OrthoPediatrics Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 4, 2025
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Operator

Hello, and welcome to OrthoPediatrics Corporation Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Tripp Taylor from the Gail Martin Group for a few introductory comments.

Operator

Please go ahead.

Philip Taylor
Principal at Gilmartin Group

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer and Fred Haidt, 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, I encourage you to review the company's upcoming annual report on Form 10 K, which will be filed with the SEC on 03/05/2025.

Philip Taylor
Principal at Gilmartin Group

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 measure to the most directly comparable GAAP financial measure 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 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 this live broadcast, today, 03/04/2025.

Philip Taylor
Principal at Gilmartin Group

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'd like to turn the call over to David Bailey, President and Chief Executive Officer.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Thanks, Trip. Good morning, everyone, and thank you for joining us on our fourth quarter twenty twenty four conference call. As always, I'd like to start by reporting the metric which most clearly defines our continued success and in which we are most proud. During the fourth quarter, we helped more than 34,000 kids and over 138,000 kids in the full year, both record highs for OrthoPediatrics. Now having completed our eighteenth year at OrthoPediatrics and having helped over 1,140,000 kids, my associates and I recognize the positive impact our company has had on so many children and their families.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And we take our responsibility very seriously. Our customers and all healthcare providers in the pediatric space have been forced to make do with less than ideal options for children, and we will do everything in our power to right that wrong. While eighteen years have passed since our inception, in many ways OP is just getting started and our resolve to be a company that eventually helps 1,000,000 kids every year has never been greater. During our journey, we have established OrthoPediatrics as the clear cut market leader in pediatric orthopedic implant and we anticipate our continued execution will lead to a dominant market share position in trauma and deformity correction and scoliosis implants in the coming five years. In the last few years, we have established ourselves as a leader in pediatric specialty bracing with our OPSB franchise.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

On top of deepening our commitment to the field and meeting more of the needs of our customers, this expansion of our business enables OrthoPediatrics to grow in a more capital efficient way. In the coming several years, we plan to execute our clear cut strategy to obtain market dominance in this very large $500,000,000 marketplace. Given the OPSB business is generating a higher contribution margin than our implant business, these investments will enable us to generate increased EBITDA and improved cash flows. Every day, every quarter, every year, we became more ingrained in the children's hospitals by growing our market share and displacing the retreating incumbent competition and living out our near fanatical commitment to doing what is right for children and their caregivers. We demonstrate this commitment by delivering new products and technologies that meet major unmet needs, providing unparalleled customer service through the world's only global sales channel in pediatric orthopedics and through a network of dedicated pediatric specific orthotists and prosthetists by our outside support for surgeon clinical education and training and to put it simply investing in important things that our customers care about and that impact the field of pediatrics.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

When you look at

David Bailey
David Bailey
President & CEO at OrthoPediatrics

the success of our company across our eighteen year history, our ability to execute on our commitments, our consistent track record of sales growth through share taking, deliberate step function improvements in adjusted EBITDA laying a clear path of free cash flow breakeven in 2026 and more recently our record performance in 2024, we believe our market valuation is entirely inconsistent with the company's performance. We recognize as a public company certain metrics and external macro dynamics will always be scrutinized, but we believe the fundamentals of our business have never been stronger. Regardless of the quarter to quarter gyrations and variations that can impact valuations for companies like ours, the unshakable truth is that OrthoPediatrics has carved out a unique position in the public growth med tech sector. Unlike other med tech companies, we are not in a bare knuckle struggle against focused competition, which gives us confidence in our growth trajectory while allowing us to leverage our P and L and soon we will produce free cash flow positivity. Therefore, we will continue to be aggressive and execute our strategy on our way to helping 1,000,000 kids per year and creating substantial shareholder value.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

To this point, throughout the year and again in the fourth quarter, we have successfully delivered positive results. We have produced extremely strong total revenue of $52,700,000 representing 40% growth from the comparable period. We saw quarterly growth in both T and D and scoliosis with 3562% growth respectively led by domestic strength with quarterly growth of 52% from a particularly robust performance from domestic T and D as well as the addition of Boston LMP. Our international growth was impacted by our decision to slow set sales shipments to South America, specifically Brazil, in order to reduce AR balances negatively affected by rapid currency fluctuations. However, we still saw extremely strong EMEA, TND growth due to high demand and OUS scoliosis growth was great despite challenges in Brazil.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

With extremely significant revenue growth and more than doubling our adjusted EBITDA during the fourth quarter of twenty twenty four, we improved our financial profile and took another step towards free cash flow breakeven in 2026. All of our businesses continue to grow rapidly entirely from share taking due to continued demand for our products, large scale set deployments in 2023 and 2024, major new products, successfully scaling of our past acquisitions such as Orthix, Apophix and Pega Medical and the more recent launch of OPSD and the acquisition and full integration of Boston OMP. With all of these levers in place, we are confident we will continue to reach new highs and deliver important results for OrthoPediatrics. We expect our business to continue this momentum and our success in 2025 and beyond is driven by three main factors: execution and scaling of OPSB, share taking across the business by leveraging prior set deployments, and ongoing success of our innovative product launches. This year, we expect to generate revenue of $235,000,000 to $242,000,000 representing annual growth of 15% to 18% as we lap the Boston OMP acquisition.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Importantly, we also expect adjusted EBITDA of $15,000,000 to $17,000,000 to be greater than $15,000,000 of set deployments in 2025. We also expect to have our first quarter of positive free cash flow in the fourth quarter of twenty twenty five. In the fourth quarter of twenty twenty four, the TMD business continued to drive significant market share gains across several products as well as the addition of Boston LMP revenue. This quarter's performance was highlighted by both trauma and OPSP products, including PMP tibia, DF2, cannulated screws and BOSTON OMP sales. We continue to leverage our prior set deployments, which are driving increasing share gains for trauma and deformity across the breadth of our products.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

U. S. Trauma and deformity was extremely strong and in fact U. S. Trauma is likely as robust as we've ever seen it in company history, mainly attributable to set deployments in 2023 and 2024 and the more rapid adoption of our new products.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

In addition, during the quarter, several sets of PMP tibia were launched and we expect this will remain an important growth driver for the next several years. DF2 demand is now far exceeding our expectations and is quickly setting a new gold standard for femur fracture management in young children. DF2 recently received expanded indications for post operative care, which we believe is a much larger market than the femur fracture market. All of this has created the need for expanding our supply chain to meet exploding demand. On the R and D front, we're excited about our projects on the surgical side of our T and D business.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Our pediatric plating platform or 3P, a world class system with significant opportunity to fulfill unmet needs is progressing according to plan and we anticipate a beta launch of 3P HIP. Once launched, 3P HIP will spawn further share taking opportunities for us within the plating franchise. Overall, T and D continues to be a solid performer for us as we leverage our scale, capture market share and bring new products to market that fill unmet needs and drive continued growth across the board. As for the non surgical specialty bracing business or OPSB, from the start, we have been very bullish about this franchise, which represents a large new source of capital friendly growth. Following the successful integration of Boston OMP, we are very pleased to see our strategic rationale validated and playing out as we expected, maybe even better than we expect.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

As previously announced, we expanded our clinic business through both Greenfield expansion in Indianapolis and AquaHire in Florida and Colorado. The opportunities for clinic expansion are immense. The demand from our customers is high and our funnel for clinic expansion is very large. The stand up of the early expansion clinics is going well and providing a reproducible playbook that represents a substantial growth lever with significant runway. We are pleased with how we are tracking to our guidance for four new territories in 2025 and expect that there will be more updates on this front throughout the year.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

On the product side of OPSB and as previously mentioned, we are experiencing rapid growth of our DF2 femur fracture brace, which is growing so rapidly that we are seeking additional manufacturing sources so that we can meet current and future demand. Beyond that, our OPSB R and D team launched multiple products such as a new scoliosis brace sensor with patient compliance software and additional DF2 sizes as we extend its use beyond fracture management. And we signed distribution and licensing agreements for the Move D Brace to minimize tremors developed at Children's Hospital of Orange County and the Thrive product portfolio including Thrive Orthopedics F3 HERO Pediatric AFO, the Tru Stretch Pediatric Aquinas Brace and the Thrive Pediatric X Glide Carbon Fiber Insole, all focused on three unique pediatric orthotic conditions. These solutions are more evident supporting our thesis that OPSB can become the clearinghouse for specialty bracing products specifically designed for kids. Further, the pipeline of new opportunities coming on the business development side of OPSB is really ramping.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

We are certainly attracting entrepreneurs and inventors with new product lines and technologies that they desire to scale globally through our growing sales channel and clinic network. This is coming in licensing, distributing and in some cases small acquisition opportunities that will continue to allow us to leverage our channel thus growing revenue and adding profit. We are building a flywheel. At this point, it is small and it's spinning very fast. But with scale comes increasing momentum and we are very confident our flywheel will become quite large in the coming years.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

We recognize the huge potential within OPSB to drive our patient impact potential for treating more patients with capital efficient growth. And early traction within our strategy suggests that we are on track with our plans to execute through the remainder of 2025 and for several years beyond. Moving to the scoliosis business. Our strong growth seen in scoliosis this quarter was driven by continued share gain combined with new users from large accounts. We anticipate that this trend will continue into 2025.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

As we increase our volume, we expect to reap the benefits of the new user acceleration from late twenty twenty four. To highlight a few key products, we continue to see strong growth in our response fusion franchise from new customer acquisition. We saw additional 70 placements in the fourth quarter in large institution and the continued introduction of our first EOS product, response ribbon pellet. We have a substantial opportunity to grow scoliosis revenue over the next three to five years. Additionally, we are seeing a consistent stream of new Apophix users and growth that only continues to pick up.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

More users are learning where Apophix fits in their treatment algorithm. This supports our vision that eventually APA FIX will be a tool used by almost every pediatric scoliosis surgeon. While still relatively small, we expect APA FIX to continue to grow rapidly in 2025 as more surgeons better understand the best use case for the device in their practices. Looking at our EOS products, our EOS product portfolio development remains on track and we are directly discussing the requirements for product approvals for Ellie and Vertiglyde with the FDA. We have been working on confirming the regulatory path and recently we've had encouraging feedback from the FDA.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

The most recent discussions have led us to believe that there is a higher likelihood that Vertigly will be approved in The U. S. Sooner than expected and under five ten clearance. Moving on to international. In the quarter, we saw slower international sales generating revenue of $9,800,000 and delivering 5% growth year over year.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Despite significant international demand, we made a conscious decision to limit additional stocking order shipments to certain stocking distributors in order to stimulate timely receivables collections, which have been negatively affected by the rising dollar against South American currency. Trauma and deformity implants were most affected by the shipping holes in South America, while scoliosis delivered very nice growth year over year. That said, general demand across the entire T and D and scoliosis portfolio was healthy, especially in our agency markets, where we saw strong sales growth. In fact, non LATAM TND growth exceeded 20% and scoliosis grew nearly 30%, highlighting the extremely compelling underlying demand. International scoliosis performed well due to solid revenue in our direct markets where we are seeing new users come on board.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

We are very happy with the progress made in 2024 launching the scoliosis business in The EU and expect that with the anticipated EU MDR approvals, our EU spine franchise is set for high growth in the future. As we look ahead, EU MDR approval remains a large catalyst for our growth in 2025 and beyond. And we are confident that we are well positioned for approvals. We are awaiting the notified body audit to finalize our EU MDR status, which we expect to be completed in mid-twenty twenty five. And once we receive our first, we will launch a wave of products into the EU and then expect additional waves as further approvals are accomplished over the next eighteen months.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

I want to point out the EU MDR approval for implants is an expensive process, but we believe it is the right thing to do for kids who need these devices outside of The United States and it strengthens our strategic position. Additionally, we are exploring further expansion opportunities for OPS B outside The U. S. In 2025, which comes with a light touch and quick turnaround when it comes to regulatory approvals. Overall, the international business is set up nicely and we believe the remainder of the year will contribute toward a healthy 2025.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Finally, this brings us to surgeon training and education. In the fourth quarter, we hosted 132 unique training experiences for over 2,700 healthcare professionals, including during IPOS, the International Pediatric Orthopedic Symposium, where OrthoPediatrics continued our leadership position as an Emerald level sponsor. Once again, our team was well represented and connected with customers to share hands on learning experiences with our new and innovative products. We were excited that through our booths and our educational events, we were able to introduce our new Enabling Technology division, as well as highlight all the great work we are doing in non operative care through OP Specialty Bracing. Our time at events like this is incredibly important as we prioritize providing clinical education opportunities to grow alongside the pediatric orthopedic community.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

So with that, I'd like to turn the call over to Fred to provide more detail on our financial results. Fred?

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Thanks, Dave. Before giving more details on our financial results, I wanted to reiterate that through our continued execution, we have established OrthoPediatrics as a high quality and differentiated asset with a demonstrated ability to scale growth, increase operating leverage, which provides a clear path to free cash positivity, and we are supported by a very strong balance sheet. That said, we made some very difficult, yet very strategic decisions in the quarter that we expect to support our commitment to growth, profitability and improved cash usage. You will notice some one time charges on the P and L. The $3,700,000 restructuring charge is primarily due to the closure of our OP Israel office, which was the former AptiFix headquarters.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

We have decided to move production out of Israel and into The U. S. To reduce supply risk and to consolidate the management of the AFI fix product line into our Warsaw operations. These difficult decisions are a component of our continued focus on delivering improved adjusted EBITDA and demonstrate that adjusted EBITDA improvements and reduced cash usage are top priorities for the company. Additionally, as you will see from our results, during the quarter, our gross profit margin profile has shifted slightly.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

As we continue to integrate Boston O And P, we are growing the OPSB business, launching this new strategy and working through the process, we are learning and have adjusted certain expenses out of general and administrative expenses into cost of goods sold. As a result, we saw a negative impact on the gross margin profile of OPSB and our overall gross margin for the quarter. I wanted to be clear, this does not impact our profitability and given our growing channel in OPSB, we will not shun lower gross margin distribution opportunities that leverage our fixed costs and improve overall profitability. We've made a full year adjustment of approximately $3,000,000 out of G and A and into cost of goods sold. This negatively impacted our fourth quarter gross margin, but properly reflects our full year 2024 gross margin.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Taking a closer look at the P and L, our fourth quarter twenty twenty four worldwide revenue of $52,700,000 increased 40% compared to the fourth quarter of twenty twenty three. Growth in the quarter was driven primarily by strong performances across trauma and deformity, scoliosis and OPSB, as well as the addition of Boston OMP, slightly offset by the lower growth in the international revenues. U. S. Revenue was $42,900,000 a 52% increase from the fourth quarter of twenty twenty three, representing 79% of our total revenue.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Growth in the quarter was primarily driven by our additional market share gains across trauma, deformity, scoliosis and OPSB, as well as the addition of Boston OMP. We generated total international revenue of $9,800,000 representing growth of 5% compared to the fourth quarter of twenty twenty three, representing 21% of our total revenue. Growth in the quarter was primarily led by strong scoliosis sales in our agency markets. In the fourth quarter of twenty twenty four, trauma and deformity global revenue of $36,400,000 increased 35% compared to the prior year period. Growth was primarily driven by Pega products, Trauma, xFix and OPSV, plus the addition of Boston O and P.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

In the fourth quarter of twenty twenty four, scoliosis global revenue of $15,600,000 increased 62% compared to the prior year period. Growth was primarily driven by increased U. S. Growth across the response and APIFIX non fusion system and additional impact from 7D as well as the addition of Boston O and P. Finally, Sports Medicine other revenue in the fourth quarter of twenty twenty four was $600,000 compared to $900,000 in the prior year period.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Turning to set deployment, dollars 3,700,000.0 of sets were consigned in the fourth quarter of twenty twenty four compared to $5,900,000 in the fourth quarter of twenty twenty three. In 2024, we deployed $21,100,000 of sets compared to $22,000,000 in 2023. The $21,100,000 for 2024 was slightly higher than our forecast of less than $20,000,000 driven by higher than expected 70 placements and some earlier than expected deliveries on some recent product launches. Touching briefly on a few key metrics. For the fourth quarter of twenty twenty four, gross profit margin was 68% compared to 71% for the fourth quarter of twenty twenty three.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

The decrease in gross profit margin was primarily driven by an approximately $3,000,000 full year adjustment from the reclassification of expenses from overhead costs related to manufacturing across the OPSB business. Full year 2024 gross margin of 72.6% is a better representation of the business's performance and is more indicative of the gross margin rate for the near future. Total operating expenses increased $14,800,000 or 43% compared to the prior year period to $49,600,000 for the fourth quarter of twenty twenty four. The increase was primarily driven by the restructuring charge, the impairment charge, the addition of Boston OMP, increases in spending related to EU MDR compliance, increased commission expense and the incremental personnel required to support the ongoing growth of the company. Sales and marketing expenses increased $4,000,000 or 31% compared to the prior year period to $16,800,000 in the fourth quarter of twenty twenty four.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

The increase was mainly driven by increased sales and commission expense. General and administrative expenses increased $5,400,000 or 28% year over year to $24,400,000 in the fourth quarter of twenty twenty four. The fourth quarter increase was driven primarily by the addition of personnel and resources to support the continued expansion of the business and an increase in depreciation and amortization. Research and development expenses remained flat at $2,900,000 in the fourth quarter of twenty twenty four due to the timing of external development expenses. As discussed in the fourth quarter, we did see the impact from the one time charge of $3,700,000 restructuring charge that includes severance, inventory write off, lease break and other expenses associated with the closure of our Israel office.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

In addition, we recorded a charge related to one of our trade names of $1,800,000 The other expense was $2,400,000 for the fourth quarter of twenty twenty four compared to $1,200,000 of other income for the same period last year. Adjusted EBITDA was $3,000,000 in the fourth quarter of twenty twenty four, more than doubled when compared to the $1,300,000 for the fourth quarter of twenty twenty three. For the full year of 2024, adjusted EBITDA was $8,500,000 compared to $5,000,000 in the prior year. In the fourth quarter of twenty twenty four, free cash flow usage was $3,700,000 representing a significant reduction of 70% when compared to the year to date average through the first three quarters of twenty twenty four and a 67% reduction when compared to the same period in the prior year. We now expect the first quarter of positive free cash flow to be in the fourth quarter of twenty twenty five.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

We ended the fourth quarter with $70,800,000 in cash, short term investments and restricted cash, and we still have $25,000,000 available on our new term loan. Turning to guidance. We are reiterating our expectation for full year 2025 revenue to be in the range of $235,000,000 to $242,000,000 representing year over year growth of 15% to 18%. During our Analyst Day last September, I had communicated that we expect our gross margins to remain flat at 74% to 75% for the next several years. Given our current reclassification of G and A into cost of goods sold, I am restating the guidance that our gross margins will in fact continue to be flat.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

However, the newly updated range is 72% to 73%. This does not impact our profitability, just the buckets within the P and L. We also continue to expect to generate between $15,000,000 to $17,000,000 of adjusted EBITDA in 2025. Additionally, we continue to expect approximately $15,000,000 of new sets deployed in 2025. This represents our continued focus on driving the business to free cash flow breakeven by 2026, and we anticipate delivering our first quarter of free cash flow positivity in the fourth quarter of twenty twenty five.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Our current guidance assumes no impact of tariffs or other government changes. However, we will continue to monitor that dynamics and while we expect potential tariffs to be minimal impact, it is too early to determine all potential government actions and their impact. I'll now turn the call back to Dave for closing remarks.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Thanks, Fred.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

We are encouraged by how we ended the year and have already seen that momentum begin to carry into 2025. Our success in 2025 and beyond is driven by three main factors execution and scaling of OPSB, share taking across the business by leveraging prior set deployment and ongoing success of our innovative product launches. The aggressive approach we have taken to this business and the opportunity ahead of us over the next three to five years is very exciting. We are extremely proud that we have continued delivering strong performances, especially within this med tech market quarter over quarter and year over year, and we do not plan for this to change moving forward. We will continue to help more children than ever, capture more share across the entire business as we continue to break revenue records, grow our adjusted EBITDA and improve cash usage in 2025 and beyond.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Operator, let's open the call for Q and A. Thank

David Bailey
David Bailey
President & CEO at OrthoPediatrics

you.

Operator

Thank

Operator

you so

Operator

much.

Operator

Our first question is from Ryan Zimmerman with BTIG. Please proceed.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Thanks for taking our questions guys. Appreciate it.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Hey, Ryan.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Let's start with guidance a little bit. I know you don't guide by segment, but maybe you could help us kind of how you're thinking about some of the contributions here in each of the buckets of the businesses. It sounds like certainly the OUS business with the addition of EU MDR clearance could step up a little bit in 2025. I appreciate any color you have there. And then just I'll ask the second question upfront too, which is just around seasonality and pacing through the year.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

I mean, we know kids tend to get their surgeries second quarter, third quarter during the summer in between school. But you've had some fluctuations, I guess, between the fourth quarter, the first quarter due to seasonal dynamics, flu, RSV, etcetera. So any color there, I think, would certainly be appreciated as well. Thanks for taking the questions, guys.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Yes. Thanks, Ryan. So I think from a seasonal perspective, maybe I'll take this one first. I think that likely to see consistency, consistent seasonality of the business, the way we've seen it in the past with kind of June, July, August still being our biggest months. December, obviously a big month for us as well as school as kids get out.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

It is possible that over the course of the next several years as OPSB continues to grow, that some of that seasonality could maybe level out a little bit. But I think that normally see our first quarter a slight step down from Q4 of the previous year and then we scale into Q2 as the Q2 and Q3 as the summer season continues to grow. I think you're spot on in terms of the impact that EU MDR can have on the business. It's not a panacea right away. Obviously, we've got to get sets built and we got to get sets sold to distributors and sets into the market when we get approved.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

But certainly, it should have a positive impact in 2025 and probably more of an impact even in 2026 and 2027. I think the thing to call out there is that we're seeing really strong growth of our scoliosis franchise in Europe and that's really with only one of the systems available, so our 5,560 response fusion system. So as we can bring a full product portfolio to Europe on the fusion side, I think we're going to continue to see that business grow. And that starts to negate some of the reliance that we've historically had on scoliosis OUS in Brazil and some of the South American markets, whereas primarily been our larger opportunities outside of The United States up until recently. As you think about trauma, deformity and scoliosis here in The United States and I guess around the world, generally speaking, as you said, we don't generally guide specifically there, but I think you could expect to see scoliosis smaller business continue to grow a little bit faster than the trauma and deformity business.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Obviously, much larger business on the T and D side and greater market share. And I think that's probably what you'll see again here in 2025.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Okay. Very helpful, Dave. Appreciate the color. I'll hop back in queue.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Sounds good.

Operator

Thank you. Our next question comes from the line of Rick Wise with Stifel. Please proceed.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

Good afternoon, Dave. Hi, Fred. So much to unpack here, it's intriguing. Maybe talking about a couple of other opportunities, it seems like the business has tremendous momentum as you're talking about than The U. S.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

Numbers would suggest. But maybe start with OPS, OPSV. Just you're saying strategic rationale playing out, the funnel is full for new territory. Help us think through talk through in more maybe a little more detail, Dave, the pipeline new opportunity, the licensing. How's that what have you assumed in 2025?

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

How do we translate that into thinking about growth or outlook or time of year or do we see it in 2025? Just help us think through that opportunity.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Sure. Good question, Rick. So obviously, when I talk about the three main things that we have to do to continue to really grow the business 2025 and beyond, scaling OPSB is at the top of that list. And I think this time last year, obviously, we had just completed the acquisition of Boston and we're just really starting the journey of scaling OPSB. And when I look at that now a year later, I think everything we thought Boston could be and the scaling of clinics and the addition of products has come true.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And I think we're looking at a $500,000,000 TAM that's easily accessible with less capital, frankly, than the consignment model of our implant business. And that's that was the thesis that we could scale into this. And I think we have throughout the year and I think it's going to be a big part of 2025 and beyond. What we've learned, I guess, and our customers are certainly interested in more clinics, more products. It's clearly a very underserved segment of the pediatric orthopedic marketplace and it has a ton of synergies with our implant business.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

So I think that the implant business is in part growing because the OPSB franchise is growing and the brand of OrthoPediatrics and its importance in the mind of our customers is growing as well. I guess when you think about clinics, I mean, our aspiration is to have four new territories as we called out in the Analyst Day and we're sticking to that. It does seem like we've got enough in the funnel, but it's possible that we could go to more than four territories in 2025. We're not calling that out, but it is possible. We certainly won't hold back in terms of our opportunity to expand beyond those four territories.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

But I guess what we're really saying is coming out of the Analyst Day in September, I think we're much, much more solid on the pace with which we can scale our OPSB clinics and have a better sense of what the cost associated with that is to the P and L. We've now set up some Greenfield clinics, some of the first ones we've ever done and those greenfield clinics continue to well, those greenfield clinics and that process was, I would say, in line with the timing and the costs that we thought. And so that's encouraging. And then I guess last that the specialty bracing business and the R and D side of there and these licensing opportunities and distribution opportunities, it's really powerful. I mean, we think of this business as an opportunity for us to establish what is really is a single channel, almost dare I say an Amazon of pediatric orthopedic devices, nonsurgical devices, where if entrepreneurs and small companies want to access the pediatric orthopedic market and access our customers, there would be an opportunity to do that through the scale that we enjoy here in The United States and then around the world.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And then as we add more clinics and you fast forward this several years where we would say we have a completely dominant position in clinics, that becomes an even more powerful type of channel for us to drive revenue through. And then I guess the last, last thing, sorry, long answer to a short question, Rick, but we're seeing devices like DF2, which you heard called out in the script, growing at rates that I'm not sure we thought were we're very encouraged, I guess, by the way DF2 is growing. And we see a number of opportunities like DF2 to continue to grow. And again, that has a duplicative effect when you're not only selling it to the hospitals, but then as we add clinics, we're selling it through our own channel. So hope that answers your question, but a lot of optimism obviously and very encouraged a year post OPSB, year post Boston, what we can do with that over the next several years.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

Yes, that's great. Thanks for all the detail. And Fred, turning to gross margin again, I totally get what you're saying. And the first thing I looked at was to see whether your adjusted EBITDA would change. And I see it's unchanged.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

So I get it. But help me understand, you had said the 74, 70 5 range before you made this adjustment was flat. You said it again tonight. But it just strikes me with all these new products launching, you're gaining share and I reflect on the Israeli closure, I get the reasons for doing it. Wouldn't that be positive as you consolidate manufacturing and run more volume through Warsaw?

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

I mean so I guess my real question is help us think through some of the moving pieces on the gross the COGS line, gross margin or whatever you want to say. And is there room for upside as we go through the year, the European products are approved? It just seems like there should be there is room for upside as we head toward the end of the year and maybe start thinking about 2026? Thank you.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Yes. Thanks, Rick. Great question. And I would say we are hesitant to get ahead of ourselves, but we do agree that there may be some opportunities that we're working on in that area. As we've talked in the past, a little bit of selling price always helps in that area.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

And so we'll continue that trend. There is some consolidation, which could help show up as favorable gross margin. And then there's some other activities that we are, I think, refocused on this year that maybe we hadn't been as focused on in the past that could definitely over the next several years have a favorable impact on the gross margin rate. So I think we're being conservative, keeping our guidance flat as it was before, but I would say we have a renewed focus in this area to make some improvements there.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

All right, Fred, you've teased me. I've got to ask, other activities? Help me understand. Thank you.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

We're reviewing all of the line items. We're reviewing all of the line items that go into our cost of goods sold and looking for opportunities to leverage that just like we're leveraging the SG and A down below.

Rick Wise
Rick Wise
Managing Director - Medical Technology & Supplies at Stifel Financial Corp

Got you. Thank you.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Thanks Rick.

Operator

Thank you. Our next question comes from the line of Matthew O'Brien with Piper Sandler. Please proceed.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

Good evening. Thanks for taking my questions. Maybe a follow-up on Rick's question on OPSB. Did you guys I think you had mentioned doing better than $25,000,000 in sales in $2,024,000,000 dollars Did you do that? Are we still expecting north of 20% growth out of that business here in 25%?

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

And then just a little bit more specifics on things are going better than expected. Dave, is it really just going deeper in the existing facilities that you have or just that you're ramping the new ones faster than you expected or I don't know if it's cost or something else, but just any kind of detail there would be helpful and then I do have a follow-up.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Yes, perfect. So I think it's safe to say that OPSB across the board, not just Boston, but OPSB across the board, MDO, DF2, the products associated with that Ora Medical, as well as the clinic expansion is growing rapidly. And yes, I think it will definitely be growing north of 20% in 2025. And so we see that growing north of 20% for a long time frankly. So we got a long way to go as we scale that business.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

I think when we see things going better than expected, the volume of opportunities for clinic expansion is extremely high. It takes time. Some of those, as we said, are going to be acquihires where we've got to get a footprint in a big market that we have no clinics in currently, but the opportunities and profitable opportunities for us are very high and surge in demand for that service as well as the products is very high. And so again, we thought that was what we were going to see when we announced this acquisition a year ago. And at this stage, I would say the demand for what we are offering is higher than I would have expected at this time.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And then devices like DF2 are going better than we expected. I see the demand for that product as very high. I mean, we are now seeking alternative manufacturing sources. We make it in our facility in Boston and we're going to have to continue to be able to scale the manufacturing of it there in Boston as well as probably through other facilities. We have, I want to say, 30 plus countries now that the DF2 product is approved.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

So the thesis that we can get these products approved outside of The United States much faster than our implant products and that there is huge demand outside of The United States is certainly an accurate thesis. And so we've got to be able to scale manufacturing of those devices such that we can meet demand outside of The U. S. But I can just say that the surge in demand for that device here in The U. S, again, still small, but maybe greater than we would expect.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And we have several more devices that I'm not saying are all home runs like that one, but several more devices on the R and D side that we're close to launching, working with a number of surgeons on and I would think that you're going to see similar kinds of impact from those devices on the OPSB business overall.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

Okay, okay. That's I guess a good problem to have on the manufacturing side. And then question for Fred, just

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

as I

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

look at the instrument set deployments that you've done over the last couple of years, I think it was 23 and then 20 and now we're down to 15. I know you have a more capital efficient model now with OPSB, but the legacy Trauma and Spine businesses are doing really well. Are you going to run the risk of starving those businesses a little bit in the near term and we're going to need another big bump as far as set deployments go in 2026, '20 '20 '7? Or is this

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

more of a steady state

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

in terms of how much you really need to be deploying in order to grow the businesses still at a very healthy clip?

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Yes, it's

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

a great question. It's a question we spend time analyzing ourselves. We think 15 is the right number for 2026%. I think the good news is a lot a higher percentage of that is really for new products as opposed to legacy products. So we're really excited about that and the impact that that's going to have on our overall business and growth in 2027 and beyond.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

In 2027, what is the right number that we'll deploy hasn't been determined yet. We'll see what the demand is both for legacy systems as well as new products. Again, I would expect '27, '20 '6 and '27 to be highly concentrated on the new product launches given all the launches coming up that we have in 2025, '20 '20 '6 and 2027. So I would say that we haven't made that determination yet, but we will be confident in saying that it's going to be highly focused on our new products being launched.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Yes. I think it's safe to say we're not going to starve those businesses, particularly when we see products like PNP tibia that have relatively high ASPs, fantastic margin. I mean, the business that product line, I think we told you, we achieved this year's revenue in May. So, that device is obviously growing and we're going to support that. I just I think what we've seen over the course of the last several years, Matt, and you know our story well, but when we were deploying 3,000,000 to $5,000,000 worth of inventory for several years, primarily legacy products, we've probably entered near the end of the need to deploy a lot of those legacy products.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And as Fred said, these are primarily new product development and the numbers will shift as we have really compelling new products like PNP tibia and some of the other devices. But when you also think about the out years of our growth, particularly on the SCOLE side, certainly a new scoliosis system coming soon that we've talked about, but also EOS products and EOS products, as you know, very high ASP, they're all scheduled procedures. And so we're fighting tooth and nail on the regulatory side, but when you get through that, these aren't set deployment needs that are massive for us to be able to grow our top line, particularly on the scoliosis side and with some of these highly differentiated trauma implants. And I think that's what you're seeing with the move down a little bit on the implant side of deployment. And again, as demand dictates for some of these more differentiated products, that'll change from time to time.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

But I think we're going to be able to sweat our assets in a way that's going to allow us to not have to deploy as much in the future.

Matt O'Brien
Matt O'Brien
Analyst at Piper Sandler Companies

Very helpful. Thank you.

Operator

Thank you. Our next question is from the line of Mike Matteson with Needham and Company. Please proceed.

Joseph Stringer
Senior Analyst at Needham & Company

Hey guys, it's Joseph on for Mike. Thanks for taking our questions. Maybe to start it off, just wanted to see if we could get an update. I guess the first one on Playbook, the enabling technology software. Just kind of curious how that business is going, any milestones there?

Joseph Stringer
Senior Analyst at Needham & Company

And then the new Fusion implant system, is that still on track to launch in second half of this year?

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Yes, good question. So Playbook was, I think, officially launched to the sales team at our sales meeting here about a month ago. And so the device the product is we're very pleased with the way the product looks and certainly it's a process to get those products implemented inside hospital systems. But I think we've made really nice progress on playbook on the enabling tech side. And just from a revenue perspective, it's a business that we haven't forecasted a ton of revenue in 2025.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

We see that as contributing to driving revenue in our trauma deformity business and in our scoliosis business and then driving more substantial revenue as a standalone play in 2026, '20 '20 '7 and beyond, but extremely pleased with where it's at and it created a heck of a lot of buzz at our sales meeting, which was very encouraging. And on fusion? On fusion side, yes, fusion product development on track. And I think the goal would be to try to get some surgeries done by the end of twenty twenty five here in The United States. But again, not something that we have placed in the 2025 forecast in terms of revenue.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And so we're going to make certain that we get the device right and it's everything we want it to be weak. Fusion business as it stands with response is growing very rapidly now. So we're not we don't have to rush things certainly to get that device on the market.

Joseph Stringer
Senior Analyst at Needham & Company

Okay, great. And then maybe just one more on seven d. It seems like 3Q in this quarter, 4Q were pretty strong. It seems like that's ramping up. I guess just looking at 2025, do you guys kind of see this as more of an inflection for 7D placements?

Joseph Stringer
Senior Analyst at Needham & Company

Or is it maybe just a little longer, maybe 2026 that it's more meaningful driver?

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Well, I think 7D is a driver right now, was a driver for us in the second half of the year. So you're seeing a response fusion business and just our scoliosis business, particularly in The United States, accelerating growth on a much larger business. And again, that's one of the reasons why while we want to get the new system out, we're driving a heck of a lot of growth with our existing system in conjunction with 7D. So I think we're already starting to see the impact of that as we've placed 7D units in accounts that historically haven't been large users of our Fusion products. And so that's impacting Q3, Q4 revenue and in fact will have a pretty substantial impact.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And I think why you see us so confident in our growth on the scoliosis side in 2025 and 2026 because a lot of that is connected to seven d placements. I think we've learned a lot about just capital placement in general. As you know, just a few years ago, we had no experience in this space. And so our capacity to build a funnel and to see these things come through the funnel in a more consistent way quarter to quarter to quarter, I think has that's a muscle that we have built. And I guess I have to credit the Enabling Technologies team that while we're also working on playbook and technologies like that, it's been a huge help to us to be able to develop the muscle to get involved in capital placement and capital equipment sales.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And so I think you're going to see in 2025 consistent placements quarter to quarter to quarter of 7D units that will impact revenue on the scoliosis side, both in 2025 and for the term of those contracts, which are normally three years. So it becomes a bit of a compounding effect as we place more and more of these units.

Joseph Stringer
Senior Analyst at Needham & Company

Okay, perfect. Much appreciated. Congrats on the great quarter.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Thanks. Thanks.

Operator

Thank you. And we have a question from Ryan Zimmerman from BTIG. Please proceed.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Just a high level question follow-up for me, Dave, for you. There's just been a lot of chatter about Medicaid coverage in the news lately, right? And potentially removing that. I think as I think about CHIPs and Medicaid, I think it covers something like thirty seven million kids in The U. S.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

And so I don't know what your thought is on it, if you have a thought, but I have to imagine your customers are thinking about it, how they're thinking about positioning forward and how you think about it in terms of potentially impacting the business. I just want to kind of pick your brain on it a little bit, if I could.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Yes. Well, certainly not a topic that anyone can give you a definitive answer on as you know, but it's obviously something we're watching. I'm not sure exactly how that impacts the business as we go forward. Obviously, we're not certain that it is going to impact it at all. That said, I think our feeling here is that we really struggle with the concept that children will be left without any form of healthcare.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

And if you look at the makeup of our customer base, so much of our customers are current so many of our customers are currently in systems where they're endowed hospitals or they're hospitals like the Shriners Hospitals, for example, that certainly take what Medicaid or private insurance might pay, but are still offering care based on their endowment. So I think there is some shielding that we would have of that. And I think when push comes to shove, it seems very difficult that we are going to allow kids in this country who have cerebral palsy or congenital deformities to not have appropriate access to the kinds of devices that they need in the hospital to live a normal life. And I think all of our devices have a very, very rational impact on the total cost of care, right? And so if we can impact positively these patients in the operating room that then ultimately lowers their care to Medicaid thereafter, Again, it's hard to imagine that those devices wouldn't be readily available to our customers.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

But again, it's anybody's guess at this stage and we have not we can't formulate exactly what potential impact here, but I think it's I guess we aren't betting that this is a major impact on our business on a go forward basis.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Yes, no. Makes sense and I appreciate your thoughts on it, Dave.

Operator

Thank you. And this concludes our Q and A session for today. I will turn it back to Dave Bailey for final comments.

David Bailey
David Bailey
President & CEO at OrthoPediatrics

Great. Thanks, operator. And thank you everybody who joined our call this evening and appreciate your questions and we'll look forward to giving you a business update in the coming quarter. Have a great evening.

Operator

And thank you all for participating and you may now disconnect.

Executives
    • David Bailey
      David Bailey
      President & CEO
    • Fred Hite
      Fred Hite
      CFO & COO
Analysts
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Key Takeaways

  • OrthoPediatrics achieved record patient impact, treating 34,000 kids in Q4 and over 138,000 kids in 2024, bringing the total to more than 1.14 million children helped since inception.
  • Q4 revenue of $52.7 million grew 40% year-over-year, driven by a 52% increase in U.S. sales and strong EMEA trauma & deformity gains despite planned shipment slowdowns in Brazil.
  • The OPSB specialty bracing franchise continues to scale capital-efficiently, with the Boston OMP integration, new clinic expansions, and rapid DF2 femur brace adoption underpinning >20% projected growth in 2025.
  • Key product innovations include the PMP tibia system, DF2 brace, upcoming 3P HIP plating beta launch, 7D scoliosis unit placements, and progress toward FDA and EU MDR approvals for EOS portfolio devices.
  • For 2025, the company forecasts $235–242 million in revenue (+15–18%), adjusted EBITDA of $15–17 million, and anticipates its first positive free cash flow quarter in Q4 2025 en route to full-year free cash flow breakeven in 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
OrthoPediatrics Q4 2024
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