Q3 2024 OrthoPediatrics Corp Earnings Call
Good morning and welcome to Orthopediatrics Corporation's third quarter 2024 earnings conference call.
At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's call.
As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Tripp Taylor from the Gilmartin Group for a few introductory comments. Please go ahead.
The End
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: 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: 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.
Tripp Taylor: During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance.
Tripp Taylor: The company believes these measures provide useful information for investors in evaluating its operations period over period. For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures 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
Tripp Taylor: of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, November 7th, 2024.
Accept as required by law.
Tripp Taylor: 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 on our third quarter 2024 conference call.
David Bailey: As always, we are extremely proud to open our call by reporting that we helped over 33,000 kids in the third quarter of 2024, a 50% increase year over year, and another record high for orthopediatrics.
Tripp Taylor: Having helped over 100,000 children so far this year and over 1 million since our inception, we continue to deliver on our cause while expanding our reach and positively impacting the lives of more and more children worldwide.
Tripp Taylor: This has and will always be our foundation and remain the best measure of our success.
Tripp Taylor: At our recent Investor Day, held early in September, we provided a deeper look into our business, dedicating time to each business segment and how we plan to deliver value and support our cause now and in the future.
Tripp Taylor: We clearly articulated our three-year plan to deliver top-line revenue growth in the high team and greater than 20% for OPSB, produce substantial EBITDA while improving EBITDA margin, and become cash flow break-even in 2026.
Tripp Taylor: Our strong Q3 performance represents yet another successful step forward in our plan as we continue to execute and further enhance Orthopediatrics' unique and differentiated profile.
Tripp Taylor: To that end, Orthopediatrics' strong performance continued in the third quarter of 2024 as we delivered record revenue of $54.6 million, representing global growth of 37% from the same period in 2023.
Tripp Taylor: As has been our long history, we continue to take share across the entire business and saw strong performances from both T&D and Scoliosis, with growth bolstered in both businesses by OPSB.
Tripp Taylor: Looking at the overall macro environment, we believe we are finally in a normalized surgical environment with only the possible transient impacts of seasonal viruses such as COVID, RSV, or flu, and we expect to continue as normal into the future.
Tripp Taylor: Like other companies, we experienced an impact from the hurricane at the end of September, resulting in case cancellations, and then again, we were affected in early October by Hurricane Milton. However, given our healthy volumes throughout the quarter, the impact on Q3 was marginal, and October trends have remained favorable.
Tripp Taylor: That said, through the first three quarters, we have successfully executed our strategy as we continue to deliver more positive results.
Tripp Taylor: Strong results, coupled with our overall bullish outlook and the multiple growth levers that remain ahead of us compel us to raise our full year 2024 guidance to reflect this momentum.
Tripp Taylor: We raise our expectation for the whole year 2024 revenue range of $202 to $204 million, representing year-over-year growth of 36 to 37%. We expect to extend our growth, improve adjusted EBITDA, and reduce cash usage as we enter the final months of 2024.
Now moving to our revenue segment.
Tripp Taylor: In the third quarter of 2024, we generated total trauma and deformity revenue of $37.6 million, representing growth of 31% compared to the prior year period. The results within our T&D business continue to be driven by significant market share gains across several products.
Tripp Taylor: as well as the addition of Boston O&P revenue. This quarter's performance was highlighted by both Trauma and OPSD products, including PMP Tibian, DS2, K&L Legislative Scrooges, and Boston O&P Sales.
Tripp Taylor: Within the T&D business, prior set deployments, most notably from the aforementioned products, in addition to continued share gain across the entire product portfolio, continue to drive our growth, and we believe the utilization of those sets will continue to increase.
Tripp Taylor: During the quarter we launched more sets of DMT tibia which surgeons are adopting at a remarkable rate.
Tripp Taylor: And we are working hard to ensure that we deploy SETs to meet rapidly rising demand.
Tripp Taylor: Thus far, we have executed the PMG-TIBIA launch exceptionally well and anticipate this will be a solid growth drive for the next several quarters and beyond. Overall, we are seeing the impact of set deployments from 2023 in 2024 and expect further contributions in the future.
Tripp Taylor: Surrounding pediatric orthopedic surgeons with all the technology they need to provide optimal care is a key focus of ours.
Tripp Taylor: Currently we have 42 different trauma and deformity systems that have been launched over the last several years and our pipeline remains robust.
Tripp Taylor: We focus on ensuring that the products we bring to market are high quality and address major unmet needs. PNP Tibium, and especially DF2, are great representations of products that provide a unique, life-changing impact for our patients.
Tripp Taylor: We are very proud of what we see in terms of clinical outcomes and new treatment paradigms. And the success we've seen throughout the launch of OLT is further validation for these products.
Tripp Taylor: DF2 recently received an additional FDA indication approval for post-surgical braces, which will continue to expand its demand. PMG tibia has now been in the U.S. market for a few quarters, and the demand continues to exceed our expectations.
Tripp Taylor: And although earlier in the full market release timeline, we believe DF2 is poised to continue rapid growth for several years as we continue to ramp search and access.
Tripp Taylor: On the R&D front, we're excited about our projects on the surgical side of our T&D business.
Tripp Taylor: In particular, the development of our Pediatric Plating Platform, or P3, is progressing according to plan, with the first of the series, our P3 HIP system, plated for launch in the first half of next year.
Tripp Taylor: This system is specifically for pediatric and adolescent hip fractures and deformities, and there's no other product like it today. As such, it represents an opportunity to grow with a new indication.
Tripp Taylor: We believe this will be a world-class system with a significant opportunity to fill a major unmet need in the market and spawn further share-taking opportunities for us within the plating franchise.
Tripp Taylor: Overall, T&D continues to be a strong performer for us as we leverage our scale, cash for market share, and bring new products to market that fill unmet needs to drive growth across the board.
Tripp Taylor: As discussed in detail at our Investor Day in September, within the Orthopediatrics Non-Surgical Specialty Racing Business, or OPSB, we have created a clearly defined strategy that will drive growth and positively impact profitability.
Tripp Taylor: Our strategy to take OPSG to the next phase over the coming years and expand the OPSG footprint utilizes a three-fold approach.
Tripp Taylor: Number one, growing market share with existing products in our existing clinics. Number two, accelerating R&D by launching four to five new products per year. And number three, aggressive territory expansion.
Tripp Taylor: Regarding the first, currently we serve nine target markets across the U.S. A target market is defined as a greater metro area. Across those target markets, we estimate we currently have about 15% to 20% share of the pediatric orthopedic market on average.
Tripp Taylor: Increasing market share within existing clinics represents the easiest way to grow as we work to push from 15% to 50% market share. We've expanded our OPSB specific sales force and with their hard work we have already begun to see early returns from that investment.
Tripp Taylor: On the R&D front, while it's very early and these projects do take time, we will be launching several additional products this year, both from our own organic product development and through strategic partnerships.
Tripp Taylor: While these products won't have a material impact in Q4, they will be growth parameters in 2025.
Tripp Taylor: With respect to territory expansion, we are happy to report that since the investor day, we have already made progress on this front. Early in the fourth quarter, we closed the acquisition of a small clinic in Florida that allows for aggressive greenfield expansion in this new and important territory.
Tripp Taylor: Additionally, we are working on multiple greenfield expansion opportunities that we expect will be completed in the fourth quarter.
Tripp Taylor: While all components of this strategy are critical, we believe territory expansion will be the largest driver of growth, especially as we look to 2025, and we look forward to providing updates on this in the near future.
Tripp Taylor: We recognize the huge potential within OPSBG to drive our patient impact potential for treating more patients with capital efficient growth. An early traction with our strategy suggests that we are on track with our plans to execute for the remainder of 2024 and for the next several years.
Moving to the soil, please.
Tripp Taylor: In the third quarter of 2024, we generated scoliosis revenue of $15.6 million, representing global growth of 52% compared to the prior year.
Tripp Taylor: The global growth and scoliosis rebound this quarter was driven by strong case scheduling, continued share gain, the opening up of some new large key accounts, and the onboarding of several new users, along with strong international growth, as well as the addition of Boston O&P revenue.
Tripp Taylor: More specifically, we saw continued adoption of our response line system in the U.S. and abroad.
Tripp Taylor: Strong international revenue, surge in adoption at large key accounts of our first EOS product, Response Ribbon Pelvic, and strong 70 sales and placements.
Tripp Taylor: Further, we are benefiting from the synergies with the OVSB business and scoliosis bracing products from Boston L&P, which contributed to this strong growth quarter.
Tripp Taylor: Scoliosis scheduling was robust for the balance of the summer and has extended into default. Despite case cancellations due to weather in the southeast.
Tripp Taylor: Scoliosis scheduling was robust for the balance of the summer and has extended into the fall despite case cancellations due to weather in the southeast. International scoliosis was strong due to solid revenues in our direct markets where we're seeing new users come on board and strong ordering from our LATSAM stocking distributors.
Tripp Taylor: International Scoliosis was strong due to solid revenues in our direct markets, where were seeing new users come onboard and strong ordering from our Latam stocking distributors.
Tripp Taylor: Looking at a few core products in the third quarter, we had multiple placements and sales 70 units that will positively impact revenue in 2020 bonds.
Tripp Taylor: Looking at a few core products, in the third quarter we had multiple placements and sales of 70 units that will positively impact revenue in 2025. 70 unit placements are critical in driving account conversions in locations where we have both placed and sold units.
Tripp Taylor: 70 unit placements are critical in driving account conversions in locations, where we have both place and both units.
Tripp Taylor: <unk> will play in large institutions, where we have a substantial opportunity to grow scoliosis revenue over the next three to five years. However, while the placements will lead to future revenue selling 70 units does carry a lower margin than the corporate average which was reflected in our overall gross margin results.
Tripp Taylor: Those 7D units were placed in large institutions where we have a substantial opportunity to grow scoliosis revenue over the next three to five years. However, while the placements will lead to future revenue, selling the 7D units does carry a lower margin than the corporate average, which is reflected in our overall gross margin results.
Tripp Taylor: Now turning focus to our pass products.
Now turning focus to our EOS products.
Tripp Taylor: We continue to progress with developing our Eos product portfolio as we work toward new FDA approvals and launches.
Tripp Taylor: We continue to progress with developing our EOS product portfolio as we work toward new FDA approvals and launches.
Tripp Taylor: We've been in direct discussions with the FDA regarding the approval pathway for elli and vertical line.
Tripp Taylor: We've been in direct discussions with the FDA regarding the approval pathway for ELLI and VertiGlide.
Tripp Taylor: Recently, we received feedback that a <unk> pathway may not be the likely approval path and we have already engaged with FDA to ensure we meet all of the data collection requirements needed to secure improvement.
Tripp Taylor: Recently, we received feedback that a 510k pathway may not be the likely approval pathway, and we have already engaged with FDA to ensure we meet all the data collection requirements needed to secure an approval.
Tripp Taylor: While we do not believe that this impacts our opportunity we do anticipate a slight delay in the timing of the U S launch.
Tripp Taylor: Well, we do not believe that this impacts our opportunity. We do anticipate a slight delay in the timing of the U.S. launch.
Tripp Taylor: Promising when we look at <unk>, there are multiple international locations and surgeons being on board for the first procedures, a vertical out in Italy, which we expect will positively impact revenue in 2025.
Tripp Taylor: Promisingly, when we look at OUS, there are multiple international locations and surgeons being onboarded for the first procedures of vertiglide and LE, which we expect will positively impact revenue in 2025.
Tripp Taylor: We anticipate upcoming cases, Oems and we'll be capturing clinical data that will be leveraged in our approval process.
Tripp Taylor: We anticipate upcoming cases OUS and will be capturing clinical data that will be leverageable in our approval process.
Tripp Taylor: Moving to international.
Moving to NRH.
Tripp Taylor: Overall international performance was strong generating revenue of $11 9 million and delivering 12% growth year over year.
Tripp Taylor: Overall, international performance was strong, generating revenue of $11.9 million and delivering 12% growth year over year.
Tripp Taylor: Growth was primarily driven by greater than 100% International scoliosis growth, while international trauma, and deformity and <unk> growth was somewhat muted by a difficult prior year comp.
Tripp Taylor: growth was primarily driven by greater than 100% international scoliosis growth while international trauma and deformity and OPSB growth were somewhat muted by a difficult prior year comp
Tripp Taylor: Due to the nearly completed conversion of all U S. Peg at distributors in Q3 prior year that resulted in heavy set stocking and the addition of <unk> distributors in general international demand across the entire T&D in scoliosis portfolio is strong and we expect it will continue to contribute to the overall growth of the <unk>.
Tripp Taylor: due to the nearly complete conversion of OUS Pegas distributors into 3 prior year that resulted in heavy set stocking and the addition of OPSB distributors.
Tripp Taylor: In general, international demand across the entire T&D and Scoliosis portfolio is strong, and we expect it will continue to contribute to the overall growth of the business.
Tripp Taylor: Business.
Tripp Taylor: International growth in the quarter was primarily bolstered by trauma and deformity implant brands, including several legacy devices as well as very strong revenue from scoliosis.
Tripp Taylor: International growth in the quarter was primarily bolstered by trauma and deformity implant products, including several legacy devices, as well as very strong revenue from scoliosis.
Tripp Taylor: As we look ahead, we continue working hard to increase the number of pediatric orthopedic Bronx available to surgeons outside of the United States.
Tripp Taylor: As we look ahead, we continue working hard to increase the number of pediatric orthopedic products available to surgeons outside of the United States.
Tripp Taylor: And Dr approval remains a large catalyst for our growth in 2025 and beyond and we are well positioned for our prudence. We are awaiting the notified body to finalize our even Dr status, which we expect to be completed in mid 2020 bonds. This will enable the potential launch of several new products in Europe. Shortly thereafter additional.
Tripp Taylor: EMDR approval remains a large catalyst for our growth in 2025 and beyond, and we are well-positioned for approvals.
Tripp Taylor: We are awaiting the notified body to finalize our EMDR status, which we expect to be completed in mid-2025. This will enable the potential launch of several new products in Europe shortly thereafter.
Tripp Taylor: Additionally, we are exploring further expansion opportunities for OSB.
Tripp Taylor: Additionally, we are exploring further expansion opportunities for ODSP and we expect the first surgeries for vertigo and LA to come from outside of the United States in 2025.
Tripp Taylor: And we expect the first surgeries for vertical is an early to come from outside of the United States. In 2025 overall the international business is set up nicely and we believe the remainder of the year will contribute toward an improved 2024.
Tripp Taylor: Overall, the international business has set up nicely, and we believe the remainder of the year will contribute toward an improved 2024.
Tripp Taylor: That brings us the surgeon training and education in the third quarter. We hosted 94 unique training experiences for over 1400 health care professionals, including during Srs Scoliosis Research Society, which took place in Barcelona in September.
That brings us to Surgeon Training and Education.
Tripp Taylor: In the third quarter, we hosted 94 unique training experiences for over 1,400 health care professionals.
Tripp Taylor: including during FRS, the Scoliosis Research Society, which took place in Barcelona in September.
Tripp Taylor: Our team was well represented and highlight our expanding portfolio of products carrying <unk> and.
Tripp Taylor: Our team was well represented and highlighted our expanding portfolio of products for caring for kids with scoliosis. In addition to our food, we hosted multiple surgeon training sessions on our non-fusion treatment option, Apathix, for which a study was recently included in two peer-reviewed publications.
Tripp Taylor: In addition to our food we hosted multiple surgeon training sessions on our non fusion treatment options have a fix for which the study was recently included two peer reviewed publication. It is important that we continue to provide educational opportunities within the pediatric orthopedic muted and we continue to lead industry efforts to enhance these opportunities.
Tripp Taylor: It is important that we continue to provide educational opportunities within the pediatric orthopedic community, and we continue to lead industry efforts to enhance these opportunities.
Speaker Change: With that I'd like to turn the call over to Fred to provide more detail on our financial results Fred.
Tripp Taylor: 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.
Thanks Dave.
Fred Hite: This will give you more details on our financial results I want to iterate that through continued execution. We've established for the pediatrics is a high quality and differentiated asset with the ability to scale growth.
Speaker Change: Before giving more details on our financial results, I want to iterate that through continued execution, we've established Orthopediatrics as a high-quality and differentiated asset with the ability to scale growth
Speaker Change: And increased operating leverage which provides a clear path to cash flow positivity supported by a very strong balance sheet.
Speaker Change: With that said, our third quarter 2024 worldwide revenue of $54 $6 million increased 37% compared to the third quarter of 2023.
Speaker Change: Growth in the quarter was driven primarily by strong performance across global trauma and deformity.
Speaker Change: Scoliosis.
Speaker Change: And both ESB.
Speaker Change: U S revenue was $42 7 million.
Speaker Change: A 46% increase from the third quarter of 2023 growth in the quarter was primarily driven by additional market share gains across trauma and deformity.
Speaker Change: <unk> and <unk> as well as the addition of Boston one fee revenue.
Speaker Change: Generated total international revenue of $11 9 million representing growth of 12% compared to the third quarter of 2023 gross in the quarter was primarily led by scoliosis revenue.
Speaker Change: In the third quarter of 2020 for trauma and deformity global revenue of $37 6 million increased 31% compared to the prior year period growth was primarily driven by strong growth across numerous product lines as well as the addition of Boston LNP revenue.
Speaker Change: of handling it. And so right now within our guidance is we're assuming the same type of reported cases that we saw in the in the fall of last year and that the hospitals be able to handle it in the same manner.
Speaker Change: related to staffing. Yes, we think that we are now kind of behind that and that we have more normalized and we see that normalized staffing continuing in the hospitals, particularly in the U.S.
Okay, great.
Speaker Change: Maybe what the installed base is at this point, if you're willing to disclose that.
Speaker Change: Yeah, so search and feedback has always been extremely positive on 7th D. I think, you know, as we told you guys when we started this, it was, we were probably a little naive in that we hadn't been involved in a lot of capital placements, capital equipment sales.
Speaker Change: at the company, and I would just say at this stage, we've learned a lot.
Speaker Change: And because of the resources that we have now applied on the enabling technology team with people who really know how to do this and know how to do this well.
Speaker Change: I think it's safe to say we have a very large funnel of 7D opportunities and our expectation is that we get into a cadence where quarter to quarter we're placing 7D units.
Speaker Change: and we're getting sales of 70 units as well on certain locations. I think the install base, off the top of my head, is probably around 20, so we're still early, I would say, in that process.
And, yeah, when we...
When we think about these and
Speaker Change: an increase in revenue for our scoliosis fusion business, particularly when they get placed and we're going through the trial. But once we get the PO, we get the installment, we have a pretty good line of sight into how that's gonna impact scoliosis fusion with our response system for the next three to five years. And so it's very encouraging this quarter to see some placements, particularly in some accounts that I would say.
Speaker Change: a year ago, we were kind of nowhere in, at least in terms of our scoliosis fusion business. And now to know that we'll have a pretty substantial claim to the fusion business in those accounts.
Speaker Change: In 2025 and over the next three to five years, it's encouraging for us and our forecasting of their response business and our scoliosis business in general.
Okay, perfect
Any questions, and congrats on the record quarter.
Thanks.
Speaker Change: There are no more questions. I will now turn the conference back over to David Bailey for closing remarks.
David Bailey: Thank you. Well, once again, thank you all for joining us on our call. We have several upcoming meetings where we look forward to meeting all of you and talking further about the business and our execution of our strategy. So, thank you for your time today and we look forward to seeing you soon. Take care.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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