Q1 2022 OrthoPediatrics Corp Earnings Call

Welcome to the Q1 2022, Ortho Pediatrics Corporation earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.

The Q&A session. If you have a question. Please press zero one on your Touchtone phone.

I'd now like to turn the call over to Matt Backflow, Ma'am you may begin.

Thank you for joining today's call with me from the company are David Bailey, President and Chief Executive Officer, and Fred Hite, Chief operating and financial Officer before we begin today, let me remind you that the company's remarks include forward looking statements within the meaning of federal securities laws, including the Safe Harbor provisions of the private Securities Litigation Reform Act of 995.

These forward looking statements are subject to numerous risks and uncertainties and the company's actual results may differ materially for a discussion of risk factors, including among others. The risks related to COVID-19 impacts of this pandemic may have on the demand of the company's products and the company's ability to respond to the related challenges I encourage you to review the company.

Its most recent annual report on Form 10-K, which was filed with the SEC on March three 2022.

During the call today management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period over period for each non-GAAP financial measure referenced on this call.

<unk> 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 ortho pediatrics 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 may five 2022, except as required by law. The company undertakes no obligation to revise or update any statements to reflect events or circumstances, taking place after the after the data.

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

Thanks, Matt Good morning, everyone and thank you for joining us, we hope you're safe and well.

As we start all earnings call I'd like to highlight that we helped over 9300 children in the first quarter of 2022.

Since inception Ortho Pediatrics has now helped more than 540000 children in total when including the accomplishments of MD, orthopedics, which I'll provide more detail on shortly.

Doing the right thing for children is and always will remain our top priority.

In the first quarter of 2022, we generated revenues of $23 4 million.

Representing growth of 9% compared to the first quarter 2021, despite meaningful COVID-19 headwinds in January and February we rebounded in March which allowed us to generate solid revenue growth given the extremely challenging environment.

Moving to our revenue segments.

In the first quarter of 2022, we generated quarterly trauma and deformity revenue of $16 $5 million Rep.

Representing growth of 13% compared to the prior year period. Despite.

Increasing omnicom impact in January and February are non electric trauma business delivered strong growth led by high rate of surgeon adoption of our Pnp femur system as well as our new cumulated screws and Skippy systems.

Specifically, pnp femur and cumulated screws continued to benefit from positive customer preference and record set deployment.

In the United States, we expect this trend to continue throughout the balance of 2022 and beyond supported by additional set deployment and continued surgeon adoption.

Internationally, we expect to see strong growth from <unk>, specifically after showcasing both surgical systems at the 14th annual European Pediatric Orthopedic Society in Denmark in early April we saw noticeable increases in interest from key agency and stocking distributors.

Additionally, we are planning a more robust launch of the Pnp femur and external fixation systems and key international markets, which should contribute nicely to growth in the balance of 2022 and beyond.

In the first quarter of 2022, we generated scoliosis revenue of $6 million representing.

Representing growth of 1% compared to the prior year period.

Given the elective nature of surgical procedures within our scoliosis franchise, we experienced more meaningful headwinds in the early part of the first quarter.

From a geographic perspective domestic scoliosis revenue increased modestly compared to the same prior year period, while international revenue declined slightly due to international stocking distributors reacting unfavorably to the omicron variant.

That said our core scoliosis business continues to be driven by our flagship response fusion system and the continued onboarding of new users of our <unk> non fusion system.

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

Next I want to speak to some of the macro trends experienced in the first quarter that have impacted the entire health care system and specifically the medical device industry, the first being COVID-19.

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

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

While delta and Omnicom have deferred elective surgeries. It's important to note that this situation is temporary and that these elective cases do not permanently go away.

This brings me to my second point.

While the backlog of cases has increased since September 2021, we believe the recapture of deferred cases will be flatter in 2022 compared to 2021 due to continued hospital staffing shortage issues.

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

Lastly, as the disruption associated with the global supply chain and increasing inflationary risk.

While we are starting to see small pockets of inflation and extended lead times.

It is mostly isolated to instrument sets based on the current environment, we anticipate any supply chain disruptions will be in small quantities that may delay certain set deployments by several weeks.

Since we're not seeing major inflation from our suppliers regarding our surgical implants or systems, we do not expect gross margins to be impacted in 2022.

Furthermore, as inflation worsens, we have a high degree of confidence to offset increased costs with modest price increases to our customers, which we have historically been able to do.

Regarding specific raw materials, the vast majority of our products are made from stainless steel limiting our exposure to titanium.

We are also proud to say, we source approximately 90% of all materials and inventory domestically, which significantly reduces our exposure to global supply contracts.

I'll now provide an update on a few of our key strategic initiatives, starting with the acquisition of MD orthopedics.

MD orthopedics is a pediatric specialty bracing company focused exclusively on the treatment of children with club foot.

Based on whaler MD Orthopedics was founded through a partnership with Mr. John Mitchell and Dr. Ignacio pump setting.

Globally renowned pediatric orthopedic surgeon.

MTO developed a custom fit braking system to correct congenital club foot deformity, which they sell in over 90 countries globally.

In fact, this unique brazing system supported the dissemination of the Palm study technique, which has become the gold standard treatment to correct club foot.

Once fully integrated will take advantage of our globally recognized brand and distribution network combined with the strength and scale of our surgeon relationships to increase adoption of <unk> innovative clubfoot solution.

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

Specifically, India will serve as a specialty bracing platform company with an orthopedic Patrick's trauma and deformity correction business, allowing for rapid development and launch of several new products.

Lastly, the pediatrics pediatric orthopedic specialty bracing market has very attractive financial characteristics for LP and then it requires minimal capital deployment for consignment inventory.

With an estimated 80% of pediatric orthopedic care involving non surgical treatment MD orthopedics expands ortho pediatrics total addressable market by an estimated $600 million.

Speaking of rapid new product development and late March we announced a limited U S launch of our new PD Flex advanced interlocking clamp system with a full global launch planned for later this year. This new system provides surgeons with additional options when using flexible intramedullary nail to treat fractures in children.

While traditional flexible mailing has existed in pediatric orthopedic fracture care for over 40 years. This innovation evolves the use the flexible mailing in pediatrics.

The claims are offered in multiple sizes ranging from three millimeters to four five millimeters and are specifically designed to prevent problems associated with <unk> unwanted nail instability.

And migration.

In April we received an additional FDA clearance for drive rail our new external fixation system. Unlike <unk>, which is a multi plenty of system drive rail is a unilateral external fixation system with components designed to manage lower extremity fractures and corrected procedures.

Unique to drive rail. This system contains integrated and customizable features that simplify the number of parks and steps needed to perform these complex surgical cases.

In addition, the drive rail system can be utilized with the <unk> system.

Having multiple indications at the same time, we believe that driver it will be a welcomed addition, and complement to our entire external fixation portfolio.

Accelerating new product development is one of our top priorities in 2022% in 2023, and we continue to make substantial progress in several key areas.

Specifically, we are expanding our I'm nailing platform <unk>.

Including extensions to our rapidly growing Pnp FEMA brand.

Developing the first ever pediatric specific tibial nail.

And our system to dedicated to treat rare bone disease.

We're building out a software development competency and plan to launch pre op and intra operative planning software for pediatric deformity correction surgery.

As mentioned previously in connection with MD Orthopedics, we plan to accelerate the development of other key non surgical systems, which will provide more detail on in the future.

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

Turning to <unk>, we've made great progress enrolling patients in a registry and continue to add commercial sites with IRB approvals as of April there were approximately 50 U S ethics patients with greater than 12 months follow up with.

With our first ever patient, reaching two year follow up this June .

Preliminary results remained very encouraging given the early clinical success of <unk>. We continue to receive positive inbound inquiries from key hospital customers, leading to an accelerated onboarding of new surgeons in recent quarters.

Additionally, <unk> was awarded the gold medal from the 2022 Medical Design Excellence Award program.

Judged by an impartial panel of medical device experts. This award embodies the dedication and passion of our company along with our surgeon partners, who are committed to providing children with a new treatment path for adolescent idiopathic scoliosis.

<unk> strategic partnerships, we're seeing strong demand for the 70 surgical navigation platform specifically, we've performed numerous evaluations in the fourth quarter of 2021, and the first quarter. This year multiple customers, including many that are new are currently going through value analysis committees and working through capital.

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

Lastly, we are particularly proud of our execution and helping train. The next generation of pediatric orthopedic surgeons year to date through March 31, we carried out more than 70 training events for health care professionals in April we were the only diamond sponsor at the 14th annual <unk> meeting in Denmark, where we hosted a surgeon symposium.

Led by <unk> Medical director, Dr. Scott Hoffenberg.

This was a particularly exciting event as it was the first time since 2019, where we were able to meet with hundreds of European surgeons. Additionally.

Additionally, we are a gold sponsor at the international meeting of advanced spine techniques or Imas in Miami, Florida.

Where are we held an app a fixed surgeon training meeting.

Our commitment to noncommercial clinical education keeps us through to our cost and signals our dedication to advancing the entire field of pediatric orthopedics.

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

As a management team we've adopted the mantra of controlling what we can control.

We've been operating in this dynamic environment for over two years and are taking the steps to neutralize these periodic headwinds by utilizing and deploying creative approaches to execute our strategy.

We recognize the continued challenges that affect the healthcare environment. However, as a company we are moving forward in tackling the challenges in stride.

Circumstances won't dictate our success the work our customers and we do is too important.

Have kids to help with that I will turn the call over to Fred to provide more detail on our financial results Fred.

Thanks, Dave our first quarter 2022 worldwide revenue of $23 $4 million increased 9% when compared to the first quarter of 2021.

Growth in the quarter was driven primarily by strong performance within trauma and deformity offset by the unfavorable omnicom impact earlier in the quarter.

In the first quarter of 2022 U S revenue was $18 $2 million, an 8% increase from the first quarter of 2021.

The growth in the quarter was primarily driven by our non elective trauma business.

In the first quarter of 2022, we generated total international revenue of $5 $2 million.

Representing growth of 13% compared to the prior year period.

Growth in the quarter was driven primarily by strong agency sales similar to the U S. We saw material case cancellations early in the quarter, particularly in Australia, Germany, and the United Kingdom.

That said March was stronger led by the adoption of Pnp femur system and <unk>.

In the first quarter trauma, and deformity revenue of $16 $5 million increased 13% compared to the prior year period growth was driven primarily by the high rate of surgeon adoption of our Pnp femur system as well as our candy related screw and Skippy systems.

In the first quarter of 2022, scoliosis revenue of $6 million increased 1% compared to the prior year period.

Growth was primarily driven by our response system and the Onboarding of new users. This was partially offset by the impact of omnicom early in the quarter, which impacted elective procedure volume.

Finally sports medicine other revenue in the first quarter of 2022, with $900000, which declined 4% compared to the prior year period.

Turning to set deployment in the first quarter, we continued to execute our strategy of set deployment, specifically $3 $9 million of sets were consigned in the first quarter of 2022 compared to $5 $3 million in the first quarter of 2021, the demand for sets continue both domestically as well as.

As the 14 agency countries outside of the U S and provides opportunity for us to fulfill more of that demand in 2022 and beyond.

Touching briefly on a few key metrics for the first quarter of 2022 gross profit margin was 79, 3% compared to 76, 1% in the first quarter of 2021.

The change in gross margin is primarily driven by sales through the converted international agencies.

Favorable purchase price variances and fewer scoliosis set sales to our international stocking distributors.

Total operating expenses increased $2 7 million or 12% from $22 $3 million in the first quarter of 2000 $21 million to $25.01 million in the first quarter of 2022.

Sales and marketing expenses increased $800000 or 9% to $9 $8 million in the first quarter of 2022. The increase was driven primarily by increased sales Commission expenses.

General and administrative expenses increased $1 1 million or 9% to $13 $1 million in the first quarter of 2020 to the.

The increase was driven primarily by the addition of personnel and resources to support the continued expansion of our business and an increase in legal and other professional services.

Other expenses were $3 million in the first quarter of 2022 compared to $4 7 million in the prior year period. The decrease in other expenses was due primarily to the fair value adjustment of contingent considerations.

We reported an adjusted EBITDA loss of $1 $6 million in the first quarter of 2022 compared to a loss of $1 4 million for the first quarter of 2021.

We ended the first quarter with $46 $4 million in cash and restricted cash and we continue to have the $25 million available on our line of credit.

Before providing an update on our 2022 financial guidance I would like to comment on the increasingly popular topic of ESG.

Ortho Pediatrics management and board of directors takes its environmental social and governance responsibility very seriously and believe that these areas are central to our business philosophy and critical to increasing shareholder value.

We have created an internal ESG team, which I lead that is currently working on and determining which metrics to use and report on moving forward.

We're putting actions in place to improve each section of ESG and look forward to providing periodic updates in the future.

Finally, turning to our outlook for 2022.

Our business will continue to benefit from the several fundamental tail wins, including an increasing active surgeon base.

Growing backlog of deferred procedures and.

An expanded product portfolio.

The addition of key strategic partnerships.

And pending the international approvals.

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

For 2022, we now expect annual revenue to range between $122 million to $125 million representing year over year annual growth between 24% and 27%.

This guidance assumes roughly $4 million of revenue contribution from MD orthopedics.

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

<unk> intra operative navigation systems. In addition, we expect to generate several million dollars of adjusted EBITDA for the full year of 2022 crossing a major milestone for our business.

At this point I will turn the call back over to Dave for closing comments.

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

Like to conclude by thanking everyone for their interest in orthopedic metrics and we look forward to updating you on our future progress and meeting many of you at upcoming investor conferences with that I'd like to turn the call back over to the operator to open the line for questions.

Thank you we will now begin the question and answer session. If you do have a question, Chris zero and one on your Touchtone phone.

Once again, if you do wish to ask a question.

Zero then one on your Touchtone phone.

Our first question is from Matthew O'brien from Piper Sandler.

Yes.

Good morning, Thanks for taking my questions.

Can we start off with guidance.

Took it up by about $4 million for the year and.

And I think the majority of that is <unk>.

So, but you did beat Q1 by a little bit versus our numbers anyway about 1 billion or $2 billion. In total. So it seems like you are taking the full year core number down ever. So slightly is there something to call out specifically I don't have a staffing issue and not being able to get the cases or anything from a product perspective to call out.

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

Okay.

Full year basis got it okay, that's right.

Got it Okay and then second question just on App effects, Dave you mentioned more on.

Permission on boarding and I know youre still going to go slow this year, but I think you had talked about kind of doubling the number of procedures. This year then getting the registry done are you on pace given some of the interest that you've seen.

Potentially even a little bit faster with app effects. Thanks.

Sure.

Yes. Good question, Matt I think we are standing beside this doubling.

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

In 2022.

Got it thank you.

Thanks, Matt.

Our next question is from Samuel <unk> from <unk> Securities.

Hi, Thanks for taking the question.

Just want to ask on MD orthopedics and just.

Given that its a non surgical indication how should we think about that integrating into the sales force I mean is this a different call point.

That transition relatively easy and how long should we think about.

The integration period, taking.

Yes, Sam at this stage most of MD ortho is domestic sales comes direct so they literally drop shipped to the customers, which are children's hospitals, which are similar or same clinicians that we have but we don't have an aggressive plan at least in the United States to integrate the selling organization with the <unk>.

Particular club foot products, given the success that they are enjoying.

Through the sales channel that they have we do see an integration of a number of other non surgical products within our existing Salesforce, we've talked about the <unk> product, which is in fact, a fracture brace that would be put on in the operating room and that is something that we would likely manufacturer or MTO and utilize a lot of the MTO.

Structured to provide the product that likely use the U S selling organization to deploy that and to sell that into the children's hospitals.

Okay. That's helpful.

And then.

I'll just ask one on <unk>.

Just on the backlog here I mean, I think last time, we talked it was about $2 5 million dollar.

Backlog sort of being realized in Q2, three <unk> to Q3 Q does that is that still the assumption I think Fred you had said or maybe it's going to be a little bit flatter through the year.

That can extend in the 2003 at all maybe.

Yes, we think the backlog is similar to what it was at the beginning of the quarter. It does not feel like we have.

Burned off any of that backlog and then it is going to take the second quarter and third quarter of 2022 to fully absorb all of that backlog that has a lot longer I would say than what we saw historically in 2020 and 2021, just because of the staffing issues that we're experiencing.

Right now, but for sure that will be our anticipation is that will be burned off here all of 2022.

Got it thanks, I'll jump back in queue.

Thanks Sam.

And our next question is from Mike Matson from Needham <unk> Company.

Yes, thanks for taking my questions.

Brad I heard the comments on kind of the extra assumptions behind your guidance like a steady improvement in.

Volumes in Covid recovery through the year, but.

I was just curious if you don't really see anything about the second quarter. I know you have a fairly difficult comp it looks like consensus is kind of around $32 million. So.

I mean, you didn't call anything out to humor kind of comfortable with people are modeling things there.

So the second quarter.

Yes, that's right you are correct in the second quarter of last year was by far our strongest quarter.

We had 31% growth in the first quarter of last year and strong growth in the second quarter of last year and then we started seeing the impact of Delta, which slowed our growth in the third and fourth quarter. So we definitely see a much more aggressive growth numbers in the third and fourth quarter because of that.

Comparables.

But the second quarter seems to be in line with kind of our expectations at this point.

Okay got it and then just a question on the MD orthopedics deal so.

Braces I understand the kind of appeal there from a market expansion perspective, and then the financial aspect of less capital requirements, but.

They are not used in the or setting I don't think.

So can your sales force kind of manage selling that's been more of an office based setting as opposed to being in the or.

The implants they are selling.

Correct me, if that's wrong and then.

Yes.

Yes, I guess, that's my question. Thanks.

Yes, so again the current MD Oh selling organization is really.

There is really not an aggressive domestic selling organization at this point out there is primarily done through direct sales.

<unk> done through really a training method, we're training physicians on the <unk> technique and then ultimately that pulls through the product line. So we given the volume of training events, we feel like the capacity to train physicians on <unk> technique and ultimately on the product will ultimately be the driver of domestic sales in the short term.

There probably will be opportunities for us to leverage the domestic selling organization, but at this stage. It is not our intent to be very aggressive in terms of integrating the current MTO portfolio into our U S selling organization that said.

Likely the next place Youll see us move us into certain types of fracture bracing.

We have been working on a product called the <unk> for a number of quarters and expect to launch that here in this year and that in fact is embraced the Jews inter operatively as opposed to spike in casting and that is something that we intend to integrate into the U S salesforce and benefit from the infrastructure that we acquired an MD orthopedics.

I would just add that.

They are the benefit here is this is the exact same customer same surgeon that is doing the procedures for our core business as well as doing the casting and then prescribing this brace for treating club foot.

Yeah, Okay I got it thank you.

Thanks, Matt.

And once again, if you do have a question zero and one on your Touchtone phone.

And our next question is from Ryan Zimmerman from BTG.

Good morning, Thanks for taking the questions.

Wanted to start off with also AMD orthopedics just briefly.

I'm curious.

Fred if you could talk a little bit about the margin impact.

As you grow embracing what kind of <unk>.

<unk> will it have on just overall company margins.

And can that be accretive I would think that those are pretty good margins on those races, but please help educate us a little bit.

Yes, Youre absolutely right.

The business that we acquired was I would say, it's very profitable.

As you can imagine it was a.

Privately held company it was managed for cash generation and for profit and so.

It has I would say similar gross margins probably higher contribution margins.

And definitely positive operating income.

And EBITDA and net income and so it will be helpful to our P&L there is no doubt about it.

The other benefit is somebody mentioned is the lack of capital. So we can drive tremendous growth in this business without deploying additional capital. So theres no consigned sets in this business, which is another advantage to us so we see it helping the P&L we see.

Helping the return on assets and by investing a little bit of the operating income into the business. We're confident that it'll be an additional growth driver for us into the future.

Got it that's very helpful and then.

Dave.

Here, you're talking about all the new products Youre developing in 'twenty two.

You talked about software competencies et cetera.

As the company becomes more profitable and starts to generate.

Positive EBITDA and positive operating cash flow, how do you think about the investments required for all of its product development and specifically how should investors think about cash burn.

At this point in the company's life.

Relative to kind of the scale youre achieving on the existing business. Thanks for taking the questions.

Yes, I'll, let Fred take the cash burn thing, but listen we have a very large.

Set of opportunities to continue to develop products that meet unmet needs in pediatric orthopedics. We're so early in the growth story.

<unk> orthopedic marketplace has been underinvested in compared to other other orthopedic sub specialties and.

We're 15 years in and really 10 years.

Into launching substantial product lines in the space and so.

I think you could expect from a P&L perspective that we would continue to be investing in new product development.

We just we feel really blessed that we have no shortage of opportunities to develop products that meet unmet needs for our customers and I think thats part of the lifeblood of growth along with some of the acquisitions that meet unmet needs for kids. So from an R&D perspective, I think it is full speed ahead.

Talking pretty aggressively internally and now externally about our desire to accelerate the velocity of new product development, and and again I think youll be able to youll see that from us over the course of the next several years threat. If you want to speak to the capital burn circumstances, Yes, first just to comment on the R&D you see our R&D grew 54%.

<unk>, 55% in the quarter versus the first quarter of last year, I think youll continue to see us aggressively investing in the R&D area and at the same time generating positive adjusted EBITDA. This year, which will then be boosted a little bit by the MD. Orthopedics addition to the <unk>.

Business from the cash burn side, we're very excited about generating positive cash from the business. This year and really the only cash burn is going to be the deployment of sets.

That will have this year, a little higher than last year, but we feel good about where we're at we do have $46 million at the end of the first quarter of cash plus another $25 million line of credit available to us. So we've got more than enough cash to support the acquisition of MD orthopedics and continue investing in sets.

Thanks for taking the questions.

Thanks, Brian .

And our next question is from Dave <unk> from JMP Securities.

Good morning.

Maybe I can ask one.

You mentioned 70, and I was just curious I know, it's early but any comments on sort of the procedures that you were using that in today can be used with everything you do.

And then maybe any sort of details or color around sort of.

Targets that you might have for that kind of a system, maybe even an annual basis anything we can kind of wrap.

<unk> our hands around.

Yes, so the response to the product line has been extremely positive.

Although this is as you know the first capital equipment product line that we have that we've launched as a company. So we're recognizing that it takes sometimes weeks if not quarters to go through the capital purchasing process.

We have I would say at this stage, we have more opportunities for deployment than we had anticipated going into the year.

We have a number of proposals out we have a number of proposals that are within vac committees and capital allocation committees and we expect a number of these placements to come through over the next few quarters. So.

We haven't spoken to the numbers, yet, but I think we see this as a meaningful contribution to growth in 2022 and really once the units are fully deployed and we get into a cadence where every quarter. We are deploying more units. We expect that to have a very strong impact on our scoliosis revenue across 22.

<unk> and 'twenty three and beyond.

We do feel like this technology has application for other areas of the pediatric orthopedics. There is really no intraoperative navigation solution in pediatrics more broadly primarily focused on on scoliosis and so part of our arrangement with <unk> 70 was joined development and such that we could be really the owner.

Company in orthopedics that is exploring the unmet needs to navigate certain other areas of pediatric orthopedic surgery, we see strong indication for this and very complex limb deformity procedures and so I think it's another reason why we really really like this partnership.

Yes, as far as the quantification of it.

I think on the call last time, we had mentioned, we anticipate about $2 million of that.

That $25 million set deployment will come from us Consigning 70 units into the field.

And just back on the surgeons today the system is validated for spinal and cranial procedures, it's not validated for anything else. So as Dave mentioned, we will be working to get it validated in the trauma and deformity space into the future, but one of the things I'm really most encouraged about.

As the surgeons every surgeon that has used it is love the system, but most of those are new customers to us and the scoliosis side and so I think doing exactly what we thought it would do which is bringing its enabling technology to bring new customers to the table and to drive incremental growth for our business.

Yeah.

Thank you. Thank you for all that detail I guess, just as a quick follow up.

There's obviously a lot of.

And planning and software systems that are out there.

And.

It sounds like you're really confident in what you have but do you need anything else too.

We need to buy anything else or developed anything else internally.

To do those things can move maybe into trauma and deformity or do you think the systems already.

Ready for.

Any of the future areas you might want to attack.

We think this system has the capacity to do what we needed to do outside of Scoliosis Theres a lot of work that needs to be done to make that happen, obviously FDA approvals.

And just development work, but we think the system is really an ideal product product for kids, the low navigation or the low radiation to really know intraoperative radiation. We think is exactly ideal for the pediatric orthopedic marketplace.

It's why we're so bullish about this we did speak to on the R&D side. Some work we're doing both on the pre operative and intraoperative planning software, we'd ultimately like to get to the point, particularly in treating complex limb deformity, where we could.

To produce preplanned cut guides, such that there could be more exacting surgery and limb deformity correction, which is a real need and I suspect that that will be done both through preoperative planning software as well as intraoperative navigation solutions I think we are well positioned to be able to deliver on that thats, probably not an immediate.

Short term thing, but certainly over the next several quarters I think we're going to be the only company in orthopedics that can deliver that for pediatric orthopedic surgeons.

Thank you very much.

Yes.

Thanks, David.

And once again, if you do have a question Prestero then one on your Touchtone phone.

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

Great well I appreciate all the questions.

Thank you for your time. Thank you for your continued interest in ortho pediatrics and we look forward to speaking with you all over the course of the next several months. Thank you.

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

Okay.

Okay.

Okay.

Sure.

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