OrthoPediatrics(KIDS) - 2025 Q2 - Quarterly Report

Note Regarding Forward-Looking Statements This section outlines that forward-looking statements are subject to various known and unknown risks and uncertainties, which may cause actual results to differ materially - Forward-looking statements are subject to known and unknown risks, including widespread health emergencies, and may not be accurate[8][9] - Key areas of uncertainty include achieving/sustaining profitability, raising capital, commercializing products, complying with regulations, expanding sales networks, and protecting intellectual property[10] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for OrthoPediatrics Corp., including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, business combinations, debt arrangements, and other financial disclosures for the periods ended June 30, 2025 and 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2025 (in Thousands) | December 31, 2024 (in Thousands) | Change (in Thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | ASSETS | | | | | | Total current assets | $257,702 | $237,173 | $20,529 | 8.66% | | Total assets | $503,606 | $473,209 | $30,397 | 6.42% | | LIABILITIES | | | | | | Total current liabilities | $38,666 | $33,962 | $4,704 | 13.85% | | Total long-term liabilities | $109,426 | $84,681 | $24,745 | 29.22% | | Total liabilities | $148,092 | $118,643 | $29,449 | 24.82% | | STOCKHOLDERS' EQUITY | | | | | | Total stockholders' equity | $355,514 | $354,566 | $948 | 0.27% | - Significant increases in Accounts Receivable (from $42,357k to $53,797k) and Inventories (from $117,005k to $125,265k) contributed to current asset growth[13] - Long-term debt saw a substantial increase, with the long-term term loan rising from $23,957k to $47,942k[13] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Net revenue | $61,082 | $52,802 | $8,280 | 15.68% | | Cost of revenue | $17,063 | $12,003 | $5,060 | 42.16% | | Gross profit | $44,019 | $40,799 | $3,220 | 7.89% | | Operating loss | $(10,657) | $(5,666) | $(4,991) | 88.09% | | Net loss | $(7,113) | $(6,029) | $(1,084) | 17.98% | | Basic and diluted EPS | $(0.30) | $(0.26) | $(0.04) | 15.38% | - Restructuring expenses of $2,971k (3 months) and $3,011k (6 months) were recorded in 2025, compared to none in 2024, contributing to the increased operating loss[15][31] - Other (income) expense shifted significantly from an expense of $381k (3 months) and $994k (6 months) in 2024 to an income of $3,593k (3 months) and $4,111k (6 months) in 2025, primarily due to foreign exchange gains[15][31][148] Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Net loss | $(7,113) | $(6,029) | $(1,084) | 17.98% | | Foreign currency translation adjustment | $6,635 | $(3,263) | $9,898 | -303.29% | | Other comprehensive gain (loss), net of tax | $6,680 | $(3,263) | $9,943 | -304.70% | | Comprehensive loss | $(433) | $(9,292) | $8,859 | -95.34% | - A significant foreign currency translation adjustment of $6,635k (3 months) and $5,706k (6 months) positively impacted comprehensive loss in 2025, contrasting with negative adjustments in 2024[17] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity Highlights | Metric (in Thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Common Stock Value | $6 | $6 | $0 | 0.00% | | Additional Paid-in Capital | $613,790 | $600,897 | $12,893 | 2.15% | | Accumulated Deficit | $(253,336) | $(235,564) | $(17,772) | 7.54% | | Accumulated Other Comprehensive Loss | $(4,946) | $(10,773) | $5,827 | -54.09% | | Total Stockholders' Equity | $355,514 | $354,566 | $948 | 0.27% | - Additional paid-in capital increased by $12,893k, driven by restricted stock issuances ($3,859k + $5,252k), common stock issuances ($233k + $1,261k), and a capital contribution related to MedTech liability reclassification ($2,062k)[19] - The accumulated deficit increased by $17,772k, reflecting the net loss for the six months ended June 30, 2025[19] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights | Metric (in Thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------- | :----------- | | Net cash used in operating activities | $(14,618) | $(12,782) | $(1,836) | 14.36% | | Net cash (used in) provided by investing activities | $(9,532) | $16,018 | $(25,550) | -159.51% | | Net cash provided by (used in) financing activities | $24,674 | $(4,842) | $29,516 | -609.59% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $828 | $(2,137) | $2,965 | -138.75% | | Cash, cash equivalents and restricted cash, end of period | $46,605 | $30,890 | $15,715 | 50.87% | - Cash used in operating activities increased by $1.8 million, primarily due to inventory purchases to support sales growth and changes in accounts receivable and accounts payable[152][153] - Investing activities shifted from providing $16.0 million in cash in 2024 (due to sale of marketable securities) to using $9.5 million in 2025, mainly for property and equipment purchases ($7.7 million) and investments in private companies[154] - Financing activities provided $24.7 million in cash in 2025, driven by $25.0 million in proceeds from debt issuance, a significant change from $4.8 million cash used in 2024[155] Notes to Condensed Consolidated Financial Statements NOTE 1 – BUSINESS - OrthoPediatrics Corp. designs, develops, and markets medical devices and specialized braces for pediatric orthopedic conditions, including PediLoc, PediPlates, Cannulated Screws, RESPONSE Spine, and Boston Brace 3D[28] - The company is the only global medical device company exclusively focused on the pediatric orthopedic market, addressing trauma and deformity correction, scoliosis, and sports medicine[28] - The company utilizes a contract manufacturing model for implants and instruments, manufactures orthopedic bracing products in-house, and operates multiple O&P clinics[28] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are unaudited, prepared in conformity with GAAP, and should be read in conjunction with the 2024 Annual Report on Form 10-K[30] - Despite recurring losses and an accumulated deficit of $253.3 million as of June 30, 2025, management believes current cash and expected cash flows are sufficient for operations for more than the next twelve months, supporting a going concern assumption[33] - Recent ASUs (2023-06, 2023-09, 2024-03) related to disclosure improvements and income tax disclosures are being evaluated but are not expected to have a material impact on the condensed consolidated financial statements, with the exception of ASU 2024-03 which is still being evaluated[37][38][39][40] NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS - The MedTech Concepts, LLC acquisition involved a purchase price of approximately $15,274k, settled with cash, common stock, and future anniversary payments[41] - On May 9, 2025, the MedTech Purchase Agreement was amended to settle fixed cash portions of the three remaining anniversary payments ($3,750k aggregate gross value) with unregistered shares of common stock to preserve cash[43][150] - The acquisition of Boston O&P on January 5, 2024, for $21,767k (cash and stock) expanded the company's pediatric orthotic and prosthetic devices and clinical services, resulting in $8,589k in goodwill and $6,573k in identifiable intangible assets[46][48] - Boston O&P continued to acquire multiple O&P clinics in 2024 and 2025, with total consideration of approximately $4,818k in 2024 and $475k through June 30, 2025[48][49] NOTE 4 - GOODWILL AND INTANGIBLE ASSETS Goodwill and Intangible Assets Highlights | Metric (in Thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Goodwill | $99,019 | $93,844 | $5,175 | 5.51% | | Net Amortizable Intangible Assets | $62,950 | $64,427 | $(1,477) | -2.29% | | Other Intangible Assets (Trademarks) | $17,082 | $16,752 | $330 | 1.97% | - Goodwill increased by $5,175k, driven by foreign currency translation impact ($4,628k), clinic acquisitions ($314k), and Boston O&P measurement period adjustment ($233k)[51] - An impairment charge of $1,836k was recorded for the ApiFix trademark in 2024, reducing its carrying value to its estimated fair value[55] NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable market-based inputs), and Level 3 (significant unobservable inputs)[57] Financial Assets by Fair Value Level | Financial Assets (in Thousands) | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | Total (June 30, 2025) | | :------------------------------ | :---------------------- | :---------------------- | :---------------------- | :-------------------- | | Corporate Bonds | $0 | $10,460 | $0 | $10,460 | | Treasury Bonds | $10,546 | $0 | $0 | $10,546 | | Asset-Backed Securities | $0 | $4,298 | $0 | $4,298 | | Exchange Mutual Funds | $292 | $0 | $0 | $292 | - Contingent consideration, valued using discounted cash flow or probability simulation models with unobservable inputs like forecasted revenues and discount rates, is classified as Level 3[61] NOTE 6 - DEBT AND CREDIT ARRANGEMENTS Debt and Credit Arrangements Highlights | Debt Type (in Thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :----------------------- | :------------ | :---------------- | :----- | :------- | | Term loan and final payment | $51,000 | $25,500 | $25,500 | 100.00% | | Convertible note | $50,000 | $50,000 | $0 | 0.00% | | Mortgage payable to affiliate | $532 | $611 | $(79) | -12.93% | | Acquisition note payable | $1,200 | $1,372 | $(172) | -12.54% | | Total debt | $102,732 | $77,483 | $25,249 | 32.59% | | Long-term debt, net of current maturities | $97,004 | $72,956 | $24,048 | 32.96% | - On August 5, 2024, the company entered into a Credit Agreement with Braidwell LP for a $50,000k term loan facility, including an initial $25,000k and a delayed draw facility for an additional $25,000k, which was fully withdrawn on June 27, 2025[63][156] - Concurrently, the company issued $50,000k in 4.75% Convertible Senior Notes due February 15, 2030, to Braidwell, convertible into common stock at an initial price of $40.98 per share[69][71][157] - The new Braidwell debt facilities replaced the $80,000k MidCap Credit Agreement, resulting in a $3,230k loss on extinguishment of debt in 2024[76][80][160] NOTE 7 - INCOME TAXES Income Tax Highlights | Metric (in Thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Income tax charge (benefit) | $245 | $(2,549) | $2,794 | -109.61% | | Effective income tax rate | (1.4)% | 15.6% | -17.0% | -108.97% | - The lower effective tax rate in 2025 is due to the remeasurement of the valuation allowance after recording the deferred tax liability from the Boston O&P acquisition in the prior year[85] - Deferred tax assets are fully offset by a valuation allowance, except for certain deferred tax liabilities in Canada, where a tax expense was recorded[86] NOTE 8 - STOCKHOLDERS' EQUITY Stockholders' Equity Highlights | Metric (in Thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------- | :------------ | :---------------- | :----- | :------- | | Total Stockholders' Equity | $355,514 | $354,566 | $948 | 0.27% | | Additional Paid-in Capital | $613,790 | $600,897 | $12,893 | 2.15% | - Stock-based compensation expense on restricted stock was $5,252k for the three months and $9,111k for the six months ended June 30, 2025, an increase from $2,939k and $5,738k respectively in 2024[89] - A stock repurchase program of up to $5,000k was approved in August 2024, but no shares have been purchased as of June 30, 2025, and the annual repurchase limit was reduced to $250k after December 31, 2024[90][91][158] NOTE 9 – NET LOSS PER SHARE Net Loss Per Share Highlights | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Net loss per share - basic and diluted | $(0.30) | $(0.26) | $(0.04) | 15.38% | | Weighted average shares outstanding | 23,460,144 | 23,145,064 | 315,080 | 1.36% | - The effect of outstanding common stock equivalents (1,551,951 shares in 2025 and 1,068,624 shares in 2024) was anti-dilutive, hence basic and diluted shares remained the same[93] NOTE 10 – BUSINESS SEGMENT - The company operates as one operating and reportable segment, with the CEO reviewing consolidated financial information and disaggregated revenue by product category[95] Product Sales by Geographic Location and Category | Product Sales by Geographic Location (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | U.S. | $48,147 | $41,249 | $6,898 | 16.72% | | International | $12,935 | $11,553 | $1,382 | 11.96% | | Total | $61,082 | $52,802 | $8,280 | 15.68% | | Product Sales by Category (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Trauma and deformity | $41,655 | $37,771 | $3,884 | 10.28% | | Scoliosis | $18,522 | $13,682 | $4,840 | 35.38% | | Sports medicine/other | $905 | $1,349 | $(444) | -32.91% | | Total | $61,082 | $52,802 | $8,280 | 15.68% | - Strong performance in Trauma and Deformity (10% and 12% increase for 3 and 6 months, respectively) and Scoliosis (35% increase for both periods) drove overall revenue growth[138][139][140] NOTE 11 - RELATED PARTY TRANSACTIONS - OrthoPediatrics uses Structure Medical, LLC, an affiliate of Squadron Capital, LLC (the company's largest investor), as a supplier[98] Payments to Structure Medical for Inventory Purchases | Payments to Structure Medical for Inventory Purchases (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :------------------------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Inventory Purchases | $657 | $141 | $516 | 365.96% | NOTE 12 – COMMITMENTS AND CONTINGENCIES - The global restructuring plan, initiated in Q4 2024, led to a restructuring accrual of $2,829k as of June 30, 2025, primarily due to new severance agreements[99][145] - The IMED Surgical lawsuit regarding '377 Patent ownership was dismissed for failure to prosecute, but IMED re-initiated arbitration[101][107] - The Boston O&P litigation alleges wrongful death and negligence; the selling equityholders of Boston O&P are contractually obligated to indemnify the company for claims related to this lawsuit[109][111] - The company has a remaining purchase commitment of $728k for 7D Surgical FLASH Navigation in 2025 and $1,092k for 2026[113] - An expense of $700k was recorded for the six months ended June 30, 2025, for unmet minimum performance metrics related to the FIREFLY Technology license agreement, with 55,143 common shares issued to Mighty Oak Medical to satisfy past obligations[113][182] NOTE 13 – SUBSEQUENT EVENTS - On July 11, 2025, Boston O&P acquired assets of O&P clinics in New York for $5,410k (cash and promissory note), with a potential earnout of up to $1,125k[116] - On July 30, 2025, OP EU B.V. acquired O&P clinics in Ireland for 1,500 Euro (cash and promissory note), aiming to expand in Europe[117] - On August 3, 2025, OrthoPediatrics EU Limited acquired a UK-based designer and manufacturer of Clubfoot bracing for 3,400 GBP (cash and promissory note), expanding specialty bracing and entering a new territory[118] - The Tax Reform Act of 2025, enacted on July 4, 2025, includes changes to corporate income tax law (e.g., 100% bonus depreciation, immediate R&D expensing), and the company is evaluating its impact on financial statements[119][120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2025, covering business overview, social impact initiatives, key trends and uncertainties, a detailed analysis of the statements of operations, liquidity and capital resources, and critical accounting policies Overview - OrthoPediatrics is the only global medical device company exclusively focused on the pediatric orthopedic market, serving trauma and deformity correction, scoliosis, and sports medicine, with an estimated global market opportunity of $6.2 billion ($2.8 billion in the U.S.)[122] - The company markets 82 surgical and specialized bracing systems and operates approximately 40 O&P clinics in the U.S.[124][123] - Revenue from implants and instruments is recognized upon implantation (consignment model), with consignment sales accounting for approximately 68% of total net sales for the six months ended June 30, 2025[129] - The company aims to strengthen its position by increasing investments in implant/instrument sets, enhancing global sales/distribution, and expanding product offerings and O&P clinic networks[128] Social Impact - OrthoPediatrics has impacted 1,217,000 children's lives since inception, including those served by acquired companies[130] - The company partners with over 40 charitable organizations worldwide to provide pediatric orthopedic care and was recognized as 'Corporate Partner of the Year' by World Pediatric Project in 2020[132] - OrthoPediatrics is committed to fostering a respectful, compassionate, and inclusive environment, reflected in its diversity and inclusion policy and recognition as a 'Best Company to Work in Indiana' for nine years[132] Trends and Uncertainties - The company recorded impairment losses on the ApiFix trademark of $1.8 million, $1.0 million, and $3.6 million in 2024, 2023, and 2022, respectively, and future impairment charges could be material[134] - Widespread respiratory illnesses, such as RSV, have negatively impacted elective procedure volumes and hospital capacity in 2022 and 2023, and may continue to do so[135] - Changes in U.S. trade policy, including new tariffs (e.g., 10% baseline, 50% on Brazil, 15% on EU announced in July 2025), and retaliatory actions, could significantly increase product costs and reduce demand, adversely affecting financial performance[175][177][178] - Changes in Medicaid coverage and reimbursement policies could negatively impact business by reducing procedure volumes, increasing pricing pressure, and delaying product adoption, particularly in hospitals and clinics serving high volumes of Medicaid patients[179][180] Summary of Statements of Operations Summary of Statements of Operations Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Net revenue | $61,082 | $52,802 | $8,280 | 15.68% | $113,493 | $97,487 | $16,006 | 16.42% | | Cost of revenue | $17,063 | $12,003 | $5,060 | 42.16% | $31,212 | $24,514 | $6,698 | 27.32% | | Gross profit | $44,019 | $40,799 | $3,220 | 7.89% | $82,281 | $72,973 | $9,308 | 12.76% | | Gross margin | 72% | 77% | -5% | -6.49% | 72% | 75% | -3% | -4.00% | | Operating loss | $(10,657) | $(5,666) | $(4,991) | 88.09% | $(21,638) | $(15,389) | $(6,249) | 40.61% | | Net loss | $(7,113) | $(6,029) | $(1,084) | 17.98% | $(17,772) | $(13,834) | $(3,938) | 28.46% | Net Revenue Net Revenue by Geographic Location and Product Category | Product Sales by Geographic Location (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | U.S. | $48,147 | $41,249 | $6,898 | 16.72% | | International | $12,935 | $11,553 | $1,382 | 11.96% | | Total | $61,082 | $52,802 | $8,280 | 15.68% | | Product Sales by Category (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Trauma and deformity | $41,655 | $37,771 | $3,884 | 10.28% | | Scoliosis | $18,522 | $13,682 | $4,840 | 35.38% | | Sports medicine/other | $905 | $1,349 | $(444) | -32.91% | | Total | $61,082 | $52,802 | $8,280 | 15.68% | - Trauma and deformity sales increased by 10% (3 months) and 12% (6 months), driven by Cannulated Screws, PNP Femur, PNP Tibia, DF2, and OPSB[139] - Scoliosis sales increased by 35% for both periods, primarily due to RESPONSE 5.5/6.0 and revenue from 7D Technology[139][140] Cost of Revenue and Gross Margin Cost of Revenue and Gross Margin Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Cost of revenue | $17,063 | $12,003 | $5,060 | 42.16% | | Gross margin | 72% | 77% | -5% | -6.49% | - The decrease in gross margin was primarily driven by a higher percentage of sales of 7D units and international set sales[141] Sales and Marketing Expenses Sales and Marketing Expenses Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Sales and marketing expenses | $19,103 | $16,593 | $2,510 | 15.13% | - The increase was primarily due to increased sales commission expenses and an overall increase in the volume of units sold[142] General and Administrative Expenses General and Administrative Expenses Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | General and administrative expenses | $30,443 | $27,329 | $3,114 | 11.40% | - The increase was primarily due to additional personnel through clinic acquisitions, increased lease expense, and a $2.4 million increase in stock compensation for the six months ended June 30, 2025[143] Restructuring Expense Restructuring Expense Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Restructuring | $2,971 | $0 | $2,971 | 100.00% | - The 2024 Restructuring Plan aims to improve operational efficiency, reduce costs by integrating the ApiFix product into the OP Scoliosis portfolio, and reduce staff[145] Research and Development Expenses Research and Development Expenses Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Research and development expenses | $2,159 | $2,543 | $(384) | -15.10% | - The decrease was primarily due to the timing of product development during the first and second quarters of 2024 compared to the same periods in 2025[147] Total Other (Income) Expenses Total Other (Income) Expenses Highlights | Metric (in Thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :----------- | | Total other (income) expense, net | $(3,593) | $381 | $(3,974) | -1043.04% | - The significant change was primarily driven by an increase in foreign exchange gain[148] Liquidity and Capital Resources - The company has incurred operating losses since inception, resulting in negative cash flows from operating activities ($14.6 million for six months ended June 30, 2025) and an accumulated deficit of $253.3 million[149] - As of June 30, 2025, cash, cash equivalents, restricted cash, and short-term investments totaled $72.2 million[149] - Efforts to preserve cash include issuing unregistered shares for MedTech acquisition payments (approx. $3.8 million value) and paying director compensation with restricted stock[150] Cash Flows Cash Flow Highlights | Metric (in Thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | YoY % Change | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------- | :----------- | | Net cash used in operating activities | $(14,618) | $(12,782) | $(1,836) | 14.36% | | Net cash (used in) provided by investing activities | $(9,532) | $16,018 | $(25,550) | -159.51% | | Net cash provided by (used in) financing activities | $24,674 | $(4,842) | $29,516 | -609.59% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $828 | $(2,137) | $2,965 | -138.75% | - The increase in cash used in operating activities was driven by inventory purchases to support sales growth and changes in accounts receivable and accounts payable[153] - Investing activities shifted from a net inflow to a net outflow due to no longer having cash from the sale of short-term marketable securities to offset business combinations and property/equipment purchases[154] - Financing activities provided $24.7 million, primarily from the $25.0 million delayed draw on the Braidwell term loan[155][156] Indebtedness - On August 5, 2024, the company secured a $100 million financing arrangement with Braidwell LP, consisting of a $50 million term loan and $50 million of convertible notes[156] - The term loan bears interest at SOFR + 6.50% (with a 3.25% SOFR floor) and includes financial covenants requiring maintenance of unrestricted cash (25% of outstanding principal) and minimum net product sales, with the delayed draw of $25 million withdrawn on June 27, 2025[156][64][66] - The $50 million convertible notes accrue interest at 4.75% per annum and are convertible into common stock at an initial price of $40.98 per share[157] - This new financing replaced the $80 million MidCap Credit Agreement, which had approximately $10 million outstanding and was terminated[160] Pediatric Orthopedic Business Seasonality - Revenue is typically higher in summer months and holiday periods due to increased pediatric surgeries for trauma, deformity, and scoliosis products[162] - The seasonality is influenced by longer recovery times provided by breaks in the school year, which facilitates elective surgeries[162] Critical Accounting Policies and Significant Judgments and Estimates - No material changes to critical accounting policies were reported since the 2024 Annual Report on Form 10-K[163] Recent Accounting Pronouncements - Refer to Note 2 for details on recent accounting pronouncements[164] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to market risks, primarily interest rate risk related to indebtedness and foreign currency exchange rate risk, noting that there have been no material changes to these disclosures since the 2024 Annual Report on Form 10-K - The greatest potential market risk exposures are interest rate risk on indebtedness and foreign currency exchange rate risk on operating results[165] - No material changes to market risk disclosures were reported since the 2024 Annual Report on Form 10-K[165] Item 4. Controls and Procedures This section details management's evaluation of the company's disclosure controls and procedures, concluding their effectiveness as of June 30, 2025, and confirming that no material changes occurred in internal control over financial reporting during the period Evaluation of Disclosure Controls and Procedures - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[167] - Disclosure controls provide reasonable assurance that information required for SEC reports is recorded, processed, summarized, and reported within specified time periods[167] Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting occurred during the quarter[169] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the detailed discussion of legal proceedings from Note 12, which includes the IMED Surgical software ownership dispute and the Boston O&P litigation, and confirms no other legal proceedings are expected to materially impact its financial position or operations - Legal proceedings, including the IMED Surgical software ownership dispute and Boston O&P litigation, are discussed in Note 12[171] - No other legal proceedings are currently expected to materially affect the company's financial position, results of operations, or cash flows[172] Item 1A. Risk Factors This section directs readers to the comprehensive risk factors outlined in the 2024 Annual Report on Form 10-K, while also highlighting new or updated risks related to international business operations, including tariffs and trade restrictions, and potential adverse impacts from changes in Medicaid coverage and reimbursement policies - Readers should consider risk factors from the 2024 Annual Report on Form 10-K[173] - New risks include those related to international business, such as tariffs (e.g., 10% baseline, 50% on Brazil, 15% on EU announced in July 2025), trade restrictions, and government actions, which could adversely affect operations and costs[174][175][176][177][178] - Changes in Medicaid coverage and reimbursement policies could negatively impact the business by reducing procedure volumes, increasing pricing pressure, and delaying product adoption[179][180] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the issuance of unregistered common stock in May 2025 to settle obligations related to the MedTech acquisition and unmet performance metrics for Mighty Oak Medical, Inc., noting these issuances were made under Section 4(a)(2) of the Securities Act of 1933, with no proceeds used and no shares repurchased under the stock repurchase program - On May 1, 2025, 10,830 unregistered common shares (approx. $226k value) were issued to MedTech Concepts LLC to settle an anniversary cash payment[181] - On May 15, 2025, 55,143 unregistered common shares (approx. $1,261k value) were issued to Mighty Oak Medical, Inc. to satisfy past unmet minimum performance metrics[182] - These issuances were made in reliance on the exemption provided under Section 4(a)(2) of the Securities Act of 1933[181][182] - No shares have been purchased under the approved stock repurchase program as of June 30, 2025[186] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities[187] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - No mine safety disclosures[188] Item 5. Other Information This section confirms that no information required under Form 8-K, no modifications to the nomination process, and no insider trading arrangements were adopted or terminated by directors or officers during the three months ended June 30, 2025 - No information required under Form 8-K[190] - No modifications to the nomination process[191] - No insider trading arrangements (Rule 10b5-1 or non-Rule 10b5-1) were adopted or terminated by directors or officers during the three months ended June 30, 2025[192] Item 6. Exhibits This section provides a comprehensive list of exhibits filed with the Form 10-Q, including various agreements, corporate documents, debt instruments, and certifications, which are either included or incorporated by reference Exhibit Index - Exhibits include Membership Interest Purchase Agreements, Stock Purchase Agreements, Certificate of Incorporation, Bylaws, Registration Rights Agreements, Stockholders Agreement, Indenture, Convertible Senior Notes, Director Compensation Policy, and various certifications (CEO, CFO)[195] Signatures - The report was signed by David R. Bailey (President and CEO) and Fred L. Hite (CFO and COO) on August 6, 2025[201]