OrthoPediatrics Corp. Reports Third Quarter 2020 Financial ResultsRecord Sales Drive Significant Improvement in EBITDA

WARSAW, Indiana, Nov. 04, 2020 (GLOBE NEWSWIRE) -- OrthoPediatrics Corp. (“OrthoPediatrics” or the “Company”) (Nasdaq:KIDS), a Company focused exclusively on advancing the field of pediatric orthopedics, announced today its financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 and Recent Business Highlights

  • Generated total revenue of $22.2 million for third quarter 2020, up 7.0% from $20.7 million in third quarter 2019, and saw continued progress of underlying demand trends in the U.S.
  • Maintained positive domestic momentum driving U.S. revenue growth of 16.7% during the third quarter 2020 compared to the third quarter 2019.
  • Continued strong Orthex execution, with a 167% increase in first-time users year-to-date over Prior Year.
  • Increased the number of established hospital sites fully approved for ApiFix surgeries to 7, with all initial procedures during the quarter deemed highly successful.
  • Expanded the domestic sales organization to 166 consultants, up 5.1% from third quarter 2019 of 158 consultants.
  • Increased international agency sales and domestic growth drove strong gross margin, and combined with continued cost control, delivered positive adjusted EBIDTA during the quarter.

Mark Throdahl, Chief Executive Officer of OrthoPediatrics, commented, “During the quarter, the Company continued to navigate the pandemic environment confidently, delivering overall revenue growth and improved EBITDA, resulting in positive adjusted EBITDA. In the U.S., Trauma & Deformity and Scoliosis grew in line with total domestic sales, and Scoliosis users increased 33% year-to-date over Prior Year. Domestic sales growth accelerated significantly during the quarter, a trend that was offset somewhat by the lagging recovery in some international markets, particularly in Latin America. Operationally, the Company continued to execute on important strategic initiatives, including driving increased Orthex and ApiFix adoption with a growing number of surgeons, controlling expenses, and continued work converting several international stocking distributors to sales agencies.”

Mr. Throdahl continued, “While the COVID-19 pandemic is posing an unprecedented challenge to many businesses across the world, OrthoPediatrics remains focused on maintaining its positive momentum into the remainder of 2020 and into next year. The Company remains committed to supporting our patients and surgeons with no reductions in financial support of important surgical societies. OrthoPediatrics believes this patient-centered approach, along with its leading market position and consistent execution, provide a strong foundation for continued robust growth.”

Third Quarter 2020 Financial Results
Total revenue for the third quarter of 2020 was $22.2 million, a 7.0% increase compared to $20.7 million for the same period last year. U.S. revenue for the third quarter of 2020 was $19.6 million, a 16.7% increase compared to $16.8 million for the same period last year, representing 88.2% of total revenue. International revenue for the third quarter of 2020 was $2.6 million, a 33.8% decrease compared to $4.0 million for the same period last year, representing 11.8% of total revenue. International performance was strongest in EMEA and Asia-Pacific, particularly with our sales agencies. With fewer stand-alone pediatric hospitals, international procedure trends are taking longer to normalize, and recovery in the international markets continues to lag the recovery seen thus far in the U.S.

Trauma and Deformity revenue for the third quarter of 2020 was $15.0 million, an 8.2% increase compared to $13.8 million for the same period last year. Scoliosis revenue was $6.6 million, a 1.3% increase compared to $6.5 million for the third quarter of 2019. Sports Medicine/Other revenue for the third quarter of 2020 was $0.7 million, a 55.5% increase compared to $0.4 million for the same period last year. Strong growth in Trauma continued to drive domestic sales, with encouraging signs of recovery seen in elective deformity surgeries. As mentioned before, Trauma & Deformity and Scoliosis grew in line with total domestic sales.

Gross profit for the third quarter of 2020 was $17.6 million, an 11.0% increase compared to $15.9 million for the same period last year. Gross profit margin for the third quarter of 2020 was 79.4%, compared to 76.6% for the same period last year.

Total operating expenses for the third quarter of 2020 were $20.1 million, a 15.5% increase compared to $17.4 million for the same period last year. The increase in operating expenses was driven by a 35.2% increase in general and administration expense primarily as a result of increased non-cash stock compensation as well as depreciation from increased set deployment. Operating loss for the third quarter of 2020 was ($2.5) million compared to ($1.5) million for the same period last year.

Net interest expense for the third quarter of 2020 was $1.0 million, compared to $1.3 million for the same period last year. This was primarily the fair value adjustment of contingent consideration related to the ApiFix acquisition.

Net loss from continuing operations for the third quarter of 2020 was ($4.5) million, compared to ($2.9) million for the same period last year. Net loss per share for the period was ($0.24) per basic and diluted share, compared to ($0.18) per basic and diluted share for the same period last year.

Adjusted EBITDA for the third quarter of 2020 was $1.1 million as compared to $0.7 million for the third quarter of 2019. See below for additional information and a reconciliation of non-GAAP financial information.

The weighted average number of diluted shares outstanding for the three-month period ended September 30, 2020 was 19,112,797 shares.

In the third quarter of 2020, we had 166 sales representatives, up 5.1% compared to 158 in the same period of 2019.

The change in property and equipment during the third quarter of 2020 was $1.3 million, which compared to $2.0 million for the same period last year. This reflects the deployment of consigned sets, which includes product specific instruments and cases and trays, and acquisition related costs. Including the implants, in the third quarter 2020 $4.0 million of consigned sets were deployed in support of growing adoption of new products, compared to $1.7 million during the third quarter of 2019 — an increase of 135%.

As of September 30, 2020, cash and restricted cash totaled $89.7 million, compared to $114.4 million as of June 30, 2020. On July 15, the Company repaid the $20 million principal amount outstanding under its term loan agreement, together with all unpaid interest and other related amounts payable and has no outstanding term loan obligations. The Company also expanded its revolving credit facility to $25 million, and extended it by one year, to January 2024, with the full $25 million currently available.

Financial Guidance
The Company expects overall sales growth during the fourth quarter 2020 to be similar to the third quarter. Fourth quarter sales growth in the U.S. is expected to accelerate slightly, while the international sales decline in the fourth quarter should be similar to the third quarter. While the progression of the COVID pandemic and its impact on US and international procedures remain uncertain, the Company remains confident in achieving its long-term financial goals.

Conference Call
OrthoPediatrics will host a conference call on Thursday, November 5, 2020, at 8:00 a.m. ET to discuss the results. The dial-in numbers are (855) 289-4603 for domestic callers and (614) 999-9389 for international callers. The conference ID number is 5038238. A live webcast and replay of the conference call will be available online from the investor relations page of the OrthoPediatrics’ corporate website at www.orthopediatrics.com.

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 related to COVID-19, the impact such pandemic may have on the demand for our products, and our ability to respond to the related challenges; and the risks, uncertainties and factors set forth under "Risk Factors" in OrthoPediatrics’ Annual Report on Form 10-K filed with the SEC on March 5, 2020, as updated and supplemented by our other SEC reports filed time to time. 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 from continuing operations, plus interest expense (net) plus other expense, depreciation and amortization, stock-based compensation expense, fair value adjustment of contingent consideration, and acquisition related 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 from continuing operations 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 35 surgical systems that serve three of the largest categories within the pediatric orthopedic market. This product offering spans trauma and 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 43 countries outside the United States. For more information, please visit www.orthopediatrics.com.

Investor Contacts
The Ruth Group
Jan Medina, CFA
(646) 536-7035
jmedina@theruthgroup.com

ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)

    September 30, 2020   December 31, 2019
         
ASSETS
Current assets:        
Cash   $ 88,372     $ 70,777  
Restricted cash     1,369       1,250  
Accounts receivable - trade, less allowance for doubtful accounts of $208 and $506, respectively     17,064       16,003  
Inventories, net     52,032       38,000  
Notes receivable     476       564  
Prepaid expenses and other current assets     2,065       1,464  
Total current assets     161,378       128,058  
         
Property and equipment, net     24,275       21,349  
         
Other assets:        
Amortizable intangible assets, net     48,898       14,484  
Goodwill     60,148       13,773  
Other intangible assets     13,305       4,490  
Total other assets     122,351       32,747  
         
Total assets   $ 308,004     $ 182,154  
         
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:        
Accounts payable - trade   $ 6,904     $ 6,467  
Accrued compensation and benefits     4,772       4,349  
Current portion of long-term debt with affiliate     129       124  
Current portion of acquisition installment payable     11,920       -  
Other current liabilities     2,022       2,723  
Total current liabilities     25,747       13,663  
         
Long-term liabilities:        
Long-term debt with affiliate, net of current portion     1,078       26,067  
Acquisition installment payable, net of current portion     12,402       -  
Contingent consideration     29,009       -  
Operating lease liabilities, net of current portion     332       63  
Total long-term liabilities     42,821       26,130  
         
Total liabilities   $ 68,568     $ 39,793  
         
Stockholders' equity:        
Common stock, $0.00025 par value; 50,000,000 shares authorized; 19,554,621 shares and 16,723,128 shares issued and outstanding as of September 30, 2020 (unaudited) and December 31, 2019, respectively     5       4  
Additional paid-in capital     387,117       271,182  
Accumulated deficit     (147,753 )     (128,822 )
Accumulated other comprehensive income (loss)     67       (3 )
Total stockholders' equity     239,436       142,361  
         
Total liabilities and stockholders' equity   $ 308,004     $ 182,154  
                 

ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share and Per Share Data)

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2020       2019       2020       2019  
                               
Net revenue $ 22,205     $ 20,744     $ 52,154     $ 53,600  
Cost of revenue   4,566       4,849       12,241       13,431  
Gross profit   17,639       15,895       39,913       40,169  
               
Operating expenses:              
Sales and marketing   9,237       8,771       22,421       22,924  
General and administrative   9,823       7,267       28,281       19,448  
Research and development   1,077       1,396       3,223       3,843  
Total operating expenses   20,137       17,434       53,925       46,215  
               
Operating loss   (2,498 )     (1,539 )     (14,012 )     (6,046 )
               
Other expenses:              
Interest expense   1,010       1,297       2,788       2,232  
Fair value adjustment of contingent consideration   909       -       1,819       -  
Other expense   122       41       312       78  
Total other expenses   2,041       1,338       4,919       2,310  
               
Net loss from continuing operations   (4,539 )     (2,877 )     (18,931 )     (8,356 )
Net income from discontinued operations   -       213       -       54  
Net loss $ (4,539 )   $ (2,664 )   $ (18,931 )   $ (8,302 )
                               
Weighted average common shares – basic and diluted   19,112,797       14,639,020       17,700,429       14,487,015  
                               
Net loss per share – basic and diluted $ (0.24 )   $ (0.18 )   $ (1.07 )   $ (0.57 )
                               

ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

  For the Nine Months Ended September 30,
    2020       2019  
OPERATING ACTIVITIES              
Net loss $ (18,931 )   $ (8,302 )
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization   5,696       3,258  
Stock-based compensation   4,712       1,896  
Fair value adjustment of contingent consideration   1,819       -  
Acquisition installment payable   1,702       -  
Changes in certain current assets and liabilities:      
Accounts receivable – trade   (389 )     (5,126 )
Inventories   (12,340 )     (6,491 )
Prepaid expenses and other current assets   (215 )     (360 )
Accounts payable - trade   155       3,680  
Accrued expenses and other liabilities   (558 )     11  
Other   (24 )     1  
Net cash used in operating activities - continuing operations   (18,373 )     (11,433 )
Net cash provided by operating activities - discontinued operations   -       590  
Net cash used in operating activities   (18,373 )     (10,843 )
       
INVESTING ACTIVITIES      
Acquisition of Telos, net of cash acquired   (1,670 )     -  
Acquisition of ApiFix, net of cash acquired   (1,723 )     -  
Acquisition of Band-Lok intangible assets   (796 )     -  
Acquisition of Vilex and Orthex, net of cash acquired   -       (49,687 )
Purchases of licenses   -       (170 )
Purchases of property and equipment   (6,448 )     (10,536 )
Net cash used in investing activities   (10,637 )     (60,393 )
       
FINANCING ACTIVITIES      
Proceeds from issuance of debt with affiliate   -       30,000  
Payments on debt with affiliate   (25,000 )     -  
Proceeds from issuance of common stock, net of issuance costs   70,207       -  
Proceeds from exercise of stock options   1,629       1,141  
Payments on mortgage notes   (88 )     (88 )
Net cash provided by financing activities   46,748       31,053  
       
Effect of exchange rate changes on cash   (24 )     -  
       
NET INCREASE (DECREASE) IN CASH   17,714       (40,183 )
       
Cash and restricted cash, beginning of year $ 72,027     $ 60,691  
Cash and restricted cash, end of period $ 89,741     $ 20,508  
Less cash of discontinued operations, end of period   -       839  
Cash and restricted cash of continuing operations, end of period $ 89,741     $ 19,669  
               

ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)

SUPPLEMENTAL DISCLOSURES      
Cash paid for interest $ 1,218   $ 2,232
Transfer of instruments from property and equipment to inventory $ 645   $ 593
Issuance of common shares to acquire Vilex and Orthex $ -   $ 10,000
Issuance of common shares to acquire Telos $ 1,568   $ -
Issuance of common shares to acquire ApiFix $ 35,176   $ -
Issuance of common shares to purchase Band-Lok intellectual property $ 2,644   $ -
           

ORTHOPEDIATRICS CORP.
NET REVENUE BY GEOGRAPHY AND PRODUCT CATEGORY
(Unaudited)
(In Thousands)

  Three Months Ended September 30,   Nine Months Ended September 30,
Product sales by geographic location:   2020     2019     2020     2019
U.S. $ 19,583   $ 16,785   $ 45,113   $ 40,900
International   2,622     3,959     7,041     12,700
Total $ 22,205   $ 20,744   $ 52,154   $ 53,600
               
  Three Months Ended September 30,   Nine Months Ended September 30,
Product sales by category:   2020     2019     2020     2019
Trauma and deformity $ 14,969   $ 13,836   $ 36,399   $ 35,740
Scoliosis   6,555     6,470     14,102     16,594
Sports medicine/other   681     438     1,653     1,266
Total $ 22,205   $ 20,744   $ 52,154   $ 53,600
                       

ORTHOPEDIATRICS CORP.
RECONCILIATION OF NET LOSS TO NON-GAAP ADJUSTED EBITDA
(Unaudited)
(In Thousands)

  Three Months Ended September 30,   Nine Months Ended September 30,
    2020       2019       2020       2019  
Net loss from continuing operations $ (4,539 )   $ (2,877 )   $ (18,931 )   $ (8,356 )
Interest expense, net   1,010       1,297       2,788       2,232  
Other expense   122       41       312       78  
Depreciation and amortization   2,374       1,361       5,696       3,231  
Stock-based compensation   1,259       733       4,712       1,896  
Fair value adjustment of contingent consideration   909       -       1,819       -  
Acquisition related costs   1       148       336       737  
Adjusted EBITDA $ 1,136     $ 703     $ (3,268 )   $ (182 )
                               

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