UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [Mark One] ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 001-38242 ORTHOPEDIATRICS CORP. Common Stock, $0.00025 par value per share KIDS Nasdaq Global Market Title of Each Class Tr ...

Financial Data and Key Metrics Changes - In Q4 2023, the company reported revenue of $37.6 million, a 21% increase compared to Q4 2022. For the full year 2023, revenue reached a record $148.7 million, representing a 22% growth year-over-year [36][53] - The gross profit margin for Q4 2023 was 71.0%, up from 68.5% in Q4 2022, driven by lower set sales to international distributors [26] - The net loss for the full year 2023 was $21.0 million, compared to a net income of $1.3 million in the previous year [27] Business Line Data and Key Metrics Changes - Trauma and deformity revenue in Q4 2023 was $27.1 million, reflecting a 23% increase from the prior year, with strong contributions from Pega products and OPSB [11][79] - U.S. scoliosis revenue grew by 35% in Q4 2023, despite a slow period at the end of December, indicating strong demand for response and ApiFix products [9][20] - International revenue was $9.3 million in Q4 2023, a 13% increase compared to the same quarter in 2022, but down 31% due to slower ordering patterns in Latin and South America [25][50] Market Data and Key Metrics Changes - The company expects international scoliosis sales to rebound in 2024, driven by new product launches and improved ordering patterns [38][48] - The OPSB franchise is projected to grow rapidly, with an estimated U.S. non-surgical specialty bracing market of at least $775 million [14][15] Company Strategy and Development Direction - The company aims to maintain a market-dominant strategy through set deployment, new product development, and superior service [12] - The acquisition of Boston O&P is expected to enhance the company's position in the non-surgical treatment market, with plans to open new clinics and expand product offerings [19][44] - The company is focused on achieving cash flow breakeven sooner by balancing top-line growth with improved profitability [57][83] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth prospects for 2024, citing a diverse business model that mitigates risks associated with environmental factors [37][67] - The company anticipates strong performance from new product launches and continued expansion in international markets [38][41] Other Important Information - The company launched eight new products in 2023, including the RESPONSE Power Scoliosis and the GIRO Growth Modulation System [29] - The company ended Q4 2023 with $82.3 million in cash and short-term investments, indicating a strong financial position [27][81] Q&A Session Summary Question: What are the growth expectations for the OPSB business? - Management expects the OPSB segment to grow faster than the overall business due to effective sales force expansion and new product introductions [61][62] Question: How will the integration of Boston O&P impact revenue? - Each new clinic from Boston O&P is expected to generate between $1 million and $3 million in revenue, contributing significantly to growth once fully operational [19][110] Question: What is the outlook for the ApiFix product? - ApiFix is expected to continue growing, with stronger data supporting its use, although it may not be a major contributor until 2025 [63][64] Question: How should investors model the growth of the Boston O&P business? - The Boston O&P business is expected to have a different seasonality, with Q4 typically being stronger than other quarters, and management anticipates steady growth as new clinics are integrated [86][95] Question: What is the company's strategy regarding growth and profitability? - The company aims for aggressive top-line growth while also focusing on profitability, ensuring that growth is sustainable and cash-generating [78][101]

[Note Regarding Forward-Looking Statements](index=3&type=section&id=Note%20Regarding%20Forward-Looking%20Statements) This section outlines the nature of forward-looking statements, their inherent risks and uncertainties, and the company's policy on updating such information - Forward-looking statements are identified by words like "anticipate," "believe," "expect," and "plan," and involve risks and uncertainties that may cause actual results to differ materially[8](index=8&type=chunk) - Key areas of uncertainty include achieving profitability, raising capital, commercializing products, complying with regulations, expanding sales networks, and protecting intellectual property[10](index=10&type=chunk) - The company undertakes no obligation to update or revise forward-looking statements unless required by law[9](index=9&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for OrthoPediatrics Corp [Item 1. Financial Statements (unaudited)](index=4&type=section&id=Item%201%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements of OrthoPediatrics Corp. for the three and nine months ended September 30, 2023, and December 31, 2022, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20-%20September%2030%2C%202023%20and%20December%2031%2C%202022) The condensed consolidated balance sheets show the company's financial position as of September 30, 2023, compared to December 31, 2022, highlighting changes in assets, liabilities, and stockholders' equity Table: Balance Sheet Summary | Metric | Sep 30, 2023 (in Thousands) | Dec 31, 2022 (in Thousands) | Change (in Thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total Assets | $432,444 | $427,727 | +$4,717 | | Total Liabilities | $58,115 | $49,079 | +$9,036 | | Total Stockholders' Equity | $374,329 | $378,648 | -$4,319 | | Cash and Cash Equivalents | $10,640 | $8,991 | +$1,649 | | Short-term Investments | $71,780 | $109,299 | -$37,519 | | Inventories, net | $100,533 | $78,192 | +$22,341 | | Accounts Payable - Trade | $22,587 | $11,150 | +$11,437 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20-%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) The condensed consolidated statements of operations show the company's financial performance for the three and nine months ended September 30, 2023, compared to the same periods in 2022, detailing revenue, expenses, and net loss/income Table: Statements of Operations Summary | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :--------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | Net Revenue | $39,972 | $34,950 | +$5,022 | +14.37% | $111,119 | $91,295 | +$19,824 | +21.71% | | Gross Profit | $30,953 | $25,889 | +$5,064 | +19.56% | $84,539 | $69,436 | +$15,103 | +21.75% | | Operating Loss | $(4,508) | $(6,961) | +$2,453 | -35.24% | $(18,685) | $(17,090) | -$1,595 | +9.33% | | Net (Loss) Income | $(4,591) | $18,539 | -$23,130 | -124.76% | $(14,283) | $9,106 | -$23,389 | -256.85% | | Basic EPS | $(0.20) | $0.88 | -$1.08 | -122.73% | $(0.63) | $0.44 | -$1.07 | -243.18% | | Diluted EPS | $(0.20) | $0.87 | -$1.07 | -122.99% | $(0.63) | $0.43 | -$1.06 | -246.51% | [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%20-%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This statement presents the net loss and other comprehensive loss components, such as foreign currency translation adjustments and unrealized gains/losses on investments, for the three and nine months ended September 30, 2023 and 2022 Table: Comprehensive Loss Summary | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net (Loss) Income | $(4,591) | $18,539 | -$23,130 | $(14,283) | $9,106 | -$23,389 | | Other Comprehensive Loss, net of tax | $(4,255) | $(3,411) | -$844 | $(6,766) | $(15,586) | +$8,820 | | Comprehensive (Loss) Income | $(8,846) | $15,128 | -$23,974 | $(21,049) | $(6,480) | -$14,569 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20-%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This statement details the changes in stockholders' equity for the nine months ended September 30, 2023 and 2022, including net loss, other comprehensive loss, restricted stock activity, and acquisitions Table: Stockholders' Equity Summary | Metric | Balance at Jan 1, 2023 (in Thousands) | Balance at Sep 30, 2023 (in Thousands) | Change (in Thousands) | Balance at Jan 1, 2022 (in Thousands) | Balance at Sep 30, 2022 (in Thousands) | Change (in Thousands) | | :-------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Total Stockholders' Equity | $378,648 | $374,329 | -$4,319 | $225,369 | $383,330 | +$157,961 | | Accumulated Deficit | $(176,768) | $(191,051) | -$14,283 | $(178,026) | $(168,920) | +$9,106 | | Additional Paid-in Capital | $560,810 | $577,540 | +$16,730 | $394,899 | $559,339 | +$164,440 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20-%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This statement outlines the cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022, showing the net increase in cash, cash equivalents, and restricted cash Table: Cash Flow Summary | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net cash used in operating activities | $(19,503) | $(18,425) | -$1,078 | | Net cash provided by (used in) investing activities | $23,755 | $(90,144) | +$113,899 | | Net cash (used in) provided by financing activities | $(2,086) | $136,009 | -$138,095 | | Net increase in cash, cash equivalents and restricted cash | $1,770 | $27,866 | -$26,096 | | Cash, cash equivalents and restricted cash, end of period | $12,232 | $36,872 | -$24,640 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering business overview, significant accounting policies, business combinations, goodwill and intangible assets, fair value measurements, debt, income taxes, stockholders' equity, net loss per share, business segments, related party transactions, employee benefits, and commitments and contingencies [NOTE 1 – BUSINESS](index=11&type=section&id=NOTE%201%20%E2%80%93%20BUSINESS) OrthoPediatrics Corp. is a medical device company focused exclusively on designing, developing, and marketing anatomically appropriate implants and devices for children with orthopedic conditions, serving trauma and deformity correction, scoliosis, and sports medicine markets globally - OrthoPediatrics is the only global medical device company exclusively focused on providing comprehensive orthopedic solutions for children[32](index=32&type=chunk) - The company offers specialized products across three major pediatric orthopedic categories: trauma and deformity correction, scoliosis, and sports medicine[32](index=32&type=chunk) - Products are sold to hospitals and medical facilities in the U.S. and international markets, utilizing a contract manufacturing model[32](index=32&type=chunk) [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the basis of presentation for the unaudited interim condensed consolidated financial statements, confirming adherence to GAAP, the use of estimates, and details on financial instruments, credit risk, and recent accounting pronouncements - The financial statements are unaudited, prepared in conformity with GAAP, and include all necessary recurring adjustments for fair presentation[34](index=34&type=chunk)[35](index=35&type=chunk) - The company has an accumulated deficit but believes its cash balance and expected cash flows are sufficient for operations for more than the next **twelve months**[36](index=36&type=chunk) - The company adopted **ASU 2016-13** (Credit Losses) and **ASU 2021-08** (Business Combinations) effective **January 1, 2023**, with no material impact on financial statements[40](index=40&type=chunk)[41](index=41&type=chunk) [NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS](index=13&type=section&id=NOTE%203%20-%20BUSINESS%20COMBINATIONS%20AND%20ASSET%20ACQUISITIONS) This note details the company's recent acquisitions, including Rhino Pediatric Orthopedic Designs, Inc. (assets), Medtech Concepts LLC (assets), and Pega Medical Inc. (share capital), outlining the consideration paid and the allocation of purchase prices - On **July 1, 2023**, OrthoPediatrics acquired assets of Rhino Pediatric Orthopedic Designs for **$1,024 thousand**, comprising **$546 thousand** cash and **11,133** common shares[43](index=43&type=chunk) - On **May 1, 2023**, the company acquired Medtech Concepts LLC for approximately **$15,274 thousand**, treated as an asset acquisition, with consideration including cash, unregistered common stock, and future anniversary payments[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - On **July 1, 2022**, OrthoPediatrics acquired Pega Medical Inc. for approximately **$32,042 thousand** in cash, expanding its trauma and deformity product portfolio[50](index=50&type=chunk)[51](index=51&type=chunk) [NOTE 4 - GOODWILL AND INTANGIBLE ASSETS](index=18&type=section&id=NOTE%204%20-%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note provides details on changes in goodwill and amortizable and non-amortizable intangible assets, including the impact of acquisitions, foreign currency translation, and impairment charges Table: Goodwill Changes | Metric | Jan 1, 2023 (in Thousands) | Sep 30, 2023 (in Thousands) | Change (in Thousands) | | :-------------------------------- | :------------------------- | :-------------------------- | :-------------------- | | Goodwill | $86,821 | $80,894 | -$5,927 | Table: Amortizable Intangible Assets | Amortizable Intangible Assets | Sep 30, 2023 (Net, in Thousands) | Dec 31, 2022 (Net, in Thousands) | Change (in Thousands) | | :---------------------------- | :------------------------------- | :------------------------------- | :-------------------- | | Patents | $34,214 | $38,052 | -$3,838 | | Intellectual Property & Capitalized Software | $13,873 | $4,477 | +$9,396 | | Customer Relationships & Other | $15,748 | $15,457 | +$291 | | License Agreements | $5,678 | $6,994 | -$1,316 | | Total Amortizable Assets | $69,513 | $64,980 | +$4,533 | - A partial impairment charge of **$985 thousand** was recorded for the ApiFix trademark during the three and nine months ended September 30, 2023, due to lower forecasted revenue[64](index=64&type=chunk) [NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS](index=19&type=section&id=NOTE%205%20-%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) This note describes the company's financial assets and liabilities measured at fair value, categorizing them into Level 1, Level 2, and Level 3 based on the observability of inputs, with a focus on contingent consideration - The company's financial instruments are categorized into **Level 1** (quoted prices in active markets), **Level 2** (observable market-based inputs), and **Level 3** (significant unobservable inputs)[66](index=66&type=chunk) - Contingent consideration is a **Level 3** liability, with its fair value determined using discounted cash flow or probability simulation models, and a fair value adjustment of **$(2,974) thousand** was recorded for the nine months ended September 30, 2023[71](index=71&type=chunk) Table: Financial Assets Fair Value | Financial Assets (Sep 30, 2023, in Thousands) | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------------------- | :------ | :------ | :------ | :---- | | Certificates of Deposit | $0 | $25,527 | $0 | $25,527 | | Exchange Trade Mutual Funds | $35,991 | $0 | $0 | $35,991 | | Treasury Bonds | $10,261 | $0 | $0 | $10,261 | | Other | $1 | $0 | $0 | $1 | [NOTE 6 - DEBT AND CREDIT ARRANGEMENTS](index=21&type=section&id=NOTE%206%20-%20DEBT%20AND%20CREDIT%20ARRANGEMENTS) This note details the company's long-term debt, including a mortgage payable to an affiliate and a $50 million revolving credit facility with Squadron Capital LLC, noting no outstanding indebtedness under the credit facility as of September 30, 2023 Table: Debt Summary | Debt Type | Sep 30, 2023 (in Thousands) | Dec 31, 2022 (in Thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Mortgage payable to affiliate | $800 | $907 | | Less: current maturities | $150 | $144 | | Long-term debt with affiliate, net | $650 | $763 | - The company has a **$50 million** revolving credit facility with Squadron Capital LLC, with no outstanding indebtedness as of **September 30, 2023**[75](index=75&type=chunk)[149](index=149&type=chunk) - Interest expense related to debt with affiliates was **$32 thousand** for the nine months ended September 30, 2023, significantly down from **$512 thousand** in the prior year[80](index=80&type=chunk) [NOTE 7 - INCOME TAXES](index=22&type=section&id=NOTE%207%20-%20INCOME%20TAXES) This note discusses the company's income tax provision or benefit, effective tax rate, and the status of deferred tax assets and valuation allowances Table: Income Tax Data | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | | Income Tax Benefit | $126 | $4,899 | | Effective Income Tax Rate | **0.9%** | **(116.4)%** | - Deferred tax assets are fully offset by a valuation allowance, except for certain deferred tax liabilities in a foreign jurisdiction from acquisitions[83](index=83&type=chunk) [NOTE 8 - STOCKHOLDERS' EQUITY](index=22&type=section&id=NOTE%208%20-%20STOCKHOLDERS'%20EQUITY) This note details changes in stock options and restricted stock activity, including grants, exercises, forfeitures, and the associated stock-based compensation expense - All stock options outstanding at **January 1, 2023**, were either exercised or cancelled by **September 30, 2023**, resulting in no stock-based compensation expense for options in **2023**[85](index=85&type=chunk)[86](index=86&type=chunk) Table: Restricted Stock Activity | Restricted Stock Activity | Jan 1, 2023 | Sep 30, 2023 | | :------------------------ | :---------- | :----------- | | Restricted Stock Awards | **403,324** | **565,021** | | Restricted Stock Units | **10,080** | **13,851** | - Stock-based compensation expense on restricted stock increased to **$7,779 thousand** for the nine months ended September 30, 2023, from **$4,978 thousand** in 2022, driven by increased plan participants and shares issued for acquisitions[88](index=88&type=chunk) [NOTE 9 – NET LOSS PER SHARE](index=23&type=section&id=NOTE%209%20%E2%80%93%20NET%20LOSS%20PER%20SHARE) This note reconciles basic and diluted net loss per share, explaining the application of the two-class method and the exclusion of anti-dilutive securities Table: Net Loss Per Share Data | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (Loss) Income | $(4,591) | $18,539 | $(14,283) | $9,106 | | Basic Net (Loss) Income Per Share | $(0.20) | $0.88 | $(0.63) | $0.44 | | Diluted Net (Loss) Income Per Share | $(0.20) | $0.87 | $(0.63) | $0.43 | - For periods with a net loss, basic and diluted weighted average shares outstanding remain consistent as the effect of potentially dilutive securities would be anti-dilutive[90](index=90&type=chunk) [NOTE 10 – BUSINESS SEGMENT](index=24&type=section&id=NOTE%2010%20%E2%80%93%20BUSINESS%20SEGMENT) OrthoPediatrics operates as a single business segment focused on pediatric orthopedic devices, with revenue disaggregated by product category (trauma and deformity, scoliosis, sports medicine/other) and geographic location (U.S. and International) - The company operates as one reportable segment, designing, developing, and marketing implants and devices for children with orthopedic problems[92](index=92&type=chunk) Table: Product Sales by Geographic Location | Product Sales by Geographic Location | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | U.S. | $29,360 | $26,539 | $82,748 | $69,687 | | International | $10,612 | $8,411 | $28,371 | $21,608 | | Total | $39,972 | $34,950 | $111,119 | $91,295 | Table: Product Sales by Category | Product Sales by Category | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | | :------------------------ | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Trauma and deformity | $28,806 | $23,892 | $79,715 | $62,976 | | Scoliosis | $10,304 | $9,979 | $28,270 | $25,383 | | Sports medicine/other | $862 | $1,079 | $3,134 | $2,936 | | Total | $39,972 | $34,950 | $111,119 | $91,295 | [NOTE 11 - RELATED PARTY TRANSACTIONS](index=25&type=section&id=NOTE%2011%20-%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with related parties, specifically payments to Structure Medical, LLC, an affiliate of Squadron Capital LLC, for inventory purchases Table: Payments to Structure Medical, LLC | Payments to Structure Medical, LLC (in Thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Inventory Purchases | $234 | $218 | $628 | $768 | [NOTE 12 - EMPLOYEE BENEFIT PLAN](index=25&type=section&id=NOTE%2012%20-%20EMPLOYEE%20BENEFIT%20PLAN) This note describes the OrthoPediatrics 401(k) Retirement Plan, a defined-contribution plan where the company makes discretionary matching contributions up to 4% of employees' salaries (or 3% for MD Ortho employees) - The company offers a **401(k) Retirement Plan** with discretionary matching contributions up to **4%** of employee salaries, or **3%** for MD Ortho employees[96](index=96&type=chunk) [NOTE 13 – COMMITMENTS AND CONTINGENCIES](index=25&type=section&id=NOTE%2013%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's commitments and contingencies, including lease liabilities, ongoing legal proceedings (IMED Surgical and Wishbone Medical), purchase obligations for technology platforms, and royalty agreements - The company is involved in legal proceedings, including a software ownership dispute with IMED Surgical and patent infringement litigation with Wishbone Medical, Inc., which was settled in **September 2023** for all claims against Wishbone Medical, Inc[100](index=100&type=chunk)[105](index=105&type=chunk)[108](index=108&type=chunk) - Remaining purchase commitments under a license agreement for the **7D Surgical FLASH Navigation** platform are **$1,345 thousand** for **2023** and **$2,340 thousand** for **2024**[111](index=111&type=chunk) - The company recorded an expense of **$1,053 thousand** for the nine months ended September 30, 2023, due to an estimated shortfall in meeting minimum performance metrics for the **FIREFLY Technology** license agreement[111](index=111&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition for the three and nine months ended September 30, 2023, discussing revenue drivers, expense changes, liquidity, capital resources, and key trends and uncertainties [Overview](index=28&type=section&id=Overview) OrthoPediatrics is the sole global medical device company dedicated to pediatric orthopedics, offering 52 surgical systems across trauma and deformity, scoliosis, and sports medicine. The company operates with a network of independent sales agencies in the U.S. and distributors/agencies internationally, with a direct sales organization established in Germany in 2023 - OrthoPediatrics is the only global medical device company exclusively focused on pediatric orthopedics, serving a **$3.9 billion** global market opportunity[115](index=115&type=chunk) - The company markets **52** surgical systems across trauma and deformity, scoliosis, and sports medicine, primarily through **38** independent sales agencies in the U.S. and distributors/agencies in over **70** international countries[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - A direct sales organization was established in Germany in **January 2023** to enhance European operations[120](index=120&type=chunk) [Environmental, Social and Governance ("ESG") Activities](index=29&type=section&id=Environmental%2C%20Social%20and%20Governance%20(%22ESG%22)%20Activities) OrthoPediatrics is committed to ESG activities, having impacted over 690,000 children. The company has an internal ESG team, is ISO 13485 certified, participates in philanthropic causes, and focuses on fostering a diverse and inclusive environment - OrthoPediatrics has impacted over **690,000** children and is committed to expanding social efforts, minimizing environmental impact, and ensuring corporate governance[122](index=122&type=chunk) - The company is **ISO 13485** certified, partners with charitable organizations like the World Pediatric Project, and focuses on diversity and inclusion, having added two diverse directors to its Board since **2022**[123](index=123&type=chunk) [Trends and Uncertainties](index=29&type=section&id=Trends%20and%20Uncertainties) The company faces uncertainties from potential impairment charges on intangible assets (like the ApiFix trademark), the impact of widespread respiratory illnesses (RSV), and ongoing disruptions from the COVID-19 pandemic on elective procedures and hospital staffing - A partial impairment loss of **$1.0 million** was recorded for the ApiFix trademark in the three and nine months ended September 30, 2023, due to lower forecasted revenue[126](index=126&type=chunk) - Widespread health emergencies, such as **RSV** and **COVID-19**, have negatively impacted sales volume and may continue to do so by absorbing hospital capacity and delaying elective procedures[127](index=127&type=chunk)[128](index=128&type=chunk) [Summary of Statements of Operations](index=31&type=section&id=Summary%20of%20Statements%20of%20Operations%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section provides a detailed analysis of the company's financial performance, including net revenue, cost of revenue, gross margin, and operating expenses (sales and marketing, general and administrative, trademark impairment, and research and development) for the three and nine months ended September 30, 2023 and 2022 [Net Revenue](index=31&type=section&id=Net%20Revenue) Net revenue increased by 14% to $40.0 million for the three months and 22% to $111.1 million for the nine months ended September 30, 2023, primarily driven by strong performance in trauma and deformity, partly due to acquisitions Table: Net Revenue Performance | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :----------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | Net Revenue | $39,972 | $34,950 | +$5,022 | +14% | $111,119 | $91,295 | +$19,824 | +22% | | Trauma and deformity sales | $28,806 | $23,892 | +$4,914 | +21% | $79,715 | $62,976 | +$16,739 | +27% | | Scoliosis sales | $10,304 | $9,979 | +$325 | +3% | $28,270 | $25,383 | +$2,887 | +11% | - Trauma and deformity sales growth was driven by Cannulated Screws, PNP Femur, PediPlate, external fixation, and Pega systems, including revenue from prior year acquisitions[134](index=134&type=chunk)[135](index=135&type=chunk) - Scoliosis sales increased due to **RESPONSE 5.5/6.0** and ApiFix systems, and revenue from **7D Technology**[135](index=135&type=chunk) [Cost of Revenue and Gross Margin](index=32&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Margin) Cost of revenue remained flat for the three months but increased by 22% for the nine months ended September 30, 2023, primarily due to sales volume and acquisitions. Gross margin was 77% for the three months and 76% for the nine months ended September 30, 2023 Table: Cost of Revenue and Gross Margin | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :---------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | Cost of Revenue | $9,019 | $9,061 | -$42 | -0.46% | $26,580 | $21,859 | +$4,721 | +22% | | Gross Margin | **77%** | **74%** | +3% | | **76%** | **76%** | **0%** | | - The increase in cost of revenue for the nine-month period was primarily due to higher sales volume, including costs associated with revenue generated by acquisitions and a mix related to additional international sales[136](index=136&type=chunk) [Sales and Marketing Expenses](index=32&type=section&id=Sales%20and%20Marketing%20Expenses) Sales and marketing expenses increased by 14% for both the three and nine months ended September 30, 2023, primarily due to higher sales commission expenses Table: Sales and Marketing Expenses | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :------------------------ | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | Sales and Marketing Expenses | $13,582 | $11,919 | +$1,663 | +14% | $38,963 | $34,108 | +$4,855 | +14% | - The increase in sales and marketing expenses was primarily driven by increased sales commission expenses[137](index=137&type=chunk) [General and Administrative Expenses](index=32&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses increased by 22% for the three months and 30% for the nine months ended September 30, 2023, mainly due to increased personnel, resources for business expansion, and higher stock compensation. Depreciation and amortization also rose due to higher set deployments and acquisitions Table: General and Administrative Expenses | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | General and Administrative Expenses | $18,507 | $15,116 | +$3,391 | +22% | $55,827 | $42,829 | +$12,998 | +30% | | Depreciation and Amortization | $5,000 (approx) | $3,300 (approx) | +$1,700 (approx) | +52% | $12,900 (approx) | $9,600 (approx) | +$3,300 (approx) | +35% | - Increases were primarily driven by the addition of personnel and resources to support business expansion, and higher stock compensation due to increased personnel and service-based vesting conditions from acquisitions[138](index=138&type=chunk) [Trademark Impairment](index=32&type=section&id=Trademark%20Impairment) The company recorded a trademark impairment charge of $1.0 million for the three and nine months ended September 30, 2023, related to the ApiFix trademark, a decrease from $3.6 million in the prior year Table: Trademark Impairment | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :---------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | Trademark Impairment | $985 | $3,609 | -$2,624 | -73% | $985 | $3,609 | -$2,624 | -73% | - The impairment charge was associated with the ApiFix trademark due to lower forecasted revenue[64](index=64&type=chunk)[140](index=140&type=chunk) [Research and Development Expenses](index=33&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses increased by 8% for the three months and 25% for the nine months ended September 30, 2023, driven by incremental product development and additional personnel Table: Research and Development Expenses | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :-------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | Research and Development Expenses | $2,387 | $2,206 | +$181 | +8% | $7,449 | $5,980 | +$1,469 | +25% | - The increase was primarily due to incremental product development and the addition of personnel to support future business growth[141](index=141&type=chunk) [Total Other (Income) Expenses](index=33&type=section&id=Total%20Other%20(Income)%20Expenses) Other income significantly decreased by 96% for the three months and 80% for the nine months ended September 30, 2023, primarily due to a lower fair value adjustment of contingent consideration and a decrease in net interest expense Table: Total Other (Income) Expenses | Metric | 3 Months Ended Sep 30, 2023 (in Thousands) | 3 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | Change (%) | | :---------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | :--------- | | Total Other Income | $(766) | $(21,357) | +$20,591 | -96% | $(4,276) | $(21,297) | +$17,021 | -80% | - The change was primarily driven by the fair value adjustment of contingent consideration and a decrease in net interest expense[142](index=142&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company has incurred operating losses and negative cash flows from operations, with an accumulated deficit of $191.1 million as of September 30, 2023. It funds operations through stock sales, convertible securities, debt, and product sales, maintaining $84.0 million in cash, cash equivalents, and short-term investments [Cash Flows](index=33&type=section&id=Cash%20Flows) This section summarizes the cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 Table: Cash Flow Summary | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net cash used in operating activities | $(19,503) | $(18,425) | | Net cash provided by (used in) investing activities | $23,755 | $(90,144) | | Net cash (used in) provided by financing activities | $(2,086) | $136,009 | | Net increase in cash, cash equivalents and restricted cash | $1,770 | $27,866 | [Cash Used in Operating Activities](index=33&type=section&id=Cash%20Used%20in%20Operating%20Activities) Net cash used in operating activities increased to $19.5 million for the nine months ended September 30, 2023, primarily due to increased inventory purchases to support sales growth and higher accounts receivable, partially offset by cash from accounts payable Table: Cash Used in Operating Activities | Metric | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | | :-------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net cash used in operating activities | $(19,503) | $(18,425) | -$1,078 | | Net cash used for working capital | $(23,400) (approx) | $(17,400) (approx) | -$6,000 (approx) | - The increase in cash used was driven by additional inventory purchases for sales growth and accounts receivable from increased sales, partially offset by cash provided by accounts payable[146](index=146&type=chunk) [Cash Provided by (Used in) Investing Activities](index=34&type=section&id=Cash%20Provided%20by%20(Used%20in)%20Investing%20Activities) Net cash provided by investing activities was $23.8 million for the nine months ended September 30, 2023, a significant shift from $90.1 million used in the prior year, mainly due to the net sale of short-term marketable securities and reduced business combinations Table: Cash Provided by (Used in) Investing Activities | Metric | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net cash provided by (used in) investing activities | $23,755 | $(90,144) | +$113,899 | - The change was primarily driven by the net sale of short-term marketable securities and a decrease in cash used for business combinations compared to the prior year[147](index=147&type=chunk) [Cash (Used in) Provided by Financing Activities](index=34&type=section&id=Cash%20(Used%20in)%20Provided%20by%20Financing%20Activities) Net cash used in financing activities was $2.1 million for the nine months ended September 30, 2023, a reversal from $136.0 million provided in the prior year, primarily due to the cash settlement of the ApiFix installment payment and the absence of a follow-on offering Table: Cash (Used in) Provided by Financing Activities | Metric | 9 Months Ended Sep 30, 2023 (in Thousands) | 9 Months Ended Sep 30, 2022 (in Thousands) | Change (in Thousands) | | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Net cash (used in) provided by financing activities | $(2,086) | $136,009 | -$138,095 | - The shift was mainly due to the cash settlement of the current year ApiFix installment payment and the absence of proceeds from a common stock issuance (follow-on offering) that occurred in the prior year[148](index=148&type=chunk) [Indebtedness](index=34&type=section&id=Indebtedness) The company has a $50.0 million revolving credit facility with Squadron Capital LLC, with no outstanding balance as of September 30, 2023, and a mortgage note payable to an affiliate maturing in August 2028 - The company has a **$50.0 million** revolving credit facility with Squadron Capital LLC, with no outstanding indebtedness as of **September 30, 2023**[149](index=149&type=chunk) - A mortgage note payable to Tawani Enterprises Inc., an affiliate, has monthly principal and interest installments of **$15,543** and matures in **August 2028**[150](index=150&type=chunk) [Pediatric Orthopedic Business Seasonality](index=34&type=section&id=Pediatric%20Orthopedic%20Business%20Seasonality) The company's revenue is typically higher during summer months and holiday periods, driven by increased pediatric surgeries for trauma and deformity and scoliosis products, which benefit from school breaks for recovery - Revenue is typically higher in summer months and holiday periods due to increased pediatric surgeries, influenced by school breaks for recovery[151](index=151&type=chunk) - Scoliosis patients often have additional health challenges, making their procedure scheduling variable[151](index=151&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=34&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) There were no material changes to the company's critical accounting policies as disclosed in its 2022 Annual Report on Form 10-K - No material changes to critical accounting policies were reported since the **2022 Annual Report on Form 10-K**[152](index=152&type=chunk) [Recent Accounting Pronouncements](index=34&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for a description of recent accounting pronouncements applicable to the condensed consolidated financial statements - Refer to **Note 2** for details on recent accounting pronouncements[153](index=153&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a "smaller reporting company," OrthoPediatrics is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures due to its "**smaller reporting company**" status[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023. The company implemented an upgraded ERP system, which is expected to affect internal control over financial reporting as its use expands - Management concluded that disclosure controls and procedures were effective as of **September 30, 2023**, providing reasonable assurance of timely and accurate information reporting[155](index=155&type=chunk)[156](index=156&type=chunk) - An upgraded **ERP system** was substantially completed, which is expected to improve efficiency and will likely affect internal control over financial reporting as its use expands[159](index=159&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides additional information including legal proceedings, risk factors, equity security sales, and other disclosures relevant to the company's operations [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 for a discussion of legal proceedings, confirming that no other current proceedings would materially affect the company's financial position, results of operations, or cash flows - A discussion of legal proceedings is incorporated by reference from **Note 13** of the financial statements[162](index=162&type=chunk) - No other legal proceedings are currently pending that would individually or in aggregate materially affect the company's financial position, results of operations, or cash flows[163](index=163&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the "Risk Factors" in the company's Annual Report on Form 10-K filed on March 1, 2023, noting no material changes since that filing - Readers should refer to the "**Risk Factors**" in the Annual Report on Form **10-K** filed **March 1, 2023**, as there have been no material changes[164](index=164&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) On July 1, 2023, the company issued 11,133 unregistered common shares as part of the acquisition of assets from Rhino Pediatric Orthopedic Designs, Inc. No proceeds were used from this issuance - On **July 1, 2023**, **11,133** unregistered common shares were issued for the acquisition of Rhino Pediatric Orthopedic Designs, Inc. assets, valued at **$42.91** per share[165](index=165&type=chunk) - The issuance was made under an exemption provided by **Section 4(a)(2)** of the Securities Act of **1933**[165](index=165&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities reported - No defaults upon senior securities were reported[170](index=170&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported - No mine safety disclosures were reported[171](index=171&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) This section states that there is no information required under Form 8-K, no modifications to the nomination process, and no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No information required under **Form 8-K** was reported[173](index=173&type=chunk) - No modifications to the nomination process were reported[175](index=175&type=chunk) - No director or officer adopted or terminated a **Rule 10b5-1** or non-**Rule 10b5-1** trading arrangement during the three months ended September 30, 2023[176](index=176&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits included in the report or incorporated by reference, such as acquisition agreements, corporate documents, loan agreements, and certifications - The report includes various exhibits, such as acquisition agreements (ApiFix, MD Ortho, MedTech), corporate governance documents, loan agreements with Squadron Capital LLC, and certifications from the CEO and CFO[179](index=179&type=chunk)[180](index=180&type=chunk) [Signatures](index=40&type=section&id=Signatures) This section provides the official signatures of the company's President, Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer, affirming the report's contents - The report is signed by **David R. Bailey**, President and Chief Executive Officer, and **Fred L. Hite**, Chief Financial Officer and Chief Operating Officer, as of **November 7, 2023**[184](index=184&type=chunk)

OrthoPediatrics Corp (NASDAQ:KIDS) Q3 2023 Earnings Conference Call November 7, 2023 8:00 AM ET Company Participants Trip Taylor - Investor Relations David Bailey - President and Chief Executive Officer Fred Hite - Chief Operating and Financial Officer Conference Call Participants Matthew O’Brien - Piper Sandler Rick Wise - Stifel Ryan Zimmerman - BTIG Samuel Brodovsky - Truist Securities Operator Good morning, and welcome to the OrthoPediatrics Corporation Third Quarter 2023 Earnings Conference Call. [Oper ...

OrthoPediatrics Corp. (NASDAQ:KIDS) Q2 2023 Earnings Conference Call August 1, 2023 8:00 AM ET Company Participants Trip Taylor - Investor Relations, Gilmartin Group David Bailey - President and Chief Executive Oficer Fred Hite - Chief Financial Officer and Chief Operating Officer Conference Call Participants Ryan Zimmerman - BTIG Matthew O'Brien - Piper Sandler David Saxon - Needham and Company Dave Turkaly - JMP Securities Sam Brodovsky - Truist Securities Operator Good morning, and welcome to OrthoPediat ...

(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number: 001-38242 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q | Large accelerated filer | ☐ | Accelerated filer | ☐ | | --- | --- | --- | --- | | Non-accelerated filer ...

OrthoPediatrics Corp. (NASDAQ:KIDS) Q1 2023 Results Conference Call May 2, 2023 8:00 AM ET Company Participants Trip Taylor - IR, Gilmartin Group David Bailey - President and CEO Fred Hite - COO and CFO Conference Call Participants Rick Wise - Stifel Ryan Zimmerman - BTIG Mike Matson - Needham & Company Sam Brodovsky - Truist Operator Good morning and welcome to OrthoPediatrics Corporation’s First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be fac ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 For the transition period from _______ to _______ Commission file number: 001-38242 OrthoPediatrics Corp. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 2850 Frontier Drive ...

[FORM 10-K General Information](index=1&type=section&id=FORM%2010-K%20General%20Information) [Registrant Information](index=1&type=section&id=Registrant%20Information) OrthoPediatrics Corp. is a Delaware corporation, headquartered in Warsaw, Indiana, with common stock traded on the Nasdaq Global Market under the symbol KIDS, classified as a non-accelerated filer and a smaller reporting company - OrthoPediatrics Corp. is a Delaware corporation, headquartered in Warsaw, Indiana[2](index=2&type=chunk) - Common Stock is traded on the Nasdaq Global Market under the symbol **KIDS**[3](index=3&type=chunk) - The registrant is a non-accelerated filer and a smaller reporting company[3](index=3&type=chunk) [Market Value and Shares Outstanding](index=3&type=section&id=Market%20Value%20and%20Shares%20Outstanding) As of June 30, 2022, the aggregate market value of common stock held by non-affiliates was approximately $471.5 million, with 22,993,446 outstanding shares by February 27, 2023 Common Stock Market Value and Shares Outstanding | Metric | Value | | :----- | :---- | | Market Value (non-affiliates, June 30, 2022) | **$471.5 million** | | Outstanding Shares (Feb 27, 2023) | **22,993,446** | | Par Value per Share | **$0.00025** | [Documents Incorporated by Reference](index=3&type=section&id=Documents%20Incorporated%20by%20Reference) Portions of the registrant's definitive proxy statement for its 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K - Portions of the **2023 Annual Meeting of Stockholders proxy statement** are incorporated by reference into Part III of this Form 10-K[8](index=8&type=chunk) [Glossary of Acronyms and Defined Terms](index=5&type=section&id=Glossary%20of%20Acronyms%20and%20Defined%20Terms) This section provides a glossary of acronyms and defined terms used throughout the report, including medical terms, regulatory bodies, and company-specific entities or products - The glossary defines terms such as **ACL** (Anterior cruciate ligament), **ApiFix** (acquired company), **FDA** (U.S. Food and Drug Administration), and **Squadron** (Company's largest investor)[13](index=13&type=chunk)[14](index=14&type=chunk) [Forward-Looking Statements](index=8&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements regarding future operations, financial position, business strategy, and product development, which are subject to known and unknown risks and uncertainties, with actual results potentially differing materially from projections - Forward-looking statements cover future results, financial position, business strategy, products, and R&D costs[16](index=16&type=chunk) - These statements are subject to known and unknown risks, uncertainties, and important factors that may cause actual results to differ materially[16](index=16&type=chunk) - The company intends these statements to be covered by the safe harbor provisions of the **Private Securities Litigation Reform Act of 1995**[16](index=16&type=chunk) [Risk Factor Summary](index=9&type=section&id=Risk%20Factor%20Summary) The company's business faces numerous risks, including widespread health emergencies, unfavorable economic conditions, historical losses, the need for additional capital, and challenges in commercializing products and competing effectively, alongside regulatory compliance, intellectual property protection, and reliance on third-party sales networks - Business is subject to risks from widespread health emergencies (**COVID-19, RSV**) and unfavorable economic conditions (inflation, interest rates, recession)[22](index=22&type=chunk) - The company has incurred past losses and may struggle to achieve or sustain profitability, requiring additional capital[22](index=22&type=chunk) - Challenges include commercializing products, demonstrating product merits against competitors, and complying with extensive government regulations[22](index=22&type=chunk) - Reliance on third-party sales agencies and distributors, and protecting intellectual property rights, are also key risks[22](index=22&type=chunk) [PART I](index=9&type=section&id=PART%20I) [Item 1. Business](index=9&type=section&id=Item%201.%20Business) OrthoPediatrics Corp. is a medical device company exclusively focused on designing, developing, and marketing orthopedic implants, instruments, and specialized braces for children, serving three major pediatric orthopedic market categories with an estimated global market opportunity of $3.9 billion, emphasizing a direct sales model in key international markets and strategic acquisitions [General Company Overview](index=10&type=section&id=General%20Company%20Overview) OrthoPediatrics Corp., founded in 2007, is a Delaware corporation specializing in pediatric orthopedic medical devices, which has expanded its international presence since 2011 and actively pursues acquisitions and partnerships to enhance its product offerings, reporting total assets of $427.7 million and 203 full-time employees as of December 31, 2022, with a commitment to ESG initiatives - OrthoPediatrics Corp. is a medical device company focused on anatomically appropriate implants, instruments, and braces for children with orthopedic conditions[23](index=23&type=chunk) - The company has expanded internationally since **2011**, establishing direct sales in the UK, Australia, New Zealand, Canada, Belgium, Netherlands, Italy, Germany, Switzerland, and Austria[23](index=23&type=chunk) - Strategic acquisitions include **Telos** and **ApiFix** in 2020, and **MD Ortho** and **Pega Medical** in 2022, to complement product lines[24](index=24&type=chunk) Key Financial and Operational Data (as of Dec 31, 2022) | Metric | Value | | :----- | :---- | | Total Assets | **$427.7 million** | | Total Liabilities | **$49.1 million** | | Stockholders' Equity | **$378.6 million** | | Full-time Employees | **203** | - The company has an internal ESG team and focuses on environmental impact, philanthropic causes, and diversity on its Board of Directors[29](index=29&type=chunk)[33](index=33&type=chunk) [Company Mission and Market](index=11&type=section&id=Company%20Mission%20and%20Market) OrthoPediatrics is the only global medical device company exclusively focused on pediatric orthopedics, offering 46 surgical and bracing systems across trauma and deformity correction, scoliosis, and sports medicine, designed to protect growth plates, fit pediatric anatomy, and ease implant removal, with an estimated global market opportunity of $3.9 billion and $1.7 billion in the U.S. - OrthoPediatrics is the only global medical device company exclusively focused on pediatric orthopedics[33](index=33&type=chunk) - The company markets **46 surgical and bracing systems** for trauma and deformity correction, scoliosis, and sports medicine[36](index=36&type=chunk) - Products are designed to protect growth plates, fit pediatric anatomy, enable earlier intervention, and ease implant removal[36](index=36&type=chunk)[40](index=40&type=chunk) - The estimated global market opportunity served is **$3.9 billion**, with over **$1.7 billion** in the United States[34](index=34&type=chunk) [Industry Overview](index=13&type=section&id=Industry%20Overview) Children's skeletal characteristics differ significantly from adults, featuring smaller, growing bones with growth plates, unique composition and vasculature, and changing shapes, while complex disorders like cerebral palsy further complicate surgical management, making specialized pediatric implants and instruments crucial for generalist pediatric orthopedic surgeons - Children's bones are smaller, growing (with growth plates), have unique composition/vasculature, and change shape as they mature[43](index=43&type=chunk) - Injury to growth plates can lead to growth arrest and deformity[43](index=43&type=chunk) - Pediatric orthopedic surgeons are generalists, treating a wide range of congenital, developmental, and traumatic conditions[44](index=44&type=chunk) [Market Opportunity](index=15&type=section&id=Market%20Opportunity) The pediatric orthopedic implant market represents a $3.9 billion global opportunity, with $1.7 billion in the U.S., segmented into trauma and deformity ($609M surgical implants, $303M specialty bracing), scoliosis ($334M fusion, $75M non-fusion), sports medicine ($249M), and smart implants ($162M), with a target market of $0.9 billion in approximately 300 U.S. pediatric hospitals performing over 62% of procedures - The pediatric orthopedic implant market is estimated at **$3.9 billion globally**, with **$1.7 billion** in the United States[45](index=45&type=chunk) Estimated U.S. Addressable Market Opportunity (2022) | Category | Sub-Category | Estimated Market Size (Millions) | | :----------------------- | :---------------- | :----------------------------- | | Trauma and Deformity | Surgical Implants | **$609** | | | Specialty Bracing | **$303** | | Scoliosis | Fusion | **$334** | | | Non-Fusion | **$75** | | Sports Medicine | | **$249** | | Smart Implants | | **$162** | - Approximately **300 U.S. hospitals** perform over **62%** of all pediatric trauma and deformity and scoliosis procedures, representing a target market of **$0.9 billion**[52](index=52&type=chunk)[53](index=53&type=chunk) [Competitive Advantages and Strategy](index=16&type=section&id=Competitive%20Advantages%20and%20Strategy) OrthoPediatrics' competitive strengths include its exclusive focus on pediatric orthopedics, a comprehensive product portfolio, deep partnerships with surgeons and societies, a scalable business model, and a unique, people-focused corporate culture, with a strategy involving focusing on high-volume children's hospitals, providing a broad product portfolio, deploying instrument sets with unparalleled sales support, aggressive R&D and acquisitions, and training the next generation of pediatric orthopedic surgeons - Competitive strengths include exclusive focus on pediatric orthopedics, comprehensive product portfolio (**46 systems, 11,200 SKUs**), partnerships with surgeons and societies, scalable business model, and a unique culture[60](index=60&type=chunk) - Strategy pillars: focus on high-volume children's hospitals, broad product portfolio, deploy instrument sets with sales support, aggressive R&D and acquisitions, and training future surgeons[62](index=62&type=chunk)[66](index=66&type=chunk) - The company aims to launch at least one new surgical system and multiple product line extensions annually[66](index=66&type=chunk) [Product Portfolio and Pipeline](index=19&type=section&id=Product%20Portfolio%20and%20Pipeline) The company's product portfolio includes 46 surgical and specialized bracing systems across trauma and deformity correction, scoliosis, and sports medicine, with 2022 revenue of $85.1 million (70% of total) for trauma and deformity, $33.4 million (27%) for scoliosis, and $3.8 million (3%) for sports medicine/other, while the product pipeline focuses on innovative new systems, line extensions, and improvements, with projects like Pediatric Nailing Platform | Tibia, Active Growing Implants, and RESPONSE Rib and Pelvic System expected for future launch Global Revenue by Product Category (2022 vs 2021) | Product Category | 2022 Revenue (Millions) | % of Total Revenue (2022) | 2021 Revenue (Millions) | % of Total Revenue (2021) | YoY Change (%) | | :----------------- | :---------------------- | :------------------------ | :---------------------- | :------------------------ | :------------- | | Trauma and Deformity | **$85.1** | **70%** | **$65.8** | **67%** | **+29%** | | Scoliosis | **$33.4** | **27%** | **$28.0** | **29%** | **+19%** | | Sports Medicine/Other | **$3.8** | **3%** | **$4.2** | **4%** | **-9%** | - Revenue is typically higher in summer months and holiday periods due to increased pediatric surgeries[68](index=68&type=chunk) - Product development objectives include innovative new systems, line extensions, and quality/cost improvements[69](index=69&type=chunk) - Key pipeline projects include **Pediatric Nailing Platform | Tibia** (beta launch 2023, full launch 2024), **Active Growing Implants** (smart implants for scoliosis/limb deformity), and **RESPONSE Rib and Pelvic System** (beta launch 2023)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) [Research and Product Development](index=21&type=section&id=Research%20and%20Product%20Development) The company leverages its pediatric orthopedic experience and exclusive rights to the Hamann-Todd Collection for innovative implant and instrument development, making significant investments in R&D personnel and infrastructure with a focus on continuous improvement and efficient product development through cross-functional teams - Leverages exclusive rights to the **Hamann-Todd Collection** for product designs[77](index=77&type=chunk) - Significant investments in R&D personnel and infrastructure, with a culture of continuous improvement[78](index=78&type=chunk) - New products are developed by teams of engineers, commercial personnel, and surgeon advisors[78](index=78&type=chunk) [Sales and Marketing](index=21&type=section&id=Sales%20and%20Marketing) OrthoPediatrics operates a dedicated global commercial organization, with 41 independent sales agencies and 197 sales representatives in the U.S., accounting for 68% of global revenue in 2022, and internationally works with over 70 independent stocking distributors and 14 sales agencies in 70+ countries, emphasizing intensive training programs for its sales force to deepen clinical expertise and support surgeons in the operating room - U.S. sales organization: **41 independent sales agencies**, **197 sales representatives**[79](index=79&type=chunk) - Sales from U.S. agencies represented **68% of global revenue in 2022** (vs. 76% in 2021)[79](index=79&type=chunk) - International sales organization: over **70 independent stocking distributors** and **14 independent sales agencies** in over **70 countries**[80](index=80&type=chunk) - Intensive training programs for global sales organization to enhance clinical expertise and operating room support[81](index=81&type=chunk) [Surgeon Involvement, Education and Training](index=21&type=section&id=Surgeon%20Involvement,%20Education%20and%20Training) The company actively involves pediatric orthopedic surgeons in product development and clinical education, supported by its Medical Director and an extensive network of contacts, and is a leading financial contributor to major pediatric orthopedic surgical societies, sponsoring numerous training workshops and CME courses to advance the field and build loyalty among surgeons - Utilizes surgeon input for product development and clinical education programs, aided by a Medical Director[82](index=82&type=chunk) - Supports local, regional, and national educational courses, hands-on training, and product-based workshops[83](index=83&type=chunk) - One of the largest financial contributors to pediatric orthopedic surgical societies (**POSNA, IPOS, EPOS, AACPDM**) and spine deformity organizations (**SRS, IMAST**)[85](index=85&type=chunk) - Funds **The Foundation for Advancing Pediatric Orthopaedics**, a 501(c)3 public charity for non-commercial education and clinical research[86](index=86&type=chunk) [Manufacturing and Suppliers](index=22&type=section&id=Manufacturing%20and%20Suppliers) OrthoPediatrics primarily uses a contract manufacturing model for implants and surgical instrumentation, while MD Ortho's specialized bracing products are manufactured in-house, with all third-party manufacturers required to meet FDA and country-specific quality standards (ISO 13485 certified), and the company maintains long-term contracts with key suppliers and has redundant manufacturing capabilities for most products - Primarily uses third-party contract manufacturers for implants and surgical instrumentation[87](index=87&type=chunk) - **MD Ortho's** specialized bracing products are manufactured in-house at the Iowa facility[87](index=87&type=chunk) - Manufacturers must be **ISO 13485 certified** and FDA registered, with internal quality management conducting audits[88](index=88&type=chunk) - Maintains long-term contracts with key suppliers and redundant manufacturing capabilities to meet demand[89](index=89&type=chunk) [Intellectual Property](index=22&type=section&id=Intellectual%20Property) The company protects its intellectual property through patents, trade secrets, copyrights, and trademarks, owning 61 issued U.S. patents (expiring 2024-2039), 115 issued foreign patents, and numerous pending applications as of December 31, 2022, along with 31 U.S. trademark registrations and 77 foreign registrations, relying on confidentiality agreements to protect proprietary information - Relies on patents, trade secrets, copyrights, and trademarks for intellectual property protection[90](index=90&type=chunk) Intellectual Property Portfolio (as of Dec 31, 2022) | IP Type | U.S. | Foreign | | :-------------------- | :--- | :------ | | Issued Patents | **61** | **115** | | Pending Patent Applications | **33** | **166** | | Trademark Registrations | **31** | **77** | | Patent Expiration (U.S.) | **2024-2039** | N/A | - Protects proprietary rights through confidentiality agreements with suppliers, employees, and consultants[91](index=91&type=chunk) [Competition](index=23&type=section&id=Competition) The orthopedic industry is highly competitive and rapidly changing, with key factors including improved outcomes, surgeon acceptance, ease of use, product price, and speed to market, and major competitors include DePuy Synthes, Medtronic, Smith & Nephew, and Orthofix, requiring continuous innovation and a dedicated sales organization for effective competition - The orthopedic industry is competitive, with rapid technological change and new product introductions[92](index=92&type=chunk) - Principal competitive factors include improved outcomes, surgeon acceptance, ease of use, product price, and effective marketing/distribution[92](index=92&type=chunk) - Competitors include **DePuy Synthes, Medtronic plc, Smith & Nephew plc, and Orthofix**[92](index=92&type=chunk) - Success depends on developing proprietary, cost-effective, safe, and effective products, supported by a dedicated selling organization[92](index=92&type=chunk) [Human Capital and Community Support](index=23&type=section&id=Human%20Capital%20and%20Community%20Support) As of December 31, 2022, OrthoPediatrics employed 203 full-time staff, with 27 in R&D and 64 in sales/marketing, prioritizing attracting, retaining, and engaging skilled employees through an inclusive, diverse, and safe workplace culture focused on improving children's lives, and supporting local communities and global charitable organizations like the World Pediatric Project Employee Count by Department (as of Dec 31, 2022) | Department | Number of Employees | | :----------- | :------------------ | | Total | **203** | | R&D | **27** | | Sales & Marketing | **64** | - Fosters an inclusive, diverse, and safe workplace culture dedicated to improving children's lives[94](index=94&type=chunk) - Participates in philanthropic causes and partners with organizations like the **World Pediatric Project** to provide pediatric orthopedic care globally[95](index=95&type=chunk)[96](index=96&type=chunk) [Government Regulation](index=24&type=section&id=Government%20Regulation) The company's products and operations are subject to extensive regulation by the FDA in the U.S. and comparable authorities internationally, including premarket clearance (510(k)) or approval (PMA), with most products being Class I/II or approved via Humanitarian Device Exemption (HDE) for the ApiFix Mid-C System, alongside post-market requirements such as QSR compliance, adverse event reporting, and recalls, while European regulations involve CE Mark compliance under the Medical Devices Directive (MDD) and the stricter Medical Devices Regulation (MDR), with specific UKCA Mark requirements for the United Kingdom post-Brexit - Products are regulated as medical devices by the **FDA** in the U.S. and comparable foreign authorities[99](index=99&type=chunk)[100](index=100&type=chunk) - U.S. devices require **510(k) clearance** (Class II) or **PMA** (Class III), or **HDE approval** (ApiFix Mid-C System)[102](index=102&type=chunk) - Post-market regulations include **QSR**, labeling, marketing, adverse event reporting, and recall requirements[108](index=108&type=chunk)[109](index=109&type=chunk) - In the EEA, products must meet **MDD** essential requirements and obtain **CE Mark**; the stricter **MDR** is being phased in with extended application dates for certain device classes[112](index=112&type=chunk)[115](index=115&type=chunk) - Post-Brexit, UK sales require compliance with **UK Medical Device Regulations**, appointment of a **UK Responsible Person**, and **UKCA Mark**[117](index=117&type=chunk)[118](index=118&type=chunk) [Healthcare Regulations](index=30&type=section&id=Healthcare%20Regulations) The company is subject to federal, state, and foreign healthcare fraud and abuse laws, including the Anti-Kickback Statute and False Claims Act, which prohibit improper remuneration and false claims related to federal healthcare programs, while data privacy laws like HIPAA in the U.S. and GDPR in the EU regulate patient health information, and healthcare reform initiatives, such as the Affordable Care Act, and anti-bribery laws like the FCPA, also impact operations, potentially leading to increased costs or reduced demand - Subject to federal **Anti-Kickback Statute** and **False Claims Act**, prohibiting improper payments and fraudulent claims related to federal healthcare programs[123](index=123&type=chunk)[126](index=126&type=chunk) - **HIPAA** and **HITECH** in the U.S., and **GDPR** in the EU, regulate the privacy and security of patient health information[132](index=132&type=chunk)[137](index=137&type=chunk) - The federal **Open Payments ('Sunshine') program** requires reporting of payments to healthcare providers[131](index=131&type=chunk) - U.S. **Foreign Corrupt Practices Act (FCPA)** and similar international laws prohibit bribery[143](index=143&type=chunk) - Healthcare reform measures, like the **Affordable Care Act**, can impact coverage and reimbursement for products[138](index=138&type=chunk)[139](index=139&type=chunk) [Coverage and Reimbursement](index=33&type=section&id=Coverage%20and%20Reimbursement) Commercial success depends on adequate coverage and reimbursement from governmental and private third-party payors for procedures using the company's products, which often require products to be medically necessary, appropriate, cost-effective, and non-experimental, while changes in CPT codes, managed care programs, and international reimbursement systems can significantly impact demand and pricing, with an increasing trend for clinical evidence requirements for reimbursement in some countries - Commercial success relies on adequate coverage and reimbursement from third-party payors (Medicare, Medicaid, private insurers)[144](index=144&type=chunk) - Reimbursement decisions depend on factors like medical necessity, appropriateness, cost-effectiveness, and whether the product is considered experimental[146](index=146&type=chunk) - Changes in **CPT codes** or managed care programs can adversely affect reimbursement[149](index=149&type=chunk)[150](index=150&type=chunk) - International reimbursement systems vary, with some countries instituting price ceilings and increasing clinical evidence requirements for clearance and reimbursement[152](index=152&type=chunk)[153](index=153&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) The company faces a broad range of risks, including financial vulnerabilities such as the impact of health emergencies and economic downturns, historical losses, and the need for additional capital, operational and strategic risks involving challenges in product commercialization, intense competition, managing inventory, and integrating acquisitions, regulatory compliance, particularly with FDA and international medical device regulations, and potential legal liabilities from product claims or intellectual property disputes, and risks related to international operations, IT system disruptions, and stock ownership volatility [Financial Condition and Capital Requirements Risks](index=36&type=section&id=Financial%20Condition%20and%20Capital%20Requirements%20Risks) The company's financial health is vulnerable to widespread health emergencies (COVID-19, RSV) and unfavorable economic conditions (inflation, rising interest rates), with a history of losses and an accumulated deficit of $176.8 million as of December 31, 2022, potentially struggling to achieve sustained profitability and necessitating additional capital, while sales volumes can fluctuate seasonally, loan covenants impose restrictions, the effective tax rate may vary, and the ability to use net operating losses (NOLs) is subject to limitations - Widespread health emergencies (**COVID-19, RSV**) can adversely impact business and financial results by postponing elective procedures and absorbing hospital capacity[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Unfavorable economic conditions, including prolonged inflation and rising interest rates, could increase operating costs and limit access to capital[159](index=159&type=chunk)[160](index=160&type=chunk) Net Income (Loss) and Accumulated Deficit | Metric | 2022 (Millions) | 2021 (Millions) | 2020 (Millions) | | :------------------ | :-------------- | :-------------- | :-------------- | | Net Income (Loss) | **$1.3** | **$(16.3)** | **$(32.9)** | | Accumulated Deficit | **$(176.8)** | N/A | N/A | - The company may need to raise additional capital to fund operations, develop new products, and expand, which could dilute existing stockholders[165](index=165&type=chunk)[166](index=166&type=chunk) - Loan covenants with **Squadron Capital LLC** restrict business and financing activities, including asset disposal, mergers, and dividend payments[168](index=168&type=chunk)[170](index=170&type=chunk) - Ability to use net operating losses (**NOLs**) of **$117.1M** (federal), **$74.8M** (state), and **$24.4M** (foreign) is subject to limitations due to ownership changes[172](index=172&type=chunk) [Business and Strategy Risks](index=41&type=section&id=Business%20and%20Strategy%20Risks) Long-term growth depends on successful commercialization of products in development and new product introductions, which face intense competition and rapid technological change, with product quality issues potentially harming reputation, and overcoming established competitors' practices proving challenging, while maintaining sufficient inventory for consigned sets is resource-intensive and carries obsolescence risk, and acquisitions and strategic alliances involve integration difficulties and financial risks, with gaining support from key opinion leaders and effectively training surgeons being crucial for market acceptance, and the company's limited operating history in evolving markets and seasonal sales fluctuations also posing risks, as does securing hospital approvals and expanding sales infrastructure - Long-term growth depends on successful commercialization of products in development and new product introductions, facing intense competition and rapid technological changes[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) - Product quality issues could harm brand and reputation, and the company operates in a highly competitive environment with larger, more established competitors[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) - Maintaining significant levels of consigned implant and instrument sets consumes resources, reduces cash flows, and risks inventory obsolescence[183](index=183&type=chunk) - Growth through acquisitions or investments carries risks of integration difficulties, unanticipated costs, and diversion of management attention[186](index=186&type=chunk)[187](index=187&type=chunk) - Success depends on demonstrating product merits to orthopedic surgeons, overcoming their hesitancy to adopt new products, and providing adequate training[193](index=193&type=chunk)[194](index=194&type=chunk)[197](index=197&type=chunk) - Lack of published long-term data supporting superior clinical outcomes could limit sales and adoption[206](index=206&type=chunk) - Seasonal fluctuations in sales, particularly higher in summer and holiday periods, impact financial results[200](index=200&type=chunk) - Difficulty in obtaining approval from hospital value analysis committees (**VACs**) can increase operating costs and decrease sales[201](index=201&type=chunk) - If third-party payor coverage and reimbursement decline, orthopedic surgeons and hospitals may be reluctant to use products, leading to reduced sales[208](index=208&type=chunk)[209](index=209&type=chunk) - The proliferation of physician-owned distributorships (**PODs**) could increase pricing pressure and harm sales ability[219](index=219&type=chunk)[220](index=220&type=chunk) [Administrative, Organizational and Commercial Operations and Growth Risks](index=51&type=section&id=Administrative,%20Organizational%20and%20Commercial%20Operations%20and%20Growth%20Risks) Rapid growth can strain organizational infrastructure, including supply chain, quality control, and IT systems, potentially impacting product quality and customer satisfaction, while the loss of senior management or inability to attract skilled personnel could negatively affect operations, and international business exposes the company to diverse regulatory requirements, currency fluctuations, and political instability, with compliance with anti-corruption laws being critical, and violations potentially leading to substantial fines, and disruptions to IT systems, including cyber-security threats and system upgrades, posing risks to business efficiency and data integrity, and the company also being vulnerable to litigation, product liability claims exceeding insurance coverage, and operational interruptions from natural disasters or other events - Inability to effectively manage rapid growth could strain organizational, administrative, and operational infrastructure, impacting product quality and customer demand[221](index=221&type=chunk) - Loss of senior management or inability to attract and retain highly skilled salespeople and engineers could negatively impact business operations[223](index=223&type=chunk)[225](index=225&type=chunk) - International business operations (**24% of 2022 revenue**) are subject to risks including compliance with foreign laws, currency fluctuations, and economic/political instability[226](index=226&type=chunk)[232](index=232&type=chunk) - Violations of anti-corruption laws (e.g., **FCPA**) or internal ethics policies could result in substantial fines, sanctions, and reputational harm[229](index=229&type=chunk)[231](index=231&type=chunk) - Significant disruptions in information technology systems, including cyber-security threats and **ERP system upgrades**, could adversely affect business operations and data integrity[239](index=239&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) - Exposure to product liability claims, inherent in medical device manufacturing, could result in significant damages exceeding insurance coverage and harm business[245](index=245&type=chunk)[247](index=247&type=chunk) - Operations are vulnerable to interruption or loss due to natural disasters, power loss, strikes, and other events beyond control[248](index=248&type=chunk) [Regulatory Risks](index=56&type=section&id=Regulatory%20Risks) The company's products and operations are subject to extensive and increasingly stringent government regulation in the U.S. (FDA) and abroad (EEA, UK), with failure to comply with requirements for design, manufacturing, testing, labeling, and post-market surveillance, including HDE and MDD/MDR regulations, potentially leading to enforcement actions, product recalls, or inability to market products, and modifications to products possibly requiring new clearances, causing delays, while misuse or off-label promotion could result in investigations and penalties, and healthcare policy changes, fraud and abuse laws, and data privacy regulations (HIPAA, GDPR) imposing significant compliance burdens and potential liabilities - Extensive government regulation by **FDA** and foreign counterparts covers all aspects of medical device lifecycle, from design to post-market surveillance[249](index=249&type=chunk)[250](index=250&type=chunk) - Failure to comply with regulations (e.g., **HDE, MDD/MDR**) can lead to severe enforcement actions, including fines, injunctions, product recalls, or suspension of production[251](index=251&type=chunk)[252](index=252&type=chunk) - Obtaining necessary clearances or approvals for future products or modifications can be delayed or denied, impacting business growth[253](index=253&type=chunk)[255](index=255&type=chunk) - Manufacturing must comply with **FDA's QSR** and **ISO 13485**; non-compliance could lead to recalls or production termination[265](index=265&type=chunk)[266](index=266&type=chunk) - Misuse or off-label promotion of products can harm reputation, lead to product liability suits, or result in costly investigations and sanctions[268](index=268&type=chunk)[269](index=269&type=chunk) - Adverse medical events require reporting to regulatory authorities; failure to do so can lead to sanctions and product recalls[270](index=270&type=chunk)[271](index=271&type=chunk) - Legislative or regulatory reforms (e.g., **MDR, UK Medical Device Regulations**) can increase costs and complexity for obtaining approvals and marketing products[276](index=276&type=chunk)[278](index=278&type=chunk)[280](index=280&type=chunk) - Subject to federal, state, and foreign fraud and abuse laws (**Anti-Kickback, False Claims, Sunshine Act**) and health information privacy laws (**HIPAA, HITECH**), with potential for substantial penalties for violations[282](index=282&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk) - Healthcare policy changes, such as the **Affordable Care Act**, could limit reimbursement and reduce demand for products[288](index=288&type=chunk)[289](index=289&type=chunk) - Business involves hazardous materials, requiring compliance with environmental laws, which may be expensive and restrict operations[291](index=291&type=chunk) [Reliance on Third Parties Risks](index=65&type=section&id=Reliance%20on%20Third%20Parties%20Risks) The company heavily relies on a network of third-party independent sales agencies and distributors for marketing and distribution, both domestically and internationally, where the loss or underperformance of these partners, or difficulties in collecting payments, could significantly impact sales, and dependence on a small number of third-party contract manufacturers for product assembly and limited suppliers for components creates risks of supply chain disruptions, quality issues, increased costs, and delays if replacements are needed, while performance issues or price increases by shipping carriers could also adversely affect operations - Relies on **41 independent sales agencies** in the U.S. and **70 independent stocking distributors/14 sales agencies internationally**; loss or underperformance could impair business[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) - Sales through two U.S. independent sales agencies accounted for **11.4% and 10.7% of global revenue in 2022**[296](index=296&type=chunk) - Relies on a small number of third-party contract manufacturers for product assembly, posing risks if they fail to perform or discontinue business[300](index=300&type=chunk) - Reliance on a limited number of third-party suppliers for the majority of products creates vulnerability to supply disruptions, price increases, and difficulties in finding replacements[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) - Performance issues or price increases by shipping carriers could adversely affect operations and reputation[301](index=301&type=chunk) [Intellectual Property Risks](index=67&type=section&id=Intellectual%20Property%20Risks) The company's competitive position depends on adequately protecting its intellectual property (patents, trade secrets) and avoiding infringement of others' rights, as patents may be challenged, invalidated, or circumvented, and enforcing rights can be difficult and costly, especially in foreign countries with weaker protections, while litigation or claims of infringement could divert resources, lead to substantial damages or royalties, and prevent product sales, and the confidentiality of trade secrets is also vulnerable to unauthorized disclosure or independent discovery - Inability to adequately protect intellectual property rights (patents, trade secrets) could harm competitive position[305](index=305&type=chunk) - Issued patents may be challenged, deemed unenforceable, invalidated, or circumvented, and pending applications may not issue[307](index=307&type=chunk) - Litigation or third-party claims of intellectual property infringement could be costly, divert management attention, and potentially prevent product sales or require substantial damages/royalties[313](index=313&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) - Failure to protect trade secrets through confidentiality agreements or independent discovery by competitors could harm business[318](index=318&type=chunk) - Enforcing intellectual property rights globally is challenging due to varying laws and potential for compulsory licensing[309](index=309&type=chunk)[319](index=319&type=chunk) [Common Stock Ownership Risks](index=71&type=section&id=Common%20Stock%20Ownership%20Risks) The price of the company's common stock is subject to volatility due to various factors, including financial performance, competitive developments, and market sentiment, and may be vulnerable to manipulation through short selling, with securities litigation being a potential risk, and as a 'smaller reporting company,' reduced disclosure requirements might make the stock less attractive, while increased focus on ESG responsibilities could lead to additional costs or reputational harm, and future sales of common stock could cause price declines, and the absence of an active trading market could impair liquidity, with principal stockholders and management exerting significant control, and charter provisions potentially delaying or preventing acquisitions, limiting stockholder influence - Stock price is volatile due to financial fluctuations, competitive success, regulatory actions, and sales by officers/directors[324](index=324&type=chunk)[325](index=325&type=chunk) - The common stock may be vulnerable to manipulation, including short selling efforts and publication of negative information[327](index=327&type=chunk)[328](index=328&type=chunk) - As a '**smaller reporting company**,' reduced disclosure requirements might make common stock less attractive to investors[330](index=330&type=chunk) - Increased investor focus on **ESG responsibilities** could result in additional costs, reputational harm, and impact employee/customer relations[331](index=331&type=chunk)[332](index=332&type=chunk) - Future sales of common stock could cause price declines, and an inactive trading market could impair liquidity[333](index=333&type=chunk)[334](index=334&type=chunk) - Principal stockholders and management (beneficially owning **~32.7%**) can exert significant control over corporate actions[337](index=337&type=chunk)[338](index=338&type=chunk) - Charter documents and Delaware law provisions could delay or prevent acquisitions, even if beneficial to stockholders[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) - No cash dividends are anticipated in the foreseeable future; capital appreciation is the sole source of gain[344](index=344&type=chunk) [Item 1B. Unresolved Staff Comments](index=76&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - No unresolved staff comments[346](index=346&type=chunk) [Item 2. Properties](index=76&type=section&id=Item%202.%20Properties) The company owns and occupies approximately 42,000 square feet of office space in Warsaw, Indiana, expanded in 2018 and 2021, and following acquisitions, also operates over 20,000 square feet of manufacturing and office space in Iowa (MD Ortho) and approximately 9,000 square feet of warehouse and office space in Canada (Pega), additionally maintaining an office in Israel and flex office spaces in Europe, deeming current facilities adequate for present needs - Owns and occupies **42,000 sq ft** of office space in Warsaw, Indiana[347](index=347&type=chunk) - Acquired over **20,000 sq ft** of manufacturing and office space in Iowa (**MD Ortho** acquisition)[347](index=347&type=chunk) - Maintains **9,000 sq ft** of warehouse and office space in Canada (**Pega** acquisition)[347](index=347&type=chunk) - Also has an office in Israel and flex office spaces in Europe[347](index=347&type=chunk) [Item 3. Legal Proceedings](index=76&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, with specific ongoing litigation including a software ownership dispute with IMED Surgical, LLC, and a patent infringement lawsuit against Wishbone Medical, Inc. and Nick A. Deeter, where the IMED lawsuit is stayed pending arbitration (which was terminated due to non-payment by Plaintiff), and the Wishbone litigation involves claims of infringement and counterclaims of non-infringement and invalidity, with the outcomes of these proceedings potentially materially affecting the company's business - Involved in a software ownership dispute with **IMED Surgical, LLC**, regarding the '**377 Patent**, currently stayed pending arbitration[586](index=586&type=chunk)[587](index=587&type=chunk)[589](index=589&type=chunk) - Filed a patent infringement lawsuit against **Wishbone Medical, Inc.** and **Nick A. Deeter**, with Wishbone filing counterclaims of non-infringement and invalidity[591](index=591&type=chunk)[592](index=592&type=chunk) - The company believes these lawsuits are without merit but acknowledges that adverse resolutions could materially affect its business[590](index=590&type=chunk)[592](index=592&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[350](index=350&type=chunk) [PART II](index=78&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=78&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock has been listed on the Nasdaq Global Market under 'KIDS' since October 12, 2017, with no cash dividends declared or paid, and an intention to retain earnings for future growth, while as of February 27, 2023, there were 22,993,446 outstanding shares held by 211 stockholders of record, and no equity securities were purchased by the issuer or affiliated purchasers in Q4 2022 - Common stock listed on **Nasdaq Global Market** under '**KIDS**' since **October 12, 2017**[353](index=353&type=chunk) - No cash dividends declared or paid; intent to retain earnings for future growth[354](index=354&type=chunk) Common Stock Holders and Purchases | Metric | Value | | :-------------------------- | :---- | | Outstanding Shares (Feb 27, 2023) | **22,993,446** | | Stockholders of Record (Feb 27, 2023) | **211** | | Equity Purchases by Issuer (Q4 2022) | **None** | [Item 6. [Reserved]](index=78&type=section&id=Item%206.%20%5BReserved%5D) This item is intentionally omitted - Item 6 is intentionally omitted[359](index=359&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=80&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of OrthoPediatrics' financial condition and operational results, highlighting its exclusive focus on pediatric orthopedic medical devices and its market opportunity, discussing the impact of acquisitions, health emergencies, and economic conditions on its performance, and detailing revenue growth, cost of revenue, operating expenses, and liquidity, emphasizing the company's strategy for continued expansion and the critical accounting policies underlying its financial reporting [Company Overview](index=80&type=section&id=Company%20Overview) OrthoPediatrics is the sole global medical device company dedicated to pediatric orthopedics, offering implants, instruments, and braces across trauma, scoliosis, and sports medicine, operating with a consignment model in the U.S. and direct sales/stocking distributors internationally, with international sales growing to 24% of revenue in 2022, and a strategy to strengthen its market position through investment in inventory, sales infrastructure, and product expansion - OrthoPediatrics is the only global medical device company exclusively focused on pediatric orthopedics, serving a **$3.9 billion global market opportunity**[362](index=362&type=chunk) - Operates a consignment model in the U.S. for implants and instruments, requiring upfront inventory investment[363](index=363&type=chunk) - International sales accounted for **24% of revenue in 2022**, up from 21% in 2021 and 11% in 2020[367](index=367&type=chunk) - Strategy includes increasing investment in consigned sets, strengthening global sales infrastructure, and expanding product offerings[367](index=367&type=chunk) [ESG Activities](index=81&type=section&id=ESG%20Activities) OrthoPediatrics is committed to ESG, having impacted over 630,000 children since inception, with an internal ESG team reporting to the Board's Governance Committee to identify disclosure topics, and key highlights including ISO 13485 certification, enhanced recycling, philanthropic community involvement (e.g., World Pediatric Project), fostering an inclusive environment, and increasing Board diversity - Impacted over **630,000 children** since inception, including those served by acquired companies[368](index=368&type=chunk) - Established an internal **ESG team** in 2021, reporting to the Board's Governance Committee[368](index=368&type=chunk) - Highlights include **ISO 13485 certification**, enhanced recycling, philanthropic partnerships (e.g., **World Pediatric Project**), and commitment to diversity on the Board[369](index=369&type=chunk) [Trends and Uncertainties](index=81&type=section&id=Trends%20and%20Uncertainties) The company's financial results are influenced by strategic acquisitions, which may lead to intangible asset impairment (e.g., $3.6 million impairment for ApiFix trademark in 2022), and widespread health emergencies, such as the unprecedented increase in RSV cases in 2022 and ongoing COVID-19 impacts, have negatively affected sales volume by absorbing hospital capacity and delaying elective procedures, creating uncertainty for future demand and financial performance - Acquisitions may result in intangible asset impairment; a **$3.6 million impairment loss** was recorded for the **ApiFix trademark in 2022** due to lower forecasted revenue[371](index=371&type=chunk) - Unprecedented increase in **RSV cases in 2022** negatively impacted sales volume by absorbing hospital capacity for elective procedures[372](index=372&type=chunk)[373](index=373&type=chunk) - Ongoing **COVID-19 pandemic** continues to cause business disruption, delaying elective procedures due to staffing shortages[374](index=374&type=chunk) [Components of Results of Operations](index=82&type=section&id=Components%20of%20Results%20of%20Operations) Revenue is recognized when control of products transfers to customers, typically upon implantation for consigned U.S. products or shipment for international sales and braces, with cost of revenue including product purchases, freight, and inventory adjustments, expected to increase with sales volume, and gross profit influenced by sales mix between higher-margin U.S. sales and lower-margin international distributor sales, while operating expenses comprise sales and marketing (commissions, personnel), general and administrative (personnel, facility, depreciation of instrument sets), legal settlement expenses, and research and development (engineering, product development), and other expenses include fair value adjustments of contingent consideration and interest expense - Revenue recognition: U.S. implants/instruments upon implantation; international sales and braces upon shipment[376](index=376&type=chunk)[377](index=377&type=chunk) - Cost of revenue includes third-party product purchases, inbound freight, excess/obsolete inventory adjustments, and royalties[378](index=378&type=chunk) - Gross profit is impacted by the mix of U.S. (higher margin) vs. international stocking distributor sales (lower margin)[379](index=379&type=chunk)[380](index=380&type=chunk) - Sales and marketing expenses primarily consist of commissions and personnel costs, expected to increase with commercialization and global expansion[381](index=381&type=chunk) - General and administrative expenses include personnel, facility costs, and depreciation of capitalized instrument sets (**$6.2M in 2022**)[382](index=382&type=chunk) - Research and development expenses (engineering, product development, IP) are expected to increase with new product development[384](index=384&type=chunk) - Other expenses include fair value adjustments of contingent consideration and interest expense[385](index=385&type=chunk) [Results of Operations Comparison (2022 vs 2021)](index=84&type=section&id=Results%20of%20Operations%20Comparison%20(2022%20vs%202021)) Net revenue increased by 25% to $122.3 million in 2022, driven by COVID-19 recovery and $11.2 million from MD Ortho and Pega acquisitions, partially offset by respiratory illnesses and foreign currency impact, with trauma and deformity revenue growing 29% to $85.1 million, and scoliosis revenue increasing 19% to $33.4 million, while gross margin slightly decreased to 74%, and operating expenses rose across sales and marketing (13.6%), general and administrative (29%), and R&D (45%), and total other income significantly increased due to a $25.9 million fair value adjustment of contingent consideration, leading to a net income of $1.3 million in 2022 compared to a net loss of $16.3 million in 2021 Consolidated Results of Operations (2022 vs 2021) | Metric (in thousands) | 2022 | 2021 | Increase (Decrease) | % Change | | :---------------------- | :--- | :--- | :------------------ | :------- | | Net revenue | **$122,289** | **$98,049** | **$24,240** | **25%** | | Cost of revenue | **$31,629** | **$24,646** | **$6,983** | **28%** | | Sales and marketing expenses | **$45,053** | **$39,673** | **$5,380** | **14%** | | General and administrative expenses | **$59,383** | **$46,061** | **$13,322** | **29%** | | Trademark impairment | **$3,609** | **$0** | **$3,609** | **100%** | | Legal settlement expenses | **$0** | **$150** | **$(150)** | **-100%** | | Research and development expenses | **$8,014** | **$5,543** | **$2,471** | **45%** | | Other expenses (income) | **$(21,710)** | **$(636)** | **$(21,074)** | **3314%** | | Provision for income taxes (benefit) | **$(4,947)** | **$(1,128)** | **$(3,819)** | **339%** | | Net income (loss) | **$1,258** | **$(16,260)** | **$17,518** | **-108%** | - Net revenue increased **25% to $122.3 million**, driven by COVID-19 recovery and **$11.2 million** from acquisitions, offset by respiratory illnesses and foreign currency impact[388](index=388&type=chunk) Revenue by Product Category (2022 vs 2021) | Product Category | 2022 Revenue (Thousands) | % of Revenue | 2021 Revenue (Thousands) | % of Revenue | | :----------------- | :----------------------- | :----------- | :----------------------- | :----------- | | Trauma and deformity | **$85,055** | **70%** | **$65,829** | **67%** | | Scoliosis | **$33,428** | **27%** | **$28,046** | **29%** | | Sports medicine/other | **$3,806** | **3%** | **$4,174** | **4%** | - Gross margin slightly decreased from **75% in 2021 to 74% in 2022**, due to higher set sales to international distributors and minimum performance obligation fees[390](index=390&type=chunk) - Total other income increased significantly by **$21.1 million**, primarily due to a **$25.9 million decrease** in the fair value of contingent consideration related to the ApiFix acquisition[394](index=394&type=chunk) [Liquidity and Capital Resources](index=85&type=section&id=Liquidity%20and%20Capital%20Resources) The company has historically incurred operating losses, with an accumulated deficit of $176.8 million as of December 31, 2022, but achieved net income in 2022, ending the year with $10.5 million in cash and $109.3 million in short-term investments, and existing cash, borrowing capacity, and proceeds from a public offering are expected to cover anticipated cash requirements for at least the next 12 months, though the company may seek additional financing, which could lead to dilution or restrictive covenants - Incurred operating losses since inception, with an accumulated deficit of **$176.8 million** as of December 31, 2022[395](index=395&type=chunk) Cash and Investments (as of Dec 31, 2022) | Metric | Amount (Millions) | | :-------------------- | :---------------- | | Cash, Cash Equivalents, Restricted Cash | **$10.5** | | Short-Term Investments | **$109.3** | - Believes existing cash, borrowing capacity, and public offering proceeds will meet cash requirements for at least the next **12 months**[397](index=397&type=chunk) - May seek additional financing, which could result in stockholder dilution or unfavorable terms[397](index=397&type=chunk) [Cash Flows Analysis](index=86&type=section&id=Cash%20Flows%20Analysis) Net cash used in operating activities was $21.8 million in 2022, primarily due to increases in inventory ($16.9 million) and accounts receivable ($3.9 million), while net cash used in investing activities was $113.4 million, driven by $40.1 million for MD Ortho and Pega acquisitions and $110.1 million in short-term investments, partially offset by $46.9 million from sales of short-term securities, and net cash provided by financing activities was $136.0 million, mainly from $139.3 million in proceeds from common stock and pre-funded warrant issuance, offset by debt payments Cash Flows Summary (in thousands) | Activity | 2022 | 2021 | 2020 | | :-------------------------- | :----- | :----- | :----- | | Net cash used in operating activities | **$(21,766)** | **$(13,063)** | **$(18,530)** | | Net cash used in investing activities | **$(113,371)** | **$(7,411)** | **$(69,693)** | | Net cash provided by financing activities | **$135,974** | **$6** | **$46,732** | | Net increase (decrease) in cash and restricted cash | **$1,456** | **$(21,126)** | **$(41,895)** | - Operating cash outflow in 2022 was primarily due to increases in inventory (**$16.9M**) and accounts receivable (**$3.9M**)[399](index=399&type=chunk) - Investing cash outflow in 2022 was driven by **$40.1M** for acquisitions (MDO, Pega) and **$110.1M** in short-term investments, partially offset by **$46.9M** from sales of short-term securities[400](index=400&type=chunk) - Financing cash inflow in 2022 was mainly from **$139.3M** in proceeds from common stock and pre-funded warrants, offset by **$31.0M** debt repayment[402](index=402&type=chunk) [Indebtedness](index=87&type=section&id=Indebtedness) The company has a $50.0 million revolving credit facility with Squadron Capital LLC, with no outstanding indebtedness as of December 31, 2022, which accrues interest at SOFR plus 8.69% (or 10.0%) and matures by January 1, 2024, secured by company assets and including negative covenants restricting various corporate actions, and additionally, a mortgage note payable to an affiliate, Tawani Enterprises Inc., had a balance of $0.9 million as of December 31, 2022, with monthly principal and interest payments at 5% until maturity in August 2028 - Has a **$50.0 million revolving credit facility** with **Squadron Capital LLC**; no outstanding indebtedness as of Dec 31, 2022[403](index=403&type=chunk) - Revolving facility interest rate: greater of six-month **SOFR + 8.69% or 10.0%**; matures by **January 1, 2024**[404](index=404&type=chunk)[405](index=405&type=chunk) - Loan Agreement is secured by company assets and includes negative covenants restricting asset transfers, mergers, and dividends[406](index=406&type=chunk) Mortgage Note Payable (as of Dec 31, 2022) | Metric | Amount (Millions) | | :---------------- | :---------------- | | Mortgage Balance | **$0.9** | | Interest Rate | **5%** | | Maturity | **August 2028** | [Contractual Obligations and Commitments](index=88&type=section&id=Contractual%20Obligations%20and%20Commitments) The company's short-term cash requirements include accounts payable, accrued compensation, and current debt maturities, while long-term obligations encompass debt, acquisition installment payables (e.g., ApiFix), minimum purchase commitments (e.g., 7D Surgical FLASH Navigation platform, FIREFLY Technology), lease obligations, and royalty commitments, with minimum purchase commitments for the 7D Surgical FLASH Navigation platform being $3.12 million for 2023 and $2.34 million for 2024, and the company incurred $1.104 million in 2022 for not meeting FIREFLY minimum performance metrics - Short-term cash requirements include accounts payable, accrued compensation, and current debt maturities[410](index=410&type=chunk) - Long-term obligations include debt, acquisition installment payables, minimum purchase obligations, lease obligations, and royalties[412](index=412&type=chunk) Minimum Purchase Commitments (7D Surgical FLASH Navigation platform) | Year Ending December 31 | Amount (Millions) | | :------------------------ | :---------------- | | 2023 | **$3.12** | | 2024 | **$2.34** | - Incurred **$1.104 million in 2022** for not meeting minimum performance metrics for the **FIREFLY Technology** license agreement[594](index=594&type=chunk) - Has minimum royalty commitments of **$10,000 annually through 2026**[595](index=595&type=chunk) [Pediatric Orthopedic Business Seasonality](index=88&type=section&id=Pediatric%20Orthopedic%20Business%20Seasonality) The company's revenue experiences seasonal fluctuations, typically being higher during summer months and holiday periods, driven by increased pediatric surgeries for trauma and deformity and scoliosis products, influenced by recovery time available during school breaks - Revenue is typically higher in summer months and holiday periods[411](index=411&type=chunk) - Higher sales are driven by increased pediatric surgeries for trauma and deformity and scoliosis products, influenced by school breaks[411](index=411&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=88&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) The preparation of financial statements requires significant estimates and judgments, particularly in revenue recognition (timing of control transfer), inventory valuation (lower of cost or net realizable value, excess/obsolete adjustments), goodwill and other intangible assets impairment testing (fair value measurements, forecasted revenue, discount rates), and net operating losses (NOLs) valuation allowance, with changes in these estimates potentially materially affecting reported financial results - Revenue recognition involves estimates for control transfer, typically upon implantation for U.S. consigned products or shipment for international sales/braces[414](index=414&type=chunk)[415](index=415&type=chunk) - Inventory valuation requires estimates for product demand and life cycle, impacting excess and obsolete inventory charges (**$1.011M in 2022**)[417](index=417&type=chunk)[418](index=418&type=chunk)[482](index=482&type=chunk) - Goodwill and indefinite-lived trademark assets are assessed for impairment annually or upon triggering events, using fair value measurements (discounted cash flow models) that rely on significant estimates like forecasted revenue and discount rates[420](index=420&type=chunk)[421](index=421&type=chunk)[492](index=492&type=chunk) - A **$3.609 million impairment charge** was recorded for the **ApiFix trademark in 2022** due to lower forecasted revenue[422](index=422&type=chunk)[493](index=493&type=chunk) - Net operating losses (**NOLs**) of **$117.1M** (federal), **$74.8M** (state), and **$24.4M** (foreign) are subject to valuation allowances and **Section 382** limitations[424](index=424&type=chunk)[425](index=425&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=90&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's market risk exposure is primarily related to interest rates and foreign currency fluctuations, with interest rate risk assessed as immaterial due to the short-term nature of its investment portfolio, while increasing international operations expose the company to foreign currency exchange risk, particularly with the Pound Sterling, Euro, Australian Dollar, Canadian Dollar, and Israeli Shekel, and the company does not currently hedge foreign currency exposure, but an immediate 10% adverse change in exchange rates would have an immaterial impact on net loss - Investment portfolio consists of short-term debt instruments of high-quality corporate issuers, resulting in immaterial exposure to interest rate risk[426](index=426&type=chunk) - Increasing international operations expose the company to foreign currency exchange risk, primarily with **Pound Sterling, Euro, Australian Dollar, Canadian Dollar, and Israeli Shekel**[427](index=427&type=chunk) - The company does not currently hedge foreign currency exposure[427](index=427&type=chunk) - An immediate **10% adverse change** in foreign exchange rates would have an immaterial impact on reported net loss[428](index=428&type=chunk) [Item 7A. Quantitative and Qualitative Disclosure about Market Risk](index=82&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) This section is covered within Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operations,' under the sub-section 'Quantitative and Qualitative Disclosures about Market Risk' [Item 8. Financial Statements and Supplementary Data](index=84&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for OrthoPediatrics Corp., including the balance sheets as of December 31, 2022 and 2021, and the statements of operations, comprehensive loss, stockholders' equity, and cash flows for the three years ended December 31, 2022, along with the Independent Registered Public Accounting Firm's opinion and detailed notes to the financial statements, covering significant accounting policies, business combinations, goodwill, intangible assets, fair value measurements, debt, income taxes, and commitments [Report of Independent Registered Public Accounting Firm](index=92&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP provided an unqualified opinion on the consolidated financial statements for the periods ended December 31, 2022, 2021, and 2020, stating they present fairly the financial position and results of operations in conformity with GAAP, and highlighting the ApiFix trademark impairment as a critical audit matter due to the significant estimates and assumptions involved in its fair value determination - **Deloitte & Touche LLP** issued an unqualified opinion on the consolidated financial statements[430](index=430&type=chunk) - The impairment of the **ApiFix trademark asset** was identified as a critical audit matter due to significant estimates in its fair value determination (forecasted revenue, royalty rate, d

Financial Data and Key Metrics Changes - In Q4 2022, worldwide revenue was $31 million, a 25% increase compared to Q4 2021. For the full year 2022, revenue reached $122.3 million, also a 25% increase from 2021 [51][52] - Gross profit margin for Q4 2022 was 68.5%, down from 72.9% in Q4 2021. For the full year, gross profit margin was 74.1%, slightly down from 74.9% in 2021 [31][32] - Adjusted EBITDA for Q4 2022 was a loss of $2.2 million, compared to a loss of $0.6 million in Q4 2021. For the full year, adjusted EBITDA was positive at $0.2 million, compared to a negative $0.2 million in 2021 [76] Business Line Data and Key Metrics Changes - Trauma & Deformity revenue in Q4 2022 was $22.1 million, a 34% increase year-over-year. For the full year, revenue was $85.1 million, a 29% increase [30] - Scoliosis revenue in Q4 2022 was $8 million, representing organic growth of 12% compared to the prior year. For the full year, Scoliosis revenue was $33.4 million, a 19% increase [43][72] - Sports Medicine/Other revenue in Q4 2022 was $0.9 million, a decrease of 22% compared to the prior year. For the full year, revenue was $3.8 million, down 9% [73] Market Data and Key Metrics Changes - US revenue for Q4 2022 was $22.7 million, a 15% increase from Q4 2021. For the full year, US revenue was $92.4 million, a 19% increase [29] - International revenue in Q4 2022 was $8.3 million, a 67% increase compared to the prior year. For the full year, international revenue was $29.9 million, a 47% increase [45][71] Company Strategy and Development Direction - The company aims to deliver total revenue between $146 million to $149 million for 2023, representing year-over-year growth of 20% to 22% [9][57] - The acquisitions of MD Orthopaedics and Pega Medical are expected to contribute significantly to growth, with both businesses anticipated to outpace organic growth rates in 2023 [10][18] - The company is focusing on expanding its product offerings and enhancing surgeon training and education to drive growth [25][50] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from COVID-19, RSV, and hospital staffing shortages but expressed confidence in the company's strategic position and growth potential [8][9] - The company expects to achieve cash flow breakeven within the next five years, supported by a strengthened balance sheet [15][35] - Management remains optimistic about growth opportunities, particularly in the Trauma & Deformity and Scoliosis segments, as well as international markets [80] Other Important Information - The company has launched several new products in 2022, bringing the total product offering to 46 systems, which are expected to contribute to growth in 2023 [21][24] - The company is committed to ESG initiatives, highlighting diverse employee representation and strong business ethics [27] Q&A Session Summary Question: Guidance for 2023 revenue - Management reiterated the revenue guidance of $146 million to $149 million, with organic growth expected to be between 15% to 18% [62][77] Question: Impact of RSV and gross margin fluctuations - Management explained that RSV impacted volume and margins in Q4 2022, with expectations for margins to stabilize in 2023 [66][130] Question: Growth expectations for MD Orthopaedics and Pega Medical - Management indicated that both businesses are expected to grow above the corporate average, with significant growth anticipated as inventory is deployed [90][122] Question: Market opportunities and surgeon adoption - Management noted that there is still a significant opportunity to deepen penetration with existing customers and attract new surgeons to their products [110][128] Question: International market expansion - Management acknowledged potential growth in emerging markets like Brazil, India, and China, but emphasized focusing on current opportunities [129]