Q1 2023 OrthoPediatrics Corp. Earnings Call
Speaker 1: I.
Speaker 1: Four.
Speaker 2: Good morning and welcome to Orthopediatric Corp. 1st, 2023 Ernie's Conference Call. At this time, all participants are in listening mode.
Speaker 2: We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.
Speaker 2: I would now like to turn the call over to Trip Taylor from the Gil Martin group for a few introductory comments.
Speaker 3: 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.
Speaker 3: Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meeting of federal security laws, including the Safe Harbor provisions of the Private Security Lidigation Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties.
Speaker 3: the company's most recent annual report on Form 10-K , which was filed with the FCC on March 1st, 2023. 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.
Speaker 3: of analytical tools and should not be considered in isolation or as a substitute for orthopediatrics financial results prepared in accordance with GAAP.
Speaker 3: 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 2, 2023. Except is required by law, the company undertakes no obligation to revise or update any statement.
Speaker 3: everyone. Thank you for joining us on our first quarter 2023 conference call.
Speaker 3: As we start all learning schools, I'd like to be in by highlighting that we helped over 19,000 children in the first quarter of 2023. Since inception and what the additions to the MDORs of PDAX and Pega Medical, we have now held almost 650,000 kids.
Speaker 3: Doing the right thing for children remains our top priority. In the first quarter of 2023, we generated revenues of $31.6 million, representing growth of 35% compared to the first quarter of 2022.
Speaker 3: We're encouraged by the better than expected revenue growth and a strong start to the year.
Speaker 3: As we discussed, the record high levels of RSV cases in the back half of 2022 were made to headwind early in Q1, but E has the quarter progressed.
Speaker 3: Staping shortages also continue to negatively impact children's hospitals through foot, and we continue to expect some staffing headlines throughout the year.
Speaker 3: Despite the challenging environment, we continue to execute our strategy and deliver strong revolts across both the trauma and deformity and scoliosis didn't.
Speaker 3: The main drivers in the quarter included elective limb deformity correction and scoliosis procedures combined with very strong contributions from MD orthopedics and pegamedical.
Speaker 3: Organically, domestic growth outpaced international growth, which underperforms slightly due to timing of set purchases by stocking distributors and ongoing effects impact. However, we expect the international business to improve in Q2 and throughout the year as underlying demand remains strong.
Speaker 3: Overall, we are extremely pleased with the start of the year and believe we are well-positioned strategically to continue our successful growth story. Therefore we are increasing our revenue guidance for the full year to $148 to $151 million representing growth of 21 to 23% compared to 2022.
Speaker 3: Despite our Q1 success, we remain unconsciously optimistic heading into the second quarter. A staffing dynamics remain unpredictable and could impact our hospital's ability to meet the rising summer demands and typical seasonality, usually experienced late in the second quarter and throughout the summer. Given the difficult comparison to the second quarter of 2022 and until we see tangible evidence of structural improvements within the pediatric market, we will remain conservative with our
Speaker 3: Moving to our revenue seconds.
Speaker 3: In the first quarter of 2023, we generated total trauma and deformity revenue of $23.4 million, representing growth of 42% compared to the prior year period.
Speaker 3: This included combined the global revenue of approximately $4.8 million for NDO and Pege Vehicle.
Speaker 3: Revitated growth in the quarter was driven by strong performance from MDO in Pagot and the return of elective limb deformity correction procedures, offset by trauma softens that we saw rebound in March.
Speaker 3: Trauma and deformity correction products, particularly default, feedie plate, PNP femur, and canulated screw sales were strong in the quarter.
Speaker 3: Demand for our products remains high as we continue the pace of market share gains across the entire trauma and deformity portfolio.
Speaker 3: Now that MDO and PEGA have been fully integrated, we continue to be pleased with our ability to accelerate growth in each franchise and their contributions to overall growth.
Speaker 3: With respect to MDO, the addition of new products in existing markets, an expansion into new markets is bolstering the organic growth.
Speaker 3: We are excited to launch new products and expand the MDO portfolio.
Speaker 3: The pipeline of new products and launch cadence within our non-surgical franchise represent a compelling opportunity which I'll provide more detail on shortly.
Speaker 3: That's for the Pega Medical Product portfolio. Pega Product Sales Group at a very rapid pace in the first quarter, exceeding our initial expectation.
Speaker 3: The growth of the products has come almost entirely due to expanded surgeon access, as the existing sets are now supported by a higher percentage of our sales force that is fully trained.
Speaker 3: We have yet to see a major impact from new sets in the US. However, in the second quarter, we plan to launch several new Pegasets alongside a significant deployment of OPE legacy products such as PNP Femre, KLA's screws, and dry rail.
Speaker 3: In the Oentega, have advanced our leading strategic position in pediatric trauma and deformity by allowing us to further surround our customers with a comprehensive portfolio product that need all their patient needs.
Speaker 3: Though P team has done a tremendous job ramping up growth in these franchises as we leverage our global commercial footprint.
Speaker 3: We continue to expect each of these franchises will drive revenue growth in excess of our normal 20% organic corporate growth rate in 2023.
Speaker 3: Moving to the scoliosis.
Speaker 3: In the first quarter of 2023, we generated revenue of $7.1 million, representing growth of 18% compared to the prior year period.
Speaker 3: highlighted by very strong domestic revenue growth of 23%. This performance reflects a steady improvement in the elective surgical environment and continued chair game with response and appetite.
Speaker 3: International revenues blunted overall growth by a few points due to a tough comparison and timing of certain international set orders. However, we expect this to be temporary and to become a tailwind for growth for the remainder of the year.
Speaker 3: We're pleased to see the value proposition of the combination of Appalachix, 70, and respond, comprehensively addressing surge in needs and driving market share gain.
Speaker 3: Toll of users in Q1 increased meaningfully compared to the prior year period. We continue to see strong incremental response fusion growth in new accounts, or with either deployed 70 units, or a surge of started using ethics. Ethics grew in the first quarter. Despite planning to visit its negatively affecting scheduling early in the quarter.
Speaker 3: As a result of scheduling challenges, many apifex have been pushed into the second quarter. Additionally, we continue to make progress on the development of apifex's clinical data, which will lead to stronger KLs, KOL support, and podium presence. Specifically, as a recent positive meeting, positive one-year follow-up data.
Speaker 3: From 54 patients was presented highlighting the early US experience.
Speaker 3: We continue to expect more surgeons will become increasingly comfortable with where apophics fits into their practices as the US data maturers, and this presents a scientific society meeting.
Speaker 3: Late in Q1, we received FDA approval for the response can you light its screws and performed our first case in March.
Speaker 3: Sertion feedback was very positive. Now we expect this system to improve outcomes for patients with neuromuscular scoliosis requiring pelvic fixation.
Speaker 3: Additionally, the early deployment of response power and disposable torque limiters is underway.
Speaker 3: We believe these line extensions will continue to support sharegain momentum within the Scholeosis Fusion portfolio. Overall, surgeons and children's hospitals are increasingly attracted to our Scholeosis portfolio. As we continue to advance our response fusion systems.
Speaker 3: Deploy 70 interoperative, interoperative navigation system.
Speaker 3: and add new users of Atefix. All of this is leading to share game, and we expect that to continue as we execute.
Speaker 3: Moving on to international. In the first quarter of 2023, we generated international revenue of $7.8 million, compared to $5.2 million, the prior year period, primarily driven by MDO and Pega contribution in the trauma and deformity business.
Speaker 3: The timing of legacy separation, large scoliosis orders by stocking distributors, and the ongoing effects dynamics negatively impacted our international title.
Speaker 3: Demand for our products remains strong, and we expect the international performance to improve in the second quarter and throughout the remainder of the year.
Speaker 3: Turning to new product available.
Speaker 3: The first quarter proved to be a very successful quarter for R&D and new product development.
Speaker 3: The first quarter proved to be a very successful quarter for R&D and new product development. We received FDA approval.
Speaker 3: Advanced full-scale product deployments, launch new products, and made meaningful progress on several long-term product development initiatives.
Speaker 3: We believe each of these accomplishments represent incremental opportunities to drive market penetration and share gain as their launch is expanding.
Speaker 3: Within the trauma and deformity business, we initiated the full scale deployment of our new external fixation product, Drive Rail.
Speaker 3: It includes a unique integrated lengthening mechanism.
Speaker 3: Hinge options to span a mobile joint and is designed to integrate with the ORSEX system.
Speaker 3: We expect a large volume of stuff of drive rail to be deployed in the second quarter. Additionally, we received 510K FDA approval for our Ortex pre-planning software.
Speaker 3: are and are in the process of a full scale domestic launch.
Speaker 3: This technology will assist surgeon efficiently and precisely planning their orthex cases based on prior case data and advanced imaging.
Speaker 3: Finally, the R&D team made solid strides in the development of PMPTVA and an entirely new pediatric specific plating system. Inside the PEGOT franchise, we received our first FDA-5-CMK approval since the acquisition last July .
Speaker 3: for a new product in the guided growth area called Jiro. We expect to begin the beta launch of Jiro in the next several weeks.
Speaker 3: Beyond gyro, we're busy introducing the entire product portfolio of the surgeons around the world through our global sales organization.
Speaker 3: We're creating these introductions as new launches because we found many customers are being educated about the peg of products for their first time.
Speaker 3: With the heavy deployment of inventory on the way, we are excited about all their growth prospects.
Speaker 3: On the non-surgical specialty breaking side, R&D-O team executed the beta launch of the Mitchell Poncelli Moved Bar and March.
Speaker 3: and we expect the full launch to take place in the second quarter. The MP Moof Bar further expands our market leading position in non-surgical clubfoot treatment and expands the use profile of the gold standard Mitchell Poncelli clubfoot brace.
Speaker 3: This is particularly meaningful, as it also represents the first major new product introduction in several years for the MDO franchise, and is the first of several to come.
Speaker 3: Also within the non-surgical bracing franchise, we've completed the development of the DF2 femur fracture brace and will be conducting a beta launch in the second quarter.
Speaker 3: On the scoliosis front, as mentioned, we received 510K FDA approval for the response to cannulated screws and performed our first case in March.
Speaker 3: We expect this system will expand the use of our first of its kind response neuromuscular system that was launched in 2021.
Speaker 3: In addition, we kicked off the early rollout of response power and disposable torque, which will make both screw placement and final tightening much easier for our customers. Beyond all of this, we continue great progress on our longer term development within our early onset scoliosis initiative.
Speaker 3: such as guided growth, ribbon pelvic, and our growing rod.
Speaker 3: Finally, I want to briefly discuss a bolt-on acquisition we closed yesterday. We've acquired an enabling technology platform called Medtech Concepts. Medtech Concepts is an early stage, pre-commercial platform designed to increase efficiency in the pair operative environments. The solution combines hardware, software, and data analytics to help streamline operative care and support better decision-making in the operating room. In the future, we believe this platform will provide valuable interoperative resources for surgeons that will improve decision-making. Drive OR efficient.
Speaker 3: Finally, I want to briefly discuss a bolt-on acquisition we closed yesterday. We've acquired an enabling technology platform called Medtech Concepts. Medtech Concepts is an early stage, pre-commercial platform designed to increase efficiency in the pair of operative environments. The solution combines hardware, software, and data analytics to help streamline operative care and support better decision-making in the operating room. In the future, we believe this platform will provide valuable interoperative resources for searchers that will improve decision-making, drive OR efficiency, and ultimately improve health care for kids.
Speaker 3: While we don't expect material revenue contributions from the platform in 2023, we view this as an opportunity, much like 70 in Firefly, to continue to support market share gains for our implant systems in the years to come.
Speaker 3: We are excited to welcome to our team, the Medtech Concepts founder, Kevin Unger, who was previously a 10-year member of the OP Board of Directors.
Speaker 3: Kevin has stepped down from the board and has joined us full time as an orthopediatric employee.
Speaker 3: On behalf of the entire Board of Directors, I'd like to thank Kevin for all his contribution. We look forward to working with him to derive our enabling technology strategy.
Speaker 3: That brings us to Surgeon Training and Education.
Speaker 3: Critical to our success is an unwavering commitment to sport pediatric orthopedic clinical education and training and to help train the next generation of pediatric orthopedic surgeons.
Speaker 3: In the first quarter, we grew the number of hand-gone training sessions conducted for healthcare providers from 70 in the prior year period to over 85.
Speaker 3: We also conducted nearly 250 product sessions.
Speaker 3: Combined, we reached over 950 individuals on a global basis.
Speaker 3: Also, during the first quarter, we were once again the largest contributors to the European Pediatric Orthopedic Society or Eposcores held in Krakow, Poland. That course was attended by nearly 800 Pediatric Orthopedic Surgeon. We held a symposium on off the Ogenisus Infrafecta or OI, moderated by our own medical director and Pediatric Orthopedic Surgeon, Dr. Scott Hoffinger. OI is one of the most challenging surgical problems pediatric orthopedic surgeons face. The presentation highlight case studies and engage Eposcotindi in discussion of their experiences and best practices.
Speaker 3: which was attended by over 1,000 pediatric orthopedic surgeons. We are very excited to have unveiled a new, larger, and longer-term commitment to this prestigious society and its membership.
Speaker 3: This new multi-year commitment is one of the highest level and continues to establish orthopediatrics as the clear leader in supporting pediatric orthopedic clinical education training.
Speaker 3: who concluded, we believe it is our responsibility as the market leader to do everything we can to support our search and partners in the collective effort of advancing the entire field of pediatric or the pediatric.
Speaker 3: In a way, this may be our greatest contribution of all. With that, I'll turn the call over to Fred to provide more detail on our financial results. Fred?
Speaker 3: This may be our greatest contribution of all. With that, I'll turn the call over to Fred to provide more detail on our financial results. Fred, thanks Dave.
Speaker 3: Our first quarter, 2023 Worldwide Revenue of $31.6 million increased 35% compared to the first quarter of 2022.
Speaker 3: Growth in the quarter was driven primarily by continued sharegain across their legacy portfolio, as well as contributions from MDO and Pega Medical of $4.8 million.
Speaker 3: In the first quarter of 2023, US revenue was $23.8 million, a 31% increase from the first quarter of 2022.
Speaker 3: as we continue to deploy more sets and increase surge in adoption, as well as the addition of MTO and Pagomethical. In the first quarter of 2023, we generated total international revenue of $7.8 million, representing growth of 49% compared to the prior year period. Growth in the quarter was driven primarily by the addition of MTO and Pagomethical, as well as increased procedure buying across the majority of our OUS regions. This growth was partially offset by the ongoing negative impact of FX on our international sales. In the first quarter, the 4.4-term and 4-metre revenue of $23.4 million increased 42%, compared to the prior year period.
Speaker 3: Grows in the quarter was driven primarily by a gradual norm.
Speaker 3: and active surgical environment as well as the additional MDO and Pagus Medical.
Speaker 3: In the first quarter of 2023, Scoliosis revenue of $7.1 million increased 18% compared to the prior year period. Growth was primarily driven by increased sales in the US, offset by lower year-over-year set sales or international stocking distributors as they temporarily manage their cash positions. We expect this OUS trend to reverse for the remainder of the year.
Speaker 3: Finally, sports medicine, other revenue in the first quarter of 2023 was $1.1 million, which increased 22% compared to prior year period.
Speaker 3: Turning to set the plumbus, $3.0 million to set the work ensigned in the first quarter of 2023, compared to $3.9 million in the first quarter of 2022.
Speaker 3: testing briefly on a few key metrics. For the first quarter of 2023, gross margin would 74.6% compared to 79.3% in the first quarter of 2022.
Speaker 3: The flight decline in gross margin was primarily driven by favorable purchase price variances in the first quarter of 2022, which did not repeat in the first quarter of 2023.
Speaker 3: So, the operating expenses increased $7.2 million or 29% from $25.0 million in the first quarter of 2022 to $32.2 million in the first quarter of 2023. The increase was driven by the addition of MVO and Pegum Medical.
Speaker 3: as well as incremental personnel required to support the ongoing growth of the company. Sales and marketing expenses increase $2.5 million or 25% to $12.2 million in the first quarter of 2023. The increase was driven primarily by increased sales commission expense coupled with the addition of our recent acquisition.
Speaker 3: General and administrative expenses increased $4.5 million for 34%, $17.7 million in the first quarter of 2023. The increase was driven primarily by the addition of MDO and PEDG Medical, as well as the personnel and resources to support the continued expansion of the business. The increase was driven by the addition of the personnel and resources to support the continued expansion of the business.
Speaker 3: and an increase in non-cash G&A expenses, including depreciation, amortization, and stock-based compensation.
Speaker 3: Research and development expenses increase $0.2 million or 12% to $2.3 million in the first quarter of 2023.
Speaker 3: Total other income was $1.2 million for the first quarter of 2023 compared to a $3.0 million dollar expense for the same period last year. In the first quarter of 2023, we recognized a gain on the fair value adjustment of contingent consideration as compared to a charge in the first quarter of 2022.
Speaker 3: We reported an adjusted EBITDA loss of 2.1M dollars in the first quarter of 2023 compared to a loss of 1.6M dollars the first quarter of 2022. We ended the first quarter with 109.2M dollars in cash, short-term investments, and restricted cash.
Speaker 3: We maintain a strong cash position and $50 million available on our line of credit. Turning to guidance, we now expect four-year 2023 revenues to be in the range of $148 to $151 million, representing year-over-year growth of 21...
Speaker 3: to 23% compared to our prior expectations of 146 to 149 million dollars.
Speaker 3: The guidance assumes roughly $7.0 million of revenue contribution from MDO and Tega Medical before the acquisitions became organic on their anniversaries.
Speaker 3: We expect organic growth of 15 to 18%.
Speaker 3: Lastly, the plaintiffs deploy around $25 million of new sets in 2023, representing a year of year in a growth of 24%. Additionally, we continue to expect to generate between $3 to $4 million of adjusted EBITDA in 2023.
Speaker 3: I'm now turning the call back over to Dave for some closing remarks.
Speaker 3: in the closing remarks. Thanks for that.
Speaker 3: Following our successful first quarter, kicking off our 17th year of the company, I want to remind everyone that a culture and cause dedicated to impacting the lives of children is attracting the best and brightest and still underpins all of our success. Our share of cause and commitment.
Speaker 3: to improving the lives of children with the worth of beating conditions, fostered a culture that has again been recognized and awarded as a top 100 employer in the state of Indiana.
Speaker 3: A distinction unique to Warsaw-based medical technology company. We are proud OPA has received this recognition for the seventh time.
Speaker 3: And as shareholders, you should be proud of your continued support of a company that not only does so many great things for children, but continues its commitment to corporate social responsibility. With that, I'll turn the call back to the operator, open the line for any questions. Thank you.
Speaker 2: If you would like to ask a question, please press star 11. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Rick Wise with Steeple, your line of open.
Speaker 4: Good morning, gentlemen. And great to see the solid recovery and rebound.
Speaker 4: maybe just starting from that perspective, they maybe talked to us about, or Fred, talk us through the quarterly flow, maybe just at a high level talking about the US.
Speaker 4: and the international separately. Talk about the quarterly flow of recovery and maybe how the second quarter is starting off. Are we, do you feel like at a high level, are we back, our volumes where they need to be, your confidence in looking at the rest of the year.
Speaker 4: and maybe most particularly this international life so confident on the international rebound. I know there's a lot there, but thank you. Ha!
Speaker 3: Yeah, so I think as we think about the flow of the quarter, what we saw during the quarter and I think we will probably see continuously here for a while until things at a macro level get completely normalized. There's still a bit of chop. Kind of month to month, a little bit of choppin' us to obviously producing really great growth in the end.
Speaker 3: I think that's out of the news as we're all seeing. But we have not seen the improvement that I think some other companies are reporting on the adult side in hospital, children's hospital throughput. We still remain hampered throughout the quarter with surgeon's capacity to be able to get a long time and get particularly elected procedures through.
Speaker 3: despite the elected procedures really driving strong performance for us. And so I think our guides still anticipate that we will have staffing challenges throughout the year. And like I said earlier, I think until we see a really structural change that's sustainable, we want to remain pretty conservative.
Speaker 4: and staffing. So, you know, until we see staffing situations changed, I think, fairly consistently. You know, we just remain...
Speaker 4: optimistic but a bit cautious about our hospital's capacity to move a lot of the elective cases through in the really busy summer months of June , July and August . Last thing I would comment on related to the international. International, you know, obviously grew very substantially and but primarily because of the MDA on Paga.
Speaker 3: But the demand for products, particularly on the Scolese, really high, I would say we were a little disappointed that international wasn't better, but it was, I think, entirely due to some timing, not just of set orders, but even a couple big restock orders, particularly on the Scolese side. And that's not demand that's going away. We've got a pretty good look at what Q2 looks like. And...
Speaker 4: Yeah, I think we feel really confident about how international could impact the business positively through the last three quarters of the year. That's great, Kar. And maybe just keeping it high level, Fred, you've always been great about helping us think through the quarterly seasonal flow here.
Speaker 4: you start off better than expected, you have a nice beat and raise, etc. How would you have us think about the second quarter, particularly from a revenue perspective and how it plays out for the rest of the year?
Speaker 3: Yeah, absolutely, Rick, that we're still anticipating the third quarter, being our largest quarter of the year, followed by the second quarter, just below that, and then the fourth quarter is lower than the second quarter. That's all assuming the summer kind of sees them, plays out the way we anticipated to be. So we'll see, but right now there's no indication that it shouldn't play out that way. Right now military aid team is having a stripping off. This morning, there was an increase of an increase of agradead?m, and the increase of partiality and reserve, separating the public in efforts to afford thaticos, including
Speaker 3: you know, in June , our July actually is the largest month, followed by June , and then August when the kids are out of school, really drives the schooly business, as well as the severe deformity correction surgeries. And we would anticipate that happening again this year.
Right. And just sorry to sneak in one more here just to make sure I understand your comment about the second quarter I totally get what you're saying. Obviously you have MDO and peg of the shoe you didn't can the business X that those additions grow year over year or should we expect you're still going to report.
and the second quarter sprung back to what we thought was a normalized or very aggressive number. We had great growth on the domestic side as well as the international side and we kind of thought everything was back to normal and then growth slowed in the third and fourth quarter as RSV started filling up the children's hospitals.
So I think Dave's just calling out, you know, a tougher comp because the second quarter was so strong. But we'll stop growth on the organic side, excluding MDO and PEGA, which are obviously going to add tremendous growth to the business, just a tougher comp than the third and fourth quarters.
Gotcha. Thank you so much. Thanks. Thank you. Our next question comes from Ryan Zimmerman with your line is open. Hey guys, thanks for taking our questions.
I could see the growth bounce back here. A couple of questions for me, if I may. The first is this MDO and Pega had a really nice quarter. The highest we've seen, I think since you started reporting those out and they were inorganic. Is it kind of fair to assume that they can run at, you know, call it $20 million combined on an annual basis? Or would that be viewed as a disappointment?
given the set investment and deployment to your expecting through the balance of the year. Now listen, we're very pleased with both MDO and Pega, a tremendous year-over-year growth from their organic numbers. And we anticipate that will continue. As we stated earlier last year, the growth is not going to be explosive like 50%, but it's going to be very strong.
But I was most enthused by, particularly on the Pegaside, is to see the way the growth came in, particularly domestic. And really, just that's the impact of the US selling organization. And we don't have a ton of sets in the field at this stage. Obviously, we're launching, you know, weeks to week, month to month, we're getting more sets out.
how the domestic sales force is performed here and get them some inventory. And I think the next three quarters really the next several years could be really strong for the Pega products.
Okay, got it. And then the other thing, you know, you had this impact of RSV in the fourth quarter. I think, you know, if I look back at my notes, maybe a $2 to $3 million impact. We look at underlying T&D growth, you know, similar to prior quarters. So I'm wondering kind of what your thoughts are, Dave, about what you may or may not have made up from those RSV impacts. And I know there were some in January .
But what you may or may not have made up in the first corner and kind of how you're thinking about the recruitment, if you will, of those procedures or of that potential sale through the balance of the next few quarters. Thanks.
Yeah, it is our hope that we make up what we saw backlog in, let's say, in late Q3, Q4 throughout the balance of 2023.
I think that, you know, again, our guide is fairly conservative on this point. You know, we just got back from POSMA. We just got back from EPOS. It's pretty consistent what we're hearing from customers is just, as I pointed out earlier, tough to get the appropriate volume of OR time required to get through a normal case log, much less backlog. And so, it's tough for us to forecast that.
I think what we saw in quarter in Q1 is certain products. And for example, the deformity correction side of our trauma deformity business performed really well. And that was a bit of a turnaround from what we'd seen in the first few quarters. But it was offset by some softness and trauma that didn't make much sense, but then rebounded really aggressively in March. So I got it, I said to Rick earlier, it's...
Overall, everything's going well, but I think the chop from month to month in the elective and even for a couple months there, the trauma environment makes it difficult for us to say that we know this is all going to come back in Q2. I'd say it's over the next year, or we'll probably pick up that additional volume.
Alright, I'll hop back in cute. Thanks for taking the questions, guys.
Alright, I'll hop back in queue. Thanks for taking the questions guys.
Thanks, Ryan. Thank you. Our next question comes from Matthew O'Brien with Piper Sandler. Your line is open. Hey, this is Phil on from Matt. Congrats on the quarter and thanks for taking our questions. Just for starters, on guidance raised by $2 million here, which you know, amounted to the beat and is seemingly coming from MDO and PEGA. So the organic guide remains the same. And I think historically, you've indicated your desire to be a 20%.
organic grower in, call it normal market conditions. Can you walk us through the structural differences here between adult and children's hospitals? You know, results from your adult counterparts in the case that at least volumes on the adult side are coming back in a big way. And one might the children's hospitals see something similar to that? Yeah.
Yeah, I think I'll address the structural, Fred, maybe if you want to talk about the way that we see the next three quarters going from our revenue standpoint. But I think there is a difference between the staffing situations that we see in children's hospitals and adult hospitals, particularly on some of the more common procedures performed.
You know, we lost a lot of staff and children's hospitals that were very specialized, that were extremely well trained, and many that had been in the OR for a long time. And so for example, if you're going to do a multi-hour scoliosis fusion procedure on a neuromuscular scoliosis patient, that is about as complicated as the surgical procedures you're going to have. And when you lose staffing there...
It's pretty difficult to plug even a traveling nurse or staff member into that environment and maintain the same level of efficiency. So we have monitored this quite aggressively in a council where we have extremely high share and looked at a pre-COVID level versus where we're at now and we're just not, we're just not, the throughput is just not there yet.
Now, obviously we're getting reports that healthcare providers are coming back into the workforce. I know our hospitals are working hard to train up their staff. But, you know, for-
If you do a ton of total needs, ton of total hips, it's easy to get that easier, to get that kind of repetition going for staff members and bringing people up to speed. But the procedures we do involve specialized care, it's a specialized care team. And when you lose even one person, much less several people from that team, the efficiency has changed. So I think that's why our commentary on this is definitely different than what we are hearing from our adult counterparts.
Yeah, I would just add that, you know, it feels like the second half of last year was really the COVID for the children's hospitals. If you think back on what created the staffing issue to start with, it was really COVID several years ago in the adult hospitals and those nurses being completely overwhelmed, not just nurses, but overall staffing being completely overwhelmed.
of the staff being support and they're just not getting the same throughput as they're dealing with some of that which is definitely different I think than the hospitals on the adult side.
No, that's extremely helpful thanks to the color. And I guess the shifting gears here really quickly on the MedTech Concepts acquisition. You know, I like the fact you brought it in, you know, an enabling tech company early. Can you talk? Can you walk us through the differentiation?
that you guys might try to employ here between, let's say, your vision for the product that will sit in children's hospitals and a similar product that might currently exist in an adult hospital for this enabling tech piece.
Yeah, great question. So yeah, we are very pleased to have an opportunity here to take on this digital asset playbook. Certainly pleased to have Kevin join the team, who's a very seasoned veteran in digital health, as well as on the implant side, so rare to find the combination of those things. You know, I think what we see, and it's a similar phenomenon that we see with our partnership with C-Spine on the 7D side, that there are really no companies aggressively addressing the unique digital needs of children's hospitals. Certainly just like we talked about staffing, I mean the needs in terms of workflows as well.
can use that and correlate that against their preoperative outcomes and ensure that they get better, they're making better decisions and driving better outcomes for kids. We don't see anybody doing that at all anywhere and so the opportunity to develop software and a hardware that meets kind of the unique needs of pediatric or the PDX versus where we see these technologies so frequently being used.
Great. I'll hop back in cute. Thanks so much.
Thank you. Our next question comes from Mike Mattson with Needleman Company. Your line is open.
Yeah, thanks. Thanks for taking my questions and congrats on the quarter. I guess you're just starting with the set placements. You know, the looks like the numbers were down a bit from the first quarter last year. You just want to gauge your confidence and the ability to hit the guidance for the year there.
Yeah, we absolutely have plans in place to deploy that full $25 million this year. As we've said in the past, strong demand from the field continues and so we're swapping out priorities to get stuff to the right places as we had last year some.
flight delays and getting that one last instrument into the case so we can get it deployed. But we're highly confident in the suppliers, getting us what we need, yet this year, and getting that deployed.
Okay, thanks. And then just one product related question in Scolio is this the response-powered disposable torque. You just want to learn a little bit more about that. I assume you're not.
selling the actual powered tools, but just the attachments or something. Maybe you could just provide some more detail on that. Yeah, that's exactly right. You've got it just right. We, uh, it's really, and we have our customers have always patent, always placed our screws.
number of our for a few years. We have a number of our customers that are getting to a spot, where there's a recognition that the strain that's on their elbows, strain on shoulders pretty tough. And so this makes the implantation of our response system much much more efficient, easier on our physicians.
You're right, it's a kit of instrumentation that allows surgeons to more clearly power screws in, as well as set screws that applies to bandlock, as well as our small and standard stature response fusion systems. Okay, got it. Okay, thank you.
Thank you. Our next question comes from Sam Bradowski with Truist. Your line is open. Hey, thanks for taking the questions. First one, I'll just stick with Pegga and NMDO. Should we think about sequential growth through the year there or should we expect those businesses to mirror the seasonality of the core business for this year? Yes.
Yeah, I would expect that the Pega wouldn't most likely.
Nearly mere of the seasonality of our business, although again, we'll see, we haven't gone through a full summer with Peggy before. It may not be as seasonal, just because you're born with osteogenesis and prefectus. So it's not a condition that...
Yeah, as elective maybe as our scoliosis franchise. And I think MDO probably has less seasonality overall. I mean, obviously it's applied shortly after birth. So.
maybe some seasonality there, but maybe a little less seasonality than we've seen with our particularly our scoliosis franchise. That's helpful. And then you mentioned some OUS set timing items in the quarter and that potentially driving accelerated growth for the next year, three quarters of that.
Should we think about this sort of being a low bar in terms of growth of U.S. for the year, or other things to contemplate there? Thank you. Yeah, no, I would agree that this would be the low bar for the growth rate for the first quarter on an organic basis. Still had a little bit of negative affect impacting us here in the first quarter. We would anticipate that negative impact in the second quarter, and then we're assuming that the...
Dave Turkely with J&P Securities. Your line is open. Your line is open.
There are no further questions at this time. I'd like to turn the call back over to David Bailey for closing remarks.
Great. Well, as always, thank you for your great questions from our group and really appreciate you joining us on our call and look forward to seeing you all at upcoming conferences and discussions in the future. So, thank you. Have a great day.
That.
It'sler continue
Only mode.
We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Tripp Calo from the Gilmartin Group for a few introductory comments. Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer, and Fred Hite, Chief Operating and Financial Officer. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Thanks, Chris. Good morning, everyone. Thank you for joining us on our first quarter 2023 conference call. As we start all earnings calls, I'd like to begin by highlighting that we helped over 19,000 children in the first quarter of 2023. Since inception, and with the addition of MD orthopedics and Pega medical, we have now helped almost 650,000 kids. Doing the right thing for children remains our top priority. In the first quarter of 2023, we generated revenues of $31.6 million, representing growth of 35% compared to the first quarter of 2022. We're encouraged by the better than expected revenue growth and a strong start of the year.
As we've discussed, the record high levels of RSV cases in the back half of 2022 were made to headwind early in Q1, but eased as the quarter progressed. Staffing shortages also continued to negatively impact children's hospitals' throughput, and we continue to expect some staffing headwinds throughout the year. Despite the challenging environment, we continue to execute our strategy and deliver strong results across both the trauma and deformity and scoliosis businesses.
The main drivers in the quarter included elective limb deformity correction and scoliosis procedures combined with very strong contributions from MD orthopedics and pedymetical. Organically, domestic growth outpaced international growth, which underperformed slightly due to timing of set purchases by stocking distributors and ongoing effects impact.
However, we expect the international business to improve in Q2 and throughout the year as underlying demand remains strong. Overall, we are extremely pleased with the start of the year and believe we are well positioned strategically to continue our successful growth story. Therefore, we are increasing our revenue guidance for the full year to $148 to $151 million.
representing growth of 21 to 23 percent compared to 2022. Despite our Q1 success, we remain cautiously optimistic heading into the second quarter, as staffing dynamics remain unpredictable and could impact our hospital's ability to meet the rising summer demands and typical seasonality usually experienced late in the second quarter and throughout the summer. Given the difficult comparison to the second quarter of 2022, we are not sure how long it will last.
and until we see tangible evidence of structural improvements within the pediatric market, we will remain conservative with our outlook.
Moving to our revenue segment. In the first quarter of 2023, we generated total trauma and deformity revenue of $23.4 million, representing growth of 42% compared to the prior year period. This included combined global revenue of approximately $4.8 million for MDO and Pega Medical. The growth in the quarter was driven by strong performance from MDO and Pega.
and the return of elective limb deformity correction procedures offset by trauma softens that we saw rebound in March. Trauma and deformity correction products, particularly default, pD plate, PNP femur, and cannula discreasails were strong in the quarter.
The man-for-our-product remains high as we continue the pace of market share gains across the entire trauma and deformity portfolio. Now that MDO and PEGA have been fully integrated, we continue to be pleased with our ability to accelerate growth in each franchise and their contributions to overall growth, with respect to MDO, the addition of new products and existing markets.
The expansion into new markets is bolstering the organic growth. We are excited to launch new products and expand the MDO portfolio.
The pipeline of new products and launch cadence within our non-surgical franchise represent a compelling opportunity, which I'll provide more detail on shortly.
As for the Pega Medical product portfolio, Pega product sales grew at a very rapid pace in the first quarter, exceeding our initial expectation.
The growth of the products has come almost entirely due to expanded surgeon access, as the existing sets are now supported by a higher percentage of our sales force that is fully trained. We have yet to see a major impact from new sets in the US. However, in the second quarter, we plan to launch several new pegs at that.
alongside a significant deployment of OP legacy products, such as TNP Femre, KLA's screws, and drive rail. In the Olinpega have advanced our leading strategic position in pediatric trauma and deformity by allowing us to further surround our customers with a comprehensive portfolio of products that meet all their patient needs. OP team has done a tremendous job ramping up growth in these franchises as we leverage our global commercial footprint.
We continue to expect each of these franchises will drive revenue growth in excess of our normal 20% organic corporate growth rate in 2023.
Moving to the scoliosis business, in the first quarter of 2023, we generated revenue of $7.1 million, representing growth of 18% compared to the prior year period, highlighted by very strong domestic revenue growth of 23%. This performance reflects a steady improvement in the elective surgical environment and continued share gain with response and apotix. Surgical revenue blunted overall growth by a few points.
due to a tough comparison and timing of certain international set orders. However, we expect this to be temporary and to become a tailwind for growth for the remainder of the year. We're pleased to see the value proposition of the combination of Appletix, 7D, and Response comprehensively addressing surge in needs and driving market share gains. Total users in Q1 increased meaningfully compared to the prior year period. We continue to see strong incremental response fusion growth in new accounts.
where we've either deployed 70 units or our surgeons have started using Apofix. Apofix grew in the first quarter, despite clinic visits negatively affecting scheduling early in the quarter. As a result of scheduling challenges, many Apofix have been pushed into the second quarter.
Additionally, we continue to make progress on the development of AfroFix's clinical data, which will lead to stronger KL, KLL support, and podium presence. Specifically, at the recent positive meeting, positive one-year follow-up data from 54 patients was presented highlighting the early US experience.
We continue to expect more surgeons will become increasingly comfortable with where apophics dips into their practices as the US data maturers, and this presents a scientific society meeting.
Late in Q1, we received FDA approval for the response cannulated screws and performed our first case in March.
Sursion feedback was very positive. Now we expect this system to improve outcomes for patients with neuromuscular scoliosis requiring pelvic fixations. Additionally, the early deployment of response power and disposable torque limiters is underway. We believe these line extensions will continue to support sharegain momentum within the scoliosis fusion portfolio.
Overall, surgeons and children's hospitals are increasingly attracted to our scoliosis portfolio. I was as we continued to advance our response fusion system, deploy 70 intraoperative navigation systems, and add new users of ethics.
All of this is leading to share game, and we expect that to continue as we execute. Moving on to international. In the first quarter of 2023, we generated international revenue of $7.8 million, compared to $5.2 million in prior year period, primarily driven by MDO to peg a contribution in the trauma and deformity business.
of this is leading to share gain and we expect that to continue as we execute. Moving on to international. In the first quarter of 2023, we generated international revenue of $7.8 million compared to $5.2 million the prior year period, primarily driven by MDO to peg a contribution in the trauma and deformity business. The timing of legacy set purchases.
development. We received FDA approvals, advanced full-scale product deployments, launched new products, and made meaningful progress on several long-term product development initiatives. We believe each of these accomplishments represent incremental opportunities to drive market penetration and share gains as their launches expand. Within the trauma and deformity business,
We initiated the full-scale deployment of our new external fixation product, DriveRail. It includes a unique, integrated lengthening mechanism, hinge options to span a mobile joint, and is designed to integrate with the ORTEX system.
We expect a large volume of sets of drive rails to be deployed in the second quarter. Additionally, we received 510K FDA approval for our Orth-X pre-planning software and are in the process of a full-scale domestic launch.
This technology will affect the surgeon efficiently and precisely planning their orthox cases based on prior case data and advanced imaging. Finally, the R&D team makes solid strides in the development of PMPtivia and an entirely new pediatric specific plating system.
Inside the Pega franchise, we received our first FDA 510K approval since the acquisition last July for a new product in the guided growth area called Jiro. We expect to begin the beta launch of Jiro in the next several weeks. Beyond Jiro, we're busy introducing the entire product portfolio to surgeons around the world through our global sales organization. We're treating these introductions as new launches.
Because we found many customers are being educated about the Pega products for their first time. With the heavy deployment of inventory on the way, we are excited about all their growth prospects. On the non-surgical specialty breaking side, R&D-O team executed the beta launch of the Mitchell Ponceetti Moved R&BAR, and we expect the full launch to take place in the second quarter.
The MP Move Bar further expands our market leading position in non-surgical clubfoot treatment and expands the use profile of the gold standard Mitchell Ponseti clubfoot brace. This is particularly meaningful as it also represents the first major new product introduction in several years for the MDO franchise.
and is the first of several to come. Also within the non-surgical bracing franchise, we've completed the development of the DF2 femur fracture brace, and we'll be conducting a beta launch in the second quarter. On the scoliosis front, as mentioned, we received 5-cent FDA approval for the response cannulated screws and performed our first case in March. We expect this system will expand the use of our first-of-its-kind response neuromuscular system that was launched in 2021.
In addition, we kicked off the early roll-out of response power and disposable torque, which will make both screw placement and final tightening much easier for our customers. Beyond all of this, we continued great progress on our longer-term development within our early-onset scoliosis initiative.
such as guided growth, ribbon pelvic, and our growing rod. Finally, I want to briefly discuss a bolt-on acquisition we closed yesterday. We've acquired an enabling technology platform called MedTech Concepts.
MedTech Concepts is an early stage, pre-commercial platform designed to increase efficiency in the perioperative environment.
The solution combines hardware, software, and data analytics to help streamline operative care and support better decision-making in the operating room. In the future, we believe this platform will provide valuable intraoperative resources for surgeons that will improve decision-making, drive OR efficiency, and ultimately improve healthcare for kids.
While we don't expect material revenue contributions from the platform in 2023, we view this as an opportunity, much like 70 in Firefly, to continue to support market share gains for our implant systems in the years to come.
We are excited to welcome to our team the MedTech Concepts founder, Kevin Unger, who was previously a 10-year member of the OP board of directors.
Kevin has stepped down from the board and has joined us full time as an orthopediatrics employee. On behalf of the entire Board of Directors, I'd like to thank Kevin for all his contributions. We look forward to working with him to drive our enabling technology strategy.
That brings us to Surgeon Training and Education. Critical to our success is an unwavering commitment to sport pediatric orthopedic clinical education and training and help train the next generation of pediatric orthopedic surgeons.
In the first quarter, we grew the number of hands-on training sessions conducted for healthcare providers from 70 in the prior year period to over 85. We also conducted nearly 250 product sessions.
Combined, we reached over 950 individuals on a global basis. Furthermore, we were a leading supporter of the IMAST course in Dublin, Ireland, where discussions took place about the most complex pathology facing pediatric scoliosis surgery.
Also during the first quarter, we were once again the largest contributors to the European Pediatric Orthopedic Society, or EPOS course, held in Krakow, Poland. That course was attended by nearly 800 pediatric orthopedic surgeons. We held a symposium on Osteogenesis Imperfecta, or OI, moderated by our own medical director and pediatric orthopedic surgeon, Dr. Scott S.
which was attended by over 1,000 pediatric orthopedic surgeons. We are very excited to have unveiled a new, larger, and longer-term commitment to this prestigious society and its membership.
This new multi-year commitment is of the highest level and continues to establish orthopediatrics as the clear leader in supporting pediatric orthopedic clinical education training. To conclude, we believe it is our responsibility as the market leader to do everything we can to support our surgeon partners in the collective effort of advancing the entire field of pediatric orthopedics. In a way, this may be our greatest contribution of all. With that, I'll turn the call over to Fred to provide more detail on our financial results.
is one of the highest levels and continues to establish orthopaediatrics as the clear leader in supporting pediatric or clinical education training. We believe it is our responsibility as the market leader to do everything we can to support our search and partners in the collective effort of advancing the entire field of pediatric orthopaedic. In a way, this may be our greatest contribution of all. With that, I'll turn the call over to Fred to provide more detail on our financial results. Fred?
Thanks, Dave. Our first quarter, 2023 worldwide revenue of $31.6 million increased 35% compared to the first quarter of 2022.
Growth in the quarter was driven primarily by continued share gains across our legacy portfolio as well as contributions from MDO and Pega Medical of $4.8 million.
In the first quarter of 2023, U.S. revenue was $23.8 million, a 31 percent increase from the first quarter of 2022.
Growth in the quarter was primarily driven by organic growth in trauma and deformity and scoliosis products as we continue to deploy more sets and increase surge in adoption.
as well as the addition of MTO and Pagomethical. In the first quarter of 2023, we generated total international revenue of $7.8 million, representing growth of 49% compared to the prior year period. Growth in the quarter was driven primarily by the addition of MTO and Pagomethical, as well as increased procedure buying across the majority of our OUS region.
This growth was partially offset by the ongoing negative impact of FX on our international sales. In the first quarter, Trauma Deformity Revenue of $23.4 million increased 42% compared to the prior year period. In the last quarter, Trauma Deformity Revenue of $23.4 million increased 42% compared to
Growth in the quarter was driven primarily by a gradual, normal, and effective surgical environment as well as the addition of MDO and Pag-Up Medical. In the first quarter of 2023, Scoliosis revenue of $7.1 million increased 18% compared to the prior year period.
Gross was primarily driven by increased sales in the U.S., offset by lower year-over-year set sales to our international stock and distributors as they temporarily managed their cash positions. We expect this OUS trend to reverse for the remainder of the year.
Finally, sports medicine, other revenue in the first quarter of 2023 was $1.1 million, which increased 22% compared to prior year period.
Turning to set the plumbus, $3.0 million of sets were consigned in the first quarter of 2023, compared to $3.9 million in the first quarter of 2022.
Testing briefly on a few key metrics. For the first quarter of 2023, Gross margin would 74.6% compared to 79.3% in the first quarter of 2022. The slight decline in Gross margin was primarily driven by favorable purchase price variances in the first quarter of 2022, which did not repeat in the first quarter of 2023.
Total operating expenses increased $7.2 million, or 29%, from $25.0 million in the first quarter of 2022 to $32.2 million in the first quarter of 2023. The increase was driven by the addition of MDO and Pega Medical, as well as incremental personnel required to support the ongoing growth of the company. Total operating expenses increased $2.5 million, or 25%, to $12.2 million in the first quarter of 2021. The increase was driven by the addition of MDO and Pega Medical, as well as incremental
personnel and resources to support the continued expansion of the business and an increase in non-cash G&A expenses including depreciation, amortization, and stock-based compensation. Research and development expenses increased $0.2 million, or 12%, to $2.3 million in the first quarter of 2023. No other income was $1.2 million.
for the first quarter of 2023, compared to a $3.0 million expense for the same period last year. In the first quarter of 2023, we recognized a gain on the fair value adjustment of contingent considerations as compared to a charge in the first quarter of 2022. We reported an adjusted EBITDA loss of $2.1 million in the first quarter of 2023 compared to a loss of $1.6 million for the first quarter of 2022. Here.
We ended the first quarter with $109.2 million in cash, short-term investments, and restricted cash. We maintained a strong cash position and $50 million available on our line of credit. Turning to guidance, we now expect full-year 2023 revenue to be in the range of $148 to $151 million, representing year-over-year growth of 21 to 23 percent compared to our prior expectations of $146 to $149 million.
The guidance assumes roughly $7.0 million of revenue contribution from MDO and Pega Medical before the acquisitions became organic on their anniversary.
We expect organic growth of 15-18%. Lastly, we plan to deploy around $25 million of new sets in 2023, representing a year-over-year annual growth of 24%. Additionally, we continue to expect to generate between $3-4 million of adjusted EBITDA in 2023.
I'll now turn the call back over to Dave for some closing remarks. Thanks, Fred. Following our successful first quarter kicking off our 17th year as a company, I want to remind everyone that a culture and cause dedicated to impacting the lives of children is attracting the best and brightest and still underpins all of our success. Our shared cause and commitment.
that not only does so many great things for children, but continues its commitment to corporate social responsibility. With that, I'll turn the call back to the operator to open the line for any questions. Thank you. If you would like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Rick Wise with Stiefel. Your line is open.
Good morning, gentlemen, and great to see the solid recovery and rebound. Maybe just starting from that perspective, Dave, maybe talk to us about, or Fred, talk us through the quarterly flow, maybe…
Just at a high level, talking about the US and the international separately, talk about the quarterly flow of recovery. And maybe how the second quarter starting off, do you feel like at a high level, are we back? Are volumes where they need to be? Your confidence in
Uh, you know, looking at the rest of the year, and maybe most particularly this international, why feel confident on the international. Rebound I know there's a lot there, but thank you. Eric, thanks. Yeah, so I think as we think about the flow of the quarter. What we saw during the quarter, and I think what we'll probably see continuously here for a while until things at a macro level get completely normalized is still a bit.
I think that's out of the news as we're all seeing. But we have not seen the improvement that I think some other companies are reporting on the adult side in hospital, children's hospital throughput. We still remain hampered throughout the quarter with surgeons' capacity to be able to get a long time and get particularly elective procedures through.
despite the elected procedures really driving strong performance for us. And so I think our guides still anticipate that we will have staffing challenges throughout the year. And like I said earlier, I think until we see really structural change that's sustainable, we want to remain pretty conservative with respect to what we see, particularly as we enter into a second quarter.
where we had a pretty tough comp. If you remember last year, we did very, very well. We left Q2 thinking everything was completely normal. And obviously it wasn't in the back half of the year with RSV and staffing. So, you know, until we see staffing situations change, I think fairly consistently, you know, we just remain.
optimistic but a bit cautious about our hospital's capacity to move a lot of the elective cases through in the really busy summer months of June , July and August . Last thing I would comment on related to the international. The international you know obviously grew very substantially and but primarily because of the M.D.O. and Pega.
But the demand for products, particularly on the Scolis, really high, I would say we were a little disappointed that international wasn't better, but it was, I think, entirely due to some timing, not just to set orders, but even a couple big restock orders, particularly on the Scolis side.
And that's not demand that's going away. We've got a pretty good look at what Q2 looks like. And, you know, I think we feel really confident about how International could impact the business positively through the last three quarters of the year.
That's great color. And maybe just keeping it high level, Fred, you've always been great about helping us think through the quarterly seasonal flow here. You start off better than expected. You have a nice beat and raise, et cetera. How do we think about the second quarter? Yeah.
particularly from a revenue perspective and how it plays out for the rest of the year.
Yeah, absolutely, Rick. We're still anticipating the 3rd quarter being our largest quarter of the year. Followed by the 2nd quarter just below that and then the 4th quarter is lower than the 2nd quarter. That's all assuming the summer kind of season plays out the way we anticipated to be. So we'll see. But right now there's no indication that it shouldn't play out that.
try to understand your comment about the second quarter. I totally get what you're saying. Obviously, you have MDO and Pegasus, you didn't. Can the business X that? Those additions grow year over year? Or should we expect you're still going to report positive growth? How do we think about the second quarter?
Number from a dollar perspective, Fred. Yeah, I think today's point so 1st, quarter of last year, cobit negatively impacted the 1st, quarter that kind of went away and the 2nd, quarter sprung back to what we thought was a normalized or very aggressive number. We had great growth on the domestic side as well as the international side, and we kind of thought everything was back to normal.
and then growth slowed in the third and fourth quarter as RSV started filling up the children's hospitals. So I think Dave's just calling out, you know, a tougher comp because the second quarter was so strong. But we'll stop growth on the organic side except excluding MDO and PEGA, which are obviously going to add tremendous growth to the business just a tougher comp than the third and fourth quarters.
Gotcha. Thank you so much. Thanks, Ray. Thanks, Ray. Thank you. Our next question comes from Ryan Zimmerman with BTIG. Your line is open. Hey, guys. Thanks for taking our questions and nice to see the girls bounce back here. A couple questions for me, if I may. The first is just MDO and PEGA had a really nice score, the highest we've seen since you started reporting those out and...
and they were inorganic, is it kind of fair to assume that they can run at, you know, call it $20 million combined on an annual basis? Or would that be viewed as a disappointment given the set investment and deployments you're expecting through the balance of the year? No, listen, we're very pleased with both MDO and PEGA, tremendous year-over-year growth from their organic numbers. And we anticipate that will continue.
As we stated earlier last year, the growth is not going to be explosive like 50%, but it's going to be very strong in higher than the 20% range. And I think you're pretty close on what we anticipate for the year here in 2023. And as we continue to get sets deployed throughout the year, feel very good about growth continuing very aggressively into next year, both of those businesses. Yeah, Ryan, I think what I was most enthused by, particularly on the pegass eye, is to see the way to growth.
US because I think surgeons instantly started calling that group and feel much more confident with that group and I'm just really proud of how the domestic sales force is performed here and get them some inventory. I think the next three quarters really be strong, really the next several years could be really strong for the Pega products.
Okay, got it. And then the other thing, you know, you had this impact of RSV in the fourth quarter. I think, you know, if I look back at my notes, maybe a $2 to $3 million impact. We look at underlying T&D growth, you know, similar to prior quarters. So I'm wondering kind of what your thoughts are, Dave, about what you may or may not have made up from those RSV impacts. And I know there were some in January . What you may or may not have made up in the first quarter.
and kind of how you're thinking about the recruitment, if you will, of those procedures or of that, you know, potential sale through the balance of the next few quarters. Thanks. Yeah, it is our hope that we make up what we saw backlogged in, let's say, in late Q3, Q4, throughout the balance of 2023.
I think that, you know, again, our guide is fairly conservative on this point. You know, we just got back from POSMA. We just got back from EPOS. It's pretty consistent what we're hearing from customers is just, as I pointed out earlier, tough to get the appropriate volume of OR time required to get through a normal case log, much less backlog. And so it's tough for us to forecast that. I think what we saw in Q1 is certain products...
And, you know, for example, the deformity correction side of our trauma deformity business performed really well. And that was a bit of a turnaround from what we'd seen in the first few quarters. But it was offset by some softness and trauma that didn't make much sense, but then rebounded really aggressively in March. So I got to say to Rick earlier, it's overall, you know, everything's directionally going going well, but I think the chops from month to month in the elective and even for a couple.
months there, the trauma environment, makes it difficult for us to say that we know this is all going to come back in Q2. I'd say, you know, it's over the next year, or we'll probably pick up that that additional volume. All right, I'll hop back in Q. Thanks for taking the questions guys. Thanks, Ryan. Thank you. Our next question comes from Matthew O'Brien with Piper Sandler. Your line is open.
Okay, this is still on from that. Congrats on the quarter and thanks for taking our questions. Just for starters, on guidance raised by $2 million here, which you know, amounted to the beat and is seemingly coming from MDO and PEGA. So the organic guide remains the same. And I think historically, you've indicated your desire to be at 20%.
organic grower in, call it normal market conditions. Can you walk us through the structural differences here between adults and children's hospitals? Results from your adult counterparts indicate that, at least volumes on the adult side are coming back in a big way. And one might the children's hospitals see something similar to that. Yeah, I think I'll address the.
extremely well-trained and many that had been in the OR for a long time. And so for example, if you're going to do a multi-hour scoliosis fusion procedure on a neuromuscular scoliosis patient, that is about as complicated as the surgical procedures you're going to have. And when you lose staffing there...
It's pretty difficult to plug even a traveling nurse or staff member into that environment and maintain the same level of efficiency. So we have monitored this quite aggressively in accounts where we have extremely high share and looked at a pre-COVID level versus where we're at now and we're just not, we're just not, the throughput is just not there yet. Now obviously we're getting reports that, you know, healthcare providers are coming back into the workforce.
I know our hospitals are working hard to train up their staff, but you know if you do a ton of total needs, ton of total hips, it's easy to get that easier, to get that kind of repetition going for staff members and bringing people up to speed, but the procedures we do involve specialized care, it's a specialized care team.
And when you lose even one person, much less several people from that team, the efficiencies change. And so I think that's why our commentary on this is definitely different than what we are hearing from our adult counterparts. Yeah, I would just add that it feels like the second half of last year was really the COVID for the children's hospitals.
If you think back on what created the staffing issue to start with, it was really COVID several years ago in the adult hospitals and those nurses being completely overwhelmed, not just nurses but overall staffing being completely overwhelmed, I think that was for us the second half of last year. The fourth quarter, the volume was just crazy. Because we're working crazy hours and there was...
From what we're hearing a lot of vacation and kind of catching your breath here in the 1st, quarter for a lot of the staffing support, and they're just not getting the same throughput as they're dealing with some of that, which is definitely different. I think than the hospitals on the adult side. No, that's extremely helpful. Thanks to the color and I guess just shifting gears here really quickly on the Medtech concepts acquisition. You know, I like the fact you brought it in, you know, an enabling tech company early. Can you talk? Can you walk us through the differentiation?
that you guys might try to employ here between let's say you're a vision for the product that will fit in children's hospitals and a similar product that might currently exist in an adult hospital for this enabling tech piece. Yeah, great question. So yeah, we are very pleased to have an opportunity here to take on this digital asset playbook. Certainly pleased to have Kevin join the team who's a very seasoned veteran in digital health as well as.
on the implant side, so rare to find the combination of those things. You know, I think what we see, and it's a similar phenomenon that we see with our partnership with C-SPINE on the 7D side, that there are really no companies addressing the unique digital needs of children's hospitals. Certainly, just like we talked about staffing, I mean, the needs in terms of workflow, the complexity of these surgical procedures, and frankly, the data capture to help drive better decision making, particularly about procedures that, you know...
We don't see anybody doing that at all anywhere. And so the opportunity to develop software and hardware that meets kind of the unique needs of pediatric orthopedics versus where we see these technologies so frequently being used in adult hospitals, where it's repetitions, repetitious surgery, hips, knees, those types of things. We think there's a huge value add for us. Again, it's not going to be overnight.
This is a long-term play for us, but we like the entry point, and we think this could have a big impact in terms of long-term share gain for the business. Great. I'll hop back to you. Thanks so much. Thanks, Phil. Thank you. Our next question comes from Mike Matson with Needham & Company. Your line is open. Let's go, Phil. Come on up.
Yeah, thanks. Thanks for taking my questions. Congrats on the quarter. I guess you're just starting with the set placements. You know, the, the look like the numbers were down a bit from the 1st quarter last year. Just want to gauge your confidence and the ability to hit the guidance for the year there. Yeah, we absolutely have plans in place to deploy that full 25M dollars this year.
As we've said in the past, strong demand from the field continues and so we're swapping out priorities to get stuff to the right places. As we had last year some flight delays and getting that one last instrument into the case so we can get it deployed. But we're highly confident in the suppliers, getting us what we need yet this year and getting that deployed. Okay, thanks. And then just one product related question in Scolias. This is the response-powered disposable torque.
You just want to learn a little bit more about that. I assume you're not selling the actual powered tools, but just the attachments or something. Maybe you could just provide some more detail on that.
Yeah, that's exactly right, Mike. You got it just right. We truly, and we have, our customers have always placed our screws manually, as well as set screws manually, and it's, it can be a painful process, particularly when you've got 24 screws and you're providing the torque.
required manually. And so this is something we've been working on for a number of years. We've had a number of our, for a few years, we have a number of our customers that you know get into a spot where there's a recognition that the strain that's on their elbows, strain on shoulders, pretty tough. And so this this makes the implantation of our response system much much more efficient, easier on our physicians, and you're right. It's a it's a kit of of instrumentation that allows surgeons to more clearly power screws in.
as well as set screws that apply to the bandlock, as well as our small and unstandard statute, statute or response fusion systems. Okay, got it. Thank you. Thank you. Our next question comes from Sam Brodowski.
With Truist, your line is open. Hey, thanks for taking the question. First of all, I'll just stick with Pega and NMDO. Should we think about sequential growth through the year there, or should we expect those businesses to mirror the seasonality of the core business for this year? Yeah, I would expect that the
Pega would most likely nearly mirror the seasonality of our business, although again, we will see. We haven't gone through a full summer with Pega before. It may not be as seasonal just because you're born with osteogenesis imperfecta, so it's not a condition that...
Yeah, as elective maybe as our scoliosis franchise. And I think MDO probably has less seasonality overall. I mean, obviously it's applied shortly after birth. So maybe some seasonality there, but maybe a little less seasonality than we've seen with our particularly our scoliosis franchise.
is as elective maybe as our scoliosis franchise. And I think MDO probably has less seasonality overall. I mean, obviously it's applied shortly after birth. So maybe some seasonality there, but maybe a little less seasonality than we've seen with particularly our scoliosis franchise.
That's helpful. And then you mentioned some OUS set timing items in the quarter and that potentially driving accelerated growth through the next three quarters of that. Should we think about this sort of being a low bar in terms of growth OUS for the year or other things to contemplate there? Thank you. Thank you.
Yeah, no, I would agree that this would be the low bar for the growth rate for the first quarter on an organic basis. Still had a little bit of negative effect impacting us here in the first quarter. We would anticipate that negative impact in the second quarter, and then we're assuming it's a neutral impact in the third and fourth quarter.
but we see the growth rate organically, internationally picking up in the second, third, and fourth quarter as compared to the first quarter rate for sure. All right, thanks for taking the questions. Thanks, Sam. Thanks, Sam. Thank you. Our next question comes from Dave Turkely with J&P Securities. Your line is open.
There are no further questions at this time. Like you turn the call back over today, David Bailey, for Close Remarks. Great. As always, thank you for your great questions from our group. And really appreciate you joining us on our call and look forward to seeing you all at upcoming conferences and discussions in the future. So thank you. Have a great day. Thank you.
This concludes today's conference. Thank you for your participation. You may now disconnect. Everyone, have a great day.