OrthoPediatrics Corp. (KIDS) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the OrthoPediatrics Corporation Second Quarter Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Tram Bui from The Ruth Group. Ma'am, you may begin.

Thanks, Operator, and thanks, everyone, for participating in today's call. Joining me from the company are Mark Throdahl, Chief Executive Officer, and Fred Hite, Chief Financial Officer. Before we begin, I'd like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve material risks and uncertainties, and the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's Form 10-K filed with the Securities and Exchange Commission on March 15, 2018, and its most recent quarterly report on Form 10-Q, which will be filed later today. During the call today, management will also discuss certain non-GAAP financial measures, which are used as supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period-over-period. For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in its earnings release. Please note that non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for OrthoPediatrics financial results prepared in accordance with GAAP. In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 9, 2018. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances that take place after the date of this call. With that said, I'd like to turn the call over to Mark.

Good morning, everyone, and thank you for joining us today on our second quarter 2018 earnings conference call. I'll begin with an overview of our second quarter's financial and operating results, followed by Fred, who will provide a detailed financial review. Afterwards, I'll make some closing remarks before opening the call for questions. For the second quarter of 2018, we are proud to report record quarterly revenues of $15.1 million, representing a 28% year-over-year increase. This robust performance results from strong execution in all areas of our business. Domestic sales up 25%, international sales up 39%, worldwide trauma and deformity up 25%, and scoliosis up 43%. It demonstrates that we are strengthening our competitive position in all segments of our business so that we can achieve sustainable growth at industry leading levels. During the first half year, we increased investments in consigned sets, sales representatives, and research and development by levels that are in line or have exceeded our expectations. Specifically, we deployed an additional $2.8 million of consigned sets in the quarter and have increased our target to $11 million for the full year 2018 to help satisfy the strong demand for our products. Concurrently, we continued to expand our domestic salesforce that supports the increased consigned sets and drives the utilization of our surgical systems. The significant increase in R&D investment is reflected in the recent FDA clearance of our 25th surgical system and the expected system launches and line extensions by yearend. These demonstrate our commitment to new product development that will sustain the future growth of an ever-bigger company. All in all, we continue to build traction through our first full year as a public company while further expanding our lead as the domestic player and the dominant player in pediatric orthopedics. With that overview, let me highlight the 4 primary initiatives that support our ongoing success and position the company for future growth. The first is consigned set deployments. During the quarter we invested an additional $2.8 million in consigned sets and realized the initial benefits from the $5.5 million deployed in the first quarter of this year. The combined $8.3 million in new consigned sets during the first half of 2018 significantly exceeds our historical annual investment of $3.5 million. We have thus removed a constraint to our growth. We continue to address broad pent up demand for our products as we track an updated target of $11 million for the full year 2018 and we expect to recognize the contribution from these additional consigned sets in upcoming quarters. The second initiative is salesforce expansion. To support the placement of these consigned sets and broaden their overall utilization, we supplemented our best in class pediatric sales team with four additional sales reps in the second quarter. This keeps us on track to add 18 reps during the year. Our 88 US sales reps today compare to 69 reps in June, 2017, an increase of 28% that mirrors the growth of sales revenue over the same time period. These reps are fully dedicated to selling our products and in conjunction with our 37 international stocking distributors and two international sales agencies, they are the driving force behind the expansion of our market position. We remain committed to providing outstanding service and consistent sales execution everywhere in the world in order to support our market leading position in pediatric orthopedics. The third initiative is new products. In addition to supporting our existing products, the expansion of our salesforce will drive adoption of our 25th surgical system, the Pediatric Nailing Platform, FEMUR, that was launched in July following FDA clearance in May. This system features two distinct implant offerings, one for children and another for adolescents, both of which are optimized for pediatric specific anatomy and can be used to treat both traumatic injuries and deformity corrections. This new system represents substantial improvements on the first ever pediatric nailing platform, our PediNail system, as well as the next step in the expansion of our intermedullary nailing franchise. The early feedback we have received is uniformly positive and suggests the significant sales potential of this new product. It also demonstrates how 11 years of pediatric orthopedic experience enables us to meet the needs of pediatric orthopedic surgeons and their patients. We remain on track to launch additional systems and line extensions in the second half of this year, including our small stature RESPONSE scoliosis system for which we have submitted the 510(k) to the FDA, and an additional BandLoc, sublaminar polyester banding system. These two product introductions will expand our ability to treat the unique challenges of pediatric spinal deformities. We are progressing development of our osteogenesis imperfecta nail system which will provide surgeons with dramatically improved options to treat the difficult pediatric condition known as brittle bone disease. In addition, we are also working on the first ever pediatric foot system. As we continue our aggressive cadence of new product introductions that fill in the grid of unmet needs in trauma and deformity in scoliosis surgery, we believe that OrthoPediatrics will achieve an insurmountable lead relative to any company that might try to follow us into the pediatric market. The consistent growth of virtually every system we have ever launched confirms our ability to provide customers with innovative surgical solutions as well as continuous improvements in existing products. A word about our two longer term development projects. We are making very satisfactory progress on active growing implants and have seen impressive results from our partnership with the company that has deep technical capabilities in this area. The spinal tethering program has also produced tangible results. While it's too early to say when these new systems might reach the market, we are confident that they will significantly contribute to the company's growth, even as our sales approach the $100 million mark. The fourth initiative is clinical education and surgical society support. Our commitment to advancing the entire field of pediatric orthopedics is demonstrated by our continued highest level of support for surgical societies including the European Paediatric Orthopaedic Society whose annual meeting we attended in April, and the Pediatric Orthopaedic Society of North America whose meeting we attended in May. We recently strengthened our relationship with the World Pediatric Project to provide surgical implants, instruments and financial support to increase access by children in developing countries to pediatric orthopedic care. We look forward to continuing our clinical education programs through our association with the OrthoPediatrics Foundation for Education & Research which received public charity status in March. Finally, we are the only orthopedic company to have a social media platform that allows surgeons to post cases and pose questions to their colleagues around the world. During the second quarter, the number of surgeons who follow OrthoPediatrics DocMatter platform exceeded 700. Before I turn the call over to Fred, I'd like to provide an update on the K2M litigation and our vigorous defense in this matter. In late June, 2018, the United States Patent & Trademark Office's Patent Trial & Appeal Board, or PTAB, instituted both Inter Partes Review petitions or IPRs, that we filed earlier this year to contest the patentability of one of the two patents at issue in the federal lawsuit. The PTAB has set a trial date of February 20, 2019 for both of these IPRs. Accordingly, in early July, 2018, OrthoPediatrics and K2M moved to stay the federal lawsuit pending the outcome of the subject IPR proceedings. The court order the stay on July 10, 2018 Moreover, later this month, we expect to file additional IPR petitions with the PTAB to challenge the patentability of the second patented issue in the federal lawsuit. For these reasons, among others, we view our case as particularly strong. Although we believe that the K2M lawsuit is without merit and we'll continue to vigorously defend the claims asserted against us, we welcome constructive discussions on a negotiated settlement. I'll now turn the call over to Fred for a review of our financial results. Fred?

Thanks, Mark. Total revenue in the second quarter of 2018 was a new record at $15.1 million, up 28% when compared to $11.8 million for the same period in 2017. U.S. revenue in the second quarter of 2018 increased 25% to $11.5 million compared to $9.2 million in the same period last year, representing 76% of total revenue. International revenue in the second quarter of 2018 was $3.6 million, a 39% increase compared to $2.6 million in the same period last year, representing 24% of our total revenue. Our second quarter revenue breakdown by product category was as follows. Trauma and deformity revenue in the second quarter of 2018 was $9.9 million, a 25% increase when compared to $7.9 million in the same period last year. Scoliosis revenue in the second quarter of 2018 was $4.9 million, a 43% increase compared to $3.4 million in the same period last year, driven by strong product acceptance and customer adoption, supplemented with a growing sales competency in the U.S. Lastly, sports medicine/all other revenue in the second quarter of 2018 was $320,000, representing a 36% decrease compared to about $502,000 in the same period last year. Nearly all of our revenue growth continues to be driven by increased unit volumes. Moving down the income statement, gross profit in the second quarter of 2018 was $11.3 million, a 29% increase compared to $8.7 million in the same period last year. Gross margin in the second quarter of 2018 was 75% compared to 74% in the second quarter of 2017, reflecting the benefit of our international country conversions during 2017 partially offset by continued international set sales. Sales and marketing expenses in the second quarter of 2018 increased 28% to $6.8 million when compared to $5.3 million in the same period last year. General and administrative expenses in the second quarter of 2018 were $5.5 million, an increase of 61% compared to $3.4 million in the second quarter of 2017. Second quarter 2018 G&A expense increase included a $1.3 million of unusually higher nonrecurring professional fees, $200,000 in accelerated vesting of restricted stock, as well as $300,000 in public company costs, which are all being excluded from our adjusted EBITDA calculation. Excluding these items, our underlying G&A expense grew by approximately 6% versus the prior year. Research and development expenses increased 67% to $1.1 million in the second quarter of 2018 when compared to $668,000 in the same period last year. The increase was due to the continued investment in additional experienced personnel, planned product launches, and incremental projects to accelerate our product development and future pipeline. Total operating expenses in the second quarter of 2018 were $13.4 million, an increase of 43% compared to $9.4 million in the second quarter of 2017. And an operating loss in the second quarter of 2018 was $2.1 million as compared to a loss of $0.7 million in the second quarter of 2017, primarily as a result of the increased operating expenses just discussed. Adjusted EBITDA for the second quarter of 2018 was $700,000 compared to $300,000 for the second quarter of 2017. The increase was primarily driven by the significant increase in revenue and the associated gross margin. Net interest expense in the second quarter of 2018 was $600,000, a 13% decrease compared to $700,000 in the same period last year. The decrease in interest expense was related to the interest income on our positive cash balance resulting from the IPO. Net loss in the second quarter of 2018 was $2.7 million compared to a net loss of $1.3 million in the same period last year. And net loss per share attributable to common stockholders in the second quarter of 2018 was $0.21 per basic and diluted share versus $1.56 per basic and diluted share in the same period last year. Turning to our balance sheet, as of June 30, 2018, our cash balance was $26.5 million compared to $34.6 million as of March 31, 2018. Net purchases of property and equipment during the second quarter of 2018 were $1.4 million, an 8% decrease compared to $1.5 million during the same period last year. This reflects the $2.8 million deployed in consigned sets, including product-specific instruments, cases and trays, and implants. And that compares to $3 million during the second quarter of 2017. Set deployment during the second quarter of last year was higher than normal because of the conversion of the United Kingdom and the Ireland stocking distributor to an agency model. As of June 30, 2018, total net debt was $25.4 million, including $3.9 million outstanding under the revolving credit facility, which is in line with those balances as of March 31, 2018. Let me now turn the call back to Mark for closing remarks.

Thanks, Fred. In the second quarter, OrthoPediatrics continued to gain altitude and airspeed. This is the fourth time in a row since going public last October that we have announced results that exceed expectations. We have done everything we said we would do during the IPO process. We have accelerated quarterly sales growth from 21% in the third quarter of 2017 to 24% in the fourth quarter, sustained 24% growth in the first quarter of 2018, and accelerated growth again to 28% in the second quarter. This acceleration has been driven by successes everywhere across the business. We continue to strengthen our strategic position by making the right investments so the company is poised for sustained, aggressive growth. We can all be proud of our organization's ability to execute consistently, to deliver record topline results, and to solidify our market leadership in pediatric orthopedics. Given our first half year revenue growth trajectory and the degree to which we beat expectations, we are raising our full year revenue guidance to a range of 23% to 24% growth and increasing our deployed consigned set investment target from $10 million to $11 million for the full year 2018. And with that, we'll take any questions.

[Operator Instructions] Our first question comes from the line of Rick Wise with Stifel. Your line is now open.

Good morning, Mark. Good morning, Fred. It's Drew on for Rick. Congratulations on another great quarter. But I just wanted to start on guidance. So you've raised your range to 23% to 24% growth. You've clearly exceeded that range in the first half, and just reflecting on some of your catalysts that you mentioned, like adding more reps, more new systems in the field and incremental sets launching, like how do we think about full year guidance, what are we not appreciating in the back half?

I think, Drew, we are right now in our largest quarter. The third quarter is the biggest for the company. And as you are well aware, Fred and I are pretty conservative with regard to our view on guidance. And are also aware of the fact that managing a fully functioning orthopedic company, there are many moving parts beyond just hiring more sales reps or deploying more sets. And so from that standpoint, we remain guarded with regard to raising expectations. We continue I think to aspire to beat them, but on the other hand, we are conservative with regard to where we are now on this issue. Now, with that general background, I'll turn to Fred who may give a more coherent kind of answer.

No, that's exactly right. During the first and second quarter, our international business grew faster than the domestic business, and as we mentioned, some of that did include set sales. But with the domestic growing 25% in the second quarter, we feel pretty confident obviously about the third and fourth quarter that's implied in this guidance. But we do not want to get ahead of ourselves, so we're taking it slow and we'll continue to increase that as we have actual results that drive an increase.

Got it. And on scoliosis growth, it just continues to be above our expectations. But going forward, how sustainable is that growth rate, especially since the small stature spine systems haven't been approved yet and that could really lead to account conversions? Just kind of help us frame what the drivers are for your growth. Is it just instruments, more instruments available at exiting accounts, but is there also some incremental growth coming from opening new accounts in spine?

Oh yes, you're absolutely right, Drew, it is incremental growth at existing accounts, it is new account conversions, and it is really being carried by the RESPONSE 5560 system. It has proven to be a tremendous success. And because of that success, we are very bullish with regard to the impact that the small stature companion system will have in at last enabling us to provide a full product offering for the treatment of scoliosis. I might add also that this very interesting FIREFLY product has proven to be a very nice adjunct in terms of facilitating the dramatic growth of the 5560 RESPONSE system. But that system has proven to be a real winner.

Got it. Then just lastly for Fred, can you just remind us of your pathway and timing to profitability and breakeven? And just with the $27 million of cash and your revolver, do you still have sufficient capital to get you to breakeven just given all the investments that you're making in the business?

Yes, the answer is yes, we do. We're very pleased to have adjusted EBITDA breakeven last year, so that was a big milestone for us. In 2018, we'll be positive adjusted EBITDA, so that's the next hurdle, so we're very pleased with seeing that. And then after that is operating income breakeven, that's our next goal. And then eventually we'll be able to cover our interest expense and get to net income positive. We see all of that happening definitely within the cash balance we have on hand and the investments we plan to make in both consigned sets as well as continuing to invest in the R&D side of the business.

Thank you. Our next question comes from the line of Ryan Zimmerman with BTIG. Your line is now open.

Great. Thanks for taking the questions. Congrats on the strong quarter, guys. I want to begin, given that you are spending more on instrument sets this year, it would certainly suggest that there is strong interest for sets in the field. And does the $11 million satisfy your distributor base or could there be additional need for more sets this year?

Yes, as we've mentioned in the past, compared to our $3.5 million, the $10 million or now $11 million of investment this year is a new level that we've never seen before. So we're kind of taking it slow, we're adjusting it as necessary, and as we have continued demand, we'll continue to fulfill that. The encouraging part is that demand is coming both in our legacy systems, but then also with our new product launches and our anticipated new product launches later this year. So we're going to continue to fund that as demand arises and as we see appropriate and as we can support that growth with the salesforce out in the field.

Very fair, appreciate that response, Fred. Then just on the salesforce, you added 4 reps this quarter. I want to ask a couple of questions around that. One, how is that tracking relative to your expectations? I know you stated you want to be at 18. But then you've had historically a very concentrated customer base, and so as you add reps, how should we think about potentially greenfield opportunities for new reps as you add them or distributors for that matter? Thank you.

That's a very good question, Ryan. I think one of the reasons we accentuated the fact that the size of the salesforce has grown 28% over the last year, which mirrors exactly the 28% revenue growth, is that the selling organization scales itself through these 33 sales agencies, each in a given part of the United States, that can recognize how to keep up with demand and then in fact how to anticipate demand by adding reps. We find that in terms of greenfield opportunities, they are more the deeper penetration within a given geographic area, some of which are enormous. Like southern California or the mid-Atlantic states of New York, Connecticut and New Jersey and Massachusetts. So rather than sort of opening up new sales reps in Boise, Idaho and places like that, I think the greenfield opportunities are further focusing on these concentrated accounts which continue to have enormous potential. And we have a very long runway to penetrate that potential.

Appreciate the commentary. Congrats again on the strong quarter, guys.

Thanks, Ryan. You had a fantastic headline last night. It was really great.

Thank you. Our next question comes from the line of Matthew O'Brien with Piper Jaffray. Your line is now open.

Good morning, thanks so much for taking the questions. I'd love to hear about the bump up in sets deployment for the year, if that's going into spine or trauma and deformity. And then within that question, just the velocity that you're seeing on the new sets that were deployed earlier this year. I know, Fred, you've been saying kind of $1 for $1 on a set basis per revenue. But are you tracking about that at this point? Are you getting closer to some of the historical levels that you've seen there?

Well, I'll start with that and then Fred perhaps can provide more specifics. I think, Matt, we are experiencing strong demand for sets across the board. As Fred mentioned a minute ago, both with legacy systems as well as new products, both trauma and deformity as well as scoliosis. As you might anticipate, this 43% growth in scoliosis however does create significant pressure for additional sets. But it's by no means restricted to that product. I think also we see no real change in the pattern that we've observed for some years of it requiring 9 to 12 months before sets are fully utilized. And we are seeing that now and we need to recall that in fact of the $5.8 million deployed in the first quarter, much of that was late in the quarter. So actually, we're just now seeing the impact of returns on those new sets in Q2 results. Fred, would you want to comment a little bit more about the $1 estimate?

Yes, to Mark's point, it's really encouraging for a business our size to see demand across the board, across all the product segments, as well as outside the United States. So the United Kingdom and Australia, there's significant demand, we deployed some sets there in March, more in the second quarter, and we have plans to do more in those locations later this year. And with these new product launches coming, particularly the small stature system, that's going to require some additional funding as well. Regarding the utilization, we track the new sets deployed results on a weekly basis. So every set that's been deployed, we're looking at the revenue. We're not at $1 of revenue for $1 of deployment yet. As Mark mentioned, it does take time to get these sets up to that utilization level. So to your question about if we're there yet or if we're higher, we're still working our way up to that $1 level. Obviously, we hope to be above that later, probably next year, but we're not at the $1 for $1 just yet.

Okay. That's helpful. And then as far as the scoli business goes, this a $1.5 billion category, you're 1% market share there. There seems to be, it's an established market with some opportunities there. Can you talk about these new accounts that you're getting versus going deeper, what kind of growth you're seeing there? And I guess how to think about that business as we go over the next several years. Is it one that you can pick up 50 basis points of market share per year, something in that range, maybe a little less as we go forward?

You know, Matt, we view the scoliosis business as much more tightly focused around adolescent idiopathic scoliosis procedures that are done in pediatric centers. And that's a market that is more like $400 million in the United States. So it is smaller. Our market share is therefore larger. That said however, I think we are seeing increasing trends to become a number two supplier at a given account that in the past had been dominated by one of the market leading spine companies. And that that then leads to a greater and greater share at that account, if not the full conversion to OrthoPediatrics systems. And we can only see that accelerate as we further round out the product line, particularly with the small stature system that should be in the market within the next several months, assuming smooth FDA approval. So I don't see that there is any trend in the next several years of a dramatic decline in the scoliosis growth rate. That said of course, sustaining 40% growth in scoliosis as the denominator gets bigger and bigger will get harder and harder. But I think we've got to remember that we only focus on that issue, that one condition. Whereas every other company in this area is defending a huge front of adult products and cervical spine and lumbar fixation, and by the way, adolescent deformity. So I continue to fall back on a little mantra we have within our organization that a focused competitor, irrespective of its size, will always win.

I'd just add to that, it's really amazing that we're able to get this growth and the fact that our surgeons that are using the product, where we 100% share, still have to use somebody else's product in the small stature system. So it's not like they can convert just to us as the supplier of choice. And so it's really encouraging that we've had this much success knowing that they still have to use somebody else's product on the small stature size. We're also very encouraged by the results we've seen on FIREFLY and the additional indication that was just approved by the FDA that enables us to continue to expand the use of that product and it should drive continued acceleration of that product in the future as well.

That's helpful. Last one for me, and just for clarification purposes, I was taking about the worldwide market for scoli, which I've heard numbers up to $1.5 billion, but even if it's smaller than that, still considerable room to go there. With respect to the international business, the set sales that you saw this quarter versus replenishment, can you just tease out a little bit what the bolus was in terms of set sales versus what you were expecting? Because I guess what we're trying to figure out is the growth there was very, very good, and how durable is that?

Absolutely. As you've talked in the past, we sell sets every single quarter in the international business. That's just part -- as we expand, they need sets obviously to grow their business. We did have some pent-up demand that was released in the first quarter and some additional pent-up demand in the second quarter of 2018. It's maybe 10% of that growth at max would be I would say the incremental portion of that. And some of that will continue in the future as we continue to expand into additional hospitals within the countries that we're serving.

Thank you. And our next question comes from the line of Margaret Kaczor with William Blair. Your line is now open.

Good morning, guys. Thanks for taking the questions. So first of all, kind of bigger picture basis as we look at the quarter, can you guys give us a sense of how much of the contribution to growth was driven by instrument sets versus incremental product launches like FEMUR, maybe having more feet on the street? And as we look at the rest of this year and into 2019, how should we think about those contributors going forward?

That's a great question. So we just launched the $5.5 million of sets at the end of March. And so we did have, we did start to see some of the benefit of that in the second quarter which was very encouraging, although it's just getting started. The PNP, the Pediatric Nailing Platform launch is a significant launch for us. That just happened. And so that really had no impact on the second quarter revenue. It will continue to have an impact going forward. But with that being said, the business over the prior 10 years had launched maybe two systems a year. And in 2017 we launched 5 systems. So that increase in new product launches definitely is helping our growth across all of our periods. And we did see some of the impact of that in the second quarter. Historically, about a third of our growth comes from new product launches. And so I would say we're probably still in that range in the second quarter and hope to continue to be in that range going forward. As we increase our product launches, the revenue growth should accelerate as well. And the goal is to support all of that with the necessary new products and new deployments that are required to support that growth rate.

Helpful. Then just to maybe follow-up on some of the commentary on sales rep productivity and the number of sales rep hires that you've made in the first half of the year, I know it's early, you just guys hired a lot towards Q1, you added another 4 this quarter. But what kind of leverage are they providing at this point in time? I know that maybe they're not doing their own cases, but theoretically they're loosening some of the pressure on the other reps in the field. And is this similar to what you've seen in the past, on track in terms of productivity improvements, or maybe a little bit faster?

Margaret, I don't have any evidence that it's any different from what it's been in the past. And you're quite astute in observing that there is an immediate impact even that less experienced reps have in terms of being able to handle some of the logistic checking of sets and supply issues that inevitably tie up a lot of time for guys in the field. So from that standpoint, I think it is a very consistent kind of productivity trend we see these people on. Maybe the one difference is though that over the last several years, we have been able to attract a higher and higher caliber of sales rep. The IPO has helped that. It's given the company a lot more credibility in the eyes of people that don't know us well. And so it well may that the path to productivity will be somewhat faster for the new reps that we've been hiring over the last year as opposed to those we hired say 5 years ago.

Got it. And then just last one for me, do you think about that incremental $1 million in sets that you're going to put out this year relative to prior expectations, did you change guidance for that in any shape or form? Thanks.

No. Because a lot of that will probably be deployed in the fourth quarter or towards the end of the fourth quarter which really will not impact 2018 guidance. It's more of a factor on 2019.

Thank you. And our next question comes from the line of Jon Braatz with Kansas City Capital Markets. Your line is now open.

Good morning, Mark, Fred. This is sort of a follow-up on the salesforce questions. As you look into 2019, do you think that you will begin to see some leveraging of the salesforce? It looks like this year the salesforce has increased about the same as revenues. But as you look into 2019, will you begin to see some leveraging of the salesforce in the sense you won't be adding as many as your expected revenue increases?

Well I don't think we do. I think that our sales agencies around the country, together with the guidance that we give them, because we are managing these sales reps directly, I think they will continue to add reps at more or less the same pace as sales. As to the issue of leverage, I think it's important to again stress that there's sales representatives are not on our books, so we don't have an expense that can be leveraged other than monkeying around with their incentive plan, their commissions, which we think would be suicidal. So as a result, we are delighted to allow the selling organization in the United States to continue to scale itself up in a way that is responsive to demand in each of these 33 territories throughout the United States. And it has no impact on our P&L.

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Mark Throdahl for any closing remarks.

Well, thank you very much. So it goes without saying that it's been a great quarter with strong and consistent execution everywhere in the business. I think it is also fair to say the company's growth is accelerating and I can't help but stress that this is the fourth time in a row since we've been a public company that we've beat expectations. I would like to thank our colleagues here and around the world for allowing us to do what we said we would do. And finally, I'd like to thank all of you for your interest and support for OrthoPediatrics.

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day.