Business context and reporting period
OrthoPediatrics Corp. designs, develops and sells orthopedic implants and instruments specifically for children, focusing on trauma and deformity correction, scoliosis, and sports medicine. This Form 10-K covers the fiscal year ended December 31, 2021; fourth-quarter figures are identified separately below. The company sells in the U.S. and 45 countries internationally, using independent sales agencies and distributors and a third-party manufacturing model.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $98.0 million | $71.1 million |
| Gross profit / margin | $73.4 million / 74.9% | $55.0 million / 77.4% |
| Operating loss | $18.0 million | $26.8 million |
| Net loss | $16.3 million | $32.9 million |
| Net loss per share | $0.84 | $1.82 |
| Cash used in operating activities | $13.1 million | $18.5 million |
Revenue increased 38%, primarily reflecting recovery in domestic and global markets from pandemic-related procedure delays, higher unit volumes and conversion of Germany, Austria and Switzerland to a direct-agency model. Trauma and deformity revenue was $65.8 million (+38%); scoliosis was $28.0 million (+35%); sports medicine/other was $4.2 million (+57%). International sales were 21% of revenue, compared with 11% in 2020. Gross margin declined mainly because of a higher share of international distributor sales and a $0.5 million purchase-commitment shortfall charge.
In Q4 2021, revenue was $24.8 million versus $18.9 million in Q4 2020. The company reported an operating loss of $5.6 million and net income of $72,000, compared with a $14.0 million net loss in Q4 2020. The prior-year quarter included a $2.7 million revenue reduction related to inventory repurchased during the distributor-to-agency conversion and a $6.3 million legal-settlement accrual.
Financial position and liquidity
At December 31, 2021, total assets were $304.3 million, liabilities $78.9 million and stockholders’ equity $225.4 million. Cash, cash equivalents and restricted cash totaled $9.0 million; short-term investments were $45.9 million. Current assets were $133.6 million and current liabilities $29.7 million. Inventory was $57.6 million, up from $53.0 million. Operating cash use improved year over year, but remained significant; investment activity used $7.4 million and financing provided approximately $6,000.
The company had no borrowings under its $25 million revolving facility at year-end. It had $1.0 million of mortgage debt payable to an affiliate, plus ApiFix acquisition installment obligations of $27.2 million and contingent consideration of $28.9 million. Management stated existing resources and expected operating cash flows should cover anticipated requirements for at least 12 months. The credit facility is secured by substantially all company assets and includes restrictive covenants.
Outlook, commentary and risks
No numerical revenue or earnings guidance is provided. Management plans to invest in product development, sales infrastructure and consigned implant and instrument sets, and to pursue selective acquisitions and partnerships. Planned developments included a tibia nailing platform submission in the second half of 2022, with a full launch expected in 2023, and continued development of adjustable “Active Growing Implants.” These are forward-looking plans, not assured outcomes.
- COVID-19, hospital staffing constraints and postponement of elective procedures may continue to disrupt demand; the company also carried extra inventory to mitigate supply risk.
- Profitability remains unachieved: the company reported annual losses since inception and an accumulated deficit of $178.0 million.
- Regulatory compliance, clinical evidence, reimbursement and product acceptance affect commercialization; European MDR and UK regulatory transitions create additional requirements.
- Inventory requirements, third-party manufacturers and a concentrated independent sales network create working-capital and operating risks. Two U.S. sales agencies each represented more than 10% of 2021 global revenue.
- ApiFix consideration depends partly on future milestones and sales. Certain intangible asset valuations had narrow impairment headroom, according to management.
- IMED’s patent-ownership dispute proceeded to arbitration; Wishbone litigation and counterclaims remained ongoing. The company stated it intended to defend these matters.
- Squadron is the largest investor and a related-party lender; the company also buys from Squadron-affiliated suppliers. The auditor highlighted significant related-party transactions, without modifying its opinion.
Key facts for investors to verify
- Whether revenue growth and recovery in elective procedures continue, and how international sales mix affects gross margin.
- Cash consumption, inventory growth and the timing and funding of ApiFix installment and contingent payments.
- Progress and regulatory milestones for the product pipeline, including the tibia platform and Active Growing Implants.
- Resolution and potential financial impact of the IMED arbitration and Wishbone litigation, and status of the restricted escrow cash.
- Compliance with European and UK medical-device requirements and the company’s dependence on key sales agencies, suppliers and related parties.