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OrthoPediatrics Corp. Reports First Quarter 2019 Financial Results

First Quarter 2019 Revenue Increased 21.2% Year-over-Year to $14.7 Million

/EIN News/ -- WARSAW, Ind., May 08, 2019 (GLOBE NEWSWIRE) -- OrthoPediatrics Corp. (“OrthoPediatrics”) (NASDAQ: KIDS), an orthopedic company focused exclusively on advancing the field of pediatric orthopedics, today announced financial results for the first quarter ended March 31, 2019.

First Quarter Highlights

  • Increased total revenue to $14.7 million for first quarter 2019, up 21.2% from $12.1 million in first quarter 2018.
  • Deployed $2.7 million of consignment sets during the first quarter 2019, as part of significant set deployment through Q2 in anticipation of the summer surgery season, versus $5.5 million during first quarter 2018.
  • Converted Belgium and the Netherlands to sales agency model in January.
  • Launched BandLoc DUO, the latest enhancement to the BandLoc 5.5/6.0mm System, in February.
  • Supplemented domestic sales force with seven representatives for a total of 138, up 20.0% from first quarter 2018.
  • Voted one of the Best Places to Work in Indiana for the third year.
  • Reiterated full year 2019 revenue growth guidance to be in a range of 21.0% to 23.0% and investment in consignment sets to be in a range of $15.0 million to $17.0 million.

Mark Throdahl, President and Chief Executive Officer of OrthoPediatrics, commented, “We are pleased with another quarter of consistent execution as we provide more children around the world with pediatric-specific solutions. First quarter revenue growth of 21% was driven by strength across our business segments as well as 28% international growth. This keeps us on track to achieve our full year 2019 revenue guidance of 21-23% and to sustain OrthoPediatrics’ ten-year record of consistent 20%+ annual growth. Most notably, Scoliosis sales continued to accelerate with an impressive 59% growth for the quarter coupled with double digit Trauma & Deformity Correction growth, despite a temporary slowdown in elective deformity surgeries that occurred in the U.S. As we look ahead, we have seen a strong start to the second quarter, particularly in domestic Trauma & Deformity Correction and are thus confident that the temporary slowdown in elective surgeries has ended. We continue to reduce the impact of inherently variable surgery volumes by expanding our sales base, our surgeon base, and our product scope.”

Mr. Throdahl continued, “We are pleased to have seen the tangible sales contribution in the first quarter of BandLoc DUO as well as PNP Femur and RESPONSE 4.5/5.0mm, which were launched in the second half of 2018. We are optimistic that we can sustain an aggressive cadence of new product introductions, including utilizing the innovative screw technology licensed from CoorsTek Medical in our PediFoot system, anticipated for launch later this year. With our international expansion to 41 countries and the recent conversion of Belgium and the Netherlands to our sales agency model, we continue to execute on our growth initiatives and have a domestic selling organization that also grew to sufficiently support our growth. Our employees and culture of engagement remain the driving force behind the culmination of our achievements and was reflected in the third year that OrthoPediatrics has been voted one of the Top 100 Best Places to Work in Indiana.”

First Quarter 2019 Financial Results
Total revenue for the first quarter 2019 was $14.7 million, representing 21.2% growth, compared to total revenue of $12.1 million for the first quarter 2018. U.S. revenue for the first quarter of 2019 increased 18.7% to $10.3 million, compared to $8.7 million for the same period last year, and represented 70.1% of total revenue. International revenue increased 27.6% to $4.4 million, compared to $3.4 million for the same period last year and represented 29.9% of total revenue.

Trauma and Deformity revenue for first quarter 2019 increased 9.8% to $10.0 million compared to $9.1 million for the same period last year. Scoliosis revenue increased 58.6% to $4.3 million compared to $2.7 million for the first quarter 2018. Sports Medicine/Other revenue for the first quarter of 2019 increased 33.2% to $0.4 million compared to $0.3 million for the same period last year.

Gross profit for the first quarter of 2019 was $10.7 million, a 19.5% increase compared to $8.9 million for the same period last year. Gross profit margin for the first quarter of 2019 was 72.7%, compared to 73.7% for the same period last year due to a higher percentage of sales from international stocking distributors at lower gross margins.

Total operating expenses for the first quarter of 2019 were $13.4 million, a 0.4% increase compared to $13.3 million for the same period last year. The increase in operating expenses was driven by $1.7 million in lower restricted stock expense partially offset by higher employee-related expenses as well as quality and regulatory consultancy fees. Operating loss for the quarter decreased to ($2.7) million from ($4.4) million for the same period last year driven by higher revenue and gross margin as well as $1.7 million restricted stock expense related to our IPO that is non-recurring.

Net interest expense for the first quarter of 2019 was $0.3 million, a 45.1% decrease compared to $0.6 million for the same period last year driven by lower debt and increased interest income on a higher cash balance.

Net loss attributable to common stock holders for the period was ($3.0) million, compared to ($5.0) million for the first quarter of 2018. Net loss per share attributable to common stockholders for the first quarter of 2019 was ($0.21) per basic and diluted share compared to ($0.41) per basic and diluted share for the same period prior year.

Adjusted EBITDA for the first quarter of 2019 was ($469) thousand as compared to ($746) thousand for the first quarter of 2018. The change was primarily driven by an increase in revenue and gross profit partially offset by higher employee expenses. (See below for additional information and a reconciliation of non-GAAP financial information.)

The weighted average number of diluted shares outstanding as of March 31, 2019 was 14,367,056 shares.

In the first quarter of 2019, we had 138 sales representatives, up 20% compared to 115 in same period 2018.

Purchases of property and equipment during the first quarter of 2019 were $5.0 million, a 79.1% increase compared to $2.8 million for the same period last year, reflecting an increase in construction in process which includes partial sets waiting to be deployed. Including the implants, $2.7 million of consigned sets were deployed during the first quarter of 2019 compared to $5.5 million during the first quarter of 2018.

As of March 31, 2019, cash and cash equivalents were $52.8 million, compared to $60.7 million as of December 31, 2018, and the Company had approximately $21.3 million in total outstanding indebtedness, with no balance outstanding under the revolving credit facility.

Full Year 2019 Financial Guidance
OrthoPediatrics is reiterating financial guidance for the full year 2019, as follows:

  • Revenue growth in a range of 21.0% to 23.0%
  • Consigned set investments in a range of $15.0 million to $17.0 million

Conference Call
OrthoPediatrics will host a conference call on Thursday, May 9, 2019, at 8:00 a.m. ET to discuss the results. The dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. The conference ID number is 9854306. 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 second quarter 2019 financial results. In addition, a telephonic replay of the call will be available until May 16, 2019. The replay dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. Please use the replay conference ID number 9854306.

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 7, 2019. 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 advancing the field of pediatric orthopedics. As such it has developed the most comprehensive product offering to the pediatric orthopedic market to improve the lives of children with orthopedic conditions. OrthoPediatrics currently markets 26 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 41 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
(Unaudited)
 (In Thousands, Except Share Data)
 
  March 31,   December 31,
  2019   2018
ASSETS
Current assets:      
Cash $    52,774     $    60,691  
Accounts receivable - trade, less allowance for doubtful accounts of $134 and $134, respectively     10,296        8,999  
Inventories, net    28,081        25,708  
Notes Receivable    508        502  
Prepaid expenses and other current assets    1,452        1,256  
Total current assets    93,111        97,156  
       
Property and equipment, net     16,789         12,768  
       
Other assets:      
Amortizable intangible assets, net    1,846        1,921  
Other intangible assets    260        260  
Total other assets    2,106        2,181  
       
Total assets $    112,006     $   112,105  
       
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:      
Accounts payable - trade $    6,344     $   3,971  
Accrued compensation and benefits    2,670        3,552  
Current portion of long-term debt with affiliate    120        118  
Other current liabilities    1,689        1,576  
Total current liabilities    10,823        9,217  
Long-term liabilities:      
Long-term debt with affiliate, net of current portion   21,134         21,156  
Total long-term liabilities     21,134         21,156  
       
Total liabilities   31,957         30,373  
       
       
       
Stockholders' equity:      
Common stock, $0.00025 par value; 50,000,000 shares authorized;      
14,682,398 shares and 14,538,202 shares issued and outstanding as      
of March 31, 2019 (unaudited) and December 31, 2018   4       4  
Additional paid-in capital     198,478         197,442  
Accumulated deficit    (118,111 )      (115,091 )
Accumulated other comprehensive income    (322 )      (623 )
Total stockholders' equity    80,049        81,732  
       
Total liabilities and stockholders' equity $    112,006     $    112,105  



 
ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share and Per Share Data)
 
  Three Months Ended March 31,
    2019       2018  
Net revenue $    14,656     $   12,094  
Cost of revenue   4,001       3,175  
Gross profit   10,655       8,919  
Operating expenses:      
Sales and marketing   6,547       6,079  
General and administrative   5,612       6,017  
Research and development   1,213       1,218  
Total operating expenses   13,372       13,314  
Operating loss   (2,717 )     (4,395 )
Other expenses:      
Interest expense   303       552  
Other expense   -       53  
Total other expenses   303       605  
       
Net loss $    (3,020 )   $   (5,000 )
Weighted average common shares - basic and diluted   14,367,056       12,073,776  
Net loss per share attributable to common stockholders - basic and diluted $  (0.21 )   $    (0.41 )



 
ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 (In Thousands)
 
  For the Three Months Ended March 31,
    2019       2018  
OPERATING ACTIVITIES  
Net loss  $   (3,020 )   $   (5,000 )
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization    828        681  
Stock-based compensation    471        2,177  
Changes in certain current assets and liabilities:      
Accounts receivable - trade    (1,180 )      (1,235 )
Inventories    (2,286 )      (2,202 )
Inventories held by international distributors    130        (355 )
Prepaid expenses and other current assets    (196 )      (283 )
Accounts payable - trade    2,373        1,702  
Accrued expenses and other liabilities    (719 )      (600 )
Other    128        82  
Net cash used in operating activities    (3,471 )      (5,033 )
       
INVESTING ACTIVITIES      
Purchases of licenses    (19 )      (159 )
Purchases of property and equipment    (4,963 )      (2,771 )
Net cash used in investing activities    (4,982 )      (2,930 )
       
FINANCING ACTIVITIES      
Proceeds from exercise of stock options    565        -  
Payments on mortgage notes    (29 )      (28 )
Net cash provided by financing activities    536        (28 )
       
NET DECREASE IN CASH   (7,917 )       (7,991 )
       
Cash, beginning of year    60,691         42,582  
Cash, end of period $    52,774     $   34,591  
       
SUPPLEMENTAL DISCLOSURES      
Cash paid for interest $   303     $   552  
Transfer of instruments from property and equipment to inventory $   217     $   304  



 
ORTHOPEDIATRICS CORP.
NET REVENUE BY GEOGRAPHY AND PRODUCT CATEGORY
(Unaudited)
 (In Thousands)
 
  Three Months Ended March 31,
Product sales by geographic location:   2019       2018  
U.S. $    10,267     $    8,653  
International     4,389         3,441  
Total $    14,656     $    12,094  
         
  Three Months Ended March 31,
Product sales by category:   2019       2018  
Trauma and deformity $    10,017     $    9,123  
Scoliosis     4,258       2,685  
Sports medicine/other     381         286  
Total $    14,656     $    12,094  



 
ORTHOPEDIATRICS CORP.
RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA
(Unaudited)
 (In Thousands)
 
  Three Months Ended March 31,
    2019       2018  
Net Loss $   (3,020 )   $   (5,000 )
Interest expense, net     303         552  
Other expense     -         53  
Depreciation and amortization     828         681  
Stock-based compensation     471         420  
Accelerated vesting of restricted stock upon our IPO     -          1,757   
Public company costs     354         337   
Unusual professional services fees (legal/regulatory/M&A)     595       454   
Adjusted EBITDA $   (469 )   $   (746 )

 

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