Q2 2024 OrthoPediatrics Corp Earnings Call

Good morning and thank you for standing by. Welcome to the second quarter 2024 Orthopediatrics Earnings Conference Call. At this time, all participants are in a listen only mode.

Operator: for Orthopediatrics Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session toward the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to Tripp Taylor from Gilmartin Group for a few introductory comments. Please go ahead.

We will be facilitating a question and answer session toward the end of today's call. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to Tripp Taylor from Gilmartin Group for a few introductory comments. Please go ahead.

Tripp Taylor: 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. These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially.

Tripp Taylor: 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.

Tripp Taylor: For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K, which was filed with the SEC on March 8, 2024. During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period over period. For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure in its earnings release.

Speaker Change: 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.

Speaker Change: These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially.

Speaker Change: For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K , which was filed with the SEC on March 8, 2024.

Speaker Change: During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance.

Speaker Change: The company believes these measures provide useful information for investors in evaluating its operations period over period.

Speaker Change: 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 directly comparable GAAP financial measure in its earnings release.

Tripp Taylor: Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for orthopediatrics financial results prepared in accordance with GAAP. In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, today, August 6, 2024. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call. With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer.

Speaker Change: Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for orthopediatrics financial results prepared in accordance with GAAP.

Speaker Change: In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, August 6, 2024.

Speaker Change: Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call. With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer.

David Bailey: Thanks, Tripp. Good morning, everyone, and thank you for joining us for our second quarter of 2024 conference call. We're extremely proud to begin our call by reporting that we've helped over 32,000 kids in the second quarter of 2024, a 52% increase and another record high for orthopedics. Our cause is rooted in the desire to positively impact the lives of as many children worldwide as possible.

David Bailey: Thanks, Chris. Good morning, everyone, and thank you for joining us on our second quarter of 2024 conference call.

Speaker Change: We're extremely proud to begin our call by reporting that we've helped over 32,000 kids in the second quarter of 2024, a 52% increase, and another record high for orthopediatrics.

Speaker Change: Our cause is rooted in the desire to positively impact the lives of as many children worldwide as possible, and the 52% year-over-year increase is a true reminder that we continue to make an impact and are successful at delivering on that cause every day.

David Bailey: And the 52% year-over-year increase is a true reminder that we continue to make an impact and are successfully delivering on that cause every day. Orthopediatrics continued its strong performance into the second quarter of 2024, with revenues reaching a record $52.8 million, surpassing the $50 million mark for the first time in our history, and representing a 33% increase from the same period in 2023. This achievement was fueled by the effective execution of our business strategy and helped deliver top-line revenue growth, produced healthy margins, and positive adjustability.

Speaker Change: Orthopediatrics continued our strong performance into the second quarter of 2024, with revenues reaching a record $52.8 million, surpassing the $50 million mark for the first time in our history, and representing a 33% increase from the same period in 2023.

Speaker Change: This achievement was fueled by the effective execution of our business strategy and helped deliver top-line revenue growth, produced healthy margins, and positive adjusted EBITDA.

David Bailey: We're pleased with the momentum we're generating, and we look forward to continuing to drive results in the second half of 2024. Before diving deeper into the quarterly results, I want to briefly touch on the overall macro. At this point, we believe we are working in a normalized surgical environment. Hospital staffing has increased, efficiencies in the operating room have improved, and we've seen minimal disruptions in the amputated stomach surgery schedule. Going forward, we expect more of the same, barring any major disruptions from future respiratory illnesses.

Speaker Change: We are pleased with the momentum we are generating, and we look forward to continuing to drive results in the second half of 2024.

Speaker Change: Before diving deeper into the quarterly results, I want to briefly touch on the overall macro trends.

Speaker Change: At this point, we believe we are working in a normalized surgical environment. Hospital staffing has increased, efficiencies in the operating room have improved, and we've seen minimal disruptions in the admittedly sounder surgery schedule.

Speaker Change: Going forward, we expect more of the same, barring any major disruptions from future respiratory illnesses.

David Bailey: In the quarter, our revenues showed more variability on a month-to-month basis, particularly in the surgical segments of trauma and deformity and scoliosis, which experienced a delayed start to their peak season. However, once the season started, it accelerated rapidly into the close of the quarter and is extending into the balance of the summer season.

Speaker Change: In the quarter, our revenues showed more variability on a month-to-month basis, particularly in the surgical segments of trauma and deformity and scoliosis, which experienced a delayed start to their peak season. However, once the season started, it accelerated rapidly into the close of the quarter and is extending into the balance of the summer season.

David Bailey: Case schedules are robust, and we are experiencing the most stable environment in quite some time. Our business is comprised of a large and highly differentiated portfolio of products that continue to gain market share across multiple pediatric orthopedic segments and drive our growth. During the quarter, the global trauma and deformity, domestic scoliosis, and our newly formed and rapidly expanding specialty bracing, or OPSB, businesses all contributed to strong growth. Second quarter global T&D was very strong with 37% year-over-year growth, and scoliosis produced a substantial 26% year-over-year revenue growth in the second quarter.

Speaker Change: Case schedules are robust, and we are experiencing the most stable environment in quite some time.

Speaker Change: Our business is comprised of a large and highly differentiated portfolio of products that continue to take market share across multiple pediatric orthopedic segments and drive our growth.

Speaker Change: During the quarter, the global trauma and deformity, domestic scoliosis, and our newly formed and rapidly expanding specialty bracing, or OPSB businesses, all contributed to strong growth.

Speaker Change: Second quarter global T&D was very strong with 37% year-over-year growth and scoliosis produced substantial 26% year-over-year revenue growth in the second quarter.

David Bailey: OBSB contributed to growth in both the TNP and scoliosis businesses as a result of the Boston O&P acquisition, coupled with increased sales from products outside the Boston O&P clinics, such as NDO, DF2, Oral Levity, and Ritinib. At this early stage, we couldn't be more pleased with the Boston acquisition.

Speaker Change: OBSB contributed to growth in both the TNT and scoliosis businesses as a result of the Boston O&P acquisition, coupled with increased sales from products outside the Boston O&P clinics, such as MDO, DF2, oral levity, and Rhino.

David Bailey: The more we work together with the team and the better we understand the opportunity, the more convinced we are of the large expansion opportunities and the synergies between our implant business and OPSB. Our business has multiple efforts from which we can drive value, including continued growth in legacy products, several new product launches, additional international regulatory approvals, several transformational R&D projects, a rapidly expanding specialty brazing business with OPSB, and our expansion into digital health.

Speaker Change: At this early stage, we couldn't be more pleased with the Boston acquisition. The more we work together with the team, and the better we understand the opportunity, the more convinced we are of the large expansion opportunities and the synergies between our implant business and OPSB.

Speaker Change: Our business has multiple levels from which we can drive value, including continued growth in legacy products,

Speaker Change: several new product launches, additional international regulatory approvals, several transformational R&D projects, a rapidly expanding specialty brazing business with OPSB, and our expansion into digital health.

David Bailey: While some of these efforts may need more investment and time, we believe they are essential for the company's future of driving rapid revenue growth, enhancing our profitability, and improving ROI. With the combination of the successful growth drivers we've outlined and with the anticipated upcoming investments, we have positioned the business to continue to grow in the top line while improving profitability on our way to cash flow breakeven. We project to produce $8 to $9 million in adjusted EBITDA in 2024 and assume a large step-up for 2025.

Speaker Change: While some of these efforts may need more investment and time, we believe they are essential for the company's future of driving rapid revenue growth, enhancing our profitability, and improving ROI.

Speaker Change: With the combination of successful growth drivers we've outlined, and with the anticipated upcoming investments, we have positioned the business to continue to grow in top line while improving profitability on our way to cash flow break-even.

Speaker Change: We project to produce $8-9 million in adjusted EBITDA in 2024 and assume a large step up for 2025.

David Bailey: Given our bullish outlook and the multitude of opportunities we have in front of us, we have recently taken steps to recapitalize the business to maintain our aggressive growth and profitability trajectory. Refinancing our credit facility with the convertible offering and term loan from Braidwell provides an improved cost of capital and flexibility that will allow us to invest in high-return opportunities like new OPSB clinics.

Speaker Change: Given our bullish outlook and the multitude of opportunities we have in front of us, we have recently taken steps to recapitalize the business to maintain our aggressive growth and profitability trajectory.

Speaker Change: Refinancing our credit facility with the convertible offerings and term loans from Braidwell provides an improved cost of capital and flexibility that will allow us to invest in high return opportunities like new OPSB clinics.

David Bailey: Leveraging this capital and liquidity will enable us to continue funding these opportunities and reach our cash flow break-even goal in 2026. Next year, we expect to take a major step towards that goal, as we expect positive adjusted EBITDA levels in 2025 to completely offset our investment and set deployments for 2025, thus limiting operating cash usage to working capital. Now, moving on to orthopedics.

Speaker Change: Leveraging this capital and liquidity will enable us to continue funding these opportunities and reach our cash flow break-even goal in 2026.

Speaker Change: Next year, we expect to take a major step towards that goal, as we expect positive adjusted EBITDA levels in 2025 to completely offset our investment and set deployments for 2025, thus limiting operating cash usage to working capital growth.

David Bailey: In the second quarter of 2024, we generated total trauma and deformity revenue of $37.8 million, representing growth of 37% compared to the prior year period. We continue to make substantial market share gains, with this quarter showing robust sales of trauma products, particularly the PMT tibia. Pega, X6, and OPSD, complemented by revenue from the newly-included Boston O&P P&D product sales. Within the T&Z business, I'd like to highlight a few products and areas that we feel have made important progress this quarter.

Speaker Change: Now, moving on to our president's segment.

Speaker Change: In the second quarter of 2024, we generated total trauma and deformity revenue of $37.8 million, representing growth of 37% compared to the prior year period.

Speaker Change: We continue to make substantial market share gains, with this quarter showing robust sales of trauma products, particularly PMP Tibia, PEGA, X6, and OPSD, complemented by revenue from the newly included Boston O&P P&G product sales.

Speaker Change: Within the T&D business, I'd like to highlight a few products and areas that we feel have made important progress this quarter.

David Bailey: Across our portfolio, we are really starting to realize the benefits of our prior investments and set out, and we are excited to see the payoff from this stretch. This is particularly true with TechEd, as sales continue to be better than we've ever expected, growing over 50% globally once again.

Speaker Change: Across our portfolio, we are really starting to realize the benefits of our prior investments and set allocations.

Speaker Change: and are excited to see the payoff from this stretch. This is particularly true with TechEd, as sales continue to be better than we've ever expected, growing over 50% globally once again.

David Bailey: Moving forward for the rest of 2024 and beyond, we expect this growth to continue, at least for a few more years, as we more deeply penetrate our U.S. accounts with a full-tagged product portfolio, and we ramp up international sales now that we have converted to our OP distributors and agencies at OUS. Growing our portfolio remains a critical part of our strategy, and we continue to progress in this area with the advancement of several products.

Speaker Change: Moving forward for the rest of 2024 and beyond, we expect this growth to continue, at least for a few more years, as we more deeply penetrate our U.S. accounts with a full-tethered product portfolio, and we ramp international sales now that we have converted to our OP distributors and agencies at OUS.

Speaker Change: Growing our portfolio remains a critical part of our strategy, and we continue to progress in this area with the advancement of several products.

David Bailey: As we discussed last quarter, we are well on our way to the full U.S. market release of BMP Kivigan, and we are excited to report that in the second quarter of 2024, we launched another 25 sets; sets will continue to rise and count in each of the next several quarters, and PMP tibia will remain a key catalyst for the next several years. In tandem, we're also executing a full marker release of DF2.

Speaker Change: As we discussed last quarter, we are well on our way with the full U.S. market release of BMP Tibian, and we are excited to report that in the second quarter of 2024, we launched another 25 sets.

Speaker Change: Sets will continue to arrive at county in each of the next several quarters and PMP tibia will remain a key catalyst for the next several years.

Speaker Change: In tandem, we're also executing a full market release of DF2. Demand for this product has been extremely high, and our customers have endorsed the product with brave reviews.

David Bailey: Demand for this product has been extremely high, and our customers have endorsed the product with bravery. While revenue at this stage is small, DF2 is poised for rapid growth for the next several years. The uptake of these technologies is surpassing our projections, prompting us to ramp surgery training for these devices. In addition, I'd like to note that our X6 customer conversion during the quarter was very strong. After a great first quarter, we continued the momentum and followed up with a strong second quarter, both in terms of revenue and new customers and account conversion.

Speaker Change: While revenue at this stage is small, DF2 is poised for rapid growth for the next several years. The uptake of these technologies is surpassing our projections, prompting us to ramp search and training for these devices.

Speaker Change: In addition, I'd like to note that our X6 customer conversion during the quarter was very high. After a great first quarter, we've continued the momentum and followed up with a strong second quarter, both in terms of revenue and new customers and account conversions.

David Bailey: On the R&D front, we continue to make solid progress on our new T&D plating system, the Pediatric Plating Platform, or P3, and expect the first of a series of plating projects to launch in the first half of next year. P3, combined with our market-leading Pimped and Femur and Tibia branches, will ensure that we are providing our customers with the highest quality and the most sophisticated eye mailing and anatomic plating systems ever seen in a pediatric orthopedic.

Speaker Change: On the R&D front, we continue to make solid progress on our new T&D plating system, the Pediatric Plating Platform, or P3, and expect the first of a series of plating projects to launch in the first half of next year.

Speaker Change: P3, combined with our market-leading Pantan, Femur, and Tibia franchise, will ensure we are providing our customers with the highest quality and the most sophisticated IMMA and anatomic plating systems ever seen in pediatric orthopedics.

David Bailey: It's part of our overall strategy to support all areas within the pediatric orthopedic space. We continue to expand our footprint into transformational and underserved areas with larger opportunities. The Orthopediatrics Non-Surgical Specialty Bracing Business, or OPSB, is an opportunity that not only allows us to surround our customers with more solution-centric children but represents a substantial new source of capital-friendly growth. We have now fully integrated the OPSD assets, and we are starting to fully realize the breadth, the synergies with our implant business, and the scaling opportunity it presents.

Speaker Change: As part of our overall strategy to support all areas within the pediatric orthopedic space, we continue to expand our footprint into transformational and underserved areas with larger opportunities.

Speaker Change: The Orthopediatrics Non-Surgical Specialty Bracing Business, or OPSB, is an opportunity that not only allows us to surround our customers with more solutions to treat children, but represents a substantial new source of capital-friendly growth.

Speaker Change: We have now fully integrated the OPSD assets, and we are starting to fully realize the breadth of the synergies with our implant business and the scaling opportunity it presents. This will be a business that can contribute to our growth in the long term and improve profitability.

David Bailey: This will be a business that can contribute to our growth in the long term and improve profitability. The franchise's swift growth is driven by our three-point strategy of salesforce expansion, R&D that expands the range of products, and our clinic expansion strategy. Since its inception, the sales force has already grown materially, and we are seeing early returns from the investment in an OPSD-specific sales force. Additionally, R&D projects continue to rapidly progress, and we expect to launch four to five new products each year as a result.

Speaker Change: The franchise's swift growth is driven by our three-point strategy of salesforce expansion, R&D that expands the range of products, and our clinic expansion strategy.

Speaker Change: Since its inception, the sales force has already grown materially, and we are seeing early returns from the investment in an OPSD-specific sales force.

Speaker Change: Additionally, R&D projects continue to rapidly progress, and we expect to launch four to five new products each year as a result.

David Bailey: Lastly, while we expect most of the impact to begin in 2025, we have identified numerous opportunities for clinic expansion and are in the final stages of formalizing our plan. Notably, through applying a small operation in Virginia, we have our first new clinic. Expect our next new clinic, embedded in Nationwide Children's Hospital, to be up and running in the second half of the year. More details regarding our clinic expansion strategy will be shared at an upcoming investor day, but it is safe to assume that as we have learned more, our view of the growth prospects for OPSD is growing more positive by the day.

Speaker Change: Lastly, while we expect most of the impact to begin in 2025, we have identified numerous opportunities for clinic expansion and are in the final stages of formalizing our plan.

Speaker Change: Notably, through applying a small operation in Virginia, we have our first new clinic and expect our next new clinic, embedded in Nationwide Children's Hospital, to be up and running in the second half of the year.

Speaker Change: More details regarding our clinic expansion strategy will be shared at an upcoming investor day, but it is safe to assume, as we have learned more, our view of the growth prospects for OPSD is growing more positive by the day.

David Bailey: Moving to the scoliosis. In the second quarter of 2024, we generated scoliosis revenue of $13.7 million, representing growth of 26% compared to the prior year. This global growth would lead to a strong increase in the users of our spinal implants, especially for, and the addition of Boston O&P revenue. Second quarter domestic sales increased by 37%, led by the addition of the Boston Brace from the Boston O&P product

Speaker Change: Moving to the scoliosis bit.

Speaker Change: In the second quarter of 2024, we generated scoliosis revenue of $13.7 million, representing growth of 26% compared to the prior year.

Speaker Change: This global growth would lead to a strong increase in new users of our spinal implants, especially respondents.

Speaker Change: and the addition of Boston O&P Revenues.

Speaker Change: Second quarter domestic sales increased by 37%.

David Bailey: Domestic scoliosis revenue was strong.

Speaker Change: led by the addition of the Boston Brace from the Boston O&P product portfolio.

David Bailey: Scoliosis Revenue was strong, but overall revenue was somewhat muted by negative international growth in the quarter and a slower than expected start to June. Nevertheless, recent weeks indicate a promising uptick globally, hinting at a record summer post-pandemic, with an expanding base of surgeons adopting our offerings and significant new customer gains. We're bullish about continued scoliosis for evidence growth in 2024 and beyond. Our team is constantly exploring ways to expand our impact and cater to unaddressed needs of children while enhancing aspects of our product portfolio.

Speaker Change: Domestic scoliosis revenue was strong, but overall scoliosis revenue was somewhat muted by negative international growth in the quarter and a slower than expected start to June .

Speaker Change: Nevertheless, recent weeks indicate a promising uptick globally, hinting at a record summer post-pandemic.

Speaker Change: With an expanding base of surgeons adopting our offerings and significant new customer gains, we're bullish about continued Scoliosis preventive growth in 2024 and beyond.

Speaker Change: Our team is constantly exploring ways to expand our impact and cater to unaddressed needs of children while enhancing aspects of our product portfolio.

David Bailey: Currently, we are focused on early-onset scoliosis, which is a category that has lacked technical innovation over the past decade. At Orthopediatrics, we have pioneered three EOS programs, which are in different phases of development, and we're pleased with the advancements we've made thus far. After launching the Response Resin Pelvic System in the first quarter of 2024, the surgeon response has been quite encouraging. This system represents a novel and distinct technology that addresses a significant gap in care and is now being utilized in facilities where our scoliosis footprint was previously minimal.

Speaker Change: Currently, we are focused on early-onset scoliosis, which is a category that has lacked technical innovation over the past decade.

Speaker Change: At Orthopediatrics, we have pioneered three EOS products, which are in different phases of development, and we're pleased with the advancements we've made thus far.

Speaker Change: After launching the Response Resin Pelvic System in the first quarter of 2024, the surgeon response has been quite encouraging.

Speaker Change: This system represents a novel and distinct technology that addresses a significant gap in care and is now being utilized in facilities where our scoliosis footprint was previously known.

David Bailey: This has reinforced our conviction that our strategy of developing products that meet some of the most complex unmet needs in pediatric deformity surgery is the right one. Looking ahead, our expectations are high for the impact of our two additional EOS offerings, particularly with the upcoming launches of ELE and Vertigo. Currently, VirtaGlide is waiting for FDA review, and we hope to have approval in the second half of 2024.

Speaker Change: This has reinforced our conviction that our strategy of developing products that meet some of the most complex unmet needs in pediatric deformity surgery is the right one.

Speaker Change: Looking ahead, our expectations are high for the impact of our two additional EOS offerings, particularly with the upcoming launches of ELE and VertiGlide. Currently, VertiGlide is waiting FDA review, and we hope to have approval in the second half of 2024.

David Bailey: The ELE, the Electromechanical Growing Rod, which received the Pediatric Breakthrough Device designation by the FDA, continues to pass critical milestones in the development of the ELE, and we are hopeful it will be available in the market in the coming 12 to 18 months. Beyond our EOF suite of products, we're in the late stages of development of our next generation fusion system, which we expect to launch in the coming years. Collectively, this suite of innovative products will transform our scoliosis implant portfolio and further strengthen our position, delivering the next wave of growth in scoliosis implants over the next several years. Moving on to the internet

Speaker Change: The ELE, Electromechanical Growing Rod, which received the Pediatric Breakthrough Device designation by the FDA, continues to pass critical milestones in the development process.

Speaker Change: And we are hopeful it will be available in the market in the coming 12 to 18 months.

Speaker Change: Beyond our EOS suite of products, we're in the late stages of development of our next-generation fusion systems.

Speaker Change: which we expect to launch in the coming year. Collectively, this suite of innovative products will transform our scoliosis implant portfolio and further strengthen our position delivering the next wave of growth in scoliosis implants over the next several years to come.

David Bailey: Overall, international performance was strong, generating revenue of $11.6 million and delivering 16% year-over-year growth. This was primarily driven by over 25% trauma and deformity product growth, including PEGA, Expedix, and several legacy devices. General demand across the entire T&D portfolio was strong, but was partially offset by a soft international scoliosis course. We continue to expect a very strong international birth rate for scoliosis on a full year basis as the EU and Canadian agency businesses grow larger and begin to stabilize ordering patterns from our stocking partners in South America. Both the EU and Canadian businesses are small but growing rapidly, and we're well positioned for the future as we open new accounts in Ireland, the UK, Germany, France, and several major accounts in Canada.

Speaker Change: Moving on to International.

Speaker Change: Overall, international performance was strong, generating revenue of $11.6 million and delivering 16% year-over-year growth.

Speaker Change: Growth was primarily driven by over 25% trauma and deformity product growth, including PEGEN, X-FITX, and several legacy devices.

Speaker Change: General demand across the entire T&G portfolio was strong, but was partially offset by a soft international scoliosis quarter.

Speaker Change: We continue to expect a very strong international birth rate for scoliosis on a full year basis.

Speaker Change: as the EU and Canadian agency businesses grow larger and begin to stabilize ordering patterns from our stocking partners in South America.

Speaker Change: Both the EU and the Canadian businesses are small but growing rapidly, and we are well positioned for the future as we open new accounts in Ireland, the UK, Germany, France, and several major accounts in Canada.

David Bailey: Given the operating environment internationally and the distinct lack of pediatric orthopedic product launches in Europe over the last four to five years, we see a very large opportunity for our international business. We eagerly await upcoming developments that will only increase our footprint and ability to make more headway. Specifically, we are awaiting a notified body on it to finalize our EU NDR, which we expect to complete in the second half of 2024 or early 2045.

Speaker Change: Given the operating environment internationally and the distinct lack of pediatric orthopedic product launches in Europe over the last four to five years, we see a very large opportunity for our international business. We eagerly await upcoming developments that will only increase our footprint and ability to make more headway.

Speaker Change: Specifically, we are awaiting the notified body on to finalize our EU MDR status.

Speaker Change: which we expect to be complete in the second half of 2024 or early 2045.

David Bailey: This will enable the potential launch of several new products in Europe shortly thereafter. Overall, the international business is set up very nicely, and we believe that the second half will contribute toward an improved 2024. That brings us to surgeon training and education.

Speaker Change: This will enable the potential launch of several new products in Europe shortly thereafter.

Speaker Change: Overall, the international business is set up very nicely, and we believe that the second half will contribute toward an improved 2024.

David Bailey: Orthopediatrics continues to lead industry efforts to offer enhanced educational opportunities within the pediatric orthopedic community. As you know from our last call, we were live from ePASMA, where we were delighted to reinforce our commitment to PASMA and EPOS through top-level sponsorship of the event. At the annual meeting, we highlighted our growing portfolio of pediatric-specific solutions through sponsored sessions. We're grateful for opportunities such as this where we can highlight the advances made in the pediatric orthopedic space, and we'll continue to focus on industries that align with our mission.

Speaker Change: That brings us to Surgeon Training and Education.

Speaker Change: Orthopediatrics continues to lead industry efforts to offer enhanced educational opportunities within the pediatric orthopedic community.

Speaker Change: As you know from our last call, we were live from E-PASMA, where we were delighted to reinforce our commitment to PASMA and EPOS through top-level sponsorship of the event. At the annual meeting, we highlighted our growing portfolio of pediatric-specific solutions through sponsored sessions.

Speaker Change: We're grateful for the opportunities such as this where we can highlight the advances made in the pediatric orthopedic space and will continue to focus on industry events that align with our mission.

David Bailey: Before we turn to Fred's call, I'd like to announce that we plan to host an investor day in September, where we will take a deeper dive into our growth initiatives and look more specifically at our plans for the specialty racing business, or OPSB. With that, I'd like to turn the call over to Fred to provide more detail on our financial results. Fred?

Fred Hite: Before turning to call to Fred, I'd like to announce that we plan to host an Investor Day in September , where we will take a deeper dive into our growth initiatives and look more specifically at our plans for the Specialty Bracing Business, or OBSB. With that, I'd like to turn the call over to Fred to provide more detail on our financial results. Fred?

Fred Hite: Thanks, Dave. Our second quarter 2024 worldwide revenue of $52.8 million increased 33% compared to the second quarter of 2023. Growth in the Quarter was driven primarily by our strong performances across global trauma-informing, domestic scoliosis, and OPSB, as well as the addition of Boston-owned eRETA. U.S. revenue was $41.2 million, a 39% increase from the second quarter of 2023. Growth in the quarter was primarily driven by our trauma and deformity product line, scoliosis, and OPSB, as well as the addition of Boston O&P Revit.

Fred Hite: Thanks, Dave.

Fred Hite: Our second quarter, 2024, worldwide revenue of $52.8 million increased 33% compared to the second quarter of 2023.

Fred Hite: Growth in the Quarter was driven primarily by our strong performances across Global Trauma Informanty, Domestic Scoliosis, and OPSB, as well as the addition of Boston O&P Revenue.

Speaker Change: U.S. revenue was $41.2 million, a 39% increase from the second quarter of 2023.

Speaker Change: Growth in the quarter was primarily driven by our trauma and deformity product line, scoliosis, and OPSB, as well as the addition of Boston O&P revenue.

Fred Hite: We generated a total international revenue of $11.6 million, representing growth of 16% compared to the second quarter of 2023. Growth in the quarter was primarily driven by trauma and deformity and OPSV, partially offset by soft international scoliosis.

Speaker Change: We generated a total international revenue of $11.6 million, representing growth of 16% compared to the second quarter of 2023.

Speaker Change: Growth in the quarter was primarily driven by trauma and deformity and OPSV, partially offset by soft international scoliosis revenue.

Fred Hite: In the second quarter of 2024, trauma and deformity global revenue of $37.8 million increased 37% compared to the prior year period; growth was primarily driven by strong growth across numerous product lines, specifically PEGF Systems, PNP Tibia, X-Fix, and OPSB, as well as the addition of Boston O&P rubber. In the second quarter of 2024, scoliosis revenue of $13.7 million increased 26% Growth was primarily driven by increased new users of our spine systems and response by 5-6-0, offset by negative growth in the international scoliosis rep. Finally, sports medicine's other revenue in the second quarter of 2024 was $1.3 million, compared to $1.2 million in the prior year period. Turning to Set Employment!

Speaker Change: In the second quarter of 2024, trauma and deformity global revenue of $37.8 million increased 37% compared to the prior year period.

Speaker Change: Growth was primarily driven by strong growth across numerous product lines, specifically PEGF Systems, PNP Tibia, X-Fix, and OPSB, as well as the addition of Boston O&P Revit.

Speaker Change: In the second quarter of 2024, scoliosis revenue of $13.7 million increased 26% compared to the prior year period.

Speaker Change: Growth was primarily driven by increased new users of our spine systems and response 5.5.6.0 offset by negative growth in the international scoliosis revenue.

Speaker Change: Finally, sports medicine's other revenue in the second quarter of 2024 was $1.3 million compared to $1.2 million in the prior year period.

Fred Hite: $7.8 million of sets were consigned in the second quarter of 2024 compared to $9.2 million in the second quarter of 2023. Year-to-date, we have deployed $12.1 million of sets compared to $12.2 million at this time last year. I will touch briefly on a few key metrics.

Speaker Change: Turning to step one.

Speaker Change: $7.8 million of sets were consigned in the second quarter of 2024 compared to $9.2 million in the second quarter of 2023.

Fred Hite: For the second quarter of 2024, gross profit margin was 77%, compared to 76% for the second quarter of 2023. The increase in gross profit margins was primarily driven by higher domestic growth, combined with lower international set sales, and well as favorable purchase price variance. Total operating expenses increased $10.9 million, or 30%, to $46.5 million in the second quarter of 2024. The increase was primarily driven by the addition of Boston O&P, as well as increased commission expense and incremental personnel required to support the ongoing growth of the company.

Speaker Change: Touching briefly on a few key metrics.

Speaker Change: For the second quarter of 2024, gross profit margin was 77%, compared to 76% for the second quarter of 2023.

Speaker Change: The increase in gross profit margins was primarily driven by higher domestic growth combined with lower international set sales.

Fred Hite: Sales and marketing expenses increased $3.1 million, or 23%, to $16.6 million in the second quarter of 2024. The increase was driven primarily by increased sales commission expenses, coupled with additional employees to support the OPSB business. General and administrative expenses increased $8.2 million, or 43%, to $27.3 million in the second quarter of 2024. The increase was driven primarily by the addition of Boston O&P Acquisition, increased appreciation and amortization, as well as personnel and resources to support the continued expansion of the business, as discussed on the first quarter 2024 earnings call. The addition of Boston O&P includes lighter sales and marketing, as well as R&D expenses. However, heavier GNA spins.

Speaker Change: and well and favorable purchase price variance.

Speaker Change: Total operating expenses increased $10.9 million, or 30%, to $46.5 million in the second quarter of 2024.

Speaker Change: The increase was primarily driven by the addition of Boston O&P, as well as increased commission expense and incremental personnel required to support the ongoing growth of the company.

Speaker Change: Sales and marketing expenses increased $3.1 million, or 23%, to $16.6 million in the second quarter of 2024.

Speaker Change: The increase was driven primarily by increased sales commission expense coupled with additional employees to support the OPSB business.

Speaker Change: General and administrative expenses increased $8.2 million, or 43%, to $27.3 million in the second quarter of 2024.

Speaker Change: The increase was driven primarily by the addition of Boston O&P acquisitions.

Speaker Change: Increased appreciation and amortization.

Speaker Change: as well as personnel and resources to support the continued expansion of the business.

Speaker Change: As discussed on the first quarter 2024 earnings call, the addition of Boston O&P includes lighter sales and marketing, as well as R&D expenses.

Fred Hite: Research and development expenses decreased $0.4 million, or 14%, to $2.5 million in the second quarter of 2024 due to the timing of external development expenses. Total other expense was $0.4 million for the second quarter of 2024, compared to $2.3 million of other income for the same period last year. In the second quarter of 2023, we recognized a $2.3 million favorable adjustment to contingent consideration that did not repeat in the second quarter of 2024, as well as increased interest expense from our $10 million dollar mid-cap loan. Adjusted EBITDA was $2.6 million in the second quarter of 2024.

Speaker Change: However, heavier G&A expenses.

Speaker Change: Research and development expenses decreased $0.4 million, or 14%, to $2.5 million in the second quarter of 2024 due to timing of external development expenses.

Speaker Change: Total other expense was $0.4 million for the second quarter of 2024, compared to $2.3 million of other income for the same period last year.

Speaker Change: In the second quarter of 2023, we recognize a $2.3 million favorable adjustment to contingent considerations.

Speaker Change: that did not repeat in the second quarter of 2024, as well as increased interest expense from our $10 million mid-cap loan.

Fred Hite: And this compares to $2.3 million for the second quarter of 2023. We ended the second quarter with $30.9 million in cash. Short-Term Investments, and Restricted Cash. Total cash usage in the second quarter of 2024 was approximately $19 million, which was slightly higher than expected, and it did include payments of $2.2 million to Appy Fix as a final acquisition payment. $1.3 million Anniversary Payment to MedTech Concepts and $2.0 million supplier payment due to volume commitments.

Speaker Change: Adjusted EBITDA was $2.6 million in the second quarter of 2024, and this compares to $2.3 million for the second quarter of 2023.

Speaker Change: We ended the second quarter with $30.9 million in cash.

Speaker Change: Short-Term Investments and Restricted Cash.

Speaker Change: Total cash usage in the second quarter of 2024 was approximately $19 million.

Speaker Change: which was slightly higher than expected and did include payments of $2.2 million to Appy Fix as a final acquisition payment.

Speaker Change: $1.3 million Anniversary Payment to MedTechConcepts

Speaker Change: and a $2.0 million supplier payment due to volume commitments.

Fred Hite: In addition, we currently have higher receivables due to the seasonality of our business and higher June volume, as well as increased inventories in support of future set deployment. We anticipate continuing to invest in our strategic initiatives. But we expect that the cash burn at the level seen in the second quarter will not be repeated in subsequent quarters and that the cash burn will be significantly reduced in the second half of. With that said, we have recently taken steps to better support our capital needs with the closing of a new facility that will offer orthopediatrics more flexibility, increase our firepower, and enable us to continue to grow the business and deliver growth.

Speaker Change: In addition, we currently have higher receivables due to the seasonality of our business and higher June volume.

Speaker Change: as well as increased inventories in support of future set deployments.

Speaker Change: We anticipate continuing to invest in our strategic initiatives.

Speaker Change: But we expect that the cash burn at the level seen in the second quarter will not be repeated in subsequent quarters, and that the cash burn will significantly be reduced in the second half of the year.

Speaker Change: With that said, we have recently taken steps to better support our capital needs with the closing of a new facility that will offer orthopediatrists more flexibility,

Speaker Change: increase our firepower, and enable us to continue to grow the business and deliver growth.

Fred Hite: After evaluating our financing options, we have partnered with Bravewell, with whom we have had a long-term relationship, and have signed a financing consisting of a term loan and a private placement of convertible notes that will provide up to $100 million of capital. The terms of the financing include both a $50 million term loan and $50 million of convertible notes. The term loan consists of an initial term loan of $25 million and access to a delayed draw term loan facility for an additional $25 million. In connection with the financing, we have also approved a stock repurchase program of up to $5 million.

Speaker Change: After evaluating our financing options, we have partnered with Brela, with whom we have had a long-term relationship.

Speaker Change: and have signed a financing consisting of a term loan and a private placement of convertible notes that will provide up to $100 million of capital.

Speaker Change: Terms of the financing include both a $50 million term loan

Speaker Change: and a $50 million of convertible notes.

Speaker Change: The term loan consists of an initial term loan of $25 million and access to a delayed-draw term loan facility for an additional $25 million.

Speaker Change: In connection with the financing, we have also approved a stock repurchase program of up to $5 million of outstanding common stock.

Fred Hite: $5 million dollars of outstanding common stock.

Fred Hite: The proceeds will be used to repay outstanding debt of approximately $10 million, as well as transaction fees incurred in connection with the financing.

Speaker Change: The proceeds will be used to repay outstanding debt of approximately $10 million.

Speaker Change: Transaction fees incurred in connection with the financing, potential stock repurchases, and general former purposes and working capital needs, allowing Orthopediatrics to continue to operate from a position of tremendous strength.

Fred Hite: Potential Stock Repurchases, and General Corporate Purposes and Working Capital Needs, allowing Orthopediatrics to continue to operate from a position of tremendous strength. Turning to guidance, we are reaffirming our expectations for full year 2024 revenue in the range of $200 to $203 million, representing year-over-year growth of 34 to 36 percent. We continue to expect to generate between $8 and $9 million of adjusted EBITDA in 2024. And additionally, we continue to expect less than $20 million of new SET deployment in 2024.

Speaker Change: Turning to guidance, we are reaffirming our expectations for full year 2024 revenue, range of $200 to $203 million, representing year-over-year growth of 34 to 36 percent.

Speaker Change: We continue to expect to generate between $8 and $9 million of adjusted EBITDA in 2024.

Speaker Change: And additionally, we continue to expect less than $20 million of new SET deployment in 2024. This represents our continued focus on driving the business to cash flow break-even by 2026.

Fred Hite: This represents our continued focus on driving the business to cash flow break-even by 2026. I'll now turn the call back to Dave for closing remarks. Thanks, Fred.

Speaker Change: I'll now turn the call back to Dave for closing remarks.

David Bailey: As we reach the midpoint of the year, it's encouraging to see where we stand today. We've established a solid base for continual growth and are looking forward to several upcoming catalysts that could pave the way for further expansion. We are confident that we will carry our momentum into the back half of the year and beyond as we continue to help more children than ever before. Shatter Revenue Break, cash or share across the entire business, maintain healthy margins, and execute on our EBITDA expectations.

Dave: Thanks, Fred. As we've reached the midpoint of the year, it's encouraging to see where we stand today. We've established a solid base for continual growth and are looking forward to several upcoming catalysts that could pave the way for further expansion.

Dave: We are confident that we will carry our momentum into the back half of the year and beyond

Dave: shatter revenue records, capture share across the entire business, maintain healthy margins, and execute on our EBITDA expectation.

David Bailey: We are well-positioned to drive improved operating leverage, all the while making meaningful investments in substantial opportunities, such as Transformational Product Development, including ELS and EUMDR compliance, as well as OVSD and digital. Our continued execution will produce an expected $8 to $9 million in adjusted EBIT this year and an adjusted EBITDA level next year equal to consistent annual set appointments, taking a major step towards cash flow breaking. In closing, I'd like to thank our surgeon partners, my opioid associates, our investors, and all of the innovators in pediatric health care for standing together to help care, and we're looking forward to providing an additional update in September during our investment. Operator, let's open the call for Q&A.

Speaker Change: We are well positioned to drive improved operating leverage all the while making meaningful investments in substantial opportunities.

Speaker Change: from Transformational Product Development, including EOS.

Speaker Change: CU-MDR compliance, as well as OVSD and digital health.

Speaker Change: Our continued execution will produce an expected $8-9 million in adjusted EBIT of this year.

Speaker Change: And an adjusted EBITDA level next year equal to consistent annual set appointment, taking a major step towards cash flow breaking.

Speaker Change: In closing, I'd like to thank our surgeon partners, my opiate associates, our investors, and all of the innovators in pediatric health care for standing together to help kids.

Speaker Change: And we're looking forward to providing an additional update in September during our investor day.

Operator: Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our first question will come from Rick Wise on Stiefel. Your line is now open.

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

Speaker Change: Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: And our first question will come from Rick Wise with Stiefel. Your line is now open.

Rick Wise: Good morning, gentlemen. Let me start off by trying to think through the guidance and the outlook for the second half. And I'll sort of mix it all together a little bit. You did have a small beat. I'm trying to understand why no raise, why keep the numbers the same, given all the excellent and positive commentary you both had about the outlook for the second half on multiple fronts. And maybe, just as part of answering that, you can help us understand what organic growth was this quarter.

Rick Wise: Good morning, gentlemen. Let me start off trying to

Rick Wise: Think through the guidance and the outlook for the second half, and I'll sort of ask it all together a little bit.

Rick Wise: You did have a small beat. I'm trying to understand.

Speaker Change: Why no raise? Why keep the numbers the same given?

Speaker Change: All the excellent and positive commentary you both had about the outlook for the second half on multiple fronts. And maybe just as part of answering that, you can help us understand what organic growth was this quarter.

David Bailey: Yeah, I think from ABRIC. Nice to talk to you this morning. Yeah, I think we have a very consistent policy of remaining fairly conservative in terms of our guide. You know, I think you can expect organic growth in the high teens, I think around 18% or so if you subtract out the Boston O&P acquisition. And so that's pretty consistent with what we've talked about, you know, an 18 to kind of 20% range, always targeting something larger, but something that we're really pleased with to see high teens growth again.

Speaker Change: Yeah, I think from ABRIC.

Avery: Nice to talk to you this morning.

Speaker Change: Yeah, I think we have a very consistent policy of remaining fairly conservative in terms of our guide.

Speaker Change: I think you can expect organic growth in that high teens, I think around 18% or so if you subtract out the...

Speaker Change: The Boston O&P Acquisition. And so that's pretty consistent with what we've talked about. You know, an 18 to kind of 20% range. Always targeting something larger, but something that we're really pleased with to see a high teen's growth again.

David Bailey: And yeah, we have a lot of very positive things happening in the back half of the year, obviously, July and August, two of our largest periods. And until we get through the full measure of Q3, you know, I think you will see us remaining fairly conservative, despite, like you said, a multitude of good things that are happening within the business. And so far, what we're seeing is a really, really robust summer season.

Speaker Change: And, yeah, we have a lot of very positive things happening in the back half of the year. Obviously, July , August , two of our largest periods, and until we get through the full measure of Q3, I think you will see us remaining fairly conservative, despite...

Speaker Change: Like you said, a multitude of good things that are happening within the business, and so far what we're seeing is a really, really robust summer season.

David Bailey: Yeah, following up on that, last quarter, you talked about expecting international momentum to continue through the year. And again, everything that's going on fundamentally sounds really, really positive. It sounds like, if I'm hearing you right, that you're more confident than ever that the pieces are falling in place to show us better Scholey numbers in the second half. Am I being too optimistic? Or what gives you that extra confidence that it can really happen now?

Speaker Change: Yeah, following up on that, last quarter you talked about expecting international momentum to continue through the year and again back to the everything that's going on fundamentally sounds really, really positive.

Speaker Change: It sounds like, if I'm hearing you, that you're more confident than ever that the pieces are falling in place to show us better

Speaker Change: Scholey numbers in the second half, am I being too optimistic or what gives you that extra confidence that it really can happen now?

David Bailey: Yeah, I think what we're experiencing on the OUS side, at least in terms of the chop and revenue, is entirely isolated and has been for the last several quarters due to stocking distribution ordering patterns in South America. And as I think you know, our scoliosis business historically outside of the United States has only been in a few countries and primarily in South America and in Australia, where pediatric orthopedic surgeons also do pediatric spine surgery. And in markets like Canada and Europe, where it's primarily pediatric spine surgeons who are doing pediatric spine surgery, we don't have as large of a footprint.

Speaker Change: Yeah, I think what we're experiencing on the OUS side, at least in terms of the chop in revenue, is entirely isolated and has been for the last several quarters.

Speaker Change: to Stocking Distribution Ordering Patterns in South America.

Speaker Change: And as I think you know, you know, our scoliosis business historically outside of the United States has only been in a few countries, and primarily in South America and in Australia, where

David Bailey: From our perspective, what we see in terms of demand in the markets where we're strong, Australia was very strong this year or this quarter, but South America continued to, I think the only way to describe it is as a small business, and it was very choppy. And so you know, generally speaking, when we have fairly low orders in a particular quarter, you can be fairly confident that that comes back in the next quarter.

Speaker Change: From our perspective, what we see in terms of demand in the markets where we're strong, Australia was very strong this year, or this quarter, but South America continued to, I think the only way to describe it is a small business, and it was very choppy.

David Bailey: And so you know, my commentary on the business overall is that we're seeing growth in markets like Canada and the EU. These are all agency markets that are much smaller, they're very small at this stage, but they're much more stable because they're not through our stocking partners. And as that component of our business grows, and it is growing rapidly, it will, most likely, over the next several quarters smooth out the revenue that we're seeing in our scoliosis business international.

Speaker Change: because they're not through our stocking partners. And as that component of our business grows,

Speaker Change: And it is growing rapidly, most likely over the next several quarters.

David Bailey: But we are quite bullish that the second half of the year, even in South America, for us, will be very strong in terms of ordering patterns just based on what we're seeing in terms of the usage profile of our surgeons there. Yeah, I would just add Rick that we know that the procedures in Latin America continue to grow because we track that data.

Speaker Change: But we are quite bullish that the second half of the year, even in South America, for us will be very strong in terms of ordering patterns, just based on what we're seeing in terms of the usage profile of our surgeons there. Yeah, I would just add, Rick, that we know that the procedures in Latin America continue to grow.

David Bailey: The lumpiness you're seeing is when we decide to sell sets to Latin America and manage our open receivables with our stocking partners down there. And so we need to keep them...

Speaker Change: because we track that data. What the lumpiness you're seeing is when we decide to sell sets to Latin America.

David Bailey: current on paying for those sets and not get too far ahead of ourselves. So the demand is there, and the procedures are happening.

David Bailey: That's a great, very helpful color and great to see this strong U.S. performance. Thanks so much.

Rick Wise: That's great, very helpful color and great to see this strong U.S. performance. Thanks so much.

Operator: And our next question comes from Ryan Zimmerman with BTIG. Your line is open.

Ryan Zimmerman: Good morning. Thanks for taking our question. I want to ask about Boston O&P. You know, when you did the deal with them, they were on track to do about $25 million for the year, if I recall correctly. Just first want to make sure that that is still the prevailing assumption for the Boston O&P contribution on an annual basis. And then the second thing is with the private financing. It sounds like, you know, you're accelerating, and again, correct me if I'm wrong here, but you're accelerating kind of your clinic strategy around Boston O&P.

Speaker Change: Good morning. Thanks for taking our questions.

Speaker Change: When you did the deal with them, they were on track to do about $25 million for the year.

Speaker Change: If I recall, I just first want to make sure that that is still the prevailing assumption.

Speaker Change: for the Boston O&P contribution on an annual basis.

Ryan Zimmerman: And I know we'll get more details in September, but it does feel like, you know, maybe that's happening at a more rapid pace. And if that's the case, kind of how to think about that as we move into 2020.

Speaker Change: around Boston O&P, and I know we'll get more details in September , but it does feel like, you know, maybe that's happening at a more rapid pace, and if that's the case, you know, kind of just how to think about that as we move into 2025.

David Bailey: Yeah, I think $25 million is a solid number. Ryan, we'll stick with that.

Speaker Change: Yeah, I think the $25 million is a solid number, Ryan. We'll stick with that. I think that's really specific to, again, I always point out, that's specific to the Boston O&P side of the business.

David Bailey: I think that's really specific to, again, I always point out that it's specific to the Boston O&P side of business, unrelated to the rest of the OPSB franchise that is selling some of the wholesale Boston products, as well as, you know, the MDO product portfolio, Oramedical, Rhino, these devices. And so we see that component of OSB here growing very rapidly. I think what you could assume, and like you said, we'll talk more about it in September, but what you could assume is that our assumption heading into the acquisition, or after the acquisition of Boston O&P, that there would be a lot of opportunity for us on the clinic expansion side.

Speaker Change: unrelated to the the rest of the OPSB franchise that is selling some of the wholesale Boston products as well as, you know, the Oramedical or the MDO product portfolio, Oramedical, Rhino, these devices. And so we see that component of OSB growing very rapidly.

Speaker Change: I think what you could assume, and like you said, we'll talk more about it in September , but what you could assume is that our assumption heading into the acquisition or after the acquisition of Boston O&P, that there would be a lot of opportunity for us on the clinic expansion side.

David Bailey: Both in terms of our capacity to open greenfield locations, which we think will take some time just to get licensing set up and facilities set up, but also our capacity to do some small acquisitions that would allow us to maybe speed along that process. And so post acquisition, you know, you've heard us talk very bullish about how things have gone so far.

Speaker Change: both in terms of our capacity to open greenfield locations.

Speaker Change: which we think will take some time, just to get licensing set up and facilities set up, but also our capacity to do some small acquisitions that would allow us to maybe speed along that process.

David Bailey: I would just say we have a lot of opportunity coming at us on the clinic acquisition and clinic expansion side. And so I don't know if I would say that we're accelerating that, at least in terms of what its impact would be in the back half of this year, but certainly, I think the scale of opportunity is You can assume that our capillary here is connected to the scale of opportunity that we think we have in front of us in terms of our capacity to grow the OPS and franchise through clinic expansion. Does that make sense, Ryan? Yeah, no, no, very much, very appreciated.

Speaker Change: And so, post-acquisition, you know, you've heard us talk very bullish about how things have gone so far. I would just say we have a lot of opportunity coming at us.

Speaker Change: on the clinic acquisition, clinic expansion side. And so I don't know if I would say that we're accelerating that, at least in terms of what its impact would be in the back half of this year, but certainly I think the scale of opportunity is...

Speaker Change: but you can assume that our capillaries here was connected to

Speaker Change: The scale of opportunity that we think we have in front of us in terms of our capacity to grow the LPS and franchise through clinic expansion. Does that make sense, Ryan?

David Bailey: And I know we'll get more color. And then maybe turning to scoliosis for a bit, I'm curious, you know, there have been some changes in the market, changes in ownership of some of your competitors, you know. I think about, you know, the spine business, when your competitor is going to a private equity buyer. I'm curious what, if any, impact that has resulted domestically in the scoliosis market and whether you can capitalize on some of that. Yeah, I think we've tried to be opportunistic.

Ryan: No, no, very much, very appreciated and I know we'll get more color in the

Speaker Change: in a few weeks.

Speaker Change: And then maybe turning to scoliosis for a bit, I'm curious, you know, there's been some changes in the market, changes in ownership of some of your competitors, you know, I think about, you know, the spying business from when your competitor is going to a private equity buyer.

Speaker Change: I'm curious what, if any, impact that has resulted in domestically in the scoliosis market and whether you can capitalize on some of that disruption.

David Bailey: You know, as you well know, the M&A that's occurred there has been all adult companies with very small pediatric spine portfolios. I would say that at least some of the companies that have pediatric products, the opportunity for us to reaffirm our exclusive commitment to pediatric orthopedics and pediatric scoliosis surgery has been well received by our customer base. You know, we're not going anywhere.

Speaker Change: Yeah, I think we've tried to be opportunistic. You know, as you well know, the M&A that's occurred there has been all adult.

Speaker Change: companies with very small pediatric spine portfolios. I would say that at least some of the companies that have pediatric products.

Speaker Change: the opportunity for us to reaffirm.

Speaker Change: Our exclusive commitment to pediatrics, orthopedics, and in pediatric scoliosis surgery.

Speaker Change: has

David Bailey: You know, we're not changing our focus. We're 100% dedicated to pediatric orthopedics and pediatric scoliosis. And I think that's been followed up by the EOS product development we did, right? I mean, we're focusing on these extremely complex unmet needs that have been underserved by the adult spine companies that dabble in pediatric orthopedics. And so, you know, I think the combination of maybe some of that disruption that you're seeing in the adult spine market, where maybe there's been a bit of a loss of focus on the few products they had in pediatric spine, combined with us basically pushing our chips into the center of the table, telling our customers, we are here to develop and develop products that are the most complex and address the largest unmet needs, and I think that's reson And I think it is...

Speaker Change: by the EOS product involvement we've done.

Speaker Change: And so, you know, I think the combination of maybe some of that disruption that you're seeing in the adult spine market, where maybe there's been a bit of a loss of focus on the few products they had in pediatric spine,

Speaker Change: Combined with us basically pushing our chips into the center of the table, telling our customers we are here to develop and develop products that are the most complex and the most, the largest on that needs. I think that's resonating with our customers. And I think it is.

David Bailey: Continually, day by day, quarter by quarter, building the credibility of our scoliosis franchise. And, you know, you heard on the call that the response ribbon pelvic, for example, a fairly small product for us, but a very large unmet need in pediatric scoliosis surgery. That product is now being used in some of the premier children's hospitals in the United States. And in some of those locations, there were locations where we otherwise had no strong presence, at least with our response fusion system.

Speaker Change: but a very large unmet need in pediatric scoliosis surgery.

Speaker Change: That product is now being used in some of the premier children's hospitals in the United States.

David Bailey: And so it is giving us a toehold, if not a foothold, in some of those facilities, exposing those physicians to the balance of our scoliosis portfolio and then allowing us to tell the story that, hey, this is just 1 of 3 very, very unique systems. And oh, by the way, in the next 12 months or so, we're going to be delivering you an entirely new fusion system, state of the art. When you combine that with Appenfix, when you combine that with 7D, it's just a really compelling story. And I think that's what's driving surgeon conversions to the entire portfolio in the US.

Speaker Change: strong presence, at least with our response fusion system. And so it is giving us a toehold, if not a foothold, in some of those facilities, exposing those physicians to the balance of our scoliosis portfolio, and then allowing us to tell this story that

Speaker Change: Hey, this is just one of...

Speaker Change: three.

Speaker Change: The very, very unique system. And, oh, by the way, in the next 12 months or so, we're going to be delivering you an entirely new fusion system, state-of-the-art. When you combine that with AppenFix, when you combine that with 7D,

Speaker Change: It's just a really compelling story and I think that's what's driving certain conversions to the entire Scully portfolio in the U.S.

David Bailey: Yeah, no, sounds good. I appreciate the color and, you know, again, congrats on all the progress.

Speaker Change: Yeah, that sounds good. Appreciate the color and, you know, again, congrats on all the progress.

David Bailey: Thanks, Ryan.

Operator: And the next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Speaker Change: And the next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Matthew O'brien: Morning, thanks for taking the questions. Maybe just to stick with the specialty bracing commentary.

Matthew O'brien: Morning. Thanks for taking the questions. Maybe just to stick with the specialty bracing commentary.

David Bailey: Dave, can you talk a little bit about what you're seeing in terms of integrating that business? I mean, it was great to see that came in line as you're still kind of integrating. What kind of successes are you seeing in terms of just capturing maybe new business? I know it's early. And then these two new centers, should we think about those two as, you know, on an annual basis being similar in terms of revenue contribution to the business? Or just because they're kind of greenfield, can they be much, much bigger than that?

David Bailey: And then I do have a follow

Matthew O'brien: Dave, can you talk a little bit about what you're seeing in terms of integrating that business? I mean, it was great to see that came in line as you're still kind of integrating. What kind of successes are you seeing in terms of just capturing maybe new business? I know it's early. And then these two new centers.

Speaker Change: Should we think about those two as, you know, on an annual basis being similar in terms of revenue contribution to the business, or just because they're kind of greenfield, can they be much, much bigger than that? And then I do have a follow-up.

David Bailey: Yeah, so just on the scale of those two, I think both of them are probably a similar size, although Nationwide Children's is obviously one of the largest children's hospitals in the United States. And so having a facility embedded in Nationwide, you know, not giving individual clinic guidance here, but you would have to think that that would be pretty substantial for us. We're not seeing patients there yet; it's going to be a little bit. But you know, as you think about a growth driver for 2025, that certainly is one. Virginia is just getting started.

Speaker Change: Thank you. Thank you.

Speaker Change: So, just on the scale of those two, I think both of them are probably a similar size, although the Nationwide Children's, obviously one of the largest children's hospitals in the United States, and so having a facility embedded in Nationwide,

Speaker Change: You know, not given individual client guidance here, but you would have to think that that would.

David Bailey: I think we're seeing a few patients there, but it supports an account there that we have historically not had really strong bracing business with. So you know, probably not big impacts in the back half of this year, but certainly a part of our growth story. And you know, when you take the growth numbers that we expect from those and you add, you know, a few more, you can see how that would be a significant portion of the growth that we would expect in 2025 and beyond. I think from an integration perspective.

Speaker Change: And, you know, when you attach, you know, the growth numbers that we expect from those and you add, you know, a few more, you can see how that would be a significant portion of the growth that we would expect in 2025 and beyond. I think from an integration perspective.

David Bailey: It's, things have gone extremely well here. I mean, it seems like this thing was meant to be. Our organizations culturally have, you know, it's almost like we're the same company with Boston in terms of, you know, we do implants; they do non-surgical products. It was a very similar feel that we had with our friends at MDO and how they have well integrated. The integration efforts have primarily been integrating the balance of the OPSB portfolio.

Speaker Change: It's, things have gone extremely well here. I mean, it, it.

Speaker Change: It seems like this thing was meant to be our organization's culturally have Yeah, it's almost like we're the same company with Boston in terms of

Speaker Change: We do implants. They do non-surgical products. It was a very similar field that we had with our friends at MDO and how they have well-integrated. The integration efforts have primarily been integrating the balance of the OPSB portfolio.

David Bailey: So MDO, Rhino, these other products into the Boston business. And I think at this stage, that has, that is essentially done. You know, things that I think we're still working on, rampant R&D, Boston didn't really have an R&D footprint. We had a small R&D footprint both here in Warsaw as well as in Iowa.

Speaker Change: And I think at this stage, that is essentially done.

David Bailey: And so we have a lot of projects in the hopper and want to start to get some of those projects live to our customers. So that's something I think that we are working on. And then I guess I just echo what my comments made to Ryan here.

Speaker Change: So that's something I think that we are working on. And then I guess I just echo what my comments made to Ryan here.

David Bailey: The volume of places that we go out and we're talking to surgeons or we're giving talks about the business, talking about our scoliosis franchise or our T&D franchise, the volume of places, physicians, as well as hospitals that are asking for a Boston O&P clinic, either embedded or local to their hospital, is extremely high. And it is extremely obvious, Matt, that what Boston does with that 100% focus on bracing and patient care in major centers like Boston Children's Hospital and Children's Hospital in Philadelphia is sought after by the balance of children's hospitals in the United States.

Speaker Change: The volume of places that we go out, we're talking to surgeons, we're giving talks about the business, talking about our scoliosis franchise or our T&D franchise.

Speaker Change: as well as hospitals that are asking for...

Speaker Change: of Boston OMP clinics, either embedded or local to their hospital, is extremely high.

Speaker Change: in major centers like Boston Children's Hospital and Children's in Philadelphia, but that is sought after by the balance of children's hospitals in the United States. And I guess that's why we have been just so bullish about our opportunities to scale that. Again, it's going to take us some time, but

David Bailey: And I guess that's why we have been just so bullish about our opportunities to do so. Again, it's going to take us some time, but I think we're probably a bit surprised at this stage about how the response by our customer base has been so incredibly positive related to this acquisition. And frankly, what I'm maybe more surprised about is that it's given our whole business more credibility. That we are willing to do, again, some of the more difficult things that other companies haven't been willing to do for pediatric orthopedic surgeons, and then we would actually care about the patient that's outside of the operating room when we've historically been viewed as a surgical company just reinforces this position that we are here to stay, that we are a company that is fully dedicated to the entire patient population in pediatric orthopedics.

Speaker Change: I think we're probably a bit surprised at this stage about how the response by our customer base has been so incredibly positive related to this acquisition, and frankly, what I may be more surprised is that it's given our whole business

Speaker Change: More credibility.

Speaker Change: that we are willing to do, again, some of the more difficult things that other companies haven't been willing to do for pediatric orthopedic surgeons, and then we would actually care about the patient that's outside of the operating room when we've historically been viewed as a surgical company.

Speaker Change: just reinforces this position that we are here to stay, that we are a company that is fully dedicated to the entire patient population in pediatric orthopedics. And then we actually care about the things that our customers care about, which is not exclusively implants, not exclusively pedicle screws. They care about getting kids back.

David Bailey: And then we actually care about the things that our customers care about, which is not exclusively implants, not exclusively padded screws. They care about getting kids back to a high activity level and taking care of kids overall. And I think that is, I guess we shouldn't be, but really surprised to see just how well that entire story and the truth behind that have been well received by our customers.

Speaker Change: to a high activity level and taking care of kids overall. And I think that is, I'm surprised, I guess we shouldn't be, but really surprised to see just how well that entire story and the truth behind that has been well received by our customers.

Matthew O'brien: Okay, I got it. Very helpful. And then question for Fred, I just want to make sure I'm clear on the commentary on EBITDA for next year, meaningful improvement equivalent to set deployment. I think, you know, this year, you've talked about, you know, $20 million-ish just under set deployment. Is that about the level we should think about for EBITDA next year? And then that assumes some pretty meaningful leverage. Can you just talk about some of those leverage points? Thanks.

Speaker Change: Okay, got it. Very helpful. And then question for Fred, I just want to make sure I'm clear on the commentary on EBITDA for next year. Meaningful improvement equivalent to set deployment. I think, you know, this year you've talked about, you know, $20 million ish, just under of

Speaker Change: of Set Deployment. Is that about the level we should think about for EVITA next year? And then that assumes some pretty meaningful leverage. Can you just talk about some of those leverage points? Thanks.

Fred Hite: Yeah, absolutely. So volume obviously is the single biggest leverage point. Continued leverage down on the G and A side of

Speaker Change: Yeah, absolutely. So volume, obviously, is the single biggest leverage point.

Fred Hite: We have a number of things, particularly on the cash portion of those expenses, not leveraging R&D.

Speaker Change: continued leverage down on the G&A side of things, particularly on the cash portion of those expenses.

Fred Hite: We will pick up a few, call it two to three points of additional leverage on the sales marketing side, just like we have for the last couple of years. So all of that with incremental volume drops through very nicely for us now.

Speaker Change: not leveraging R&D.

Speaker Change: We will pick up a few, call it two to three points of additional leverage on the sales and marketing side, just like we have for the last couple of years. So, all of that with incremental volume drops through very nicely for us next year. And yes, that said, deployment next year again will be less than that $20 million.

Fred Hite: next year. And yes, that deployment next year will again be less than $20 million.

Fred Hite: Today's comment in the script: we're planning for a Just Diva to cover and pay for that investment.

Speaker Change: and Dave Common in the script were planning for Adjust Diva Dot to cover.

Fred Hite: And then in 2026, the Adjustment of EBITDA to cover any working capital needs of the growing business and achieve cash flow break-even at that point in time.

Speaker Change: and pay for that investment in 2025, and then in 2026, the adjusted EBITDA to cover any working capital needs of the growing business and achieving the cash flow break-even at that point in time.

Fred Hite: Very outstanding. Thank you.

Speaker Change: Outstanding. Thank you.

Operator: And the next question comes from Mike Matson with Needham. Your line is now out.

Matt: Thanks Matt. Thanks Matt.

Speaker Change: And the next question comes from Mike Matson with Needham. Your line is now open.

Mike Matson: Yeah, thanks. I just want to ask one on the L.A. growing rod. So you said you think you'll be launching out in 12 to 18 months, but do you know what the approval pathway is going to be for that? Is it five years?

Mike Mattson: Yeah, thanks. I just want to ask one on the LA growing rod. So you said you think you'll be launching out in 12-18 months, but

Mike Matson: 510K, DeNovo, PMA, and do you expect to have any...

Mike Mattson: Do you know what the approval pathway is going to be for that? Is it 510K, DeNovo, or PMA, and do you expect to have any requirement for any kind of clinical data there to get that approved?

Mike Matson: Do you expect to have a requirement for any kind of clinical data there to get that approved? Yeah, great question.

David Bailey: So the pediatric breakthrough device designation was obviously a huge step for us, and it gives us some confidence that the likely pathway for this would be 510K. Obviously, there is one other device in the market that has, you know, some obviously strong clinical success, but then also some challenges. And so I think the breakthrough device designation issued by FDA is recognizing that there is a real need in the market for more devices that can help change kids' lives and not just save kids' lives.

Speaker Change: Yeah, great question. So, the pediatric breakthrough device designation was obviously a huge step for us, and it gives us some confidence that the likely pathway for this would be 5GK. Obviously, there is one other device in the market.

Mike Mattson: that has, you know, some obviously strong clinical success, but then also some...

Mike Mattson: Some challenges.

Mike Mattson: And so I think the breakthrough device designation issued by FDA is recognizing that there is a real need in the market for more devices that can help

David Bailey: And so we are pretty confident at this stage that, based on what we're seeing, based on the interactions that we've had with the FDA and their behavior, that this is likely a 510K, which would give us confidence that, you know, that 12 to 18 month time horizon is a good one. Again, things could change there, Mike, you know that in the FDA, but from our perspective, things couldn't be going better in terms of how we're operating with the FDA to get this device approved.

Mike Mattson: changed kids' lives and not saved kids' lives. And so, we are pretty confident at this stage that based on what we're seeing, based on the interactions that we've had with the FDA and their behavior, that this is likely a 5-10K, which would give us confidence that, you know, that 12- to 18-month time horizon is a good one. Again, things could change there, Mike, you know that.

Speaker Change: FDA, but from our perspective, things couldn't be going better in terms of how we're operating with FDA to get this device approved. I don't believe at this stage that this will require a, you know, post-market

David Bailey: I don't believe at this stage that this will require post-market clinical data or clinical data to get approved. You could assume, though, that we probably will work with some of the large, you know, whether it's PSSG or one of the large registry groups in pediatric spine to, you know, capture data related to this device. And, you know, I think that the clinical condition is so severe, and the challenges associated with this procedure are so severe, that we want to learn, and we want to make sure that the devices that we're coming out with are making a clinical difference.

Speaker Change: clinical data or clinical data to get approved. You could assume, though, that we probably will, you know, work with some of the large, you know, whether it's PFSG or

Mike Mattson: one of the large registry groups in Pediatric Spine.

Speaker Change: to capture data related to this device. And I think that the clinical condition is so severe and the challenges associated with this procedure are so severe that we want to learn. And we want to make sure that the devices that we're coming out with are making a clinical difference.

David Bailey: And so I think that's something that will be extremely well received. We've already talked to the leaders in, you know, pediatric spine surgery, and I think that's been well received by the leaders. So I think it's the right thing for us to do clinically, and it's a rational approach for us commercially as well.

Speaker Change: And so I think that's something that will be extremely well received. We've already talked to the leaders in, you know, inside pediatric spine surgery, and I think that's been well received by the leaders. So I think it's the right thing for us to do clinically, and it's a rational approach for us commercially as well.

Mike Matson: Okay, thanks. And then just one more on.

Mike Matson: There's one on the stock repurchase. So you said 5 million.

Speaker Change: Okay, thanks.

Speaker Change: and then just...

Mike Matson: I know it's kind of small, but it is a little unusual to see a company at your stage and in your life cycle sort of buying back stock. So maybe just comment on, you know, why you've chosen to do that, and what the outlook is. It sounded like you were considering maybe doing some additional buybacks as well. Yes, great question. So it's really related to the conversion.

Speaker Change: One on the stock repurchase. So you said 5 million. I know it's kind of small, but it is a little unusual to see

Speaker Change: a company, your stage and the life cycle sort of buying back stock. So maybe just comment on why you've chosen to do that, what the outlook is. It sounded like you were considering maybe doing some additional buybacks as well.

Speaker Change: Yes, great question. So it's really related to the convert.

Fred Hite: So, as you notice, there is no other instrument put in place for a CAP call associated with the CONVERGE. We looked at additional pricing. We looked at the CAP call.

Speaker Change: So, as you noticed, there is no other instrument put in place for a CAP call associated with the CONVERGE. We looked at additional pricing, we looked at the CAP call, and we came up with this idea as a means.

Fred Hite: and we came up with this idea as a means.

Fred Hite: to effectively get that strike price from up 30 to something like up 50. And so it is directly related to that and nothing else. Okay, God. That makes sense. Thank you.

Speaker Change: to effectively get that strike price from up 30 to something like up 50.

Speaker Change: and so it is directly related to that and nothing else.

Speaker Change: Okay, got it, that makes sense, thank you.

Operator: And the next question comes from David Turkaly with Citizens JMP. Your line is now open.

Speaker Change: Thanks, bye.

Speaker Change: And the next question comes from David Turkaly with Citizens JMP. Your line is now open.

David Turkaly: Hey, good morning, guys. And congrats on the recap. Fred, I was just wondering if you could just, at a high level, remind us of the economics of sort of investing in these new clinics in terms of the sort of cash up front and then how quickly you think you kind of get a return, or a positive ROI, on those investments.

David Turkeley: Hey, good morning guys, and congrats on the recap. Fred, I was just wondering if you could just, at a high level, remind us of the economics.

David Turkeley: of sort of investing in these new clinics in terms of the sort of cash up front and then how quickly you think you kind of get a return or a positive ROI on those investments.

Fred Hite: Yeah, absolutely. So, let's say we're opening a new clinic. Obviously, the first thing we have to do is get support from the surgeons in the hospital. Then we have to get support from the hospital administration. We're not going to open one hoping volume comes our way. It's going to be guaranteed.

Fred Hite: Yeah, absolutely.

Fred Hite: Let's say we're opening a new clinic. Obviously, the first thing we have to do is get support from the surgeons in the hospital. Then we have to get support from the hospital administration. We're not going to open one hoping volume comes our way. It's going to be guaranteed. We then would either lease

Fred Hite: We would then either lease some space inside the hospital or very, very near the hospital. So we have some lease payments. Build out that space, which is minimal cost, and then hire some clinicians. We think all in, that's probably a half a million dollars of a kind of sunk cost, if you will, before revenue starts coming into the business. And we anticipate that these would be cash flow positive within probably the first three or four months. Again, we're not going to open one unless we're confident revenue is going to come in pretty early. So within three or four months, they have cash flow positive and are starting to pay back on that investment.

Speaker Change: Some space inside the hospital or very, very near the hospital. So we have some lease payments, build out that space, which is minimal cost, and then hire some clinicians.

Speaker Change: We think, all in, that's probably a half a million dollars.

Fred Hite: of kind of sunk cost, if you will, before revenue starts coming into the business. And we anticipate that these would be cash flow positive within probably the first three or four months.

Fred Hite: Again, we're not going to open one unless we're confident revenue is going to come in pretty early.

Speaker Change: So, within three or four months, it's been CAG flow positive and starting to pay back on that investment. Obviously, it depends on the size, but we think that would be kind of the average size of a new clinic.

Fred Hite: Obviously, it depends on the size, but we think that would be kind of the average size of a new clinic that could

Fred Hite: That can then obviously grow pretty aggressively over the years after that point in time.

Speaker Change: that can then obviously grow pretty aggressively over the years after that point in time.

David Turkaly: Sounds like you've got a lot of firepower to go at it now, so it's good to hear.

Speaker Change: Sounds like you've got a lot of firepower to go at that now. So, it's good to hear. And we didn't talk a lot about enabling technologies on the call. I was wondering...

David Turkaly: And we didn't talk a lot about enabling technologies on the call. I was wondering if you'd give any update on either 7D or Firefly. And we had a conversation recently with a doctor who was, I guess, super excited about how specifically 7D registers and then how it recalibrates. So any thoughts on those businesses and those two parameters would be great, thanks.

Speaker Change: If you'd give any update on either Seventy or Firefly, we had a conversation recently with a doc who was, I guess, you know, super excited about

Speaker Change: how specifically 7D registers and then how it recalibrates. So any thoughts on those businesses and those two parameters would be great. Thanks.

David Bailey: Yeah, good question Dave. Yeah, I think the commentary that you got from Dr. Twalson was fantastic. It was a really well-executed interview. The surgeon said, I think, a ton to say. It was really interesting following your conversation Dave. There was a podcast that was done by POSNA where some positions that, you know, we are connected to, well, all the positions that we're well-connected to there had a number of different comments about robotics as well as 7D and Firefly. And that same very positive sentiment by a different group of positions was echoed related to Firefly as well as 7D. I mean, 7D has been great for us.

Speaker Change: Yeah, good question Dave. Yeah, I think the commentary that you got from from Dr. Twalson was fantastic. It was really well executed interview. The surgeons had, I think, a ton to say. It was really interesting. Following your conversation, Dave, there was...

Speaker Change: a podcast that was done by POSNA.

Speaker Change: that some positions that, you know, we are connected, well, all the positions that we're well connected to there had a number of different comments about robotics as well as 7D and Firefly and that same very positive sentiment.

Speaker Change: by a different group of physicians with echo related to Firefly as well as 7D. I mean, 7D has been great for us. Again, it's number one of those technologies that opens up doors for us in certain facilities. And, you know, this...

David Bailey: Again, it's one of those technologies that opens up doors for us in certain facilities. The need for, you know, radiation sparing or minimal radiation type of navigation is extremely well received in pediatrics. And, you know, some of the growth that we're seeing on the response fusion side of our business is directly correlated to some of the placements that we had done in the year previous. And we have a very large pipeline of locations that we expect to place units over the course of the next 12 to 18 months, which I think spells well for growth of our fusion franchise in the future.

Speaker Change: The need for radiation sparing or minimal radiation type of navigation is extremely well-received in pediatrics, and some of the growth that we're seeing on the response fusion side of our business is directly correlated

Speaker Change: to some of the placements that we had done in the year previous.

Speaker Change: And we have a very large hopper of locations that we expect to place units over the course of the next 12 to 18 months, which I think, you know, spells well for growth of our fusion franchise in the future. So, both Firefly, as well as 7D, continue, or we're also working, as you well know, through the MedTech concepts acquisition a few years ago, working on some additional digital health tools.

David Bailey: So, both Firefly as well as 7D continue. We're also working, as you well know, through the MedTech concepts acquisition a few years ago, on some additional digital health tools that we expect to be beta-launching here in the coming few months. And I think when you combine that with the technologies we have on navigation, the whole digital healthcare side of our business, while right now very small, is another, very promising source of very profitable growth for us in the coming years. Dave, what's the new certification?

Speaker Change: that we expect to be beta launching here in the coming few months. And I think when you combine that with the technologies we have on navigation, the whole digital healthcare side of our business, right now very small, is another...

Speaker Change: Very promising.

Speaker Change: source of very profitable growth for us in the out years.

David Bailey: Yeah, so 7D has the capacity now to do fully navigated spine surgery without any CT. So they can do MRI-specific registration, MRI-specific, they can base their navigation on a preoperative MRI, and that essentially eliminates almost all of the CT or all of the radiation required. And that's a big issue. So we have customers wanting that, as you can imagine, and I think it just shows the power of some really, really innovative technologies by 7D.

Speaker Change: Dave, what's the new certification set that you just received?

Dave Common: Yeah, so 7D has the capacity now to do fully navigated spine surgery without any CT. So they can do MRI-specific registration, MRI-specific, they can base their navigation on a preoperative MRI.

Speaker Change: Thank you.

Operator: And the next question comes from Richard Newiter with Truist. Your line is now open.

David: Thanks, David.

Speaker Change: And the next question comes from Richard Newiter with Truist. Your line is now open.

Richard Newiter: Hi, good morning. This is Ravi Mizrahi for Rich. Can you hear me okay?

Speaker Change: Hi, good morning, this is Ravi Mizrahi for Rich. Can you hear me okay?

Ravi Mizrahi: Hi Robby. Hey Rob. Hey, so just one question. I want to turn back to, actually, two questions, but the first I'd like to just turn back to guidance. The street has you at about $38 million for the U.S. in Q3, and you're talking about a normalized surgery environment with robust schedules. And I'm just curious, you know, I appreciate the conservatism aspect here, but can you maybe walk us through any constraints that you might be seeing or any macro changes or challenges that might be there that might be adding a little bit more of your conservatism or just help us understand kind of why, you know, why, if the U.S. business is what appears to be stable or healthy or maybe even improving, that that number is unchanged?

Robby: Robby, you're up.

Ravi Misra: Hey, so just one question. I want to turn back to, actually two questions, but the first I'd like to just turn back to guidance. The street has you at about, you know, 38 million for the U.S. in Q3, and you're talking about a normalized surgery environment with robust schedules, and I'm just curious, you know, I appreciate the conservatism aspect here, but can you maybe walk us through any

Speaker Change: constraints that you might be seeing or macro changes or

Speaker Change: that might be adding a little bit more of your conservatism or just help us understand kind of, you know, why if the U.S. business is what appears to be stable or healthy or maybe even improving, that number is unchanged.

Fred Hite: Yeah, I think our third quarter is typically our largest quarter. Most of that growth, a lot of that has been

Speaker Change: Yeah, I think our third quarter is typically our largest quarter.

Fred Hite: in July, which we obviously have seen and feel good about.

Speaker Change: Most of that growth, a lot of that is in July , which we obviously have seen and feel good about.

Fred Hite: But, as Dave mentioned, we're very conservative.

Speaker Change: But, as Dave mentioned, we're very conservative, and so we beat in the second quarter by some, but not by millions, and so we continue to be conservative in the guidance.

Fred Hite: We beat in the second quarter by some, but not by millions. And so we continue to be conservative in the guidance. We feel good about the third border. The thing that is always a wild card for us, particularly in the last two years, is RSV on the fourth border. And it's impossible to predict what that will look like.

Dave Common: We feel good about the third quarter. The thing that is always a wild card for us, particularly in the last two years, is RSV in the fourth quarter.

Fred Hite: Our guidance today assumes that it's similar to the fourth quarter of last year, but flu season RSV can have an impact on the business. And until we get to that point in the year, it's difficult to predict. So we're assuming it's similar to last year, but we don't know what it's going to be like until we actually experience it.

Speaker Change: and it's impossible to predict what that will look like. Our guidance today assumes that it's similar to the fourth quarter of last year.

Speaker Change: but flu season RSV can have an impact on the business and until we get to that point in the year it's difficult to predict.

Speaker Change: So, we're assuming it's similar to last year, but we don't know what it's going to be like until we actually get to that point. So, it's nothing more than us being conservative and trying to make sure that we're not getting ahead of ourselves in the overall guidance.

Fred Hite: Actually get to that point.

Fred Hite: So, it's nothing more than us being conservative and trying to make sure that we're not getting ahead of ourselves in the overall guidance.

Ravi Mizrahi: Great, and then maybe one around, you know, long-term strategy and clinic expansion plans. Just trying to understand, you're talking about a pretty significant ramp in 2025 and onwards, but how do we kind of reconcile that against, you know, the capital intensity required to stand up new clinics or get deeper in the trauma and deformity business? I mean, do you guys need more bracing-type products or other kind of portfolio additions to help drive that, even a margin expansion? Or is this kind of underlying growth and kind of emergence of leverage in the business that you're at a revenue point that should be able to support this level of cash flow generation? Thanks.

Speaker Change: Great and then maybe

Speaker Change: growth and kind of emergence of leverage in the business that you're at a revenue point that should be able to support this level of cash flow generation. Thanks.

Fred Hite: Yeah, it's truly leveraging the organic growth of the implant side of the business, as well as the increased ROI on the clinic side of the business. So yeah, we will be putting in place some, if you will, lease build-out costs. We will be deploying sets that...

Speaker Change: Yeah, it's truly leveraging the organic growth of the implant side of the business as well as the increased ROI on the clinic side of the business.

Speaker Change: So, yeah, we will be putting in place some, if you will, lease build-out costs. We will be deploying sets.

Fred Hite: The cost of these will show up as depreciation and not negatively impact the adjusted EBITDA. So we're effectively leveraging the sales and marketing line by a few points each year.

Speaker Change: that the cost of those will show up as depreciation and not impact, negatively impact, the unjustity that...

Fred Hite: So we're effectively leveraging the sales and marketing line a few points each year, keeping R&D growing with revenue, and then really the leverage is coming from the cash portion of the G&A side of the business. So depreciations, dot-com, amortization, those things will probably continue to grow with revenue, but the cash portion, which is really the support cost of the businesses, is where the leverage will continue to come from. And with high contribution margins on the bracing side of the business, actually higher contribution rates than the implant side of the business, higher growth there will drop through to nice profitability.

Speaker Change: So, we're effectively leveraging the sales and marketing line a few points each year, keeping R&D growing with revenue, and then really the leverage is coming from the cash portion of the G&A side of the business.

Speaker Change: Appreciations, dot com, amortization, those things will probably continue to grow with the revenue, but the cash portion, which is really the support cost of the businesses, is where the leverage will continue to come from.

Speaker Change: And with high contribution margins on the bracing side of the business, actually higher contribution rate than the implant side of the business, higher growth there will drop through to nice profitability in the overall business.

David Bailey: Okay, and I am showing no further questions at this time. I would now like to hand the call back over to David Bailey for closing remarks.

Speaker Change: Okay, and I am showing no further questions at this time. I would now like to hand the call back over to David Bailey for closing remarks.

Operator: Thank you, Michelle, and thanks, everybody, for joining us today on the call. I look forward to seeing many of you and discussing updates at our September Announcement Day. So, thanks for your time and have a great day.

Operator: This does conclude today's conference call. Thank you for participating. You may now disconnect.

David Bailey: Thank you, Michelle, and thanks everybody for joining us today on a call. I look forward to seeing many of you and discussing updates in our September Annuals Day. So thanks for your time and have a great day.

Speaker Change: This does conclude today's conference call. Thank you for participating. You may now disconnect.

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