ORTHOPEDIATRICS CORP
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 7, 2024
KIDS$31.76-1.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001425450-24-000079
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001425450-24-000094
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 62 previous paragraphs and 67 current paragraphs.
38 unchanged; 23 reworded; 6 added; 1 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 3 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
2023, respectively. The gross margin was 74.3% and 76.1% for the nine months ended September 30, 2024 and September 30, 2023, respectively.
Current report
Credit Agreement
Current report
On August 05, 2024, the Company signed an $100 million term loan and private placement arrangement with Braidwell LP by and among (i) the Company and other borrowers party to the Credit Agreement, (ii)
Current report
Braidwell LP, and (iii) the financial institutions or other entities from time to time party thereto as Lenders. Terms of the financing include a $50 million term loan and $50 million of convertible notes. The term loan consists of an initial term loan of $25 million and access to a delayed draw term loan facility for an additional $25 million, subject to certain terms and conditions. The interest rate on the term loan is SOFR + 6.50% with the Company having the option to make a payment-in-kind interest payment equal to 1.00% per annum of the rate. Payments are interest only until the maturity date in August 2029. Included in the term loan are financial covenants to maintain cash in certain pledged accounts of at least 25% of the outstanding principal amount of the loan and to maintain certain minimum net product sales during the loan period.
Current report
The $50 million of convertible notes will accrue interest at a rate of 4.75% per annum. Payments will consist of interest only until the maturity date in February 2030. The notes are convertible into common stock of the Company at an initial conversion price of $40.98, which represents a 30% premium to the Company’s volume weighted average common stock price for the thirty trading days ended August 2, 2024.
Current report
The proceeds from the financing will be used to repay the Company’s outstanding debt of approximately $10 million, transaction fees incurred in connection with the financing, potential stock repurchases under the program described above, and for general corporate purposes and working capital needs.
Removed paragraphs (1)
Previous report
As a result of the COVID-19 pandemic, we experienced significant business disruption throughout the last several years. Elective procedures were delayed in some cases as hospitals continue to struggle with adequate staffing levels. As a majority of our products are utilized in elective surgeries or procedures, the deferrals of such surgeries and procedures have had, and may continue to have, a significant negative impact on our business and results of operations. Throughout the pandemic, we took a variety of steps to address the impact. We continue to monitor the impact of the pandemic on our employees and customers and the markets in which we operate and will take further actions that are considered prudent to address the pandemic. We cannot accurately predict with certainty the full extent to which the pandemic will impact demand for our products in the future.
Reworded paragraphs (23)
Previous wording
We are the only global medical device company focused exclusively on providing a comprehensive trauma and deformity correction, scoliosis, sports medicine and specialty bracing and clinical services product offering to the pediatric orthopedic market in order to improve the lives of children with orthopedic conditions. We design, develop and commercialize innovative orthopedic implants, instruments and specialized braces to meet the needs of pediatric surgeons or orthotists and their patients, who we believe have been largely neglected by the orthopedic industry. We currently serve three of the largest categories in this market. We estimate that the portion of this market that we currently serve represents a $3.9 billion opportunity globally, including over $1.7 billion in the United States.
Current wording
We are the only global medical device company focused exclusively on providing a comprehensive trauma and deformity correction, scoliosis, sports medicine, specialty bracing and clinical services to the pediatric orthopedic market in order to improve the lives of children with orthopedic conditions. We design, develop and commercialize innovative orthopedic implants, instruments and specialized braces to meet the needs of pediatric surgeons or orthotists and their patients, who we believe have been largely neglected by the orthopedic industry. We currently serve three of the largest categories in this market. We estimate that the portion of this market that we currently serve represents a $5.0 billion opportunity globally, including over $2.2 billion in the United States.
Previous wording
We currently market 71 surgical and specialized bracing systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity correction, (ii) scoliosis and (iii) sports medicine/other. We rely on a broad network of third parties to manufacture the components of our products, which we then inspect and package. We believe our innovative products promote improved surgical accuracy, increase consistency of outcomes and enhance surgeon confidence in achieving high standards of care. In the future, we expect to expand our product offering within these categories, as well as to address additional categories of the pediatric orthopedic market.
Current wording
We currently market over 70 surgical and specialized bracing systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity correction, (ii) scoliosis and (iii) sports medicine/other. We rely on a broad network of third parties to manufacture the components of our products, which we then inspect and package. We believe our innovative products promote improved surgical accuracy, increase consistency of outcomes and enhance surgeon confidence in achieving high standards of care. In the future, we expect to expand our product offering within these categories, as well as to address additional categories of the pediatric orthopedic market.
Previous wording
The majority of our revenue has been generated in the United States, where we sell our products through a network of multiple direct sales representatives as well as 40 independent sales agencies employing 216 sales representatives specifically focused on pediatrics. These independent sales agents are trained by us, distribute our products and are compensated through sales-based commissions and performance bonuses. We do not sell our products through or participate in physician-owned distributorships, or PODs.
Current wording
The majority of our revenue has been generated in the United States, where we sell our products through a network of multiple direct sales representatives as well as 41 independent sales agencies employing over 220 sales representatives specifically focused on pediatrics. These independent sales agents are trained by us, distribute our products and are compensated through sales-based commissions and performance bonuses. We do not sell our products through or participate in physician-owned distributorships, or PODs.
Previous wording
OrthoPediatrics was founded on the cause of impacting the lives of children with orthopedic conditions. Since inception we have impacted the lives of over 1,000,000 children, when including those served by our acquired companies. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance. In 2021, we created an internal ESG team, which reports directly to our Board’s Governance Committee, to identify ESG topics for disclosure by assessing both the impact on our business and the importance to our stakeholders.
Current wording
OrthoPediatrics was founded on the cause of impacting the lives of children with orthopedic conditions. Since inception we have impacted the lives of over 1.1 million children, when including those served by our acquired companies. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance. In 2021, we created an internal ESG team, which reports directly to our Board’s Governance Committee, to identify ESG topics for disclosure by assessing both the impact on our business and the importance to our stakeholders.
Previous wording
Summary of Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023
Current wording
Summary of Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
Previous wording
The following table sets forth our results of operations for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):
Current wording
The following table sets forth our results of operations for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):
Previous wording
The following tables set forth our net revenue by geography and product category for the three and six months ended June 30, 2024 and 2023 (dollars in thousands):
Current wording
The following tables set forth our net revenue by geography and product category for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):
Previous wording
Net revenue increased $13.2 million, or 33%, from $39.6 million for the three months ended June 30, 2023 to $52.8 million for the three months ended June 30, 2024. Net revenue increased $26.3 million, or 37%, from $71.1 million for the six months ended June 30, 2023 to $97.5 million for the six months ended June 30, 2024. The increase during the three and six month periods ended June 30, 2024 was primarily driven by the addition of Boston O&P sales, as well as strong performance across global Trauma and Deformity, domestic Scoliosis and OP Specialty Bracing.
Current wording
Net revenue increased $14.6 million, or 37%, from $40.0 million for the three months ended September 30, 2023 to $54.6 million for the three months ended September 30, 2024. Net revenue increased $40.9 million, or 37%, from $111.1 million for the nine months ended September 30, 2023 to $152.1 million for the nine months ended September 30, 2024. The increase during the three and nine month periods ended September 30, 2024 was primarily driven by the addition of Boston O&P sales, as well as strong performance across global Trauma and Deformity, Scoliosis and OP Specialty Bracing.
Previous wording
Trauma and deformity sales increased $10.3 million, or 37%, from $27.5 million during the three months ended June 30, 2023, to $37.8 million for the three months ended June 30, 2024. Sales increased $20.2 million, or 40%, from $50.9 million during the six months ended June 30, 2023, to $71.1 million for the six months ended June 30, 2024. The increase for the three and six month periods ended June 30, 2024 was primarily driven by strong growth across numerous product lines, specifically our Cannulated Screws, PNP Femur, PediPlate, external fixation and Pega systems, as well as the addition of Boston O&P. Scoliosis sales increased $2.8 million, or 26%, from $10.9 million during the three months ended June 30, 2023, to $13.7 million for the three months ended June 30, 2024. Sales increased $5.9 million, or 33%, from $18.0 million during the six months ended June 30, 2023, to $23.9 million for the six months ended June 30, 2024. The increase for three and six month period ended June 30, 2024 was primarily driven by increased sales of our RESPONSE 5.5/6.0 and ApiFix systems and revenue generated from 7D Technology, as well as the addition of Boston O&P. Sports medicine / other increased $0.2 million, or 17%, during the three months ended June 30, 2024. Revenue increased $0.3 million, or 11%, during the six months ended June 30, 2024. Nearly all the change in each category was due to an increase or decrease in the unit volume sold and not a result of price changes.
Current wording
Trauma and deformity sales increased $8.8 million, or 31%, from $28.8 million during the three months ended September 30, 2023, to $37.6 million for the three months ended September 30, 2024, and sales increased $29.0 million, or 36%, from $79.7 million during the nine months ended September 30, 2023, to $108.7 million for the nine months ended September 30, 2024. The increase for the three and nine month periods ended September 30, 2024 was primarily driven by strong growth across numerous product lines, specifically our Cannulated Screws, PNP Femur, PediPlate, external fixation and Pega systems, as well as the addition of Boston O&P. Scoliosis sales increased $5.3 million, or 52%, from $10.3 million during the three months ended September 30, 2023, to $15.6 million for the three months ended September 30, 2024. Sales increased $11.3 million, or 40%, from $28.3 million during the nine months ended September 30, 2023, to $39.5 million for the nine months ended September 30, 2024. The increase for three and nine month period ended September 30, 2024 was primarily driven by increased sales of our RESPONSE 5.5/6.0 and ApiFix systems and revenue generated from 7D Technology, as well as the addition of Boston O&P. Sports medicine / other increased $0.4 million, or 50%, during the three months ended September 30, 2024, and $0.7 million, or 22%, during the nine months ended September 30, 2024. Nearly all the change in each category was due to an increase or decrease in the unit volume sold and not a result of price changes.
Previous wording
Cost of revenue increased $2.5 million, or 26%, from $9.5 million for the three months ended June 30, 2023 to $12.0 million for the three months ended June 30, 2024. Cost of revenue increased $7.0 million, or 40%, from $17.6 million for the six months ended June 30, 2023 to $24.5 million for the six months ended June 30, 2024. The increases were due primarily to sales volume, including the added cost of revenue associated with the revenue generated by acquisitions. Gross margin was 77% and 76% for the three months ended June 30, 2024 and June 30, 2023, respectively. The gross margin was 75% for each of the six months ended June 30, 2024 and June 30, 2023.
Current wording
Cost of revenue increased $5.5 million, or 61%, from $9.0 million for the three months ended September 30, 2023 to $14.5 million for the three months ended September 30, 2024. Cost of revenue increased $12.4 million, or 47%, from $26.6 million for the nine months ended September 30, 2023 to $39.0 million for the nine months ended September 30, 2024. The increases were due primarily to sales volume, including the added cost of revenue associated with the revenue generated by acquisitions. Gross margin was 73% and 77% for the three months ended September 30, 2024 and September 30,
Previous wording
Sales and marketing expenses increased $3.1 million, or 23%, to $16.6 million for the three months ended June 30, 2024 from $13.5 million for the three months ended June 30, 2023. Sales and marketing expenses increased $4.7 million, or 18%, to $30.8 million for the six months ended June 30, 2024 from $26.1 million for the six months ended June 30, 2023. The changes in the three and six month periods ended June 30, 2024 were due primarily to increased sales commission expenses, as well as the addition of Boston O&P.
Current wording
Sales and marketing expenses increased $2.8 million, or 20%, to $16.8 million for the three months ended September 30, 2024 from $13.9 million for the three months ended September 30, 2023. Sales and marketing expenses increased $7.5 million, or 19%, to $47.5 million for the nine months ended September 30, 2024 from $40.0 million for the nine months ended September 30, 2023. The changes in the three and nine month periods ended September 30, 2024 were due primarily to increased sales commission expenses, as well as the addition of Boston O&P.
Previous wording
General and administrative expenses increased $8.2 million, or 43%, from $19.1 million for the three months ended June 30, 2023 to $27.3 million for the three months ended June 30, 2024, and increased $15.8 million, or 44%, from $36.3 million for the six months ended June 30, 2023 to $52.1 million for the six months ended June 30, 2024. The increases for the three and six month periods ended June 30, 2024 were due primarily to the addition of Boston O&P. Stock compensation increased $0.3 million for the six months ended June 30, 2024 due to the increase in personnel and also as a result of restricted stock issued as part of the Boston O&P acquisition.
Current wording
General and administrative expenses increased $8.3 million, or 46%, from $18.0 million for the three months ended September 30, 2023 to $26.3 million for the three months ended September 30, 2024, and increased $24.1 million, or 44%, from $54.2 million for the nine months ended September 30, 2023 to $78.4 million for the nine months ended September 30, 2024. The increases for the three and nine month periods ended September 30, 2024 were due primarily to the addition of Boston O&P. Stock compensation increased $1.9 millionfor the nine months ended September 30, 2024 due to the increase in personnel and also as a result of restricted stock issued as part of the Boston O&P acquisition.
Previous wording
Depreciation and amortization expenses increased $0.7 million, or 17%, from $4.1 million for the three months ended June 30, 2023 to $4.8 million for the three months ended June 30, 2024, and increased $1.9 million, or 24%, from $7.9 million for the six months ended June 30, 2023 to $9.8 million for the six months ended June 30, 2024. The increase in depreciation for the three and six month periods ended June 30, 2024 was primarily due to higher set deployments and increased amortization associated with acquisitions, as well as the addition of Boston O&P.
Current wording
Depreciation and amortization expenses increased $0.5 million, or 12%, from $4.6 million for the three months ended September 30, 2023 to $5.1 million for the three months ended September 30, 2024, and increased $2.9 million, or 24%, from $12.2 million for the nine months ended September 30, 2023 to $15.1 million for the nine months ended September 30, 2024. The increase in depreciation for the three and nine month periods ended September 30, 2024 was primarily due to higher set deployments and increased amortization associated with acquisitions, as well as the addition of Boston O&P.
Previous wording
Research and development expenses decreased $0.4 million, or 14%, from $3.0 million for the three months ended June 30, 2023 to $2.5 million for the three months ended June 30, 2024, and increased $0.1 million, or 2%, from $5.4 million for the six months ended June 30, 2023 to $5.5 million for the six months ended June 30, 2024. The fluctuations for the three and six month periods ended June 30, 2024 were primarily due to the timing of product development and the addition of personnel to support the future growth of the business during the first quarter of 2024.
Current wording
Research and development expenses remained flat from $2.6 million year over year, and increased $0.1 million, or 2%, from $8.0 million for the nine months ended September 30, 2023 to $8.1 million for the nine months ended September 30, 2024. The fluctuations for the three and nine month periods ended September 30, 2024 were primarily due to the timing of product development and the addition of personnel to support the future growth of the business during the first quarter of 2024.
Previous wording
Other expense was $0.4 million for the three months ended June 30, 2024 compared to other income of $2.3 million for the three months ended June 30, 2023, a change of $2.7 million or 117%, and other expense was $1.0 million for the six months ended June 30, 2024 compared to other income of $3.5 million for the six months ended June 30, 2023, a change of $4.5 million or 128%. The change for both periods ended June 30, 2024 was primarily due to the fair value adjustment of contingent consideration associated with our ApiFix acquisition, which generated income in the comparative prior year period, partially offset by an increase to net interest expense related to the new Term Loan with MidCap.
Current wording
Other expense was $3.6 million for the three months ended September 30, 2024 compared to other income of $0.8 million for the three months ended September 30, 2023, a change of $4.3 million or 566%, and other expense was $4.6 million for the nine months ended September 30, 2024 compared to other income of $4.3 million for the nine months ended September 30, 2023, a change of $8.8 million or 207%. The change for the three and nine months ended September 30, 2024 was primarily due to the fair value adjustment of contingent consideration associated with our ApiFix acquisition, which generated income in the comparative prior year period, and the early extinguishment of the MidCap Credit Agreement in the third quarter, partially offset by an increase to net interest expense related to the new Term Loan and Convertible Note with Braidwell.
Previous wording
We have incurred operating losses since inception which resulted in negative cash flows used in operating activities of $12.8 million and $10.8 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $211.6 million. We anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets. Since inception, we have funded our operations primarily with proceeds from the sales of our common and preferred stock, convertible securities and debt, as well as through sales of our products. At June 30, 2024, we had cash and cash equivalents, restricted cash and short-term investments of $30.9 million.
Current wording
We have incurred operating losses since inception which resulted in negative cash flows used in operating activities of $23.1 million and $19.5 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $219.5 million. We anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets. Since inception, we have funded our operations primarily with proceeds from the sales of our common and preferred stock, convertible securities and debt, as well as through sales of our products. At September 30, 2024, we had cash and cash equivalents, restricted cash and short-term investments of $78.1 million.
Previous wording
Net cash used in operating activities was $12.8 million and $10.8 million for the six months ended June 30, 2024 and 2023, respectively. The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these periods. Net cash used for working capital was $12.1 million for the six months ended June 30, 2024 compared to $11.3 million for the six months ended June 30, 2023. The increase in cash used in operating activities was primarily driven by inventory purchases to support sales growth as well as changes in accounts receivable and accounts payable associated with the increased sales and acquired inventory, respectively.
Current wording
Net cash used in operating activities was $23.1 million and $19.5 million for the nine months ended September 30, 2024 and 2023, respectively. The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these periods. Net cash used for working capital was $26.0 million for the nine months ended September 30, 2024 compared to $23.4 million for the nine months ended September 30, 2023. The increase in cash used in operating activities was primarily driven by inventory purchases to support sales growth as well as changes in accounts receivable and accounts payable associated with the increased sales and acquired inventory, respectively.
Previous wording
Cash Provided by Investing Activities
Current wording
Cash (Used in) Provided by Investing Activities
Previous wording
Net cash provided by investing activities for the six months ended June 30, 2024 was $16.0 million compared to $14.1 million for the six months ended June 30, 2023. Net cash provided by investing activities for the six months ended June 30, 2024 consisted primarily of the sale of short-term marketable securities offset by purchases of property, plant and equipment of $13.1 million, the majority of which is instrument sets. The change in cash related to investing activities is primarily driven by business combinations and the purchase of short term marketable securities which decreased from the prior year.
Current wording
Net cash provided by investing activities for the nine months ended September 30, 2024 was $10.8 million compared to $23.8 million for the nine months ended September 30, 2023. Net cash used in investing activities for the nine months ended September 30, 2024 consisted primarily of the sale and purchase of short-term marketable securities offset by purchases of property, plant and equipment of $14.5 million, the majority of which is instrument sets and the acquisition of Boston O&P and related clinics. The change in cash related to investing activities is primarily driven by business combinations and the purchase of short term marketable securities which decreased from the prior year.
Previous wording
Cash Used in Financing Activities
Current wording
Cash Provided by (Used in) Financing Activities
Previous wording
Net cash used in financing activities for the six months ended June 30, 2024 was $4.8 million consisting of $2.3 million related to the ApiFix fourth and final anniversary payment and $1.3 million related to the MedTech first year anniversary payment. Net cash used in financing activities for the six months ended June 30, 2023 was $2.1 million consisting of $2.0 million related to the ApiFix third year anniversary payment.
Current wording
Net cash used in financing activities for the nine months ended September 30, 2024 was $53.7 million consisting of $2.3 million related to the ApiFix fourth and final anniversary payment and $1.3 million related to the MedTech first year anniversary payment, and $60.2 million related to the new debt agreement with Braidwell, replacing the term loan with MidCap.
Previous wording
On August 2, 2024, the Board of Directors of the Company approved a limited stock repurchase program of up to $5.0 million in aggregate investment of the Company’s outstanding common stock, $0.00025 par value per share. On a share basis, using the closing price of the Company's common stock on August 2, 2024 of $29.56 the amount of common stock subject to the repurchase program represents approximately 0.7 percent of the Company’s outstanding shares. The Company has not yet repurchased any shares of its common stock pursuant to the repurchase program. In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1.0 percent excise tax on the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations (like the Company). With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.
Current wording
In connection with its approval of the financing, the Company’s Board approved a stock repurchase program of up to $5 million in value of the Company’s outstanding common stock. Using the closing price on August 2, 2024, of $29.56, the amount of common stock subject to the repurchase program represents approximately 169,000 shares or 0.7% of the Company’s outstanding common stock.
Previous wording
The Company is party to a $80 million Credit, Security and Guaranty Agreement with Midcap Funding IV Trust and Midcap Financial Trust and other parties named therein. As of June 30, 2024, there was $10 million outstanding indebtedness under the Credit Agreement.
Current wording
The debt facilities replace the $80 million Credit, Security, and Guaranty Agreement with MidCap Funding IV Trust and MidCap Financial Trust and other parties named therein. There was approximately $10 million outstanding under the MidCap Credit Agreement and it was terminated in connection with the Term Loan Agreement.