WARSAW, Ind., Nov. 08, 2017 (GLOBE NEWSWIRE) — OrthoPediatrics Corp. (“OrthoPediatrics”) (NASDAQ:KIDS), a company exclusively focused on advancing the field of pediatric orthopedics, announced today its financial results for the third quarter ended September 30, 2017.
Third Quarter and Recent Highlights
- Total revenue of $12.4 million, up 22% as compared to the third quarter of fiscal year 2016
- Launched PediFrag™ Pediatric Specific Clavicle Plate in August and Medial Patella Femoral Ligament Reconstruction System in October, expanding our product portfolio offering to 22 surgical systems
- Secured exclusive distribution rights for FIREFLY® Pedicle Screw Navigation Guides in pediatric hospitals in the United States
- Completed our initial public offering, raising $59.8 million in gross proceeds, primarily to fund commercial expansion
- Signed a Letter of Intent to amend debt agreement with Squadron Capital LLC, which lowers interest rate and extends term until 2023
“We delivered strong results in the third quarter, highlighted by 22% total revenue growth and the expansion of gross margin to 77%. This included consistent growth in both the U.S. and international markets and across all of our product categories. We were particularly pleased with the performance of our U.S. spine business, which was our fastest growing domestic category this quarter, driven by increased demand for our RESPONSE and BandLoc products,” said Mark Throdahl, Chief Executive Operator of OrthoPediatrics. “We also continued to expand our product portfolio with the launch of two new products and the addition of innovative, 3D printed, patient-specific FIREFLY® Pedicle Screw Navigation Guides, expanding our offering to 22 systems that address the $2.5 billion global market for pediatric orthopedic products. In October, we completed our initial public offering, raising $59.8 million in gross proceeds that will allow us to invest in implant and instrument sets and research and development initiatives to support future growth.” 
Third Quarter Financial Results
Total revenue for the third quarter of 2017 was $12.4 million, a 22.1% increase compared to $10.1 million for the same period last year. U.S. revenue for the third quarter of 2017 was $9.6 million, a 21.3% increase compared to $7.9 million for the same period last year, representing 77.2% of total revenue. International revenue for the third quarter of 2017 was $2.8 million, a 24.7% increase compared to $2.3 million for the same period last year, representing 22.8% of total revenue.
Trauma and deformity revenue for the third quarter of 2017 was $8.7 million, a 21.8% increase compared to $7.2 million for the same period last year. Spine revenue for the third quarter of 2017 was $3.3 million, a 20.9% increase compared to $2.7 million for the same period last year. ACL reconstruction/other revenue for the third quarter of 2017 was $0.3 million, a 45.4% increase compared to $0.2 million for the same period last year.
Gross profit for the third quarter of 2017 was $9.5 million, a 32.6% increase compared to $7.2 million for the same period last year. Gross margin percentage for the third quarter of 2017 was 76.7%, compared to 70.6% for the same period last year.
Total operating expenses for the third quarter of 2017 were $10.2 million, a 33.4% increase compared to $7.7 million for the same period last year. Within operating expenses, research and development expenses for the third quarter of 2017 were $1.1 million, a 125.0% increase compared to $0.5 million for the same period last year. Operating loss for the third quarter of 2017 was $(0.8) million, a 44.6% increase in loss realized compared to $(0.5) million for the same period last year.
Interest expense for the third quarter of 2017 was $0.8 million, a 90.7% increase compared to $0.4 million dollars for the same period last year due to incremental debt incurred.
Net loss for the third quarter of 2017 was $(1.5) million, compared to $(0.8) million for the same period last year. Net loss per share attributable to common stockholders for the third quarter of 2017 was $(1.70) per basic and diluted share, or $(1.38) per basic and diluted share, for the same period last year.
The weighted average number of diluted shares outstanding as of September 30, 2017 was 1,773,385 shares.
Purchases of property and equipment during the third quarter of 2017 were $1.1 million, a 34.4% increase compared to $0.8 million for the same period last year. The primary driver of this increase was the deployment of consigned sets, which include product specific instruments as well as cases and trays.
As of September 30, 2017, cash and cash equivalents were $2.2 million, compared to $2.3 million as of June 30, 2017.
Capitalization Update
In October, OrthoPediatrics completed its initial public offering of 4,600,000 shares of its common stock at a public offering price of $13.00 per share, raising $59.8 million in gross proceeds, before underwriting expenses and commissions and offering expenses.
On November 8, 2017, the Company signed a Letter of Intent to amend its current debt agreement with its largest shareholder, Squadron Capital LLC (“Squadron”), to modify and extend the terms of its existing term notes and revolving credit facility. The Letter of Intent consolidates a majority of the term note amounts into a $20.0 million term loan and reestablishes a $15.0 million revolver. Both facilities will have an interest rate equal to the three month LIBOR plus 8.61%, which in total equals 10.0%, compared to a previous interest rate of 10.0% for the term notes and 11.0% for the revolving credit facility. The Letter of Intent 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.
Fred Hite, Chief Financial Officer of OrthoPediatrics, commented, “We are pleased to have signed a Letter of Intent to amend our loan agreement with Squadron, which will provide for a more favorable interest rate and extend the length of the agreement. It demonstrates Squadron’s commitment and confidence in our business and its long-term dedication to supporting the Company.”
Conference Call
OrthoPediatrics will host a conference call on Thursday, November 9, 2017 at 8:00 a.m. ET to discuss its financial results. The dial-in numbers are (855) 289-4603 for domestic callers and (614) 999-9389 for international callers. The conference ID number is 9169647. A live webcast of the conference call will be available online at OrthoPediatrics’ investor relations website, ir.orthopediatrics.com.
A replay of the webcast will remain available online at OrthoPediatrics’ investor relations website, ir.orthopediatrics.com, until OrthoPediatrics releases its fourth quarter and full year 2017 financial results. In addition, a telephonic replay of the conference call will be available until November 16, 2017. The replay dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. The replay conference ID number is 9169647.
About OrthoPediatrics Corp.
Founded in 2006, OrthoPediatrics is the only diversified orthopedic company focused exclusively on providing a comprehensive product offering to the pediatric orthopedic market. OrthoPediatrics is dedicated to the cause of improving the lives of children with orthopedic conditions. OrthoPediatrics currently markets 22 surgical systems that serve three of the largest categories within the pediatric orthopedic market. This offering spans trauma & deformity, complex spine and ACL reconstruction procedures. OrthoPediatrics’ global sales organization is focused exclusively on pediatric orthopedics and distributes its products in the United States and 35 countries outside the United States.
Investor Contact
The Ruth Group
Zack Kubow
(646) 536-7020
zkubow@theruthgroup.com
| ORTHOPEDIATRICS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands, Except Share Data) |
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| September 30, | December 31, | ||||||
| 2017 | 2016 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash | $ | 2,238 | $ | 1,609 | |||
| Accounts receivable – trade, less allowance for doubtful accounts of $148 and $152, respectively | 5,686 | 4,098 | |||||
| Inventories, net | 18,434 | 13,962 | |||||
| Inventories held by international distributors, net | 579 | 924 | |||||
| Deferred charges | 1,339 | — | |||||
| Prepaid expenses and other current assets | 615 | 233 | |||||
| Total current assets | 28,891 | 20,826 | |||||
| Property and equipment, net | 9,749 | 8,592 | |||||
| Other assets: | |||||||
| Amortizable intangible assets, net | 2,183 | 998 | |||||
| Other intangible assets | 260 | 260 | |||||
| Total other assets | 2,443 | 1,258 | |||||
| Total assets | $ | 41,083 | $ | 30,676 | |||
| LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | |||||||
| Current liabilities: | |||||||
| Accounts payable – trade | 5,102 | 3,543 | |||||
| Accrued compensation and benefits | 2,288 | 2,219 | |||||
| Current portion of long-term debt with affiliate | 111 | 107 | |||||
| Other current liabilities | 2,915 | 1,382 | |||||
| Total current liabilities | 10,416 | 7,251 | |||||
| Long-term liabilities: | |||||||
| Long-term debt with affiliate, net of current portion | 19,986 | 12,931 | |||||
| Revolving credit facility with affiliate | 7,500 | 4,500 | |||||
| Total long-term liabilities | 27,486 | 17,431 | |||||
| Total liabilities | 37,902 | 24,682 | |||||
| Commitments and contingencies | |||||||
| Redeemable convertible preferred stock: | |||||||
| Series A preferred stock, $0.00025 par value; $8,874 cumulative preferred dividends, September 30, 2017 and $7,439 December 31, 2016; 1,000,000 shares authorized, issued and outstanding | 24,874 | 23,439 | |||||
| Series B preferred stock, $0.00025 par value; $11,793 cumulative preferred dividends, September 30, 2017 and $8,864 December 31, 2016; 6,000,000 shares authorized; 4,446,978 shares issued and outstanding | 50,793 | 47,864 | |||||
| Stockholders’ deficit: | |||||||
| Common stock, $0.00025 par value; 8,040,000 shares authorized; 2,487,589 shares and 2,421,599 shares issued and outstanding as of September 30, 2017 and December 31, 2016 | 1 | 1 | |||||
| Additional paid-in capital | 9,541 | 12,824 | |||||
| Accumulated deficit | (82,221 | ) | (78,134 | ) | |||
| Accumulated other comprehensive income | 193 | — | |||||
| Total stockholders’ deficit | (72,486 | ) | (65,309 | ) | |||
| Total liabilities, redeemable convertible preferred stock and stockholders’ deficit | $ | 41,083 | $ | 30,676 | |||
| ORTHOPEDIATRICS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Share and Per Share Data) |
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| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net revenue | $ | 12,375 | $ | 10,135 | $ | 33,939 | $ | 27,880 | |||||||
| Cost of revenue | 2,884 | 2,978 | 8,321 | 7,913 | |||||||||||
| Gross profit | 9,491 | 7,157 | 25,618 | 19,967 | |||||||||||
| Operating expenses: | |||||||||||||||
| Sales and marketing | 5,633 | 4,289 | 15,122 | 12,401 | |||||||||||
| General and administrative | 3,487 | 2,890 | 10,282 | 8,842 | |||||||||||
| Research and development | 1,127 | 501 | 2,482 | 1,599 | |||||||||||
| Total operating expenses | 10,247 | 7,680 | 27,886 | 22,842 | |||||||||||
| Operating loss | (756 | ) | (523 | ) | (2,268 | ) | (2,875 | ) | |||||||
| Other expenses: | |||||||||||||||
| Interest expense | 761 | 399 | 1,857 | 1,056 | |||||||||||
| Other expense (income) | 20 | (77 | ) | (38 | ) | (992 | ) | ||||||||
| Total other expenses | 781 | 322 | 1,819 | 64 | |||||||||||
| Net loss | $ | (1,537 | ) | $ | (845 | ) | $ | (4,087 | ) | $ | (2,939 | ) | |||
| Net loss attributable to common stockholders | $ | (3,021 | ) | $ | (2,405 | ) | $ | (8,451 | ) | $ | (7,229 | ) | |||
| Weighted average common shares – basic and diluted | 1,773,385 | 1,744,356 | 1,754,576 | 1,744,356 | |||||||||||
| Net loss per share attributable to common stockholders – basic and diluted | $ | (1.70 | ) | $ | (1.38 | ) | $ | (4.82 | ) | $ | (4.14 | ) | |||
| ORTHOPEDIATRICS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) |
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| For the Nine Months Ended September 30, |
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| 2017 | 2016 | ||||||
| OPERATING ACTIVITIES | |||||||
| Net loss | $ | (4,087 | ) | $ | (2,939 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
| Depreciation and amortization | 1,748 | 1,402 | |||||
| Stock-based compensation | 1,081 | 951 | |||||
| Research and development fee obligation termination | — | (889 | ) | ||||
| Changes in certain current assets and liabilities: | |||||||
| Accounts receivable – trade | (1,588 | ) | (74 | ) | |||
| Inventories | (3,276 | ) | (2,834 | ) | |||
| Inventories held by international distributors | 345 | 1,588 | |||||
| Prepaid expenses and other current assets | (382 | ) | (232 | ) | |||
| Accounts payable – trade | 1,559 | 1,798 | |||||
| Accrued expenses and other liabilities | 513 | (579 | ) | ||||
| Research and development fee obligation | — | (628 | ) | ||||
| Other | 193 | 0 | |||||
| Net cash used in operating activities | (3,894 | ) | (2,436 | ) | |||
| INVESTING ACTIVITIES | |||||||
| Purchases of licenses | (1,337 | ) | (406 | ) | |||
| Purchases of property and equipment | (3,949 | ) | (2,617 | ) | |||
| Net cash used in investing activities | (5,286 | ) | (3,023 | ) | |||
| FINANCING ACTIVITIES | |||||||
| Proceeds from issuance of debt with affiliate | 10,139 | 3,500 | |||||
| Payments on mortgage notes | (80 | ) | (77 | ) | |||
| Payments of deferred offering costs | (250 | ) | (527 | ) | |||
| Net cash provided by financing activities | 9,809 | 2,896 | |||||
| NET INCREASE (DECREASE) IN CASH | 629 | (2,563 | ) | ||||
| Cash, beginning of year | 1,609 | 3,878 | |||||
| Cash, end of period | $ | 2,238 | $ | 1,315 | |||
| SUPPLEMENTAL DISCLOSURES | |||||||
| Cash paid for interest | $ | 1,856 | $ | 1,056 | |||
| Accretion of redeemable convertible preferred stock | $ | 4,364 | $ | 4,290 | |||
| Transfer of instruments from property and equipment to inventory | $ | 1,196 | $ | 196 | |||
Net Revenue
The following tables set forth our net revenue by geography and product category for the three and nine months ended September 30, 2017 and 2016:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| Product sales by geographic location: | 2017 | 2016 | 2017 | 2016 | |||||||||||
| U.S. | $ | 9,556 | $ | 7,875 | $ | 26,085 | $ | 21,565 | |||||||
| International | 2,819 | 2,260 | 7,854 | 6,315 | |||||||||||
| Total | $ | 12,375 | $ | 10,135 | $ | 33,939 | $ | 27,880 | |||||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| Product sales by category: | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Trauma and deformity | $ | 8,730 | $ | 7,168 | $ | 24,339 | $ | 20,184 | |||||||
| Spine | 3,299 | 2,729 | 8,652 | 6,940 | |||||||||||
| ACL reconstruction/other | 346 | 238 | 948 | 756 | |||||||||||
| Total | $ | 12,375 | $ | 10,135 | $ | 33,939 | $ | 27,880 | |||||||