable Business
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OP Today
Treated 16,000 patients in 2016
22 surgical systems; 2,700 SKUs; strong pipeline
62 direct employees; 69 focused FTE sales reps
Global sales organization focused on pediatric
orthopedic surgeons in 36 countries
International: 31 stocking distributors; 2 sales agencies
21 issued patents; 19 pending patents
Only non-founding Chief Medical Officer in the
industry who is a fellow surgeon
Average FDA approval time: < ½ industry average
History of stable reimbursement
Improving the lives of children
with orthopedic conditions
Company Snapshot Cause
4
A Company Built on a CAUSE
Gideon with CMO Peter Armstrong, M.D., c. 1995.
Gideon’s drawing of his girlfriend, 2016.
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Our Key Idea
Address orthopedic industry’s lack of focus
on product development, clinical education,
and sales presence
Implants and instruments avoid complications
of re-purposed adult products
Product development in collaboration with
leading pediatric orthopedic surgeons
Dedicated sales support attending surgeries
Clinical education programs that build
brand loyalty
OP’s Market Impact
5
Screws Through
Growth Plate
Screws Parallel To
Growth Plate
Superior Clinical Outcomes
Children Are Not Small Adults
Re-Purposed Adult Plate OP’s Solution
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Children Are Not Small Adults
Limitations of Conventional Orthopedic Products
Anatomical Differences
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Dangers of Using Adult Implants
Growth plates must be protected; ligament
repair must avoid growth plates
Smaller and more curved bones
Implants are often removed
Blood supply must be protected
Complex disorders like cerebral palsy pose
unique challenges
Growth arrest and subsequent deformity
Inaccurate implant placement, compromised
fixation, and instrumentation issues
Titanium encourages bony on-growth
Invading temporary vasculature leads to
necrosis
Reduced surgeon confidence
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38%
62%
Large and Focused Market
Current products target three of the largest categories in Pediatric Orthopedics
Pipeline products underway to expand addressable market
Trauma &
Deformity
$401M
OP’S $2.5 Billion Current Addressable Global Market
$1.1 Billion U.S. Addressable Market
Procedures
(%)
High Concentration of Pediatric
Trauma & Deformity and Complex Spine Procedures
Smart
Implants
$299M
Complex
Spine
$285M
Sports
Medicine
$116M
268 U.S.
Hospitals
3,157 U.S.
Hospitals
7
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Product Line Diversification
2016 Revenue Growth % by Product Family
$37 million sales in 2016
20% revenue growth in 2016
No dependency on one product family
Consistent growth across all products
Comparable gross margins on all products
2016 Revenue by Segment
8
2016 Revenue by Product Family
72%
3%
25%
Sports
Medicine Trauma &
Deformity
Complex
Spine
0%
5%
10%
15%
20%
25%
30%
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A Proven Strategy Since 2011
9
Deploy
Instrument
Sets
Sales Focus
On Teaching
Institutions and
High Volume
Hospitals
Expand
Addressable
Procedures
Expand Clinical
Training
Programs
Goals
Accelerate sales growth (requires consigned sets)
Develop novel technologies
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16 Trauma & Deformity Systems; 1,200 Implants
Distal Femoral Osteotomy System
CP flexion contractures, varus-valgus deformities
Instrumentation enables precise wedge osteotomies
Plates in 3.5 and 4.5mm sizes, 4 and 6-hole lengths,
with and without offsets
Q4 2016 with 12 sets
Trauma & Deformity Example
72%
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Complex Spine Example
Pre-contoured rods in CoCr and Ti
5.5mm and 6.0mm diameters, 3 lengths
RESPONSE Rod Reduction &
De-rotation Instruments
One-handed, snap-fit instrument with
segment de-rotation and flag
attachments to reduce surgery time
Proprietary Tulip Head
Specifically designed for AIS
Set screw minimizes cross-threading
Prevents tulip head splay
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RESPONSE 5.5/6.0 Systems
Adolescent Idiopathic Scoliosis
Intraoperatively accepts 5.5mm or 6.0mm
CoCr or Ti rods
22 Surgical Systems 25%
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Sports Medicine Example
Medial Patella Femoral
Ligament Reconstruction System
Full range of instruments accommodate any technique
Bioabsorbable interference screws
Complements ACL Reconstruction System
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3 New Systems in Q3 2017
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3 New Systems in Q3 2017
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OP has exclusive distribution rights in U.S. pediatric hospitals
Unique, patient-specific custom guide for screw placement
Provides a 3D printed, patient-specific guide for each vertebral
level
Improves screw placement accuracy without the need for an
expensive navigation or robotic system.
Eliminates intraoperative radiation and is ideally suited for large
construct cases.
Complementary to our RESPONSE Spine System
FIREFLY® Pedicle Screw Navigation Guides
Complex Spine
Clavicle Plate System
First clavicle system for
pediatric patients
Based on proprietary access
to Hamann-Todd Collection
Available in 2.7mm and 3.5mm sizes and
in 6, 7, and 8-hole versions
Trauma & Deformity
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Sports
Medicine
Strong Pipeline
Expanding Our Addressable Market
Spine
Foot & Ankle
Hip & Long
Bone
CMF
Proximal
Humerus
Elbow
Hand &
Wrist
Pelvis
Clavicle
Rib
OP Today OP Tomorrow
Now Under Development
Demonstrated ability to
expand portfolio to full
array of pediatric surgeries
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Growing Rods
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Culture of Continuous Improvement
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PediFlex
PediLoc
Femur/Tibia
Screws
PediPlates
PediNail
LCB & LPF
PediFrag
RESPONSE
ACL
T I M E
B
R
E
A
D
T
H
2008
DFOS
OI Nail
BandLoc
Novel introducer and
Extractor; new unique
shape
PediNail Gen II adds adolescent
nails to expand usage significantly
Wrist Fusion Plates
4.5/5.0mm System
Titanium PediPlates; Sterile disposable sets
2017
90 and 110 Degree Plates
4.5/5.0mm System
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Surgeon Testimonials
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“How in the world have you been able to develop a better system than
anything on the market in so short a period of time – when other companies
have been out there for so long?”
- Dr. Eric Wall, M.D. (Cincinnati Children’s Hospital)
“OrthoPediatrics has developed an all-in-one ACL system which allows me to
provide comprehensive care to the pediatric and adolescent patient. Rather
than having to adapt equipment which has been developed for adult
patients in the pediatric setting, I can utilize a system which is surgeon-
friendly, reliable, and developed for the young patient.”
- Dr. Allen Anderson, M.D. (Nashville, TN)
“OrthoPediatrics’ proximal hip solutions provide me with the most
reproducible results. The instrumentation is easy to use, and the wide
selection of implants allow me to treat all indications.”
- Dr. Rudolf Ganger, M.D., Ph.D. (Speising Hospital, Vienna)
ACL Reconstruction /
Other
Trauma & Deformity
Complex Spine
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OP’s Bio-Skills Education Program: 16 modules for Residents and Fellows
These programs touched 2,000 medical personnel in 2016
We extensively train 200 young surgeons annually:
(1) Annual Pediatric Spine Symposium; (2) Annual Pediatric Orthopedic Surgical
Techniques Lab; (3) Annual Akron Pediatric Orthopedic Residents Review Course
Leading financial sponsor of POSNA, IPOS, EPOS, PRiSM, and AACPDM
Training the Next Generation of Pediatric Orthopedic Surgeons
OP’s Doc Matter Surgeon Community
Clinical Education Programs
Clinical Education Advisory Committee
Peter Armstrong, MD, Chair
Ben Alman, MD (Duke)
Don Bae, MD (Boston Children’s)
Jon Davids, MD (Shriner’s Sacramento)
Rick Kruse, MD (A. I. duPont)
Todd Milbrandt, MD (Mayo Clinic)
Dave Podeszwa, MD (Texas Scottish Rite)
Todd Ritzman, MD (Akron)
Jon Schoenecker, MD, PhD (Vanderbilt)
Bryan Tompkins, MD (Shriner’s Spokane)
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Global Sales Coverage
United States
77% of 2016
Revenue
33 Sales Agencies,
most of which are
exclusive
International
23% of 2016
Revenue
2 Sales Agencies
+ 31 Stocking
Distributors
Sales in 35 countries + the United States
Current customers in every major children’s hospital in the United States
Internationally, surgeons pull us into their markets and introduce us to well-respected distributors
Direct in UK, IRE, AUS, NZ
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1 SVP U.S. Sales
5 Regional Sales VPs
3 Product Sales Specialists
33 Sales Agencies
110+ Reps Focused on Pediatrics
69 FTE OP Reps
1 SVP International Sales
2 Regional Sales VPs – EMEA
1 Regional Sales VP – Latin America
1 Regional Sales VP – Asia/Pacific
2 Sales Agencies (UK/IRE, AUS/NZ)
+
31 Stocking Distributors
Sales Management Structure
U.S. International
1 EVP 1 EVP
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Unique Sales Model
Attracting U.S. and international distributors alienated by industry consolidations
Long-standing partnerships:
Many agents are former OP direct reps
“Boys in the Boat” quarterly meetings with largest sales agencies
Limited sources for products: Leaving OP would sacrifice their pediatric sales base
Exclusive distribution contracts: In many cases, OP has legal control over product lines that
sales agents can represent
77% of U.S. Sales From Exclusive Agencies
We manage sales agencies as if they were our own employees
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Product breadth
Surgeon relationships
Sales and distribution network
Clinical education programs
Pediatric brand equity
Reputation with pediatric
orthopedic societies
Dynamic culture
New Competitors Would Face Formidable Obstacles
“The ship has sailed.”
Barriers to Entry
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What Does Category Leadership Mean?
Surgeon relationships and
Clinical education
Relationships with surgeons who use
entire portfolio
Major provider of clinical education
Leading supporter of surgical societies
Custom instruments business
Attractive growth and
margin profile
Consistent growth since 2011
71% gross margins
History of efficient capital
utilization
Robust organic growth
opportunities
$2.5 billion addressable global market
Limited focused competition
Focused, experienced distribution
Instrument set placements drive growth
Broadest, most innovative
product offering
11-year clinical understanding
New product pipeline
Gateway to pediatric market for
distributed products and joint
product developments
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Financial Review
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Scalable Business Model
21% of procedures in 62 children’s hospitals
62% of U.S. Trauma & Deformity and
Complex Spine procedures in 268 hospitals
Attractive Market Dynamics More of the Same
Plus International Expansion
Distribution
optimization
New
Customers
New
Products
Instrument
Sets
Single defensible call point: 1,200 pediatric
orthopedic surgeons
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OP Sales Model
Gross Margin Less Selling Commissions Comparable
2017 Transitioned UK/IRE/AUS/NZ Markets to Sales Agency Model
Instrument /
Implant Sets
Replenishment
Selling
Commission
Consign to sales agencies
Zero sales and margin on instruments
Sell to stocking distributors
Stocking sets sold at low margin
Hospitals purchase at high margins
Distributors purchase at good
margins
Industry standard Zero
United States International
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$9.3
$13.3
$15.8
$18.4
$24.9
$28.8
$0.9
$2.8
$3.9
$5.3
$6.1
$8.5
$10.2
$16.1
$19.6
$23.7
$31.0
$37.3
$0
$5
$10
$15
$20
$25
$30
$35
$40
2011 2012 2013 2014 2015 2016
R
ev
enu
e
(
$
in Mi
lli
on
s)
U.S. International
History of Strong Revenue Growth
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$19.3
$22.5
$26.8
$3.6
$7.4
$9.4
$0.8
$1.1
$1.1
$0
$5
$10
$15
$20
$25
$30
$35
$40
2014 2015 2016
R
ev
enu
e
(
$
in Mi
lli
on
s)
Trauma & Deformity Complex Spine ACL Reconstruction / Other
$20.2
$24.3
$6.9
$8.7 $0.8
$0.9
9M' 2016 9M' 2017
Category Revenue Summary
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Revenue Seasonality
2015 2016
20%
25%
28%
27%
0%
5%
10%
15%
20%
25%
30%
Q1 Q2 Q3 Q4
R
ev
e
n
u
e
as % of
To
ta
l Y
ea
r
Seasonality Drives Stronger Performance in Summer Months and Holiday Periods
28
22%
26%
27%
25%
0%
5%
10%
15%
20%
25%
30%
Q1 Q2 Q3 Q4
R
ev
en
u
e
as %
o
f
To
ta
l Y
e
ar
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Income Statement Summary
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($ in Millions)
Year Ended December 31; Nine Months Ended September 30
2014 2015 2016 9M’16 9M’17
Revenue $23.7 $31.0 $37.3 $27.9 $33.9
Growth % 21% 31% 20% NA 22%
Gross Profit $16.6 $21.6 $26.4 $20.0 $25.6
Margin % 70% 70% 71% 72% 75%
Operating Expenses $23.7 $28.2 $32.5 $22.8 $27.9
Operating Loss ($7.1) ($6.6) ($6.1) ($2.9) ($2.3)
Net Loss ($9.5) ($7.9) ($6.6) ($2.9) ($4.1)
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Balance Sheet
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Assets Liabilities
Cash $2.2 Accounts Payable $5.1
Accounts Receivable 5.7 Debt 27.5
Inventory 18.4 Accrued Expenses 2.3
PP&E (net) 9.7 All Other Liabilities 3.0
Intangibles 2.2 Paid In Capital 85.2
All Other 0.3 Accumulated Deficit (82.2)
Total Assets $41.1 Total Liabilities / Equity $41.1
($ in Millions)
Nine Months Ended September 30, 2017
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Working Capital and General Corporate Purposes
Expand Sales and Marketing
Use of Proceeds
R&D
Pay Series B Preferred Stock Dividends $
Invest in Consigned Implants and Instrument Sets
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Debt Refinancing
November 8, 2017 – signed a non-binding Letter of Intent to amend current debt
agreement with Squadron Capital to modify and extend the terms of its existing term
notes and revolving credit facility
Consolidates a majority of the term note amounts into a $20.0 million term loan and
reestablishes a $15.0 million revolver
10.0% interest rate for both (3-month LIBOR plus 8.61%), vs. previous rate of 10.0% for
term notes and 11.0% for revolver
Extends the loan period through January 31, 2023 (previously May 31, 2019 or May 31,
2020 based on revenue)
As of September 30, 2017, the Company had approximately $27.6 million in total
outstanding indebtedness, including $7.5 million outstanding under the revolving credit
facility, of which the Company expects to convert $1.6 million to term notes plus pay back
$2.5 million in the near term, leaving over $11.0 million in available capacity