OrthoPediatrics Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025
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Operator

Good day and thank you for standing by. Welcome to the OrthoPediatrics Corporation First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press 11 on your telephone.

Operator

You will then hear automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tripp Taylor, Investor Relations. 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 Height, 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 quarterly report on Form 10 Q, which will be filed with the SEC on 05/08/2025.

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 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 of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast today, 05/07/2025.

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

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Thanks, Trip. Good afternoon, everyone, and thank you for joining us on our first quarter twenty twenty five conference call. As always, I want to begin by highlighting the metric that best represents our ongoing success and the one we are most proud of. In the first quarter alone, we supported the treatment of nearly thirty nine thousand children, bringing our total impact to over one point one seven five million kids helped since our inception. For too long, pediatric health care providers have had to rely on inadequate solutions and we remain steadfast in our mission to change that for the better.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Our ability to execute on our commitments, our consistent track record of sales growth through share taking, as well as deliberate step function improvements in adjusted EBITDA and cash usage are just a few small aspects of what continues to set us apart and enable us to maintain our position as the clear cut market leader in pediatric orthopedics. These capabilities were on full display throughout another strong first quarter, underscored by solid performances in revenue growth, improved profitability, and reduced cash usage. Our success in 2025 and beyond will be driven by three main factors: executing and scaling of OPSB, share taking across the surgical business by leveraging prior set deployment and ongoing success of our innovative product launches. Our global revenue growth of 17% is a result of executing in each of these areas. Our efforts to scale OPSB are advancing steadily.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Execution of the OPSB strategy and further clinic expansion is on track and driving total OPSB growth of better than 20%. We're gaining market share in the surgical segment by strategically leveraging previously deployed SET. It is particularly gratifying to see growing utilization from previous SET deployments, along with continued search and adoption of key product launches such as PMP femur, PMP tibia, cannulated screws, and DF2. During the first quarter of twenty twenty five, we were very excited to receive final FDA approval for the Vertiglyde system, sterile PNP femur, sterile PNP Tibia, as well as Orthex titanium half pins. In late April, we received a much anticipated approval for the 3P Pediatric Plating Platform Hip System.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

This brings our total FDA approvals for the year to five and includes two major systems. Additionally, surgeon adoption of our response fusion system continues to grow, which is being positively impacted by past 7D placements and would be bolstered by additional unit deployments that happened in the first quarter. And we will continue to benefit from 70 placements throughout the year. All in all, we are very pleased with the way things are progressing on the revenue front and remain bullish about the year. Beyond revenue, we improved profitability and reduced cash usage.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Our adjusted EBITDA loss was reduced by more than half year over year, while we improved free cash flow by 36%. We remain on track to meet our adjusted EBITDA goals, which will fully pay for our 2025 set deployments and lead to positive free cash flow in the fourth quarter of this year and full year free cash flow breakeven in 2026. Additionally, we expect cash usage will improve materially in the second half of twenty twenty five, which will result in very little cash usage in H2. While we continue to prioritize growth, the efforts we have been making to improve profitability and free cash flow are clearly working, proving we are quickly becoming a high growth medtech asset that will be solidly profitable and generating cash from operations. This is a difficult transition for early stage companies to navigate, and I am proud of the work our entire team is doing to make it happen.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Regarding tariffs and the broader macroeconomic environment, OrthoPediatrics has minimal exposure to tariff related impacts. We estimate that approximately 95% of our cost of goods sold come from domestic suppliers and our Canadian entity, which is currently exempt from tariffs. Even under the worst case scenarios contemplated in recent months, any potential impact would be minimal and would be absorbed within our current guidance. Additionally, reciprocal tariffs, real or potential, are unlikely to materially impact revenue, especially given that we do not sell any products in China. Also, is very important to reiterate that most of our procedures our customers perform are non elective and are often carried out in hospitals supported by substantial endowments, which have historically helped shield us from the effects of economic downturns.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Over 20% of our global revenue is trauma related, which is clearly nonelective. With a US based manufacturing and supply chain backbone and the largely nonelective nature of our procedures, we are positioned to sustain our growth and profitability trajectories regardless of broader economic conditions. With that said, we expect our business to gain momentum throughout 2025 based on our success scaling OPSB, driving market share gains through leveraging existing set deployments, and the ongoing success of our innovative product launches. As such, we are increasing our full year revenue guidance. We now expect to generate revenue of $236,000,000 to $242,000,000 representing annual growth of 15% to 18%.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

We still expect to generate adjusted EBITDA of $15,000,000 to $17,000,000 which will be greater than the $15,000,000 of sets we plan to deploy in 2025. We also continue to expect our first quarter of positive free cash flow in the fourth quarter of twenty twenty five. In the first quarter of twenty twenty five, the T and D business grew 14% as we continued to deliver strong market share gains across multiple product lines, bolstered by strong growth of OPSB. Growth in the quarter was extremely strong in The U. S.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And offset by softness in LatAm and lower OUS set sales, which contribute little to profitability. The quarter's performance was driven by prior investments in set allocation, surgeon education, and new product adoption, resulting in strong share gains for T and D across the breadth of products. 2023 and in 2024, we had sizable set deployments. As a result, the usage of prior set deployments is increasing and contributing to growth in meaningful ways. In the quarter, we saw very strong revenue growth of trauma products, led by rapid adoption of PMP Tibia and cannulated screws and DF2.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Additionally, we launched several sets of PMP Tibia, with more expected to launch in the second quarter, as PMP Tibia will continue to be a solid growth driver for the next several quarters, if not several years. Once again, DF2 continues to exceed our expectation as demand accelerates and we are seeing rapid surge in adoption. This product is differentiated within the pediatric femur fracture management, is benefiting from expanded indications for use, and is quickly becoming the new gold standard of care. As of today, we have achieved approval for this product in 33 countries internationally within just a few months. And we're just starting to sell in many of these countries.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

So we are very early in this successful launch. Further, we are pleased to report that we have mended the short term supply issues and are now working on several longer term solutions. On the R and D front, as you may have seen in our recent press release, we are proud to announce that we have received FDA approval for our 3P pediatric plating platform hip system. With this approval, the 2025 beta launch of the first 3P system, 3P hip, will begin in earnest this summer, and we look forward to providing more updates as that product is launched and rolled out. As a reminder, 3P hip is the first of several systems in a long line of coming product launches from the new 3P family and will result in a complete transformation of our plate and screw product portfolio, giving us the most robust and modern plating portfolio in pediatric orthopedic history.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Additionally, we are continuing the process of EU MDR compliance and expect to launch new products into Europe starting in the second half of twenty twenty five, followed by more next year. Overall, T and D remains a strong contributor to our performance as we capitalize on our scale, expand market share, and introduce innovative products that address unmet needs and support sustained growth across all areas. Our path to market share dominance within T and D is clear. On our nonsurgical specialty bracing business, or OPSB, the further we progress our strategy and the more the pieces of the business come together, the more encouraged we are by the opportunity and support we are seeing for this franchise. OPSB represents a large new source of capital friendly growth that we plan to capitalize on through territory expansion, R and D acceleration, and scaling our sales channel and sales force.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Most notably, on the territory expansion side, we have hit our initial guidance for 2025. We have now entered North Carolina, our fourth territory in 2025. As we've previously discussed, not every territory or clinic will be equivalent, and their size, ramps, and impacts will vary. So while we are pleased with the pace with which we have been able to achieve this territory expansion, the North Carolina clinic is currently a smaller but strategically important opportunity. And we want to take that into account when we look at our overall goals for 2025.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

With that being said, we believe there is potential to add additional territories in the second half of twenty twenty five. The opportunities for clinic expansion are immense. The demand for our customers is high, and our funnel for clinic expansion is very large. Notably, we are in very early discussions on multiple opportunities for OPSB internationally. When we first looked into OPSB territories, our initial focus was on The US and getting the ball rolling here.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

The early expansion clinics in The US are progressing well, and we are creating a repeatable playbook that serves as a strong growth driver with considerable long term potential. And we are looking at various ways to bring OPSB to international markets. Importantly, the international markets are not included in our $500,000,000 TAM. So these clinics would offer an opportunity for TAM expansion. We're pleased with our progress toward the launch of four new territories and anticipating sharing further updates as the year unfolds.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

On the OPSB R and D side, in the first quarter, we launched two distributed product lines, including Thrive Carbon Fiber Braces and Unfo Metatarsus Abductus Brace through OPSB. These product lines complement our existing OPSB portfolio and expand options available within the OPSB clinic. Moving to the scoliosis business. Our strong growth of 34% seen in scoliosis this quarter was driven by more share taking, both in The US and OUS markets, with increasing demand from new markets in The EU. US Scoliosis growth was very strong due to 7D placements and new users adopting OrthoPediatrics technology, including Apafix, Response, as well as our commitment to new solutions for EOS patients.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

We saw healthy 7D unit placements in the first quarter and anticipate more to come throughout 2025. OPSB three d patient specific scoliosis braces also contributed to the strong growth. International scoliosis was strong due to solid revenue in our direct markets, including Canada and Australia, where we are seeing new users come on board. We are very happy with the progress made in 2024, and it continues through the first quarter. The coming EU MDR approvals will further positively impact our EU spine franchise.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

As we've discussed since our Analyst Day last year, our scoliosis portfolio is rapidly evolving to meet all the needs of our customers. Recently, our EOS product portfolio took a massive step forward with the FDA approval of Vertaglyde in the first quarter. We expect the first cases to be completed in the coming weeks and we are already seeing requests from customers at large U. S. Accounts where we historically have had little scoliosis revenue.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

ELE, our mechanical growing spine implant product development, continues to move forward. And we are having frequent positive interactions with the FDA. At this point, our goal is to make an LE regulatory submission in late twenty twenty five or early twenty twenty six. With RESPONSE ribbon pelvic launched, Vertaglyde FDA approved, and LE progressing, we have a clear line of sight to having far and away the most robust set of EOS solutions available for our customers to treat this very complex patient population. And that fact alone is driving more adoption of our total scoliosis offerings.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Moving on to international. While we saw double digit growth internationally, our strength was again offset by pressure from LATAM and lower set sales. General international replenishment demand across the entire T and D and scoliosis portfolio was strong, especially in our agency markets where during the quarter we saw strong procedure growth. In fact, T and D replenishment growth was nearly 20% and Scoli grew greater than 20%, highlighting extremely strong underlying demand. We are also seeing very strong adoption trends in Canada and Australia.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Higher international growth was impacted by Brazil and our conscious decision to limit new set sales to South America in an effort to focus on improved cash metrics. We will continue to focus on profitable growth, improved profitability, and improving free cash flow coming out of our international business as we deliver our overall performance. Within our international business, EU MDR approval remains a large catalyst for our future growth, and we are well positioned for approval. Once our EU MDR status is finalized, we plan to launch several waves of products into the EU. As a reminder, EU MDR approval for implants is an expensive process.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

We believe it is the right thing to do for kids who need these devices outside of The US, and it strengthens our strategic position. Apart from the EU MDR, we have additional international opportunities ahead. Again, we are exploring expansion opportunities for OPSB outside The US in 2025, where we view the regulatory and administrative processes to be very straightforward. In tandem, we are looking to further expand DF2 and expect surgeries for Vertagly to occur outside of The US in 2025. That brings us to surgeon training and education.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

In the first quarter, we hosted 172 unique training experiences for over 2,245 healthcare professionals. Recently, we attended the annual meeting for EPOs, the European Pediatric Orthopedic Society held in France. Orthopediatrics was well represented and we were excited that through our significant presence, we were able to highlight our products and interact with many surgeons and customers. Looking forward, we're excited for the upcoming Pediatric Orthopedic Society of North America or POSNA meeting on May in Las Vegas. This is a key industry event for OP, and we will again have a huge presence with multiple sessions, events, and new products on display.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

In mid March, we announced our partnership with the Crossroads Pediatric Device Consortium, a multi institutional initiative focused on accelerating the development, approval, and availability of medical devices designed specifically for pediatric patients. By collaborating with the consortium's network of experts, we aim to drive innovation in pediatric medical device technology and ensure children have access to the specialized treatments they need. Lastly, we are happy to announce that once again OrthoPediatrics was named as one of the best places to work in Indiana for 2025, marking the ninth time we have been included on this list. We've been able to help as many children as we have as a direct result of the hard work and dedication of our employees, and we are incredibly proud of their work and how they continue to support our mission. With that, I'd like to turn the call over

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

to Fred to provide more detail on our financial results. Fred?

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Thanks, Dave. Taking a closer look at the P and L. Our first quarter of twenty twenty five worldwide revenue of $52,400,000 increased 17% compared to the first quarter of twenty twenty four.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Growth in the quarter was driven primarily by strong performance across Trauma and Deformity, Scoliosis and OPSB, slightly offset by lower growth in the international business. U. S. Revenue was $40,900,000 a 19% increase from the first quarter of twenty twenty four, representing 78% of our total revenue. Growth in the quarter was primarily driven by our organic growth in Trauma and Deformity, Scoliosis and OPSV.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

We generated total international revenue of $11,500,000 representing growth of 11% compared to the first quarter of twenty twenty four and twenty two percent of total revenue. Growth in the quarter was primarily led by increased procedure volumes, strong scoliosis growth and reduced Trauma and Deformity set sales. In the first quarter of twenty twenty five, Trauma and Deformity Global revenue of $37,900,000 increased 14% compared to the prior year period. Growth was primarily driven by Trauma, PEGA products, X Fix and OPSV, partially offset by lower OUS set sales. In the first quarter of twenty twenty five, Scoliosis global revenue of $13,700,000 increased 34 compared to the prior period.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Growth was primarily driven by increased sales of Response, ApiFix non fusion system, revenue generated from 7D technology, as well as increased three d patient specific scoliosis braces. Finally, SportsMed other revenue in the first quarter of twenty twenty five was 900,000 compared to $1,200,000 in the prior year period. Turning to set deployment. Dollars 3,600,000.0 of sets were consigned in the first quarter of twenty twenty five compared to $4,300,000 in the first quarter of twenty twenty four. Touching briefly on a few key metrics.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

For the first quarter of twenty twenty five, gross profit margin was 73% compared to 72% for the first quarter of twenty twenty four. The increase in gross profit margin was primarily driven by higher domestic growth, which generates higher gross margin as well as lower international set sales. Total operating expenses increased $7,300,000 or 18% compared to the prior year period to $49,200,000 in the first quarter of twenty twenty five. The increase was primarily driven by incremental personnel required to support the ongoing growth of the company, including increased non cash stock compensation, as well as the addition of OPSB clinics. Sales and marketing expenses increased $2,400,000 or 17% compared to the prior year period to $16,600,000 in the first quarter of twenty twenty five.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

The increase was mainly driven by increased sales commission expense and an overall increase in volume of units sold. General and administrative expenses increased $5,500,000 or 22% year over year to $30,300,000 in the first quarter of twenty twenty five. The first quarter increase was driven primarily by the addition of personnel and resources to support the continued expansion of the business, increased non cash stock compensation, as well as the addition of OPSV clinics. Research and development expenses decreased 600,000 in the first quarter of twenty twenty five due to the timing of product development third party invoiced during the first quarter of twenty twenty five. Total other income was $500,000 for the first quarter of twenty twenty five compared to $600,000 of other expense for the same period prior year.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Adjusted EBITDA was a loss of $400,000 in the first quarter of twenty twenty five, over 50% improvement when compared to a loss of $1,100,000 for the first quarter of twenty twenty four. In the first quarter of twenty twenty five, free cash flow usage was $8,400,000 representing a significant reduction of 36% when compared to the same period in the prior year. We expect additional cash usage in the second quarter as we continue to deploy sets to support the overall growth of the business, followed by reduced cash usage in the second half of twenty twenty five and we expect positive free cash flow in the fourth quarter of twenty twenty five. We ended the first quarter with $60,800,000 in cash, short term investments and restricted cash and we still have $25,000,000 available to us on our new term loan. Turning to guidance.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

We are increasing our expectation for the full year of 2025 revenue to $236,000,000 to $242,000,000 representing year over year growth of 15% to 18%. We are reiterating the guidance that our full year gross margin will be within the range of 72% to 73%. 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

Notably, our current guidance absorbs the impact of tariffs and other government changes as they stand today. We will continue to monitor the dynamics, but at this point, we expect potential impacts to be minimal. I'll now turn the call over to Dave for closing remarks.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Thanks, Fred. We are encouraged by how we've carried our business momentum into 2025. Our success this year will be driven by our execution and scaling of OPSB, taking share by leveraging prior set deployments and the ongoing success of our innovative product launches. We are completely committed to helping more children than ever, aggressively growing our top line, making step function improvements to our adjusted EBITDA, and materially improving our cash usage in 2025 and beyond. I hope you can tell from my tone how encouraged we are by our improving profitability and cash flow.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

We are on a mission to help 1,000,000 kids every year, and we believe that building a very profitable and cash generative business is vital to getting us there. It is well documented that pediatric healthcare is underserved, largely due to underfunding from industry, which has resulted in a requirement for government support. It has been our long held belief that creating a successful, profitable business that self funds the future of pediatric technology development is the answer. OP is clearly on that track. In closing, I'd like to thank my associates, our partners in pediatric healthcare, and you as investors for standing with us in this important cause.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

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

Operator

Thank you. At this time, we'll conduct a question and answer session. Your line is now open.

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

Good afternoon. Thanks for taking the questions. Maybe just starting off on the spine business here. I mean, another phenomenally good quarter and what's typically a seasonally softer quarter for that business. So Dave or Fred, can you just talk a little bit about what's going on there?

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

How does VertiGlide really contribute going forward, plus all the other U. S. Products you have come in? And then just maybe the OPSB business and how that's contributing to that franchise. Because as I think about things, think you're probably, I don't know, like a couple of percent market share, maybe 3%, four % market share, I guess, kind of where can that go, given all the momentum there?

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Yeah. Thanks, Matt. Yeah, really, really strong quarter on the scoliosis side of our business, both implants as well as the specialty bracing side. Really pleased to see that. I guess I would point you back to commentary we made really throughout the second half of last year, where we had very substantial adoption rates.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

I said a higher, I think a higher adoption rate than we've ever had in terms of scoliosis fusion surgeons coming on board. We opened up some pretty substantial new accounts. And some of that was driven by Apathix, some of that was driven by just the notion that we are moving forward down this EOS path that think is really important to our customers. And then a lot of it was 7D placements that really opened up some new big accounts for us that were using our trauma and deformity products, but hadn't converted yet to scoliosis. I think what you're seeing here in the first quarter on all of that is really just a continuation of the momentum that we had in the back half of the year.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And you can imagine, we haven't seen the summer schedules yet, but you can imagine that having those surgeons and those accounts on board, even before we get to our seasonally high months of June, July, and August, feels really good as we move into the summer. And I think with the question related to OPSB, certainly more people using our specialty bracing products is contributing there. I think the synergies that we are seeing very early on, as you point out, but the synergies we're seeing between our customers who have, again, an aspiration to avoid surgery kind of at all costs if they can for these kids, the synergies we're seeing with our commitment to helping them do that, as well as adding products in EOS, as well as fusion products, I think that's leading to surgeon adoption. I mean, we're putting our money where our mouth is in terms of treating the entire continuum of care of scoliosis. And I think we're the only company in the world that's doing that.

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

Got it. Makes total sense. And then I don't want to make a mountain out of a molehiller, but the low end of the range on the top line came up by about $1,000,000 By my model, you beat by about $1.6 So I guess the midpoint wouldn't quite go up by that $1.6 obviously, given the range. So anything to call out there that you're a little bit more cautious about, I guess, through the first four months of the year versus just traditional conservatism that you guys typically start the year with? Thank you.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

No, I don't think so. I think we haven't got into the summer. We're always nervous. Those are big months in June, July, and August. And until we start seeing that, we tend not to be too aggressive there.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And so I would say that's kind of generally we hew to that principle. I do think you obviously saw us once again managing the international business a little differently. We're not going to continue to get out over our skis there. I think we have an opportunity for better cash collection, particularly in Latin America. And so we continue to be judicious, I think, about how aggressive we are in some of those markets where we could have orders.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

But we may push those orders to help improve cash flow. And so I guess those are two areas, but nothing I think that we would call out any different than prior years.

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

Got it. Thanks so much.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

You bet.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Ryan Zimmerman of BTIG. Your line is now open.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Hey Dave, Fred, thanks for taking our questions and definitely heard your tone there. Appreciate that.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Good.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

On I wanna ask about 70, actually, because it's it's been going pretty well for you guys. I'm I'm curious, Dave, if you can talk about the interplay between, you know, where accounts that have 70 and kind of the impact that has on adoption of your scoliosis products.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

If you're seeing, you know, greater uptake specifically within the scoliosis business in those accounts, and, you know, can we kind of look at those as leading indicators, I guess, of kind of greater scoliosis growth because they have that 7D or enabling technology in the account?

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Yeah, I mean, certainly in places, Ryan, where we didn't have any business, obviously, we're seeing a lot of uptick. And I think what we saw, particularly in late Q3 and throughout Q4, were some of those placements were in locations where we had nearly zero pedicle screw sales. And we had a lot of trauma and limb deformity sales. And so the 70 units, essentially everything that we're getting in terms of Response Fusion sales there is all growth to the top line. There are other locations where we have pretty substantial share, and we may not be getting as much uplift in those accounts.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

But you can imagine the sales force is pretty aggressively targeting locations where we need a breakthrough in terms of getting some movement on response fusion. And I think that's what you're seeing in the growth numbers is that largely adoption by surgeons who have been exposed to our response system through the 7D deployments. I guess one thing I would point out is we are in development of, obviously, new products on the EUS side. You see Vertiglyde approval, LE coming down the pipe here. Those are also technologies that will benefit from navigation.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And as we've called out on the Analyst Day, we're working on an entirely new fusion system. And so I think the future's pretty bright when you see that the growth of our fusion business, with a system that's been out there for a while, is as robust as it is. And then the technology that we have coming behind that here over the next, let's say, six quarters, pretty substantial. So I think we like the tailwinds that we have within that business.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

And Dave, to follow-up on Scully for a minute, I mean, your portfolio is now very wide. You have this breadth between response and ApiFix and Vertaglyde. I'm curious where you see how you think about any gaps that maybe you had before, how we as investors should think about the scoliosis, breadth, and also like the interplay between devices. I mean, if you didn't have Vertiglyde, I don't think someone's using response, but is there any kind of, you know, swapping out or things that we need to think about as you broaden that breadth of the portfolio? Guess, I'm just trying to understand kind of the totality of the scoliosis portfolio.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Yeah, great question. I think that what investors really need to understand about our scoliosis business is that it's very different than an adult spine business, and that we essentially treat one indication. It's purely scoli. We're not doing a lot. We don't do a lot of interbody work.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

We're not treating a number of the indications that are seen in adults. And why that benefits us, obviously, it's a smaller TAM, but why that benefits us is that we have this intense focus on all of these solutions that accommodate the complexity associated with scoliosis. And so I think that the vertical wide ribbon pelvic, obviously, we haven't done a case yet with vertical wide, but we're just getting started. And Ellie, those products are designed to treat, I would say, far and away the most complex early onset scoliosis or syndromic patients that are treated at the major children's hospitals by some of the top pediatric orthopedic surgeons in the world. And historically, those are the places where we have had more difficulty getting our scoliosis products on contract.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

They're historically dominated by some of the larger adult spine companies that have just had a head start on us. And so as we make investments where other people are unwilling to make investments in these, maybe slightly smaller markets, it really shines the positive light on what we're doing as a company to meet the unmet needs of those very specific patients, and by default, those surgeons. And then I think it gives us a lot of ammunition, a lot of credibility to talk to those surgeons about the rest of our product portfolio, and pull through our fusion devices, get Apafix on board, get 7D there. And we're already seeing that simply by doing the work in that area of early onset scoliosis. I really believe that when you see the combination of rib pelvic, LE and Vertiglyde, there's nobody else who will have anything close to what we have on the EOS side.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And I think that will be very well recognized by customers at the largest institutions.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Yeah, very helpful, Dave. Thank you.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Rick Wise of Stifel. Your line is now open.

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

Good afternoon to you both. Nice to see the solid quarter here. I wanted to tackle a couple of things. One, the gross margin guide, Fred, you said 72% to 73%, but just help us think through it from two vantage points. One, why wouldn't it be 73% plus just thinking about it?

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

You keep adding all these new attractive compelling products. You just outperformed strong US sales. I don't know that the OUS dynamic is going to change radically. Just help us think through both the cadence for the quarters and maybe how we should think about the outlook as well.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Yeah, absolutely. Obviously very pleased with strong first quarter here, great start to the year. Only 11% growth and very limited set sales on the international side. Two biggest contributors there. Assuming international, we do sell sets internationally in the future that will pull it down a little bit.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

And then you may recall, typically, fourth quarter is often a softer gross margin number for us as well. So as Dave said, you know, we're still anticipating a strong summer. We haven't seen it yet. Be great when it gets here. But we obviously don't want to get ahead of ourselves.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

And so we'll stick with what we have for right now, and kind of let the performance speak for itself going forward.

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

Okay. Maybe turning to the specialty bracing clinic expansion part of the story. Dave, obviously you sounded particularly excited there and all the progress in opening North Carolina, etcetera. And I just wanted to, I thought it might be instructive for us all to hear about your clinic expansion efforts in Florida and Colorado. It's been like something like six months if I recall since they happened.

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

Any incremental details or color you can share about the ongoing ramp to being fully productive? Where are we there? Might that suggest we should think about future clinic expansion efforts? How are you thinking? And can you talk a little bit more about your plans over the next not just the next quarter or two, but over the next six, twelve months even for further expansion in The US and internationally?

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Sure. Well, you could assume, Rick, that we have no plans to slow down the clinic expansion strategy here. We're not going to call out specifically how many more we think we can get done. But it is reasonably likely that in the second half, could expand. I think what we're also seeing is in places like Colorado or Florida, really seeing this in Ohio, where we have new clinics starting to see more throughput from those clinics.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

So I think Fred and I are both really pleased with the increases in volume we've seen. We're seeing the usage of our sales force, both the surgical sales force, as well as the addition of OPSC members that are helping make surgeons aware of how they can have a clinician that is 100% focused on pediatrics. And so see nice uptick generally in those clinics. So I'm really pleased with the not only the territory expansion, but what we're seeing from the territories that we've expanded into. Obviously, a place like Florida is very early.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

We have a number of other clinics within the territory that we're working on. And I think when those clinics are set and we're moving forward, we're going to continue to see growth from the locations we've already set up. And then that becomes a bit compounding when you start adding new clinic opportunities in new jurisdictions or new territories. I think now a year into it, and we've done several expansions so far, the pipeline is very full. And as we kind of knock out one, three more continue to add.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And so I think we have several years of expansion and growth ahead of us for this section of our business. And what we're 34, 30 five clinics at this stage. I mean, I'm not going to call out what you're going to see in the next six to twelve months. But I think over the course of our time here, three to five years, our intent would be to dominate the market share in this space. And there's 300 children's hospitals, so we have a lot of work to do to continue to scale.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

I think on that OUS side, pretty interesting because we are having some success with what is still a fairly limited scoliosis portfolio due to lack of EU MDR approval on our small stature system. But we're having success already with our implants in certain pretty key markets in Europe, and seeing growth, still small, but the growth is large. And that is also then leading to conversations that we maybe didn't expect to have a year ago. And that's leading to these conversations with pediatric spine surgeons who are now using our fusion devices about how we could serve them on the scoliosis bracing side. And so there's a few opportunities for us there that are good ones and don't require MDR approval.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And so I think it would be fair to say that if we got good opportunities for expansion in certain particularly markets in Western Europe that we're going to take those opportunities. And I think it's going to be good business for us.

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

Appreciate the color. Thank you.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

You bet.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Ben Haynor of Lake Street Capital Markets. Your line is now open.

Ben Haynor
Managing Director at Lake Street Capital Markets, LLC

Good afternoon, gentlemen. Thanks for taking my questions. First off for me, it's great to hear the productive conversations that you've had with the FDA on LE. I was just wondering if there's any more color you can share there on maybe what your understanding is presently on what a submission could look like there, or really anything you can share on that front.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Yeah, I guess without getting too detailed, I think that our concerns early on would be that we would have to do some a big PMA, some type of multi year study. I think at this stage, we think that is a very, very small likelihood that that would occur. And so I would say the FDA recognizes the need for this device in the marketplace, and that the patients that need that and are working with us the way they should be, particularly with a device that has breakthrough device designation, to make the pathway for that approval rational and cost effective. But also one in which we do need to collect data on some levels to make sure that the device is safe and effective. And I'm just really, really pleased with the way the FDA has operated here in the last five months, four months.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And we've seen maybe a change of tone on Vertiglyde, because I think we told you all that we were a little concerned that Vertiglyde could drag on. And then through productive conversations, it didn't. And I would just say that the tone of the conversations we're having around LE is very similar to the tone of conversations we had around Vertaglyde, which is why we're quite optimistic.

Ben Haynor
Managing Director at Lake Street Capital Markets, LLC

Excellent. Very encouraging, obviously, there. And then secondly for me, on the EU and the MDR, what is kind of that first bolus of products that you're taking through there? What sort of case mix is the right word, but what sort of market share of procedure volume do those sorts of products hit in these European markets? If that makes sense.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Yeah, so I would say the first few approvals will be on the trauma and deformity side. So we have a number of products there we just don't have available. And what's also interesting, Ben, is that we have a number of products that are within a number of individual SKUs or instrumentation or sizes that are included in The US sets, that make those sets more competitive and far more useful to a surgeon, that are available to US customers, but not available to OUS customers, or customers in Europe. And so it's not only just a bolus of literally new systems, it's a bolus of different products that could modernize some of the other systems that we already have in market, and could take additional share as a result of having some of the more modern instrumentation and implants. Some of the systems that we've been selling in Europe have been unchanged really for fifteen years.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And that wouldn't be the case or the experience that you would see if you were in Indiana or Ohio utilizing our products, there's kind of been a constant upgrade. And so the European surgeons haven't seen some of those upgrades. So I think the first things you're going to see are those types of devices that will help drive share through our legacy products and some of the products we already have onshore in Europe. And then I think the bigger ones are, we have half of our portfolio scoliosis products available in Europe. We've launched the business there, it's still small.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

But if you can't launch your small stature system, and you're a pediatric orthopedic implant company, that's a tough go, right, in terms of trying to capture market share there. We're doing that with the five thousand five and sixty response right now, but having the 4,550 fusion system, as well as some of the other devices that make their response system very unique, I think are going to be a bigger catalyst maybe than anything.

Ben Haynor
Managing Director at Lake Street Capital Markets, LLC

Excellent. That makes a lot of sense. Thank you, gentlemen, for taking the questions.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Thank you, Ben.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Mike Matson of Needham and Company. Your line is now open.

Joseph Conway
Equity Research Associate at Needham & Company

Hey, Fred. Hey, Dave. This is

Joseph Conway
Equity Research Associate at Needham & Company

Joseph on for Mike today. Hey, Joe. Maybe just to start off with DF2, the expanded indication there in postoperative management. I don't think you guys have maybe sized the market with that. I was wondering if you could maybe tease that out a little bit and just maybe talk about if you've had any traction there with that indication.

Joseph Conway
Equity Research Associate at Needham & Company

I guess maybe what's your expectation for postoperative use in 2025? And then just on the OPSV, I think you guys called out two launches on this call so far in the year. And I believe your slide deck says the goals for this year. So I was just wondering if you could maybe talk about those other two launches coming, if that information is correct.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Yeah, good question. So I guess let's just start with the bracing launches. I think the likelihood that we would get to four launches, if not more, is very high. I mean, the Unfo product as well as Thrive are both products that we have experience with our clinics and now are able to sell through those two companies and expand into all of our clinics, as well as clinics that we don't own. And so we have pretty constantly seen pretty unique technologies that can't get scale because they're just so small that we have access to.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And so it's really the timing of that for the sales force to determine how fast we want to do that. We are working on a couple interesting new products as well. We did the first bracing sensor for scoliosis. I don't think we called that out, but we have launched that product. Just done a few cases here, I guess, in April with our bracing sensor.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

So that is moving forward and has been well received. And then a lot of what we're working on right now on the OPSB side is around the pediatric hip. Children with developmental hip dysplasia, a big market opportunity there for us. And so we're working on a couple of different products there. And then we are working on a product that is connected to one of our Orthex devices as well.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

And we're starting to see the potential for interplay between some of the implant systems that we have, and how those implant systems could potentially be married with post operative bracing. And in the X6 case, it actually could be interdigitated into the device itself. And so that's the primary things that we're working on. And I think we'll likely cruise to at least four products on the

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

OPSB side for sure.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Just regarding the DF2 market size, there's no data for that. But it's actually converting there. We're converting what today is basically a spike of cast typically, which is just below the nipples all the way down to just above the knee. And that spike a cast, which you guys as you can imagine, is difficult to put on that put patient under.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

And for a parent, to deal with that is very, very difficult. We're replacing that SpicaCast with a hip brace. And so there's really no market data that tells us the size of that. But what I can tell you is that this brace is quickly becoming the new standard of care, and is absolutely winning over surgeons left and right. It's just so much better than what they had to deal with before, not only the surgeons, but the parents as well.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

So we're very excited about that. Unfortunately, we don't have any data that we can point to to tell you the size. But we're creating a market with this brace, which is absolutely what we want to do in many of our situations here with this bracing opportunity.

Joseph Conway
Equity Research Associate at Needham & Company

Okay. Okay. Great. Yeah. Fair enough.

Joseph Conway
Equity Research Associate at Needham & Company

That makes sense. Definitely understand that can be a transformational product given what's being used now. But I guess just to layer on, you you have all of these launches that, you're expecting here in 2025 in the second half, in Europe, OPSB ramping. I'm just curious how you guys are thinking about manufacturing capacity and potential expansion there, you know, whether it be this year, next year? I know you guys have, you know, product launches for the next three years.

Joseph Conway
Equity Research Associate at Needham & Company

So just kinda wondering how you you're thinking about all that.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Yeah. It's a good problem to have, which is increasing capacity. Right now, we're only working two shifts. So we have another shift that's available to us, but we, you know, starting really when we first acquired this business back in January of twenty twenty four, fully expected to have increased demand and have been working on increasing capacity, both in the short term, but also in the longer term as well. So good problem to have, we're working on it and don't see that as a limiting factor for us right now.

Joseph Conway
Equity Research Associate at Needham & Company

Okay, perfect. Congrats on the strong quarter you guys.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Thank you.

Fred Hite
Fred Hite
CFO & COO at OrthoPediatrics

Thank you much.

Operator

Thank you. I'm showing no further questions at this time. I'll now turn it back to David Bailey for closing remarks.

David Bailey
David Bailey
President, CEO & Director at OrthoPediatrics

Great. Thanks, operator. And thank you all for joining us on the Q1 call. I look forward to talking to you all over the course of the next several months. Have a great evening, and we'll talk to you soon.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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

  • In Q1, OrthoPediatrics delivered 17% revenue growth to $52.4 M, halved its adjusted EBITDA loss to $0.4 M and improved free cash flow by 36%, driven by strong performances in Trauma & Deformity, Scoliosis and OPSB.
  • Management highlights three key growth drivers for 2025: executing and scaling its OPSB specialty bracing business through territory and clinic expansions, capturing share via prior set deployments, and sustaining momentum from innovative product launches.
  • In 2025 the company secured five FDA approvals—including Vertiglyde, sterile PNP systems and the 3P Pediatric Plating Platform Hip System—and is seeing rapid adoption of PMP femur/tibia, cannulated screws, DF2 (approved in 33 countries) and its Response fusion system via 7D placements.
  • OrthoPediatrics raised its full-year revenue guidance to $236 M–$242 M (15–18% growth), reiterated adjusted EBITDA targets of $15 M–$17 M, and expects positive free cash flow in Q4 ’25 and breakeven for full-year 2026.
  • The company remains largely insulated from macro and tariff risks, with ~95% of COGS sourced domestically or tariff-exempt Canada, no China sales and a high mix of nonelective procedures supporting resilient demand.
AI Generated. May Contain Errors.
Earnings Conference Call
OrthoPediatrics Q1 2025
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