Q2 2022 OrthoPediatrics Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good morning, and welcome to Orthopedic Patrick's Corporation second quarter 2022 earnings Conference call. At this time, all participants are in listen only mode.
Be facilitating a question and answer session towards the end of today's call. As a reminder, this call's being recorded for replay purposes.
I'd like to turn the call over to Matt back so.
Gilmartin group.
For a few introductory comments.
Yeah.
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 Companys remarks include forward looking statements within the meaning of federal securities laws, including the Safe Harbor provisions of the private Securities Litigation Reform Act 90, 95. These forward looking statement.
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. The impact. This pandemic may have on the demand of the company's products and the company's ability to respond to the related challenges I encourage you to review the company's most recent annual report on Form 10-K, which was filed with Securities and Exchange Commission on March 3rd 2022.
During the call today management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period over period for each non-GAAP financial measure referenced on this call. The company has included a reconciliation of the non-GAAP financial measures to the most.
The 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 orthopedic Patrick's financial results.
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 August four 2022, except as required by law. The company undertakes no obligation to revise or update any statements to reflect events or circumstances, taking place after the date.
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 are safe and well.
As we start all earnings calls I'd like to highlight that we helped over 23000 children in the second quarter of 2022.
Since inception Ortho Pediatrics has now helped more than 560000 children in total when including the accomplishments of MD, orthopedics, which while which I will provide more detail on shortly doing the right thing for children is and always will remain our top priority.
In the second quarter of 2022, we generated total revenue of $32 $9 million representing.
Representing growth of 23% compared to the second quarter of 2021.
In the orthopedics generated global revenue of approximately $2 6 million, where we realized immediate favorable sale synergies post acquisition.
Excluding MD orthopedics second quarter organic revenue growth was approximately 14% compared to the prior year period.
As a reminder, the second quarter of 2021 benefited from the rescheduling of canceled Covid cases.
Second quarter 2022 patient volumes were negatively impacted by lingering COVID-19 headwinds early in the quarter.
When analyzing intra quarter trends the business started off slowly with continued procedure cancellations due to lingering COVID-19 headwinds and hospital staffing shortages.
As we progressed through the quarter the operating environment began to normalize leading to accelerated electric procedure volumes in June which has continued into the third quarter. Additionally, following a prolonged period of Covid disruptions growth in the quarter was aided by a strong international recovery.
In the second quarter of 2022, we generated record adjusted EBITDA of $2 1 million.
Our management team has for some years consistently improved profitability and we have taken seriously our role as financial stewards to prudently invest in sustainable growth initiatives. We are extremely proud to reach this important milestone as we believe it is a leading indicator of future sustainable profitability.
Before going into more detail on each revenue segment I want to speak to some of the macro trends experienced in the second quarter first being COVID-19 and more specifically the backlog recovery.
Entering April we continue to experience COVID-19 cancellations, albeit at a lower at lower levels compared to Q1 that said as COVID-19 infection rates started to decline in March the recovery of deferred cases ended the second quarter was lower than expected <unk>.
More of the recovery in the eastern region of the United States, which is our largest sales region was more muted compared to other regions of the country.
We continue to view this as a temporary phenomenon given that untreated deformity is simply become more severe as they progress.
With electric procedure volumes accelerating in June and July we have increased confidence that the operating environment is normalizing and that the estimated $2 $5 million backlog of U S. Deferred cases will be rescheduled over the balance of 2022.
Second is the disruption associated with the global supply chain and increasing inflationary risks.
We continued to experience modest supply disruption on select specialty instruments in the form of extended lead times.
We anticipate that any supply chain disruptions will continue to be limited and may delay set deployments by only several weeks.
In fact minor delays in June caused approximately $2 million of deployed sets to fall into early July .
We also believe this to be temporary and expect minimal delays throughout the fourth the third quarter.
Concerning inflation, we are not seeing meaningful price increases from our suppliers of surgical implants or instruments, and thus do not expect gross margins to be impacted in 2022.
Moving onto our revenue segments in.
In the second quarter of 2022, we generated total trauma and deformity revenue of $22 6 million.
Representing growth of 26% compared to the prior year period.
MD, orthopedics, which will be reported as trauma and deformity revenue going forward generated revenue of approximately $2 $6 million in the second quarter of 2022.
Excluding MB orthopedics second quarter organic trauma and deformity revenue growth was approximately 11% compared to the prior year period.
As mentioned previously the quarter started off slowly, but accelerated meaningfully in June as the operating environment normalized segment quarterly growth was partially offset by a slower recovery in elective deformity cases in April and May.
As mentioned previously elective procedure volumes accelerated in June .
Our non elective trauma business delivered strong growth led by the continued high rate of surgeon adoption of our Pnp femur system, New cumulated screws and Skippy systems. Additionally, we saw substantial growth in PD foot and our biologics business.
In the second quarter of 2022, we generated total scoliosis revenue of $9 4 million.
Representing growth of 23% compared to the prior year period.
Following a challenging start to the quarter, where we experienced residual COVID-19 headwinds.
Elective procedure volumes improved considerably in the month of June the.
Despite these early headwinds we added several new response users and deployed multiple demo units of <unk> in the second quarter, which I will touch on later in my prepared remarks.
Consistent with overall electric procedure volumes Asics also had a challenging April and may but saw significant improvement in June .
Given the acceleration in electric procedure volumes in June and July the combination of additional response and advocates users and pending 70 demo conversions, we have a better line of sight in the back half of 2022 to deliver strong scoliosis revenue growth.
I'll now provide an update on a few of our key strategic initiatives, starting with the acquisition of <unk> medical.
Second medical was founded in $90 94 at the bio Engineering services company striving to improve the treatment of orthopedic conditions.
Over the years peg a transition to focus on pediatric orthopedics.
Specifically with the trauma within the trauma and deformity patient population.
Their product offerings include novel technologies to treat some of the most unique conditions in pediatric orthopedics.
<unk> innovation led to the development of the phosphate duvall telescopic intramedullary system or the FD nail for sure.
The FD nail is a cutting edge implant designed to treat bone deformities and children with osteogenesis imperfecta without disrupting their normal growth.
This has become the most recognized orthopedic treatment for osteoporosis and perfect that around the world since its launch in 2000.
Furthermore, take asked 25 years of experience collaborating with Oems universities and surgeons from different parts of the world and the development evaluation and regulatory approval of innovative devices for pediatric patients and it sells its products and over 770 countries around the world.
<unk> product portfolio increases <unk> total systems from 39, which includes in the orthopedics to 46 and increases the percentage of total trauma and deformity cases, Obi can treat from 85% to approximately 90%.
Given <unk> history of innovation and current product development pipeline, we believe when combined with <unk> robust R&D infrastructure the capacity for future product launches is significant.
On the commercial side similar to previous acquisitions, we plan to use our strong agency sales infrastructure to further penetrate penetrate the market, particularly here in the United States.
Now turning to the integration of MD orthopedics or MTO.
As a reminder, in April we acquired Mbo, a specialty <unk> company for the treatment of clubfoot.
In our first full quarter together mbo generated revenues of approximately $2 6 million.
It is important to note that MTO is its own established distribution channel, which is allowing for faster than anticipated integration.
As such we've seen a halo effect developing within the commercial channel most notably during the second quarter Mbo received multiple large stocking orders sold the new European distribution partners, which resulted in better than expected revenue in the quarter.
Given these initial orders, we now expect Q3, and Q4 revenue to be approximately $1 $7 million per quarter.
While still early in the Mds in the <unk> integration, we have been encouraged by the promising global revenue synergy opportunities and the positive feedback from surgeon customers.
Additionally, we are actively establishing a rapid cadence of new product development over a multiyear period.
Penetrates the estimated $600 million surgical and non surgical market.
With approximately 80% of pediatric orthopedic care involving non surgical treatment. We view this as a significant growth and profit driver of the business long term.
Both the MTO and peg our companies that we have walked alongside for many years and we know their story as well we have long wanted to acquire these assets because they enhance our competitive position and build on the op story.
From a financial perspective, both companies are cash flow positive today, and do not require meaningful incremental operating expenses from orthopedic metrics to drive revenue growth.
As far as our M&A pipeline is concerned right now we do not see any assets of scale and pediatric orthopedics that are a strategic or financial interest. Our focus now is to integrate MTO and purger, while also driving organic sales growth.
Turning to new product development.
In June we launched drive rail, our new external fixation system, which received FDA clearance in April <unk>.
<unk> is a unilateral external fixation system with components designed to manage lower extremity fractures and corrected procedures.
Need to drive rail. This system contains integrated and customizable features that simplify the number of parts and steps needed to perform these complex surgical cases.
In addition, the drive rail system can be utilized with the <unk> system, serving multiple indications at the same time.
<unk> drag rail is a welcome addition, and complements our entire external fixation portfolio in the second quarter, we sold multiple sets the international distributors and are planning consignment placements in the U S, Canada, Australia and the EU.
In addition to the exciting new products, we are working on with Mbo and Purger. We're on track to launch a number of response instrument set upgrades and a new response Cannulation screw line extension in the back half of 2022.
Regarding our biologics product portfolio in the first quarter, we signed an agreement with bonus support to exclusively distribute the serum bone void filler product within the U S.
Since the agreement was signed we are encouraged by the initial product adoption and overall growth having added several new hospital accounts in Q2.
Transitioning to strategic partnerships in July we placed our first 70 surgical inter operative navigation system at St. Mary's Hospital in West Palm Beach, Florida.
As we exit July we currently have several evaluation units working their way through value analysis value analysis committees. More importantly, these units have been placed in hospitals, where we currently have low account penetration.
That said each demo unit is being used alongside the op response system.
And we're starting to see strong pull through as.
As we look into the back half of 2022, we have a high degree of confidence that these demo units will be converted to sales. 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.
Also in mid July we announced an exclusive distribution distribution agreement with <unk> side, our Belgian software developer and manufacturer of patient specific three D printed cutting guides to assist surgeons performing corrected and bone tumor resection osteotomy.
<unk> science technology complements our pediatric limb deformity implant and biologic offering and increases exposure in the pediatric orthopedic oncology market, where many of the most challenging orthopedic cases involving tumor resection require a full complement of solutions, including implants, biologics and patient specific devices.
We are excited to enter this relationship with <unk> side to provide our pediatric orthopedic customers access to the three D cuts products.
Lastly, we are particularly proud of our execution and helping train. The next generation of pediatric orthopedic surgeons year to date through June 30, we carried out more than 100 training events for health care professionals and.
In the second quarter alone, we trained over 200 surgeons on Opex.
We held LP educational events in Chicago, and Phoenix showcasing showcasing <unk>.
And performing server several 70 surgical navigation demands we were once again, a double diamond sponsor at partner and Vancouver, and hosted a networking event for women in pediatric orthopedics, which was extremely well attended.
Our commitment to noncommercial clinical education keeps us through to our cause and signals our dedication to advancing the entire field of pediatric orthopedics.
To close elective procedure volume trends improved sequentially ended July and we have enhanced visibility into the remainder of third quarter as the operating environment normalizes and backlog cases are being rescheduled. Therefore, we have a high degree of confidence in our ability to generate 20% or greater organic revenue.
Growth in 2022.
While it is early to start thinking about 2023. The company has never been in a better strategic position, especially following the acquisitions of MTO and Tiger.
In addition to bolt assets opening up new and exciting growth opportunities. They will also be significant drivers of future profit given their attractive gross margin profile and lemonade limited operating expense requirements.
In summary, we believe the underlying fundamentals of our business were enhanced in the second quarter and that we continue to make investments that create greater distance from competitors and ensure our long term success as the market leader in pediatric orthopedics.
With that I will turn the call over to Fred to provide more detail on our financial results.
Okay.
Thanks, Dave.
Our second quarter 2022 worldwide revenue of $32 $9 million increased 23% when compared to the second quarter of 2021.
Growth in the quarter was driven primarily by continued trauma growth combined with non elective procedures, increasing throughout the second quarter, resulting in 14% organic growth.
In addition, we added $2 $6 million of revenue from MD, Ortho, which was boosted by multiple EU stocking distributor shipments.
In the second quarter of 2022 U S revenue was $25 million.
15% increase from the second quarter of 2021.
The growth in the quarter was primarily driven by organic growth across scoliosis and trauma and deformity correction as well as the addition of MD ortho, which added $1 $3 million of incremental revenue.
In the second quarter of 2022, we generated total international revenue of $8 million representing.
Representing growth of 61%.
Paired to the prior year period.
During the quarter was driven primarily by increased procedure volumes as well as increased set sales to our international stocking distributors in scoliosis and trauma and deformity correction.
MD ortho added $1 $3 million of incremental revenue.
In the second quarter trauma, and deformity revenues of $22 $6 million increased 26% compared to the prior year period growth was driven primarily by organic growth from <unk> cruise, PD, but and Pnp femur systems as well as non organic growth.
From the MD ortho up $2 $6 million.
In the second quarter of 2022, scoliosis revenue of $9 $4 million increased 23% compared to the prior year period.
Growth was primarily driven by increased sales of our response Firefly and band lock products as well as increased set sales to our international stocking distributors as they look to respond to increased backlog.
Finally sports medicine other revenue in the second quarter of 2022 was $939000, which declined 15% compared to the prior year period.
Turning to set deployment.
$3 $4 million of sets were consigned in the second quarter of 2022 compared to 4.0 or $1 billion in the second quarter of 2021.
Slight delays on a few items delayed some deployment and we launched another $2 million upset in July and expect a continued rollout throughout the rest of 2022.
Touching briefly on a few key metrics for the second quarter of 2022.
Gross profit margin was 75, 9% compared to 76, 6% in the second quarter of 2021.
The change in gross margin is primarily driven by increased sales to our international stocking distributors at zero margin.
However, this should drive higher replenishment sales in the future.
Total operating expense increased $5 4 million or 23% from $23 $3 million in the second quarter of 2021 to $28 $7 million in the second quarter of 2022.
Sales and marketing expenses increased $1 6 million or 14% to $12 $4 million in the second quarter of 2022. The increase was driven primarily by increased sales Commission expenses.
General and administrative expenses increased $3 5 million or 31% to $14 $5 million in the second quarter of 2020 to.
The increase was driven primarily by the addition of personnel and resources to support the continued expansion of our business as well as increased legal expenses associated with our recent acquisitions.
Interest and other income were $3 million in the second quarter of 2022 compared to $1 $2 million of expense in the prior year period.
In the second quarter of 2022, we realized a $5 million fair value adjustment benefit was which was driven by the valuation inputs that were lower in comparison to the same period last year compared.
Compared to roughly a $1 million charge in the second quarter of 2021.
We reported an adjusted EBITDA profit of $2 1 billion in the second quarter of 2022 compared to a profit of $1 2 million for the second quarter of 2021 for.
For the first half of 2022, we generated zero point $5 million of positive adjusted EBITDA compared to a loss of $0 1 million in the first half of 2021.
We ended the second quarter with $52 $5 million in cash and restricted cash and we continue to have $19 million available on our line of credit.
$31 million was drawn on our $50 million line of credit in advance of the July one 2022 cash payment for peg a medical.
Finally, turning to our outlook for 2022.
Our business will continue to benefit from several fundamental tailwind, including an increased active surgeon base.
Growing backlog of deferred procedures.
And expanded product portfolio.
The addition of key strategic partnerships and.
And pending international approvals.
Our 2022 outlook is highly sensitive to assumptions on a steady global recovery, which anticipates case scheduling an elective procedure levels normalizing throughout the year.
For 2022, we now expect annual revenue to be between $127 million to $130 million representing.
Representing year over year annual growth between 30 and 33%.
This guidance assumes roughly $6 million of revenue contribution from MD ortho.
And $3 million from peg in medical.
We continue to expect organic revenue.
20% to 23% growth.
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 was driven by pent up demand for new product introduction systems.
Legacy systems.
As well as consignment of 70 intra operative navigation systems.
In addition, we continue to fully expect to generate several million dollars of adjusted EBITDA for the full year of 2022.
Crossing this major milestone for our business.
At this point I.
I will turn the call back to Dave for closing comments.
Thank you Fred.
I think there are three takeaways from our second quarter performance first electric procedure volumes improved in June and that trend has continued into July giving us confidence that we will generate 20% or greater organic revenue growth and 30% or greater total revenue growth in 2022.
Second the company's strategic position has been substantially enhanced by the acquisition of MTO and peg it to companies, we have known and admired for some time.
Third it is clear that the competitive strength of our business has never been greater and the future is bright.
With that I'd like to turn the call back over to the operator to open the line for any questions.
As a reminder to ask a question. Please press star one one.
Okay.
Our first question comes from Matt O'brien with Piper Sandler Your line is open.
Hey, Good morning. This is Phil on for Matt can you hear me all right.
Yes, good morning, Phil.
Great great. Thanks for taking the questions and congrats on the quarter, let's just start off with MD ortho $2 6 million in the quarter, which is great to see how should we think about these.
Stocking order is versus a more normalized run rate and then just a quick follow up with guidance you took it up about $2 million, mostly attributable attributed to that and the ortho number Mike thinking about this the right way.
And if so where was the remaining delta between.
The $2 million and then what was attributable attributable to NV ortho. Thank you.
Yeah, absolutely. So first of all yes, you are correct MD ortho did $2 $6 million in the second quarter. We think that is going to do more like one seven in the third quarter and $1 seven in the fourth quarter. So in that range that Delta is really driven by these onetime start.
<unk> orders in the EU that was very strong in the second quarter.
The increase in revenue you are correct that most of it does come from the acquisitions, we continue to see our core business executing as we had planned earlier in the year and so the organic revenue growth of 20% to 23% is exactly the same as what we had predicted before.
Four.
And the increase is coming from the incremental benefits, we're seeing from the acquisitions with the synergies coming into the <unk> family.
Great great. Thanks for the color and I guess, just with NV ortho exceeding expectations.
Holly here are there any additional specific areas are you targeting in this non surgical space I appreciate what you've said on how big the opportunity is there.
What's your commentary and the commentary today on M&A.
Yes, I think.
Our goal here is to integrate MTO as you might imagine so the focus has been to integrate that business really before we think about what the next stage in our non surgical businesses that said, India has about six new products that are in the development pipeline at least one of which may get to the field.
Billy here before end of year, So theres, a number of areas still in club foot treatment where.
Where we can expand and that will be our first step really is to continue to expand in this lower extremity non surgical bracing market and we think that with all six products in the synergies, we're seeing MD orthopedics will be able to really accelerate growth as we look over the next 12 months to 18 months from.
From an M&A perspective are.
Our commentary.
In the script here has really been in that we've got a lot of work to do to integrate <unk> and <unk>.
<unk> has gone really well so far we're obviously ahead of that with <unk>. We're just getting started and so we don't see anything very substantial in the marketplace. At this point that really interest us and we've got work ahead of us over the next 12 to 18 months and integration.
Great. Thanks for taking the question.
Thanks Bill.
Our next question comes from Rick Wise with Stifel. Your line is open.
Good morning, Friday, David Anton on for Rick Thanks for taking the questions.
Tide Dawn on.
First one on international.
Your commentary on increased international that Pershing purchasing sounded fairly positive.
And which seem to set the stage for continued growth given the the international backlog, but I just wanted to be clear have you returned to more normalized levels now and how would you characterize that aspect of your business to growth is it a headwind or accelerator as we look to the rest of the year.
Yes, I think it's very good news to see our stocking distributors internationally start to purchase sets again as you know that's been something that has been slow certainly even as the recovery takes hold here and so we're very encouraged and we feel like that's a tailwind certainly theyre, making investments because they believe that.
The market adoption of the products is accelerating and there is a backlog and we talk about about $2 $5 million backlog here in the U S. So easier to quantify that in the United States, but we feel like internationally, we probably have an 18 month backlog and we're only now starting to see.
The surgical environment normalize and us to start picking up on that backlog, which I think is borne out by the fact that our distributors are being more aggressive in their purchasing habits.
That's great perspective.
I know, it's early but as you're signing up sizing up things how should we be thinking about your early perspectives on 23, given the still expanding portfolio recent acquisitions and new product pipeline can we see growth accelerate next year.
Returning to more normal environment.
I think with the acquisitions of <unk> and a very robust R&D pipeline organically as well as in both of those businesses.
We have a really nice set up for 2003, 2023, and 2024, obviously you haven't given guidance yet on what that looks like.
But like I said at the end of our competitive position is extremely strong and when we improve our competitive position, we certainly believe that.
Absolute worst case, we are honoring our commitment.
Commitment to 20% organic growth and will remain a company that grows by 20% organically and likely 25% to 30% with acquisitions and I think that's what we're set up to do for the several years to come.
Perfect. Thanks, again for taking the questions.
Thanks Anton.
Okay.
Our next question comes from Ryan Zimmerman with <unk>. Your line is open.
Morning, Thanks for taking our questions.
I wanted to start actually with scoliosis, if I could Dave it was pretty good and some of your peers have commented the discovery market has been tougher this past quarter and just.
State your perspective on kind of the performance you guys are seeing not just the cadence but.
Where do you think you're winning share from and Scully versus maybe some of your peers, who have kind of given softer commentary about this quarter.
Yeah. Thanks, Brian .
Listen it's been a tough year, so far when we think January or.
Almost may and and so yes, I know everybody has had some struggles on the scoliosis side, particularly even early into the summer we saw a nice bounce back here in June and expect that to continue into Q3, thanks, Thats driven by increased adoption of <unk>.
<unk> new users that we had particularly in the month of June that we're seeing schedule out into Q3, and then the adoption of <unk>, we talk about having 70 and that sold a unit here at West Palm that's great, but we have a number of units right now that are in the process of going through the earn out process.
And all of that drives incremental share gain.
And so I think that's why we're so bullish about what the back half of this year could look like really what the next several quarters should could look like.
Got it Thats helpful. David.
Maybe turning to <unk> for a moment I mean.
Certainly known about the company they've been at all the posing the meetings and so forth.
How do you think about the opportunity to grow pack.
Through your distribution network similar to what you are seeing with MD RSO and just.
Going above and beyond kind of the expectations that you've laid out and not suggest that youre going to exceed the $3 million, you've laid out, but but curious kind of what you're doing to maybe provide some upside to what those expectations are.
Yes, I think mid to long term is the story for Purger, whereas MTO, we saw kind of immediate synergies because they have their own established distribution and they were working through a number of distribution.
Adjustments internationally, which I think is going to benefit them in the short run as well as a benefit us long term.
As you I believe no peg is a great firm when it comes to engineering and very innovative product development <unk>.
Seven products the main product FD Rod is really known globally.
<unk> access to inventory access to sales representation has always been fairly weak for peg it not been their focus and so you are right I think once we can transfer this to our selling organization in the United States, which should start September one and we can order inventory, which is on order and get new sets to the field, which is going to take some time once those things.
Occur.
Again, it could take a couple of quarters here, but we think the growth of that segment of our trauma and deformity business could be really strong for the next several years.
That's helpful. Dave and just let me squeeze one last one and I'll hop back in queue.
Gross margins, obviously came back.
I think a more normalized level than we saw in the first quarter. Fred how are you thinking about and I understand that that was part of.
Set.
<unk> from international stocking distributors should we expect somewhat of a bounce back higher.
In the back half of the year as those distributors are kind of purchase their inventory.
This quarter.
No I think what we're seeing is actually what you said at the beginning which is a return to more normal. So in 2020 in 2021 without selling SaaS to the international partners are margin artificially was higher we did see what I would say is.
More normalized international stocking distributor purchases in the second quarter, and we would expect that to continue as it had prior to Covid. It was not a one and done situation every single quarter, we were selling sets as they were expanding their business.
So we would expect to continue to sell sites here in the third quarter fourth quarter in each quarter next year and so I think what we're seeing now is the more natural gross margin rate that we'll see going forward, which is still very strong obviously.
Yes, obviously, thank you for I appreciate that.
Yes.
Our next question comes from David Saxon with Needham <unk> Company. Your line is open.
Yeah. Good morning, David Fred Thanks for taking my questions and congrats on the quarter, maybe one on one.
One on backlog for Peg just wondering how meaningful to that FTE nail is to the overall kids portfolio.
And maybe remind us what the market is for that type of system and whether or not it can have pull through across your product portfolio.
Yes. Good question that we've talked about this really moving us from about 85% of what a pediatric orthopedic surgeon does to 90 and that last 5% that is a big one because this product line opens us up into an area of the market for children's with rare children with rare bone diseases, given the fact that this.
Ft Rod is really unique in that there's really no competition, particularly in the United States for it it gives us a pretty powerful position. When you include that those products into the balance of the <unk> portfolio. When it comes to the hospital contracting and and so I do think that it is pretty significant to our market.
<unk>, there's about 25% to 50000 kids with osteogenesis imperfecta, so thats, where the FTE nail.
<unk> and 25% to 50000 in the United States and so while we know a lot of surgeons know about the FTE Rod again, I think historically surgeons have been reluctant to call for it because it's been very difficult to get and has been supported.
Not been supported by our selling organization that is yes.
Dedicated exclusively to pediatric orthopedics.
Got it that's helpful and then on the backlog.
I think you called out you benefited from some some rescheduled.
Cases, just wondering if any way to quantify that benefit and then recapturing the remaining $2 five I think you said it was.
Should that be split evenly or does it follow your typical seasonality.
And then if I can squeeze one last one and I don't think I heard anything on <unk>. So.
Any update on how that product is jones. Thanks, so much.
Yes. So you did you did hear that correct, we think theres about a $2 $5 million backlog in the United States, primarily in elective limb deformity correction procedures as well as elective spine surgery.
And we don't believe that in Q2, we saw a big.
A big return or pick up on any of that $2 $5 million. So likely that we'll see that pick up here in the next few quarters hopefully between now and end of end of year.
On the <unk> side <unk> is elected limb deformity procedure and so as we had mentioned April may pretty tough on all of those elective procedures better than Q1, but still not what we would expect from a normal environment and again, we saw <unk> improve into June seeing <unk> improve into Q3, and Q4 and I think.
It will positively be impacted by the backlog of the circumstance as well.
Great. Thanks, so much.
Okay.
Our next question comes from Sam <unk> with Truest. Your line is open.
Alright, Thanks for taking the question guys and congrats on the good quarter I'll start with with apathy.
Touched a little bit on it in the prepared remarks.
But just curious to hear any more granularity you can give us into where the registry our commercial rollouts and.
As cases pick up and they get surgeons with a few years of experience here, how should we be thinking about that into into 'twenty three.
Yes, Theres no question, saying that as surgeons get more data, we're not to 200 yet.
I think none of this environment until June has really benefited our capacity to.
To close the registry sooner, but I think registry likely to close year end, probably leaking into the first part of next year that said, we have about as many commercial sites that have been trained not all of them are scheduled cases, yet but have been trained and are starting to send in X rays.
As we have as we have <unk>.
Clinical sites are registry sites. So we did see a nice bump in June seeing really nice scheduling through July and into the into Q3 and I think some of that is coming from new users others is coming from surgeons, who now do have a year year and a half of experience and are seeing results and are feeling more comfortable and scheduling additional app.
Fix cases.
Great.
That's helpful and then one for you.
Got to commentary on probably lack of.
Are there acquisitions of scale going forward, but just how should we think about the balance sheet going forward and use of cash.
Liquidity.
Yeah, absolutely so $52 $5 million of cash 31 of that was used the first day in the third quarter July 1st with Purger.
The good news is we continue to have another $19 million of cash available to us on our line of credit and I think it also demonstrates the continued commitment from squadron to be very flexible in the financing, which gives us a lot of.
A lot of leeway to effectively.
Manage our balance sheet. So yes, we have used cash for our set builds obviously, we've used cash to pay MD <unk> earlier, this year and to pay our <unk> fixed payment.
But we're very encouraged by the positive adjusted EBITDA and that will continue both the rest of this year and then next year, which will start covering some of the set deployment numbers and reducing the overall amount of cash that's required to support the growth of the business.
Great. That's helpful. Thank you.
Thanks Sam.
Our next question comes from Daniel <unk> with JMP Securities. Your line is open.
Great. Thank you just touching back on your gross margin you mentioned that you haven't seen any meaningful inflation from your suppliers, but with that in mind could you give us any color on your ability to maintain or even gain price compared to some of the adult ortho players showed inflation become an issue and then in that same banks.
Give us any color on whether the pedal pedal ortho market is naturally able to mitigate pricing erosion that you might typically see in the adult ortho industry.
Any commentary there would be helpful. Thank you.
Yeah, absolutely listen we feel very fortunate in the environment that we live and work in.
Traditionally we have been able to get a little bit of price to offset inflation. This year. We did go out with a little bit of a higher price increase to offset transportation, where we are seeing inflation.
It can be a little proactive on this so we are confident that we will continue to be able to get enough price to cover the inflation impact that we would see today or into the future through our business.
And the second question on <unk>.
Hey, guys.
Yes, I think there is opportunities as we increase the value overall, the customer experience with peg that to gain pricing within the peg a portfolio and particularly in the United States.
And I would also argue that.
We talk a lot about SD, but <unk> had six additional products and for the most part you can say that those products haven't been launched in the United States and so we have opportunity both on the pricing as well as just a pure.
Launch I mean, it's almost like we're looking at six seven new product launches for our trauma limb deformity portfolio in rapid succession over the course of the next 12 months. So yeah on the pricing side of course theres opportunities for us there.
Thank for the scale of our T&D business and the.
The competitive position. It also gives us some some leverage in those circumstances, yes, I would just add that launching those products will take some time right. So we have to order the products from the suppliers. It probably will have at least a four to six month lead time to get those sets in on the peg side.
And we will be launching those hopefully later this year and or early into 2023.
Great. Thank you and then just.
One quick one just looking at the set deployment.
Reiterated guidance for the year and comment on some of the slight delays, but could you give us an idea of the cadence of the spend in the back half of the year and then you just mentioned some of it but any incremental advance investment needed for peg et cetera, or is that more of a 2023 concerns.
Yes, the number that we reconfirm does include in fact 70 as we mentioned earlier in the year as well as some little amount of peg at which we'll be able to get out get from our suppliers and start deploying this year and then the majority of the peg it will be into 'twenty.
'twenty three the cadence of that is going to be pretty consistent month. After month after month throughout the rest of 2022.
Great. Thank you very much.
Thank you.
No further questions I'd like to turn the call back over to David Bailey for any closing remarks.
Well once again, thank you everybody for your time. Thank you for your questions and we'll look forward to seeing you at conferences in the future. Thank you.
This concludes the program you may now disconnect everyone have a great day.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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Yes.