ORTHOPEDIATRICS CORP

Previous 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.

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 $6.2 billion opportunity globally, including over $2.8 billion in the United States.

Previous wording

We sell implants, instruments and specialized braces to our customers for use by pediatric orthopedic surgeons, orthotists or physical therapists to treat orthopedic conditions in children. We provide our implants in sets that consist of a range of implant sizes and include the instruments necessary to perform the surgical procedure. In the United States and a few selected international markets, our customers typically expect us to have full sets of implants and instruments on site at each hospital but do not purchase the implants until they are used in surgery. Accordingly, we must make an up-front investment in inventory of consigned implants and instruments before we can generate revenue from a particular hospital and we maintain substantial levels of inventory at any given time. In the international markets where we sell to stocking distributors or in the case of our braces, we transfer control of our products to the distributor or customer when title passes upon shipment.

Current wording

We sell implants, instruments and specialized braces to our customers for use by pediatric orthopedic surgeons, orthotists or physical therapists to treat orthopedic conditions in children. We provide our implants in sets that consist of a range of implant sizes and include the instruments necessary to perform the surgical procedure. In the United States and a few selected international markets, our customers typically expect us to have full sets of implants and instruments on site at each hospital but do not purchase the implants until they are used in surgery. Accordingly, we must make an up-front investment in inventory of consigned implants and instruments before we can generate revenue from a particular hospital and we maintain substantial levels of inventory at any given time. We operate approximately 35 orthotic and prosthetic ("O&P") clinics in the United States serving children's hospitals in numerous states. In the international markets where we sell to stocking distributors or in the case of our braces, we transfer control of our products to the distributor or customer when title passes upon shipment.

Previous 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.

Current wording

We currently market 80 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. We manufacture the majority of our orthopedic bracing products and we rely on a broad network of third parties to manufacture the components of our surgical 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 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.

Current wording

The majority of our revenue from implants, instruments, and specialized braces has been generated in the United States. Our global sales management organization leads a network of sales agencies, stocking distributors as well as direct sales representatives. We sell our implants and instruments through a network of multiple direct sales representatives as well as over 40 independent sales agencies employing 227 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. The revenue generated in the United States is from selling our bracing products directly to orthopedic surgeons, orthotists, physical therapists or, at certain times, directly to the end customer.

Previous wording

We market and sell our products internationally in over 70 countries, through independent stocking distributors and sales agencies. Our independent distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers. In 2017, we began to supplement our international stocking distributors with sales agencies using direct sales programs in the United Kingdom, Ireland, Australia and New Zealand where we sell directly to the hospitals. We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021. In order to further enhance our operations in Europe, we established operating companies in the Netherlands and Germany in March 2019 and April 2022, respectively. In January 2023, we established a direct sales organization in Germany, the Company's first direct selling organization serving an international market. In our international markets, excluding Germany, we work through sales agencies that are paid a commission, similar to our U.S. sales model. These arrangements have generated an increase in revenue and gross margin.

Current wording

We market and sell our products internationally in over 75 countries, through independent stocking distributors and sales agencies. Our independent distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers. In 2017, we began to supplement our international stocking distributors with sales agencies using direct sales programs in the United Kingdom, Ireland, Australia and New Zealand where we sell directly to the hospitals. We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021. In order to further enhance our operations in Europe, we established operating companies in the Netherlands and Germany in March 2019 and April 2022, respectively. In 2023 and 2024, we hired operating and sales representatives in Germany as salaried employees to better serve our customers and opened warehouses in Germany and Australia in 2024. These arrangements have generated an increase in revenue and gross margin.

Previous wording

We believe there are significant opportunities for us to strengthen our position in U.S. and international markets by increasing investments in consigned implant and instrument sets, strengthening our global sales and distribution infrastructure, expanding our product offering and expanding clinics to many other childrens hospitals.

Current wording

We believe there are significant opportunities for us to strengthen our position in U.S. and international markets by increasing investments in consigned implant and instrument sets, strengthening our global sales and distribution infrastructure, and expanding our product offering as well as our O&P clinic network.

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 1.1 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.

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 1,179,000 children, when including those served by our acquired companies. We believe we should continue to expand our social impact, create an inclusive culture, and ensure good corporate governance practices.

Previous wording

•The Company and its associates regularly participate in philanthropic causes important to our local communities. We also partner with charitable organizations that provide pediatric orthopedic care around the world. In 2020, we were named as "Corporate Partner of the Year" by World Pediatrics - with whom we work to provide access to medical care for children in developing countries.

Current wording

•The Company and its associates regularly participate in philanthropic causes important to our local communities. We also partner with over 40 charitable organizations that provide pediatric orthopedic care around the world. In 2020, we were named as "Corporate Partner of the Year" by World Pediatric Project - with whom we work to provide access to medical care for children in developing countries.

Previous wording

•We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community which is communicated in our diversity and inclusion policy. For eight years we have been recognized by the Indiana Chamber of Commerce - Best Companies to Work in Indiana.

Current wording

•We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community which is communicated in our diversity and inclusion policy. For nine years we have been recognized by the Indiana Chamber of Commerce - Best Companies to Work in Indiana.

Previous wording

We believe effectively managing our priorities, as well as increasing our transparency related to ESG programs, will help create long-term value for our stakeholders. We expect to increase our disclosures and communicate our ESG efforts in future SEC filings.

Current wording

We believe effectively managing our priorities, as well as increasing our transparency related to social impact programs, will help create long-term value for our stakeholders. We expect to continue to increase our disclosures and communicate our social impact efforts in future SEC filings.

Previous wording

From time to time we acquire, make investments in or license other technologies, products and business that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. As a result of these transactions, we may record certain intangible assets, including goodwill and trademarks, which are subject to annual impairment testing. Fair value is based on our current assessment of the expected future cash flows based on recent results and other specific market factors. During 2023 and 2022, we determined that a triggering event had occurred indicating it was more likely than not the fair value of the ApiFix trademark was less than the associated carrying value. Subsequently, the Company completed a quantitative analysis and concluded that the fair value was in fact less than the carrying value and a partial impairment losses of $1.0 million and $3.6 million were recorded in 2023 and 2022, respectively. We believe that the expected future cash flows in the most recent calculations represent management’s best estimate; however, if actual results differ materially from these estimates, we could record an additional impairment charge which could be material to our consolidated financial statements and have an adverse impact on our results of operations.

Current wording

From time to time we acquire, make investments in or license other technologies, products and business that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. As a result of these transactions, we may record certain intangible assets, including goodwill and trademarks, which are subject to annual impairment testing. Fair value is based on our current assessment of the expected future cash flows based on recent results and other specific market factors. During 2024, 2023, and 2022, we determined that a triggering event had occurred indicating it was more likely than not the fair value of the ApiFix trademark was less than the associated carrying value. Subsequently, the Company completed a quantitative analysis and concluded that the fair value was in fact less than the carrying value and partial impairment losses of $1.8 million, $1.0 million and $3.6 million were recorded in 2024, 2023, and 2022, respectively. We believe that the expected future cash flows in the most recent calculations represent management’s best estimate; however, if actual results differ materially from these estimates, we could record an additional impairment charge which could be material to our consolidated financial statements and have an adverse impact on our results of operations.

Previous wording

In 2023 and 2022, there was a significant and unprecedented increase in cases of respiratory syncytial virus, or RSV, and other respiratory illnesses. RSV is a common respiratory virus that follows a seasonal pattern. The typical season shows an increase in mid-September, peaks in late December and drops around mid-April. In 2023 the United States experienced a significant increase in RSV activity outside of the typical peak season as well as a heightened impact during the winter months. The volume of elective procedures utilizing our products were negatively impacted as a significant percent of hospital capacity was absorbed to cover the increase in RSV-related hospitalizations. This had a negative impact on our sales volume in 2022 and 2023 and may continue to do so into the future. We are unable to accurately determine exactly how this will impact us in the future.

Current wording

In 2023 and 2022, there was a significant and unprecedented increase in cases of respiratory syncytial virus, or RSV, and other respiratory illnesses. RSV is a common respiratory virus that follows a seasonal pattern. The typical season shows an increase in mid-September, peaks in late December and drops around mid-April; however, in 2022 the United States experienced a significant increase during the summer and fall months and in 2023 the United States experienced a significant increase in January and February as well as October through December. The volume of elective procedures utilizing our products were negatively impacted as a significant percent of hospital capacity was absorbed to cover the increase in RSV-related hospitalizations. This had a negative impact on our sales volume in 2022 and 2023 and may continue to do so into the future. We are unable to accurately determine exactly how this will impact us in the future, but we will continue to monitor this dynamic as we get closer to the traditional peak of RSV season.

Previous wording

Summary of Statements of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

Current wording

Summary of Statements of Operations for the Three Months Ended March 31, 2025 and 2024

Previous 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):

Current wording

The following table sets forth our results of operations for the three months ended March 31, 2025 and 2024 (dollars in thousands):

Previous 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):

Current wording

The following tables set forth our net revenue by geography and product category for the three months ended March 31, 2025 and 2024 (dollars in thousands):

Previous 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.

Current wording

Net revenue increased $7.7 million, or 17%, from $44.7 million for the three months ended March 31, 2024 to $52.4 million for the three months ended March 31, 2025. The increase during the three months ended March 31, 2025 was primarily driven by strong performance across global Trauma and Deformity, Scoliosis and OP Specialty Bracing.

Previous 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.

Current wording

Trauma and deformity sales increased $4.6 million, or 14%, from $33.3 million during the three months ended March 31, 2024, to $37.9 million for the three months ended March 31, 2025. The increase for the three month period ended March 31, 2025 was primarily driven by strong growth across numerous product lines, specifically our Cannulated Screws, PNP Femur, PediPlate, external fixation and Pega systems. Scoliosis sales increased $3.5 million, or 34%, from $10.2 million during the three months ended

Previous 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,

Current wording

Cost of revenue increased $1.6 million, or 13%, from $12.5 million for the three months ended March 31, 2024 to $14.1 million for the three months ended March 31, 2025. The increases were due primarily to sales volume. Gross margin was 73% and 72% for the three months ended March 31, 2025 and March 31, 2024, respectively.

Previous 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.

Current wording

Research and development expenses decreased $0.6 million, or 22%, from $3.0 million for the three months ended March 31, 2024 to $2.4 million for the three months ended March 31, 2025. The decrease for the three months ended March 31, 2025 was primarily due to the timing of product development during the first quarter of 2024 compared to the first quarter of 2025.

Previous 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.

Current wording

We have incurred operating losses since inception which resulted in negative cash flows used in operating activities of $4.2 million and $6.7 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, we had an accumulated deficit of $246.2 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 March 31, 2025, we had cash and cash equivalents, restricted cash and short-term investments of $60.8 million.

Previous 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.

Current wording

Net cash used in operating activities was $4.2 million and $6.7 million for the three months ended March 31, 2025 and 2024, 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 $1.2 million for the three months ended March 31, 2025 compared to $4.9 million for the three months ended March 31, 2024. 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

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.

Current wording

Net cash provided by investing activities for the three months ended March 31, 2025 was $6.0 million compared to $3.7 million for the three months ended March 31, 2024. Net cash used in investing activities for the three months ended March 31, 2025 consisted primarily of the purchases of property, plant and equipment of $4.2 million, along with the investment in private companies. The increase in cash related to investing activities is primarily driven by no longer having cash provided by the sale of short term marketable securities to offset cash used in business combinations.

Previous wording

Cash Provided by (Used in) Financing Activities

Current wording

Cash Used in Financing Activities

Previous wording

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 wording

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) 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.

Previous 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.

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. No shares have been purchased under this program as of March 31, 2025. The dollar limit on repurchases under the program after December 21, 2024 was reduced to $250,000 per annum.