OrthoPediatrics Corp. (KIDS) CEO David Bailey on Q1 2022 Earnings Call Transcript

May 07, 2022 3:04 PM ETOrthoPediatrics Corp. (KIDS)
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OrthoPediatrics Corp. (NASDAQ:KIDS) Q1 2022 Earnings Conference Call May 5, 2022 8:00 AM ET

Company Participants

Matt Bacso - IR, Gilmartin Group

David Bailey - President and CEO

Fred Hite - CFO and COO

Conference Call Participants

Matthew O'Brien - Piper Sandler

Samuel Brodovsky - Truist Securities

Mike Matson - Needham & Company

Ryan Zimmerman - BTIG

Dave Turkaly - JMP Securities

Operator

Welcome to the Q1 2022 OrthoPediatrics Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions]

And now would like to turn the call over to Matt Basco. Matt, you may begin.

Matt Bacso

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer; and Fred Hite, Chief Operating and Financial Officer.

Before we begin today, let me remind you that the company's remarks 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 are subject to numerous risks and uncertainties and the company's actual results may differ materially.

For a discussion of risk factors, including, among others, the risks associated with COVID-19, the impacts this pandemic may have on the demand of the company's products and the company's ability to respond to the related challenges, I encourage you to review the company's most recent annual report on Form 10-K which will be filed with the SEC on march 3rd, 2022.

During the call today, management will also discuss certain non-GAAP financial measures which are 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 the 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 on this call contains time-sensitive information that is accurate only as of the date of this live broadcast, today May 5th, 2022. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call.

With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer.

David Bailey

Thanks Matt. Good morning everyone and thank you for joining us. We hope you are safe and well.

As we start all earnings call, I'd like to highlight that we helped over 9,300 children in the first quarter of 2022. Since inception, OrthoPediatrics has now helped more than 540,000 children in total, when including the accomplishments of MD Orthopedics, which I'll provide more detail on shortly. Doing the right thing for children is an always will remain our top priority.

In the first quarter of 2022, we generated revenues of $23.4 million, representing growth of 9% compared to the first quarter 2021. Despite meaningful COVID headwinds in January and February, we rebounded in March, which allowed us to generate solid revenue growth given the extremely challenging environment.

Moving to our revenue segments. In the first quarter of 2022, we generated quarterly trauma and deformity revenue of $16.5 million, representing growth of 13% compared to the prior year period. Despite increasing Omicron impact in January and February, our non-elective trauma business delivered strong growth led by high rate of surgeon adoption of our PNP Femur System, as well as our new Cannulated Screws and SCFE Systems.

Specifically PNP Femur and Cannulated Screws continued to benefit from positive customer preference and record set deployment. In the United States, we expect this trend to continue throughout the balance of 2022 and beyond, supported by additional set deployment and continued surgeon adoption.

Internationally, we expect to see strong growth from PNP Femur and Orthex specifically. After showcasing both surgical systems at the 40th Annual European Pediatric Orthopedic Society in Denmark in early April, we saw noticeable increases in interest from key agency and stocking distributors. Additionally, we are planning a more robust launch of the PNP Femur and external fixation systems in key international markets, which should contribute nicely to growth in the balance of 2022 and beyond.

In the first quarter of 2022, we generated scoliosis revenue of $6 million, representing growth 1% compared to the prior year period. Given the elective nature of surgical procedures within our scoliosis franchise, we experienced more meaningful headwinds in the early part of the first quarter.

From a geographic perspective, domestic scoliosis revenue increased modestly compared to the same prior year period, while international revenue declined slightly due to international stocking distributors reacting unfavorably to the Omicron variant. That said our core scoliosis business continues to be driven by our flagship RESPONSE fusion system and the continued onboarding of new users of our ApiFix non-fusion system.

Given the number of new surgeon users added in 2021, we view consistent adoption of response and growing the growing ApiFix franchise as combined tailwinds to growth in 2022.

Next, I want to speak to some of the macro trends experienced in the first quarter that have impacted the entire healthcare system and specifically, the medical device industry, the first being COVID.

As stated on our previous earnings call on early March, we entered the first quarter of 2022 experiencing meaningful headwinds associated with the Omicron variant, which negatively impacted elective procedure volume in January and February.

Although the operating environment is improving, we continue to see pockets of COVID cancellations and elective case scheduling disruptions due to staffing challenges, albeit, at a much lower level compared to January and February.

While delta and Omicron have deferred elective surgeries, it's important to note that this situation is temporary and that these elective cases do not permanently go away. This brings me to my second point. While the backlog of cases has increased since September 2021, we believe the recapture of deferred cases will be flattered in 2022 compared to 2021, due to continued hospital staffing shortage issues.

That said, we believe the underlying demand for our products remain strong and we expect a more favorable elective procedure environment as we progress through the second quarter and the balance of 2022, which gives us tremendous confidence to deliver mid-20% growth for the full year.

Lastly is the disruption associated with a global supply chain and increasing inflationary risk. While we are starting to see small pockets of inflation and extended lead-times, it is mostly isolated to instrument sets. Based on the current environment, we anticipate any supply chain disruptions will be in small quantities that may delay certain set deployments by several weeks.

Since we're not seeing major inflation from our suppliers regarding our surgical implants or systems, we do not expect gross margins to be impacted in 2022. Furthermore, if inflation worsens, we have a high degree of confidence to offset increased costs with modest price increases to our customers, which we have historically been able to do.

Regarding specific raw materials, the vast majority of our products are made from stainless steel, limiting our exposure to titanium. We are also proud to say we source approximately 90% of all materials and inventory domestically, which significantly reduces our exposure to global supply contracts.

I'll now provide an update on a few of our key strategic initiatives, starting with the acquisition of MD Orthopedics. MD Orthopedics is a pediatric specialty bracing company focused exclusively on the treatment of children with clubfoot. Based in Wayland, Iowa, MD Orthopedics was founded through a partnership with Mr. John Mitchell and Dr. Ignacio Ponseti, a globally renowned pediatric orthopedic surgeon. MDO developed a custom-fit bracing system to correct congenital clubfoot deformity, which they sell in over 90 countries globally. In fact, this unique bracing system supported the dissemination of the Ponseti technique, which has become the gold standard treatment to correct clubfoot.

Once fully integrated, we'll take advantage of our globally recognized brand and distribution network, combined with the strength and scale of our surgeon relationships to increase adoption of MDO's innovative clubfoot solution.

While this unique non-operative solution will maintain its focus on the treatment of clubfoot, we also plan to leverage the capabilities of the MDO organization to develop several new innovative products that address large unmet needs for specialty bracing within the pediatric orthopedic market.

Specifically, MDO will serve as a specialty bracing platform company within OrthoPediatrics' trauma and deformity correction business, allowing for rapid development and launch of several new products.

Lastly, the pediatric orthopedic specialty bracing market has very attractive financial characteristics for OP, and then it requires minimal capital deployment for consignment inventory. Qith an estimated 80% of pediatric orthopedic care involving non-surgical treatment, MD Orthopedics expands OrthoPediatrics' total addressable market by an estimated $600 million.

Speaking of rapid new product development, in late March, we announced a limited U.S. launch of our new PediFlex Advanced Interlocking Clamp System with a full global launch planned for later this year. This new system provides surgeons with additional options when using flexible intramedullary nails to treat fractures in children.

While traditional flexible nailing has existed in pediatric orthopedic fracture care for over 40 years, this innovation evolves the use of flexible nailing in pediatrics. The clamps are offered in multiple sizes, ranging from three millimeters to four and a half millimeters, and are specifically designed to prevent problems associated with unwanted nail instability and migration.

In April, we received an additional FDA clearance for Drive Rail, our new external fixation system. Unlike Orthex, which is a multi-plainer system, Drive Rail is a unilateral external fixation system with components designed to manage lower extremity fractures and corrective procedures. Unique to Drive Rail, this system contains integrated and customizable features that simplify the number of parts and steps needed to perform these complex surgical cases.

In addition, the Drive Rail system can be utilized with the Orthex system serving multiple indications at the same time. We believe that Drive Rail will be a welcomed addition and complement to our entire external fixation portfolio.

Accelerating new product development is one of our top priorities in 2022 and 2023 and we continue to make substantial progress in several key areas. Specifically, we're expanding our iron nailing platform, including extensions to our rapidly growing PNP Femur brand, developing the first ever pediatric specific tibia nail and a system to dedicate it to treat rare bone disease.

We're building out a software development competency and plan to launch pre-op and inter-operative planning software for pediatric deformity correction surgery. As mentioned previously, in connection with MD Orthopedics, we plan to accelerate the development of other key non-surgical systems, which will provide more detail in the future.

Regarding our scoliosis franchise, we're increasing focus on multiple unique solutions to address early onset scoliosis and the addition of several key instrument updates within the response Spine Fusion system.

Turning to ApiFix, we've made great progress enrolling patients in our registry and continue to add commercial sites with IRB approvals. As of April, there were approximately 50 U.S. ApiFix patients with greater than 12 months follow-up with our first ever patient reaching two-year follow-up this June.

Preliminary results remain very encouraging. Given the early clinical success of ApiFix, we continue to receive positive inbound inquiries from key hospital customers, leading to an accelerated onboarding of new surgeons in recent quarters. Additionally, ApiFix was awarded the Gold Medal from the 2022 Medical Design Excellence Award Program. Being judged by an impartial panel of medical device experts, this award embodies the dedication and passion of our company, along with our surgeon partners who are committed to providing children with a new treatment path for adolescent idiopathic scoliosis.

Transitioning to strategic partnerships, we're seeing strong demand for the 7D Surgical Navigation platform. Specifically, we've performed numerous evaluations in the fourth quarter of 2021 and the first quarter of this year. Multiple customers, including many that are new, are currently going through value analysis committees and working through capital purchasing agreements.

In the coming months, we look forward to providing more details regarding our first unit placements. We continue to view 7D as a transformative platform that will improve patient outcomes, drive increased surgeon engagement, and allow us to leverage our entire product portfolio to pull-through sales of our other products.

Lastly, we're particularly proud of our execution and helping train the next generation of pediatric orthopedic surgeons. Year-to-date through March 31st, we carried out more than 70 training events for health care professionals. In April, we were the only diamond sponsor at the 40th Annual EPOS Meeting in Denmark, where we hosted a Surgeon Symposium led by OP's Medical Director, Dr. Scott Hoffinger. This was a particularly exciting event, as it was the first time since 2019, where we were able to meet with hundreds of European surgeons.

Additionally, we're a Gold Sponsor at the International Meeting of Advanced Spine Techniques, or IMAS, in Miami, Florida, where we held an ApiFix surgeon training meeting. Our commitment to non-commercial clinical education keeps us true to our cause and signals our dedication to advancing the entire field of pediatric orthopedics.

In summary, we believe the fundamentals of our business have never been stronger and we are proactively making the necessary investments to ensure our long-term success as the market leader in pediatric orthopedics.

As a management team, we've adopted the mantra of controlling what we can control. We've been operating in this dynamic environment for over two years and are taking the steps to neutralize these periodic headwinds by you utilizing and deploying creative approaches to execute our strategy.

We recognize the continued challenges that affect the healthcare environment. However, as a company, we are moving forward and tackling the challenges in stride. Circumstances won't dictate our success. The word our customers, and we do is too important. We have kids to help.

With that, I'll turn the call over to Fred to provide more detail on our financial results. Fred?

Fred Hite

Thanks Dave. Our first quarter 2022 worldwide revenue of $23.4 million increased 9% when compared to the first quarter of 2021. Growth in the quarter was driven primarily by strong performance within trauma and deformity offset by the unfavorable Omicron impact earlier in the quarter.

In the first quarter of 2022, U.S. revenue was $18.2 million, an 8% increase from the first quarter of 2021. The growth in the quarter was primarily driven by our non-elective trauma business.

In the first quarter of 2022, we generated total international revenue of $5.2 million, representing growth of 13% compared to the prior year period, growth in the quarter was driven primarily by strong agency sales. Similar to the U.S. we saw material case cancellations early in the quarter, particularly in Australia, Germany, and the United Kingdom.

That said, March was stronger led by the adoption of PNP Femur system and Orthex. In the first quarter trauma and deformity revenue of $16.5 million increased 13% compared to the prior year period. Growth was driven primarily by the high rate of surgeon adoption of our PNP Femur system, as well as our Cannulated Screw and SCFE systems.

In the first quarter of 2022, scoliosis revenue of $6 million increased 1% compared to the prior year period. Growth was primarily driven by our response system and the onboarding of new users. This was partially offset by the impact of Omicron early in the quarter, which impacted elective procedure's volume.

Finally, sports medicine, other revenue in the first quarter of 2022 was $900,000, which declined 4% compared to the prior year period.

Turning to set deployment, in the first quarter, we continue to execute our strategy of set deployment. Specifically $3.9 million of sets were consigned in the first quarter of 2022 compared to $5.3 million in the first quarter of 2021. The demand for sets continue both domestically as well as the 14 agency countries outside of the U.S. and provides opportunity for us to fulfill more of that demand in 2022 and beyond.

Touching briefly on a few key metrics for the first quarter of 2022, gross profit margin was 79.3% compared to 76.1% in the first quarter of 2021. The change in gross margin is primarily driven by sales through the converted international agencies, favorable purchase price variances, and fewer scoliosis set sales to our international stocking distributors.

Total operating expenses increased $2.7 million or 12% from $22.3 million in the first quarter of 2021 to $25.0 million in the first quarter of 2022. Sales and marketing expenses increased $800,000 or 9% to $9.8 million in the first quarter of 2022. The increase was driven primarily by increased sales commission expenses.

General and administrative expenses increased $1.1 million or 9% to $13.1 million in the first quarter of 2022. The increase was driven primarily by the addition of personnel and resources to support the continued expansion of our business and an increase in legal and other professional services.

Other expenses were $3.0 million in the first quarter of 2022 compared to $4.7 million in the prior year period. The decrease in other expenses was due primarily to the fair value adjustment of contingent considerations.

We reported and adjusted EBITDA loss of $1.6 million in the first quarter of 2022 compared to a loss of $1.4 million for the first quarter of 2021. We ended the first quarter with $46.4 million in cash and restricted cash and we continue to have the $25 million available on our line of credit.

Before providing enough date on our 2022 financial guidance, I would like to comment on the increasingly popular topic of ESG. OrthoPediatrics' management and Board of Directors takes its environmental, social, and governance responsibility very seriously and believe that these areas are central to our business philosophy and critical to increasing shareholder value.

We have created an internal ESG team, which I lead that is currently working on and determining which metrics to use and report on moving forward. We are putting actions in place to improve each section of ESG and look forward to providing periodic updates in the future.

Finally, turning to our outlook for 2022. Our business will continue to benefit from several fundamental tailwinds, including an increasing active surgeon base, growing backlog of deferred procedures and expanded product portfolio, the addition of key strategic partnerships, and pending international approvals.

Our 2022 outlook is highly sensitive to assumptions on a steadily increasing global recovery, which anticipates case scheduling and elective procedure levels normalized throughout the year.

For 2022, we now expect annual revenue to range between $122 million to $125 million, representing year-over-year annual growth between 24% and 27%. This guidance assumes roughly $4 million of revenue contribution from MD Orthopedics.

Lastly, we plan to deploy between $24 million and $26 million of new sets in 2022, representing year-over-year annual growth between 80% and 90%. This increase is driven by pent-up demand for new product introduction systems, legacy systems, as well as consignment of 7D Intra-Operative Navigation systems.

In addition, we expect to generate several million dollars of adjusted EBITDA for the full year of 2022, crossing a major milestone for our business.

At this point, I'll turn the call back over to Dave for closing comments.

David Bailey

Thank you, Fred. We continue to make progress on each of our strategic pillars, which we believe are key to improving the lives of children who suffer from orthopedic conditions, and we're excited about what the future holds.

I'd like to conclude by thanking everyone for their interest in OrthoPediatrics and we look forward to updating you on our future progress and meeting many of you at upcoming investor conferences.

With that, I'd like to turn the call back over to the operator to open the line for questions.

Question-and-Answer Session

Operator

Thank you. we will now begin the question-and-answer session. [Operator Instructions]

And our first question is from Matthew O'Brien from Piper Sandler.

Matthew O'Brien

Morning, thanks for taking the questions. Fred, can we start off with guidance? You took it up by about $4 million for the year and I think the majority of that is MD Ortho, but you did beat Q1 by a little bit versus our numbers anyway, about $1 million or $2 million in total. So, seems like you're taking the full year core number down ever so slightly. Is there something to call out specifically? I don't know if it's a staffing issue not being able to get the cases or anything from a product perspective to call out?

Fred Hite

No, I would say that the first quarter came in similar to what we expected and therefore, we are confirming our underlying guidance of the core business.

Matthew O'Brien

Okay, on a full year basis? Got it.

Fred Hite

That’s right.

Matthew O'Brien

Okay. And then the second question is just on ApiFix. Dave, you mentioned more clinician onboarding and I know you're still going to go slow this year, but I think you've talked about kind of doubling the number of procedures this year and then getting the registry done. Are you on pace given some of the interest that you've seen could potentially go even a little bit faster with ApiFix? Thanks.

David Bailey

Yes, good question. Matt, I think, we're standing beside this doubling. In January, February, we saw pretty low clinic volumes and so we were maybe a little slower in Q1 than we would have liked just because of the impact of the pandemic, but given the kind of interest that we're seeing, the onboarding of new customers, as well as just what we have in the pipeline for Q2 and beyond, we still feel really good about doubling that number in 2022.

Matthew O'Brien

Got it. Thank you.

Fred Hite

Thanks Matt.

Operator

Our next question is from Samuel Brodovsky from Truist Securities.

Samuel Brodovsky

All right. Thanks for taking the question. First one I'll ask on MD Orthopedics and just given that it's a non-surgical indication, how should we think about that integrating into the salesforce? I mean, is this a different call point or is that transition relatively easy? And how long should we think about the integration period taking?

David Bailey

Yes, Sam, at this stage, most of MD Ortho's domestic sales comes direct. So, they literally drop ship to the customers, which are children's hospitals, which are similar -- or same clinicians that we have. But we don't have an aggressive plan, at least in the United States to integrate the selling organization with the particular club flip products, given the success that they're enjoying, through the sales channel that they have.

We do see an integration of a number of other non-surgical products within our existing salesforce. We've talked about the DF2 product, which is in fact a fracture brace that would be put on in the operating room. And that is something that we would likely manufacture through MDO and utilize a lot of the MDO infrastructure to provide the product that likely use the U.S. selling organization to deploy that and to sell out into the children's hospitals.

Samuel Brodovsky

Okay, that's helpful. And then I'll just ask one on -- just on the backlog here. And I think last time we had talked, it was it was about a $2.5 million backlog sort of being realized into Q2, Q3. Is that, is that still the assumption? Or I think Fred had said it, maybe it's going to be a little bit flatter through the year and is that going to extend it to 2023 at all, maybe?

Fred Hite

Yes, we think the backlog is similar to what it was at the beginning of the quarter. It does not feel like we've burned off any of that backlog. And that it is going to take the second quarter and third quarter of 2022 to fully absorb all of that backlog.

That is a lot longer, I would say than what we saw historically in 2020 and 2021, just because of the staffing issues that we're experiencing right now. But for sure that will be our anticipation is that we'll be burned off here all of 2022.

Samuel Brodovsky

Thanks so much. I'll jump back in the queue.

Fred Hite

Thanks Sam.

Operator

And our next question is from Mike Matson from Needham & Company.

Mike Matson

Yes, thanks for taking my questions. Fred, I heard the comments on kind of the extra assumptions behind your guidance of like a steady improvement in volumes and COVID recovery through the year. But I was just curious, you didn't really say anything about the second quarter, I know you have a fairly difficult comp, it looks like consensus was kind of around $30 million. So, -- I mean, you didn't call anything out, I assume you're kind of comfortable with people or modeling things there for the second quarter?

Fred Hite

Yes, that's right. You are correct. The second quarter of last year was by far our strongest quarter. We had 31% growth in the first quarter of last year and strong growth in the second quarter of last year and then we started seeing the impact of delta, which slowed our growth in the third and fourth quarter.

So, we definitely see much more aggressive growth numbers in the third and fourth quarter because of those comparables, but the second quarter seems to be in line with kind of our expectations at this point.

Mike Matson

Okay, got it. And then you're just a question on the MD Orthopedics deal. So, braces, -- I understand the kind of appeal there from a market expansion perspective and then the financial aspect of less capital requirements, but they are not used in the OR setting, I don't think and so can your salesforce kind of manage selling those in more of an office-based setting as opposed to being in the OR the implants they're selling? Correct me if that's wrong. And then --- yes, I guess that's my question. Thanks.

Fred Hite

Yes, so again, the current MDO selling organization is really -- there is really not a an aggressive domestic selling organization at this point out there. It's primarily done through direct sales and done through really a training method where we're training physicians on the Ponseti technique, and then ultimately, that pulls through the product line.

So, we -- given the volume of training events, we feel like the capacity to train physicians on Ponseti technique, and ultimately, on the product will ultimately be the driver of domestic sales in the short-term. There probably will be opportunities for us to leverage the domestic selling organization, but at this stage, our it's not our intent to be very aggressive in terms of integrating the current MDO portfolio into our U.S. selling organization.

That said, likely in the next place, you'll see us move into certain types of fracture bracing. We have been working on a product called the DF2 for a number of quarters and expect to launch that here in this year. And that, in fact, is a brace that use intraoperatively as opposed to Spica Casting, and that is something that we intend to integrate into the U.S. salesforce and benefit from the infrastructure that we acquired and MD Orthopedics.

David Bailey

I would just add that the benefit here -- this is the exact same customer, it's the same surgeon that is doing the procedures for our core business, as well as doing the casting and then prescribing this brace for treating clubfoot.

Mike Matson

Yes, okay. I got it. Thank you.

David Bailey

Thanks Mike.

Fred Hite

Thanks Mike.

Operator

[Operator Instructions]

And our next question is from Ryan Zimmerman from BTIG.

Ryan Zimmerman

Good morning. Thanks for taking the questions. Want to start off with also MD Orthopedics just briefly. I'm curious kind of, Fred, if you could talk a little bit about the margin impact with -- as you grow in bracing, what kind of impact will they have on just overall company margins? And can that be a accretive? I would think that those are pretty good margins on those braces, but please help educate us a little bit?

Fred Hite

Yes, you're absolutely right, the business that we acquired was, I would say, very profitable. As you can imagine, it was a privately held company, it was managed for cash generation and for profit. And so it has, I would say, similar gross margins, probably higher contribution margins and definitely positive operating income and EBITDA and net income. And so it will be helpful to our P&L, there's no doubt about it.

The other benefit, as somebody mentioned, is the lack of capital. So, we can drive tremendous growth in this business without deploying additional capital. So, there's no consigned sets in this business, which is another advantage to us. So, we see it helping the P&L, we see it helping the return on assets. And by investing a little bit of the operating income into the business, we're confident that it will be an additional growth driver for us into the future.

Ryan Zimmerman

Got it, that's very helpful Fred. And then, Dave when I hear you talking about all the new products you're developing in 2022, you're talking about software, competencies, et cetera. As the company becomes more profitable and starts to generate positive EBITDA and positive operating cash flow, how do you think about the investments required for all this product development?

And specifically, how should investors think about cash burn at this point in the company's life relative to kind, of, the scale you're achieving on the existing business? Thanks for taking the questions.

David Bailey

Yes, I'll let Fred take the cash burn thing, but listen, we have a very large set of opportunities to continue to develop products that meet unmet needs in pediatric orthopedics. We're so early in the growth story. The pediatric orthopedic marketplace has been under invested in compared to other orthopedic sub-specialties. And we're 15 years in and really 10 years in to launching substantial product lines in this space. And so I think you can expect from a P&L perspective that we continue to be investing in new product development.

We just -- we feel really blessed that we have no shortage of opportunities to develop products that meet unmet needs for our customers. And I think that's part of the lifeblood of growth, along with some of the acquisitions that meet unmet needs for kids.

So, from an R&D perspective, I think it's full speed ahead. We're talking pretty aggressively internally and now externally about our desire to accelerate the velocity of new product development and again, I think he'll be able to -- you'll see that from us over the course of the next several years. Well, Fred, if you want to speak to the capital burn circumstances?

Fred Hite

Yes. First, just to comment on the R&D, you see our R&D grew 54% -- 55% in the quarter versus the first quarter of last year. I think you'll continue to see us aggressively investing in the R&D area and at the same time, generating positive adjusted EBITDA this year, which will then be boosted a little bit by the MD Orthopedics addition to the business.

From the cash burn side, we're very excited about generating positive cash from the business this year and really, the only cash burn is going to be the deployment of sets that we'll have this year, a little higher than last year, but we feel good about where we're at. We do have $46 million at the end of the first quarter of cash, plus another $25 million line of credit available to us. So, we've got more than enough cash to support the acquisition of MD Orthopedics and continue investing in set.

Ryan Zimmerman

Thanks for taking the questions.

Fred Hite

Thanks Ryan.

Operator

And our next question is from Dave Turkaly from JMP Securities.

Dave Turkaly

Good morning. Maybe I can ask one. you mentioned 7D and I was just curious, I know it's early, but any comments on sort of the procedures that you were using that in today can it be used with everything you do? And then maybe any sort of details or color around sort of targets that you might have for that kind of a system, maybe even on an annual basis, anything we can kind of wrap our hands around?

David Bailey

Yes, so the response to the product line has been extremely positive. Although this is -- as you know, the first capital equipment product line that we have, that we've launched to the company, so we're recognizing that it takes sometimes weeks, if not, quarters to go through the capital purchasing process.

That said, we have -- I would say at this stage, we have more opportunities for deployment than we had anticipated going into the year. We have a number of proposals out, we have a number of proposals that that are within that committees and capital allocation committees and we expect a number of these placements to come through over the next few quarters.

So, we haven't spoken to the numbers yet. But I think we see this as a meaningful contribution to growth in 2022. And really, once those units are fully deployed and we get into a cadence where every quarter we are deploying more units, we expect that to have a very strong impact on our scoliosis revenue across 2022 and 2023 and beyond.

We do feel like this technology has application for other areas in pediatric orthopedics. There is really no inter-operative navigation solution and pediatrics more broadly, primarily focused on scoliosis. And so part of our arrangement with C Spine 7D was joint development and such that we could be really the only company in orthopedics, there's exploring the unmet needs to navigate certain other areas of pediatric orthopedic surgery. We see strong indication for this and very complex limb deformity procedures.

And so I think it's another reason why we really, really liked this partnership.

Fred Hite

Yes, as far as the quantification of it, I think on the call last time, we had mentioned, we anticipate about $2 million of that $25 million set deployment will come from us consigning 7D units into the field. And just back on the surgeon, so today, the system is validated for spine and cranial procedures. It's not validated for anything else. So, as Dave mentioned, we'll be working to get it validated in the trauma and deformity space into the future.

But one of the things that we're really most encouraged about is the surgeons -- every surgeon that has used it, has loved the system, but most of those are new customers to us on the scoliosis side. And so it's, I think, doing exactly what we thought it would do, which is bringing -- it's enabling technology to bring new customers to the table and drive incremental growth for our business.

Dave Turkaly

Thank you. Thank you for all that detail. I guess it just as a quick follow-up. There's obviously a lot of nav and planning and software systems that are out there. And it sounds like you're -- sounds like you're really confident in what you have, but do you need anything else to -- need to buy anything else or develop anything else internally to do those things to move maybe into trauma and deformity? Or do you think the systems are ready for any of the future areas you might want to attack?

David Bailey

Yes, we think this system has the capacity to do what we need it to do outside of scoliosis. There's a lot of work that needs to be done to make that happen, obviously, FDA approvals and just development work. But we think the system is really an ideal product for kids.

The low navigation -- or the low radiation to really know intraoperative radiation, we think is exactly ideal for the pediatric orthopedic marketplace and that's why we're so bullish about this.

We did speak to on the R&D side, some work we're doing both on the preoperative and intraoperative planning software, we'd ultimately like to get to the point particularly in treating complex limb deformity, where we could start to produce pre-planned cut guides, such that there could be more exacting surgery in limb deformity correction, which is a real need. And I suspect that that will be done both through preoperative planning software as well as intra-operative navigation solutions.

I think we're well positioned to be able to deliver on that. It's probably not a an immediate short-term thing. But certainly over the next several quarters, I think we're going to be the only company in orthopedics that can deliver that for pediatric orthopedic surgeons.

Dave Turkaly

Thank you very much.

Fred Hite

Thanks Dave.

Operator

[Operator Instructions]

We have no further questions. I will turn it back over to Dave for final remarks.

David Bailey

Great. Well, I appreciate all the questions. Thank you for your time. Thank you for your continued interest in OrthoPediatrics and we look forward to speaking with you all over the course of the next several months. Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes today's call. Thank you for participating and you may now disconnect.

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