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OrthoPediatrics Corp. Reports Third Quarter 2018 Financial Results

Third Quarter 2018 Revenue Increased 27.8% Year-over-Year to $15.8 Million

Full Year 2018 Revenue Growth Guidance Increased to a Range of 25.0% to 25.5%

WARSAW, Ind., Oct. 31, 2018 (GLOBE NEWSWIRE) -- OrthoPediatrics Corp. (NASDAQ: KIDS), a company exclusively focused on advancing the field of pediatric orthopedics, today announced financial results for the third quarter ended September 30, 2018 and increased revenue guidance for full year 2018.

Third Quarter & Recent Highlights

  • Increased total revenue to $15.8 million for third quarter 2018, up 27.8% from $12.4 million in third quarter 2017
  • Deployed $2.3 million of consignment sets during the third quarter 2018
  • Converted Canada to sales agency model
  • Fully launched Pediatric Nailing Platform | FEMUR and announced expanded indications for FIREFLY® Pedicle Screw Navigation Guides, patient-specific, 3D printed guides, in July
  • Received FDA 510(k) clearance for 26th surgical system, RESPONSE 4.5/5.0mm System, to treat smaller stature, younger patients with complex scoliosis in October
  • Increased revenue growth guidance to a range of 25.0% to 25.5% and investment in consignment sets to $12.0 million for full year 2018

Mark Throdahl, Chief Executive Officer of OrthoPediatrics, stated, “Our strong performance represents another consecutive quarter of record revenues, driven by continued strength across all segments of our business. In the third quarter, we further consolidated our leading position in pediatric orthopedics with particularly strong domestic sales, led by our U.S. scoliosis business and reflecting the initial benefits from increased investment in consigned sets. With the additional $2.3 million of set deployment during the quarter, we continue to address the robust demand for our surgical systems. Furthermore, our demonstrated ability to develop a consistent cadence of innovative products provides further expansion opportunities. We are very pleased with our steady execution that led to another quarter of outperformance and supports our increased guidance for the full year.”

Third Quarter 2018 Financial Results

Total revenue for the third quarter 2018 was $15.8 million, representing 27.8% growth, compared to total revenue of $12.4 million for the third quarter 2017. U.S. revenue for the third quarter of 2018 increased 30.0% to $12.4 million, compared to $9.6 million for the same period last year, and represented 78.5% of total revenue. International revenue increased 20.6% to $3.4 million, compared to $2.8 million for the same period last year and represented 21.5% of total revenue.

Trauma and Deformity revenue for third quarter 2018 increased 21.0% to $10.6 million compared to $8.7 million for the same period last year. Scoliosis revenue increased 52.4% to $5.0 million compared to $3.3 million for the third quarter 2017. Sports Medicine/Other revenue for the third quarter of 2018 decreased 33.2% to $0.2 million compared to $0.3 million for the same period last year.

Gross profit for the third quarter of 2018 was $12.0 million, a 26.2% increase compared to $9.5 million for the same period last year. Gross profit margin for the third quarter of 2018 was 75.7%, compared to 76.7% for the same period last year due to lower international margins.

Total operating expenses for the third quarter of 2018 were $13.1 million, a 28.3% increase compared to $10.2 million for the same period last year. The increase in operating expenses was driven by a 26.9% increase in sales and marketing, including higher commissions, and unusually higher, non-recurring professional fees associated with legal expense. Operating loss for the quarter increased to ($1.2) million from ($0.8) million for the same period last year.

Net interest expense for the third quarter of 2018 was $0.6 million, a 20.1% decrease compared to $0.8 million for the same period last year.

Net loss attributable to common stock holders for the period was ($1.9) million, compared to ($3.0) million for the third quarter of 2017. Net loss per share attributable to common stockholders for the third quarter of 2018 was ($0.15) per basic and diluted share compared to ($1.70) per basic and diluted share for the same period prior year.

Adjusted EBITDA for the third quarter of 2018 was $1.0 million as compared to $0.3 million for the third quarter of 2017. The change was primarily driven by the significant increase in revenue. See below for additional information and a reconciliation of non-GAAP financial information.

The weighted average number of diluted shares outstanding as of September 30, 2018 was 12,624,858 shares.

In the third quarter of 2018, our independent sales agencies in the United States employed 86 full-time equivalent sales representatives specifically focused on pediatrics.

Purchases of property and equipment during the third quarter of 2018 were essentially flat at $1.1 million when compared to the same period last year, reflecting the deployment of consigned sets that included procedure specific implants, instruments, and cases and trays. Including the implants, $2.3 million of consigned sets were deployed during the third quarter of 2018. This compared to $2.2 million during the third quarter of 2017 most of which were international set sales due to the conversion to an agency model from a stocking distributor in select markets.

As of September 30, 2018, cash and cash equivalents were $24.5 million, compared to $26.5 million as of June 30, 2018, and the Company had approximately $25.4 million in total outstanding indebtedness, including $3.9 million outstanding under the revolving credit facility.

Full Year 2018 Financial Guidance

OrthoPediatrics is updating financial guidance for the full year 2018, as follows:

  • Revenue growth in a range of 25.0% to 25.5%, up from prior guidance of 23% to 24%.
  • Consigned set investments of approximately $12.0 million, up from prior guidance of $11.0 million.

Conference Call

OrthoPediatrics will host a conference call on Thursday, November 1, 2018, at 8:00 a.m. ET to discuss the results. The dial-in numbers are (855) 289-4603 for domestic callers and (614) 999-9389 for international callers. The conference ID number is 6099725. A live webcast of the conference call will be available online from the investor relations page of the OrthoPediatrics’ corporate website at www.orthopediatrics.com.

A replay of the webcast will remain available on OrthoPediatrics’ website, www.orthopediatrics.com, until the Company releases its full year 2018 financial results. In addition, a telephonic replay of the call will be available until November 8, 2018. The replay dial-in numbers are (855) 859-2046 for domestic callers and (404) 537-3406 for international callers. Please use the replay conference ID number 6099725.

Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of U.S. federal securities laws. You can identify forward-looking statements by the use of words such as "may," "might," "will," "should," "expect," "plan," "anticipate," "could," "believe," "estimate," "project," "target," "predict," "intend," "future," "goals," "potential,” "objective," "would" and other similar expressions. Forward-looking statements involve risks and uncertainties, many of which are beyond OrthoPediatrics’ control. Important factors could cause actual results to differ materially from those in the forward-looking statements, including, among others, the risks, uncertainties and factors set forth under "Risk Factors" in OrthoPediatrics’ Annual Report on Form 10-K filed with the SEC on March 15, 2018. Forward-looking statements speak only as of the date they are made. OrthoPediatrics assumes no obligation to update forward-looking statements to reflect actual results, subsequent events, or circumstances or other changes affecting such statements except to the extent required by applicable securities laws.

Use of Non-GAAP Financial Measures

This press release includes the non-GAAP financial measure of Adjusted EBITDA, which differs from financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA in this release represents net loss, plus interest expense (income), net plus other expense (income), depreciation and amortization, stock-based compensation expense, accelerated vesting of restricted stock upon our IPO, public company costs and initial public offering costs. Adjusted EBITDA is presented because the Company believes it is a useful indicator of its operating performance. Management uses the metric as a measure of the Company’s operating performance and for planning purposes, including financial projections. The Company believes this measure is useful to investors as supplemental information because it is frequently used by analysts, investors and other interested parties to evaluate companies in its industry. The Company believes Adjusted EBITDA is useful to its management and investors as a measure of comparative operating performance from period to period. Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to, or superior to, net income or loss as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP, and it should not be construed to imply that the Company’s future results will be unaffected by unusual or non-recurring items. In addition, the measure is not intended to be a measure of free cash flow for management’s discretionary use, as it does not reflect certain cash requirements such as debt service requirements, capital expenditures and other cash costs that may recur in the future. Adjusted EBITDA contains certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs and other potential cash requirements. In evaluating Adjusted EBITDA, you should be aware that in the future the Company may incur expenses that are the same or similar to some of the adjustments in this presentation. The Company’s presentation of Adjusted EBITDA should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by primarily relying on the Company’s GAAP results in addition to using Adjusted EBITDA on a supplemental basis. The Company’s definition of this measure is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation. The schedules below contain a reconciliation of Net Loss to non-GAAP Adjusted EBITDA.

About OrthoPediatrics Corp.

Founded in 2006, OrthoPediatrics is an orthopedic company focused exclusively on providing a comprehensive product offering to the pediatric orthopedic market to improve the lives of children with orthopedic conditions. OrthoPediatrics currently markets 25 surgical systems that serve three of the largest categories within the pediatric orthopedic market. This offering spans trauma & deformity, scoliosis, and sports medicine/other procedures. OrthoPediatrics’ global sales organization is focused exclusively on pediatric orthopedics and distributes its products in the United States and 38 countries outside the United States.

Investor Contacts
The Ruth Group
Tram Bui / Emma Poalillo
(646) 536-7035 / 7024
tbui@theruthgroup.com / epoalillo@theruthgroup.com

 
ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
 
    September 30,   December 31,
    2018   2017
    (unaudited)    
ASSETS
Current assets:        
Cash   $ 24,463     $ 42,582  
Accounts receivable - trade, less allowance for doubtful accounts of        
$131 and $143, respectively     9,456       5,603  
Inventories, net     26,646       19,498  
Inventories held by international distributors, net     234       1,047  
Prepaid expenses and other current assets     1,045       831  
Total current assets     61,844       69,561  
         
Property and equipment, net     12,774       10,391  
         
Other assets:        
Amortizable intangible assets, net     2,000       2,089  
Other intangible assets     260       260  
Total other assets     2,260       2,349  
         
Total assets   $ 76,878     $ 82,301  
         
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:        
Accounts payable - trade   $ 5,903     $ 5,495  
Accrued compensation and benefits     3,302       2,905  
Current portion of long-term debt with affiliate     117       113  
Other current liabilities     1,594       954  
Total current liabilities     10,916       9,467  
Long-term liabilities:        
Long-term debt with affiliate, net of current portion     21,330       21,418  
Revolving credit facility with affiliate     3,947       3,921  
Total long-term liabilities     25,277       25,339  
         
Total liabilities     36,193       34,806  
         
Commitments and contingencies        
         
Stockholders' equity:        
Common stock, $0.00025 par value; 50,000,000 shares authorized;        
12,807,520 shares and 12,621,781 shares issued and outstanding as        
of September 30, 2018 (unaudited) and December 31, 2017     2       2  
Additional paid-in capital     153,649       150,424  
Accumulated deficit     (112,623 )     (103,066 )
Accumulated other comprehensive income     (343 )     135  
Total stockholders' equity     40,685       47,495  
         
Total liabilities and stockholders' equity   $ 76,878     $ 82,301  


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share and Per Share Data)
 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2018
  2017
  2018
  2017
Net revenue $ 15,820     $ 12,375     $ 42,991     $ 33,939  
Cost of revenue   3,843       2,884       10,825       8,321  
Gross profit   11,977       9,491       32,166       25,618  
Operating expenses:              
Sales and marketing   7,150       5,633       20,005       15,122  
General and administrative   4,877       3,487       16,393       10,282  
Research and development   1,122       1,127       3,455       2,482  
Total operating expenses   13,149       10,247       39,853       27,886  
Operating loss   (1,172 )     (756 )     (7,687 )     (2,268 )
Other expenses:              
Interest expense   608       761       1,722       1,857  
Other expense (income)   85       20       148       (38 )
Total other expenses   693       781       1,870       1,819  
               
Net loss $ (1,865 )   $ (1,537 )   $ (9,557 )   $ (4,087 )
Net loss attributable to common stockholders $ (1,865 )   $ (3,021 )   $ (9,557 )   $ (8,451 )
Weighted average common shares - basic and diluted   12,624,858       1,773,385       12,417,972       1,754,576  
Net loss per share attributable to common stockholders -
basic and diluted
$ (0.15 )   $ (1.70 )   $ (0.77 )   $ (4.82 )


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
 
  For the Nine Months Ended September 30,
  2018   2017
       
OPERATING ACTIVITIES  
Net loss $ (9,557 )   $ (4,087 )
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization   2,177       1,748  
Stock-based compensation   2,899       1,081  
Changes in certain current assets and liabilities:      
Accounts receivable - trade   (4,077 )     (1,588 )
Inventories   (6,087 )     (3,276 )
Inventories held by international distributors   813       345  
Prepaid expenses and other current assets   (214 )     (382 )
Accounts payable - trade   408       1,559  
Accrued expenses and other liabilities   798       513  
Other   (15 )     193  
Net cash used in operating activities   (12,855 )     (3,894 )
       
INVESTING ACTIVITIES      
Purchases of licenses   (195 )     (1,337 )
Purchases of property and equipment   (5,311 )     (3,949 )
Net cash used in investing activities   (5,506 )     (5,286 )
       
FINANCING ACTIVITIES      
Proceeds from issuance of debt with affiliate   -       10,139  
Payments on mortgage notes   (84 )     (80 )
Proceeds from exercise of stock options   326       -  
Payments of deferred offering costs   -       (250 )
Net cash provided by financing activities   242       9,809  
       
NET INCREASE (DECREASE) IN CASH   (18,119 )     629  
       
Cash, beginning of year   42,582       1,609  
Cash, end of period $ 24,463     $ 2,238  
       
SUPPLEMENTAL DISCLOSURES      
Cash paid for interest $ 1,722     $ 1,856  
Accretion of redeemable convertible preferred stock $ -     $ 4,364  
Transfer of instruments from property and equipment to inventory $ 1,061     $ 1,196  


ORTHOPEDIATRICS CORP.
NET REVENUE BY GEOGRAPHY AND PRODUCT CATEGORY
(Unaudited)
(In Thousands)
 
  Three Months Ended September 30,   Nine Months Ended September 30,
Product sales by geographic location: 2018   2017   2018   2017
U.S. $ 12,421   $ 9,556   $ 32,532   $ 26,085
International   3,399     2,819     10,459     7,854
Total $ 15,820   $ 12,375   $ 42,991   $ 33,939
               
  Three Months Ended September 30,   Nine Months Ended September 30,
Product sales by category: 2018   2017   2018   2017
Trauma and deformity $ 10,562   $ 8,730   $ 29,545   $ 24,339
Scoliosis   5,027     3,299     12,609     8,652
Sports medicine/other   231     346     837     948
Total $ 15,820   $ 12,375   $ 42,991   $ 33,939


ORTHOPEDIATRICS CORP.
RECONCILIATION OF NET LOSS TO NON-GAAP ADJUSTED EBITDA
(Unaudited)
(In Thousands)
 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
Net Loss $ (1,865 )   $ (1,537 )   $ (9,557 )   $ (4,087 )
Interest expense, net   608       761       1,722       1,856  
Other expense   85       20       148       (38 )
Depreciation and amortization   777       656       2,177       1,748  
Stock-based compensation   594       394       1,239       1,121  
Accelerated vesting of restricted stock upon our IPO   -       -       1,986       -  
Public company costs   340       -       1,014       -  
Non-recurring professional services fees   473       -       2,241       -  
Adjusted EBITDA $ 1,012     $ 294     $ 970     $ 600  

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OrthoPediatrics Corp.


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