Q3 2023 OrthoPediatrics Corp Earnings Call

Yeah.

Good morning, and welcome to the also Pediatrics Corporation third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode would be facilitating a question and answer session towards the end of today's call.

A reminder, this call is being recorded for replay purposes, I would now like to turn the call over to trip Taylor 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, Fred Hite, Chief operating and financial Officer before we begin today, let me remind you that the company's remarks include forward looking statements.

The federal Securities laws, including the Safe Harbor provision of the private Securities Litigation Reform Act of 19.

These forward looking statements are subject to numerous risks and uncertainties. The company's actual results may differ materially.

For a discussion of risk factors I encourage you to review the company's most recent quarterly report on Form 10-Q, which will be filed with the SEC today.

During the call today.

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 operation was period to period for each non-GAAP financial measure referenced on this call. The company has included a reconciliation of the non-GAAP financial measure to the most dirt.

The comparable GAAP financial measures in its earnings release.

Note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitute for or the pediatrics financial results prepared in accordance with GAAP.

In addition, the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast today November seven.

2023, except as required by law. The company undertakes no obligation to revise or update any statements to reflect events or circumstances, taking place. After the date of this call.

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

Thanks Tripp.

Everyone and thank you for joining us on our third quarter 2023 conference call.

As we start all earnings call I'd like to begin by highlighting that we helped nearly 22000 children in the third quarter of 2023, a new record for orthopedic metrics.

And since inception, we have helped over 692000 kids helping.

Helping more children remains the best measure of our success.

Before I continue I'd like to acknowledge our 14 O P colleagues in Israel.

Regardless of situations continue to tirelessly support one another and this company.

<unk> time.

In the third quarter of 2023, we generated record quarterly revenue of $40 million representing growth of 14% compared to the third quarter of 2022 and produced a record adjusted EBITDA of $3 6 million.

We are proud with the progress, we're making balancing strong revenue growth with improving profitability and continued progress towards achieving cash flow breakeven sooner.

Our business continues to grow by taking market share in an environment, where children's hospital inpatient surgery volumes remain suppressed.

As expected, we continue to see incremental staffing and efficiency improvements, yes. These factors remain a headwind.

During the quarter, we benefited from the diverse nature of our business as the trauma and deformity and international businesses were very strong.

By lower growth in scoliosis due to an extremely tough comparable quarter.

A decline in international Scoliosis revenue due to abnormal ordering patterns from a few large south American distributors.

And continued procedural headwinds in a few key U S accounts that are easing in Q4.

With that said our October scoliosis performance indicates an extremely positive growth trajectory in Q4 and continued strong performances in T&D and international.

Therefore, we are reiterating our revenue guidance for full year 2023 of $148 million to $151 million.

Representing growth of 21% to 23%.

We're raising our full year EBITDA guidance to $4 million to $5 million from $3 million to $4 million.

And we now estimate set deployment of $23 million, although we.

To focus on profitability and cash usage.

From this rock solid foundation and continued advancement of our strategy, we expect a similar annual company growth profile in 2024.

While we further improve EBITDA and reduce the need for increased set deployments.

With a plethora of growth drivers in place continuing.

Continuing legacy product growth.

Several new organic product launches.

<unk> sales expansion normalization of international markets.

Positive long term <unk> data publication.

Our newly formed and a rapidly expanding specialty bracing business Oh PSB.

And an early start in digital health care. We believe this company is well positioned for continued success.

Shortly we remain in an extremely strong financial position and are confident that the current balance sheet enables us to execute our long term strategy without additional equity capital.

I'd also like to directly address the recent noise, resulting from hypothesized market implications from G. L. P. One that has impacted the sectors valuation in recent months.

Ortho pediatrics patients are children and the conditions, we treat are almost entirely acute injuries or congenital conditions.

We have not experienced any impact on our current business.

Nor do we expect any impact to our future market opportunity.

Our business is not exposed to downstream GOP impacts.

Moving to our revenue segments.

In the third quarter of 2023, we generated total trauma and deformity revenue of $28 8 million representing growth of 21% compared to the prior year period.

Revenue growth in the quarter was led by strong performances from peg a products trauma and <unk>.

The quarter saw record product record peg a product performance with fantastic growth in the U S.

In international growth just beginning.

<unk> growth was strong globally again highlighted by Pnp femur, and cumulated screws and continued share taking across the entire portfolio.

Sales of peg it remained better than we ever expected and we anticipate this to persist for a few more months as we deeply penetrate our U S accounts with a full product portfolio.

And complete the transition to our international sales agencies, and stocking distribution network as well as continued relaunch of many of their products, which had limited sets deployed.

For the first time international pegging to Peg a revenue grew significantly in the third quarter as we have nearly completed all of the distribution transition.

We expect this growth to follow the U S trajectory and become a major revenue driver internationally in 2024.

Beyond the revenue performance. We are excited to have received FDA approval and beta launched the <unk> system.

Which is a first of its kind pediatric rigid tibial nailing system modeled after our market, leading and largest trauma product the PND femur.

Initial surgeries have gone extremely well and several more are scheduled.

We expect a full market launch of <unk> to start in Q2 of 2024 and continue for many quarters.

Throughout 2023, we have seen an increasing number of customers using more of our products. As a result of the continued execution of our key account conversion strategy.

We have additional new high technology products.

And our robust pipeline was strengthened by the peg acquisition.

The T&D business is well positioned to continue to deliver sustainable growth.

Further we believe certain players are placing even less focus on pediatric trauma on LM deformity, if not entirely exiting the space in the coming years.

This places us in the driver's seat to claim the dominant share position across the next five years.

Within the T&D business, our ortho pediatrics, non surgical specialty bracing business or PSB continues.

To perform extremely well.

As we mentioned on our Q2 call. We are successfully executing a build aggressively strategy and <unk> and anticipate it to grow very rapidly in the coming several years we.

We see many of the same characteristics in the obs be opportunity that we've witnessed when we started <unk> 17 years ago.

There are countless unmet needs and opportunities to innovate.

A concentrated customer base, who we already service.

An opportunity to further support clinical education.

And no focused competition.

Beyond all of that it fits with our goal of surrounding our customers with all the products they need to treat children with orthopedic condition.

And it builds further brand loyalty across our entire surgical and non surgical portfolio.

Since the acquisition of <unk> in April of 2022, we have been bombarded with new product ideas and partnership opportunities and opportunities for expansion.

We continue to prioritize as part of our strategy.

For example in early Q3, we completed the asset acquisition of Rhino orthopedics and the cruiser brace our.

A product developed and popularized by legendary pediatric orthopedic surgeons, Dr. Dennis Langer, and Scott Mubarak at Rady Children's Hospital in San Diego.

The <unk> is the first of many new products designed to treat hip disorders in infants and children.

Earlier this month, we executed an exclusive distribution agreement with <unk> medical and expect to launch their new product called the levity in the next few weeks.

The levity device supports patients with cerebral palsy, allowing a one of a kind hands free experience that reinforces muscle for optimal walking rehabilitation.

Internally organic product development, both within the MTO team in Iowa, and what the ortho pediatrics team in Warsaw has been very productive.

After releasing the mbo move bar earlier in the second quarter, We recently announced the launch of the Palm study plus club Woodbury.

And anticipate the launch of Ponce City lights in the coming weeks.

Further the much anticipated <unk> femur fracture <unk> was recently launched through a limited release.

And our supplier is currently scaling production capabilities for our full global release in early 2024.

Beyond these product launches and partnerships there will be several more.

Supporting our thesis that we can build a more capital efficient $100 million business in this space in the coming years.

As we have said previously <unk> along with other key products, such as <unk> and <unk> produced very strong returns on capital by requiring low or no consigned inventory obligation while generating high revenue.

As we grow <unk>, we will see a diminishing need for capital deployment, while we bolster our growth prospects.

Moving to the scoliosis business.

In the third quarter of 2023, we generated revenue of $10 $3 million, representing global growth of 3% compared to the prior year period, driven by a continuation of our strategy of promoting the combined strength of apathy response and 70 placement.

Growth in the quarter was lower than normal due to difficult international and domestic comp of 33 and 38% respectively.

Regular ordering patterns from a few large international stocking distributors in South America.

And continued procedural volume headwinds in a few key U S accounts.

U S. Scoliosis revenue grew 9% driven by strong response, and <unk> demand and the Onboarding of several new first time users of both products.

Surgeries scheduled strengthened late in the third quarter and has continued into the fourth quarter, despite difficult third quarter domestic comps for apathy.

Usage grew both in new users and increased amongst several previous users.

What will offset by an ongoing major slowdown from three of our largest site as both surgeons transition to new practice locations and only started performing a few cases in Q3.

Based on scheduled scheduling visibility, we expect this to largely reverse in the fourth quarter and throughout 2024.

Further recent positive publications related to the longer term performance of the apathy device are driving more and more surgeons to seek access to <unk> and we're seeing an increased rate of IRB approval requests from new potential users.

Additionally, we expect to see published two year data from the U S registry in the coming quarter.

Moving onto international and.

In the third quarter of 2023, we generated international revenue of $10 6 million.

Compared to $8 4 million the prior year period, delivering 26% growth.

Led by extremely strong performance.

With our legacy T&D product offset by slow scoliosis sales to stocking distributors in South America.

We are pleased to see a continuation of the rebound in our international business in the third quarter and expect it to continue into the fourth quarter and 2024.

International Agency market sales were particularly strong both in trauma and deformity and scoliosis signal signaling a normalizing surgical environment.

Progress on our German direct sales model continues to track favorably. Additionally.

Additionally, sales of peg a products materially contributed to international revenue growth in the third quarter as we completed most of the final stocking distributor and agency transition.

We believe third quarter growth is just the start for peg of products internationally and expect to see similar results to that of the U S and.

I believe this will be a major tailwind international growth in the fourth quarter and in 2024.

That brings us the surgeon training and education.

In the third quarter. The company had strong attendance at several premier surgeon training events overall throughout the quarter, we conducted 70 training session and educational programs, reaching over 12 longer to health care professionals.

In August we were a lead order of the Baltimore limb Deformity conference, which featured five days interacted hands on labs on complex limb reconstruction using <unk> external fixation system.

Then in September Ortho Pediatrics continued its gold level sponsorship of the Scoliosis Research Society meeting, which took place in Seattle.

We highlighted the analytics technology.

In October we announced our strategic partnership with children's National Hospital under the alliance for pediatric device innovation to advance the development and commercialization of medical devices designed for children.

<unk> will serve as the alliances strategic adviser and role model for device innovators, whose primary focus is children.

This coalition of thought leaders will advance all aspects of pediatric medicine for years to come and provide ortho pediatrics with exposure to exciting opportunities and technologies beyond trauma, lemon deformity and scoliosis.

With that I'd like to turn the call over to Fred to provide more details on our financial results Fred.

Thanks, Dave.

Our third quarter 2023 worldwide revenue of $40 zero million dollars is a new record for us and increased 14, 4% compared to the third quarter of 2022.

Growth in the quarter was driven primarily by record peg a performance straw.

Strong global trial and growth.

As well as continued share gains across our legacy portfolio.

And growth of our non surgical specialty bracing business.

U S revenue was $29 4 million, a 10, 6% increase from the third quarter of 2022.

Growth in the quarter was primarily driven by our trauma and deformity product lines, including our non surgical specialty bracing business.

We generated total international revenue of $10 $6 million, representing growth of 26, 2% compared to the third quarter of 2022.

Growth in the quarter was driven by strong performance with our <unk> products.

Offset by slower scoliosis sales due to the timing of orders from stocking distributors in South America.

In the third quarter of 2023 trauma and deformity global revenue of $28 8 million increase.

<unk> increased 26% compared to the prior year period.

Both in the quarter was driven primarily by the share gains across our entire portfolio with strong contributions from purger.

Rama and O P S b.

In the third quarter of 2023, scoliosis revenue of $10 $3 million increased three 3% compared to the prior year period.

Growth was primarily driven by the continuation of our strategy of the combined strength of <unk> response, and 70 placements in the us.

Offset by international weakness driven by timing of set sales to our South American stocking distributors.

Finally sports medicine other revenue in the third quarter of 2023 was <unk> $9 million, which decreased 20% compared to the prior year period.

Turning to set deployment.

$3 $9 million of sets were consigned in the third quarter of 2023 compared to $6 4 million in the third quarter of 2022.

Year to date, we have deployed $16 1 million compared.

Compared to $13 8 million in the same period last year.

The increase was driven by significant new product development deployment.

Significant peg a deployment.

As well as multiple consigned 70.

Touching briefly on a few key metrics for the third quarter of 2023 gross profit margin was 77, 4% compared to 74, 1% for the third quarter of 2022.

The improvement was primarily driven by timing of favorable purchase price variances as well as fewer scoliosis set sales to South America.

Total operating expenses increased $2 6 million or 8% to $35 5 million in the third quarter of 2023.

The increase was primarily driven by the addition of incremental personnel related to expenses required to support the ongoing growth of the company as well as increased sales and marketing expenses driven by the increase in revenue.

Sales and marketing expenses increased $1 7 million or 14.0% to $13 $6 million in the third quarter of 2023. The increase was driven primarily by increased sales Commission expenses.

General and administrative expenses increased $3 4 million or 22% to $18 $5 million in the third quarter of 2023. The increase was driven primarily by an increase in non cash G&A expenses, including depreciation amortization and stock based compensation as well.

As additional personnel related to support the growth of the business.

In the third quarter of 2023, we recorded a $1.0 million charged operations related to intangible impairment as compared to $3 $6 million charge in the third quarter of 2020 to these.

These charges were primarily driven by the decrease in forecasted revenue that was lower compared to the same period in the prior year.

Research and development expenses increased <unk> 2 million or 8% to $2 $4 million in the third quarter of 2023, driven by payments to third party providers.

Total other income was <unk> 8 million for the third quarter of 2023 compared to one 7 million of expense for the same period last year.

In the third quarter of 2022, we realized a 23 zero million fair value adjustment benefit, which was driven by the decrease in forecasted revenue that was lower in comparison to the same period last year, we did not realize an adjustment for the fair value in the third quarter of 2000.

23.

We reported adjusted EBITDA income of $3 6 million in the third quarter of 2023, which is a new record for us and.

And compares to $1 9 million for the third quarter of 2022.

This increase was driven by incremental revenue combined with improved gross margin and cost controls across the organization.

We ended the third quarter with $84 million in cash and short term investments and restricted cash.

We continued to made a strong cash position as well as a $50 million available to us on our line of credit.

Overall, we are well capitalized to continue to execute on our strategy.

Given the current economic environment, our strong balance sheet positive adjusted EBITDA in line of sight to cash flow breakeven places us in a position of tremendous strength.

Turning to guidance, we are reiterating our expectations for full year 2023 revenue to be in the range of $148 million to $151 million.

Representing year over year growth of 21% to 23%.

Additionally, we now expect to generate between four and $5 million of adjusted EBITDA in 2023.

From our previous guidance of $3 million to $4 million.

Lastly, we now expect around $23 million of new set deployment in 2023, representing a year over year annual growth of 24% and.

And represents our continued focus on driving the business to cash flow breakeven sooner rather than later.

I'll now turn the call back over to Dave for closing remarks.

Thanks, Brett.

As we look back so far on 2023, we are proud of all that we've achieved in our <unk>.

Excited about the growing opportunities in front of us next year.

We expect positive trends in the business to continue including robust top line revenue growth and continued profitability growth as we move towards cash flow breakeven even sooner than anticipated.

Much of our predicted strength in the upcoming periods lies with our recent product portfolio expansion.

<unk> <unk> and the specialty bracing business that are all producing higher return on invested capital and require less set deployment to drive profitable revenue growth.

All of our long term plan, including profitability growth are supported by our robust balance sheet strong cash position and access to debt.

The future is bright for orthopedic metrics and we have never been more excited about what lies ahead.

In closing I'd like to thank our surgeon partners Myopia associates and all of the innovators in pediatric health care freestanding together to help kids.

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

Thank you and I'm, Sorry reminder, to ask a question simply press Star 111 moment, while we compile the Q&A roster.

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

Good morning, Thanks for taking the questions.

Maybe just first of all a clarification just some of our growth profile on the top line at 24, that's assuming 20% and then the real question. There is this commentary about people like exiting the space can you just give a little bit more color on that is it some of the bigger folks that youre hearing specifically that are potentially exiting the space and how big of an opportunity.

Could that be.

Yeah. Thanks, Matt Yeah, My comments I think our comments on growth our growth trajectory similar to what we saw in 2023 as we think about 2024, obviously youre not providing guidance at the moment, but.

But yes, youre right in that in that kind of range.

What we have seen historically, particularly since the advent of EU MBR is more and more companies that are.

Have either come to us.

<unk> potential to potentially acquire some of their smaller pediatric devices.

Because I wanted to take those through the MTR and so I guess from my perspective, when you know when you hear companies talking about different asset classes or different product lines that they are not heavily focused on.

We obviously know that there is very few people if any other than us focused in pediatric trauma limb deformity in particular, and so I guess are are forward thinking is that there will be less competitors coming out with devices, particularly in our trauma space and maybe to a certain.

To a lesser degree in Ireland deformity space and I think that just hastens our position in terms of.

Taking a dominant market share position going forward, so that makes sense.

Makes total sense I appreciate that and then a question for Fred.

Profitability number in the quarter was fantastic I know, it's a seasonally strong quarter for you guys, but the gross margin number specifically was really really strong can.

Can you talk about that and then how do we think about the the EBITDA progression going forward.

Because you are up about $4 million this year versus last year I don't think we're going to get that kind of level of improvement next year, but maybe talk a little bit about that in a free cash flow breakeven sooner. There is a little bit more color you can provide there specifically thanks.

Yeah, absolutely thanks, Matt.

Pleased obviously with the gross margin in the quarter.

Typically the higher volume does deliver higher gross margin for us, which we saw here in the third quarter highest revenue the company has ever delivered.

Our third quarter is always our strongest quarter within the year and it was nice to see that show up in the gross margin line as well as the adjusted EBITDA line. So very pleased with the profitability, we still think for the year. It's in the 76% range gross margin and that's probably what we'll anticipate next year as well.

75% to 76% higher than the third quarter when the volume is the highest the adjusted EBITDA very strong in the quarter and enabled us to increase the full year guidance on adjusted EBITDA up to that $4 million to $5 million this year compared to positive point to last year.

And I would guess, we would anticipate seeing some similar type of improvement next year again number one goal is growing the topline secondary growth goal is to improve year over year adjusted EBITDA not maximize it but to show a nice improvement and the third is to get to that cash flow breakeven sooner.

So that adjusted EBITDA growing less cash on sets gets us to that cash flow breakeven as we said sooner than it than we would've anticipated, even 12 or 18 months ago.

Got it thank you so much.

Thank you one moment for our next question. Please.

And it comes from the line of Rick Wise with Stifel. Please proceed.

Good morning to you both.

Maybe just to start.

If you could talk a little bit more Dave about the pediatric hospital environment.

Just.

I heard several things about volume trends for specific products.

Heard you correctly, you start improve or improve as you're exiting the quarter as youre heading into the fourth quarter, but.

Have you seen steady month to month improvement.

Are you seeing staffing recovery.

How far away from normal are you.

When do we get back to quote normal usual across the board a lot in there, but I just wanted to ask if you could extract from all that.

You bet. Thanks, Rick.

Yeah, I mean, certainly this is still a headwind.

And we're feeling that we're not as you know our patients are inpatient and theyre not going to outpatient surgery centers, where I think the environment is better. So this remains a headwind for us.

We are seeing as we said in the past we're seeing hospitals are higher.

Obviously staffs coming together efficiencies improving.

I think we probably haven't come off our position in thinking that maybe this is a mid next year type of thing when this when we get back to normal.

And I would just say that it's incremental Rick I mean, we're seeing kind of month to month quarter to quarter. The lightening of this we'd like to see some hospitals that were running more rooms get back to running all of their rooms I'm not sure that we are seeing that and so that depresses some of the volume that we see in our more complex procedure.

<unk> like scoliosis, but it is improving.

Hard to give you a specific percentage, but I think we're on track to certainly within the next 12 months or so getting back to a pretty normal environment.

Gotcha, and and I was hoping you could you touched on.

The scoliosis pressures.

And some of the factors.

Restrained performance there, but maybe you can help us maybe you could sort of tie a bow on it so to speak and help US understand why you are so optimistic and so confident that that along with <unk>.

Basically excellent performance elsewhere.

<unk> is going to be better in the fourth quarter.

And you feel equally.

I assume constructive about next year.

Is it new products is it.

Those three.

Large sites getting back up and.

What are the biggest factors and your current confidence and improvement there. Thank you.

Yes, so one of the things I think it gives me a lot of confidence on the <unk> side in the United States, 9% growth.

Lower than we would've thought but when we look at total new users, we actually added substantial volumes of new users on the fusion side as well as the <unk> side, which is kind of odd obviously to see our new user base grow up go in a way that it was really positive, but just in general to see.

Volume slow or be a little bit lower than we thought when we isolate where that volume comes from again. This is still a relatively small business that 10 plus million dollars in a quarter and so we remain impacted by.

Three to five accounts that we haven't lost any share but volumes are off and obviously you feel that pretty substantially in a quarter in the United States where are we.

The comparable was up 38% growth number previous year. So.

We don't have a lot of those comparable holds out there that are at that rate and so feel pretty good about where we're going I also think we have a line of sight, obviously into Q4 and while December is a big month for US obviously, the third largest month, we have and kind of the second scolari season, we have gotten off to a.

A really really nice start and so scull has been choppy, we've said that for a while but it's really nice to see here that we've got a strong line of sight into Q4 and with the new users and some of the surgeons that we said have moved accounts.

Started to pick up and that's why in the script, we talk about scheduling improving in the back part of Q3, and we expect that to start to become a bit of a tailwind for us.

As those surgeons have now gotten into their new locations and have started scheduling cases.

Yes.

I would add that in addition to that Rick on the O U S side.

Syed.

Actually the spine was negative growth and that was driven because we had 35% growth internationally in the third quarter of last year, driven by set sales to South America that did not repeat here in the third quarter of this year.

And again, we have line of sight into what that looks like for the fourth quarter, which is much improved over the third quarter revenue. So feeling confident in both the fourth quarter and next year on that side of the business as well.

Oh, that's good perspective.

And just my last one Mark this morning.

I mean, the cash flow question obviously.

It's great to see the positive progress there.

You're right.

You are in better shape than I expected.

You've said.

Fred.

You expect cash flow breakeven.

Memory, maybe rock back like you said.

Cash flow breakeven within the next five years is what I remember you, saying last you want to update that seems like you're you're making better progress more quickly. So is it within the next four years or three or two.

I'll, let you updated thank you.

Yes, absolutely Rick Yes, you are right historically, we would have said in the next five years.

We're thinking now it's probably closer to that three year, Mark as opposed to five years.

Based on how we see things the improvement in the adjusted EBITDA and the reduction in cash usage of the business.

<unk> versus.

Versus 12, or 18 months ago, it's probably a couple of years sooner than what we were thinking then.

Excellent. Thank you.

Thanks for thanks, Rick.

Thank you one moment for our next question. Please.

It comes from the line of.

<unk> seen more men with BP I G. Please proceed.

Hey, thanks for taking the questions guys.

Wanted to just ask about kind of the state of the scoliosis market in the U S.

With some of the disruption in consolidation we've seen broader in spine I'm wondering if Dave do you want to just.

You can speak to kind of what youre seeing.

Surgeon's interest in Abu effects, especially in the context of maybe some of the other options.

Yeah.

Either being hindered or.

Its focus put on some of the specialized orthopedic products and what that May do for you guys from a user perspective, as we think about 2024.

Yeah, Thanks, Ron and good question.

So we really like what we're seeing with ethics and this quarter at extremely tough comps I mean, we had I think we had last year a surgeon that did six cases in a given day with app effects and that was one of the surgeons thats move practice locations. So it's good to see it grow despite a really tough comp, but I mean.

We are getting and a number of surgeons and historically, maybe a few years ago, who would've been setting on the sidelines on the <unk> front.

Moving towards the IRB approval and those IRB approvals are happening with more frequency and we're getting through them faster, which is encouraging so I think that the likelihood that the way <unk> develops over the course of the next several quarters is that all of our pediatric surgeons, who take care of <unk>.

Those are certainly well trained.

<unk> in the back of the spine.

And I think feel very comfortable there and so this is an opportunity for literally every surgeon who uses scoliosis products. It takes care of Iis.

Be trained on the <unk> device and have that within their kind of armor metairie them when they need to take care of patients with <unk>.

With.

Our non fusion patients with scoliosis and I think thats, a little different than what we see with some of the other solutions and I think we're going to continue to benefit by being able to have a lot more potential users globally.

Maybe fewer sites that are doing 2030, a year, but most every surgeon who takes care of pediatric spine really.

Having <unk> available to them and I also think as we start to see better data and we had some nice data that came out of Germany here recently.

That I think is helping us gain momentum helping surgeons.

Understand where to use <unk> in their practice and what the likely result of that of apathy six procedures are going to be I think thats driving interest in the product and so while we've said that we don't expect this necessarily to be a hockey stick I do expect this thing to continue to get more and more traction and obviously the combination.

<unk> is pulling us into or that we werent in otherwise so when we say we added new fusion users in this quarter a lot of that is because of their association with app effects or because of their association was 70.

So really pleased to see it again, probably not a hockey stick in the next few quarters, but certainly up into the right with Apple fixed right now as the data gets better and we onboard more and more users.

Got it okay.

Then Pat.

It sounds like going really well.

Was that constrain you.

You talked about maybe you have a little bit about kind of this opportunity over the coming months to get more sets out there for Packer just talk to us about kind of.

From a capacity standpoint or kind of.

Where you're at in this development and kind of how you're thinking about the broader.

Or maybe longer term opportunity for that Packer business.

Now that it's fully integrated and part of <unk>.

Yes.

Yes, so we have been very successful in getting sets out to the field.

Particularly in the United States.

Now that the agency transitions that occurred outside of the United States. There is a great opportunity for us to start deploying inventory into some of our Big agency markets.

Germany in particular U K.

Some of these large markets and.

Our expectation is that what we have what we would see internationally in the next few years is what we have seen here in the United States over the last few years, where over the last five quarters, where almost instantly you get an uptick in revenue because we have such strong representation, but then as you.

Apply inventory and get products to the field, but frankly, a lot of the surgeons haven't been exposed to in the past you see increased share taking there and increased revenue so really really like kind of the trajectory of this now that we've got the international business integrated and expect to see really strong growth here in the United States I think this can.

<unk> to grow for us for the next several years I mean, what we are starting to see is some of the products that maybe were a little further down in the peg a portfolio. The slim nail for example is another probably there number two product when we did the acquisition that is becoming very rapidly adopted for a number of different procedures within the.

<unk> profile.

And I think that is driving early substantial growth.

And we expect to see that continue for the next few years. So in short we expect this growth profile, while maybe its not going to double every year. We do expect this growth profile to be substantially higher than 20%, 25% year over year for the next few years and that's one of the reasons why we have so it's confidence going into 2024.

Got it very helpful. Thank you.

Thank you one moment for our next question. Please.

These come from the line of Samuel Brodowski with truly Securities. Please proceed.

Hey, Thanks for taking the question. The first one I'll ask is just sort of what the implications for <unk> and it's it's a pretty wide range can you just give us some some levers to what you think could drive it to the high end or the low end of our full year range in <unk>.

Yeah, absolutely Sam So as Dave mentioned earlier that December is our third largest month of the year, particularly on the scoliosis and the severe deformity correction those big surgeries and it's always a wildcard right. We never know exactly how it's going to come in so that does.

Some of the variance in the range depending on how December comes in.

There is RSV.

Call RSV was very prevalent last year at this time it has taken an uptick from where it was in the summer and so thats always a wildcard on what that is going to do here in the next 60 days. So that those are two of the main reasons. The range is so wide is really the environment more so than anything.

<unk> internal.

Got it and then just as we think about RSV disease.

It was a bit of an uptick to the towards the end of <unk> does that impact the quarter at all or was that more.

Typical levels of the virus.

Yes, I would say it was typical levels.

It was exist there right. So it wasn't nonexistent like it wasn't in the summertime.

But I wouldn't say that it had a major impact negatively on the business in the third quarter.

Okay.

Shifting shifting the MTO.

You listed them all out really really nice new product cadence here is that.

I would assume we're probably going to take a step back from that going forward, but how should we think about.

The new product cadence, there and what's required to drive that towards the $100 million business into the future.

Yeah. Good question so.

Like I said, we were really excited when we acquired MD orthopedics part of the reason we did that it was essentially set a platform for what is now the <unk> business or the or the pediatric specialty bracing business.

In addition to the team at M D O really driving topline and profitability out of that business in Iowa.

It is it has spawned just a number of inventors.

<unk> small companies that have come to us with ideas and so we have a very robust pipeline of products that we expect to launch over the course of the next several years. We also have a really robust pipeline of potential partnerships and even some small companies that we could we could acquire over the course.

The next few years so.

It is very reminiscent Sam of what we all saw when we were here 17 years ago, starting this business the surgical side, where huge unmet need a customer base that is really looking for a partner in this space very limited competition in the space and a number of niche products right. A lot of these products are $100 million.

Hand alone products.

That's why I think Theres limited fairly limited competition, and it's an opportunity for us to connect our brand.

From the majority of what our customer does in trying to avoid taking a kid to the operating room, all the way through the operating room and it helps us execute this strategy is surrounding the pediatric orthopedic surgeon with all the products they need.

To help kids.

And so so far we're very pleased with what we see obviously its growing very rapidly.

There's just no shortage of opportunities there for us in the future R&D cycle is slower areas faster.

Costs associated with both the R&D the R&D cycle is less.

Profitability is really strong and we like the capital usage right. It doesn't take a lot of capital to deploy these things we're not deploying consigned sets in the field. So there's just a lot to be excited about and I think we stand behind this that if we can execute to build aggressively strategy here over the course of the next few years there'll be a really large lever for growth and profitability.

<unk> and ultimately cash generation.

Shannon.

Does that answer your question.

Yes, thank you for taking the questions.

Alright, my moments, where our next question please.

Okay.

Alright, and it comes from the line of Mike Matson with Needham <unk> Company. Please proceed.

Hey, guys. This is just the funds for Mike I guess.

The first one I may have missed it on the call, but did you guys mentioned any plans I guess in 2024.

For converting.

International stocking distributors to agents.

No we did not.

We did not do we did not talk about that for 23 or 'twenty four to be honest with you. So the last time, we've converted one of those is a couple of years ago was Germany.

But there are no plans for any major conversions on the international side is just continuing to grow the ones that we have right now.

Yeah, Okay perfect.

And then maybe could we get just an update on.

70, <unk> you know maybe how big is the installed base now.

Yeah. So a couple of more units I believe a couple more units were placed in the quarter and installed base.

Fred can you help me here installed base, where we have about 15 units or so is that right yes.

Yes, probably a little less than that right now between sold and placed its probably in that range, but consigned, it's probably 10 ish eight to 10 units.

And I think at this stage what units are officially placed are consigned are currently in some form of evaluation. So we continue to see new users in the process of evaluating <unk> and feel really good we have a deep pipeline right now of locations, where we expect <unk> to be placed.

Just as we've said in the past these things even the consignment of these things take some time, but really pleased with what we're seeing and the technology is fantastic. It's ideal for pediatric scoliosis and it's certainly something that we think is going to impact us positively.

In 2024, especially as you think about the units that were placed in 2023 on earn outs.

Okay.

Okay, great. Thanks, Thanks very much.

We'll just do those two quick questions I appreciate it guys.

Comments on the quarter.

You bet. Thank you.

Thank you and with that we thank hill, who participate in the Q&A I will turn it back to David Bailey for final remarks.

Thank you well once again, thank you everybody for joining us on the call Fred and I are always available and so we look forward to seeing you at some upcoming conferences on conference call. Thank you.

Thank you for joining you may now disconnect.

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