OrthoPediatrics Corporation (NASDAQ:) has reported a noteworthy increase in revenue and patient assistance in the first quarter of 2024. The company, which specializes in medical devices for pediatric orthopedics, served a record 27,600 children, marking a 47% year-over-year (YoY) growth.
This surge in assistance is reflected in the company’s reported first-quarter revenue of $44.7 million, a 41% increase compared to the same period in the previous year. The growth was propelled by robust sales in the Trauma and Deformity (T&D) segment, International Scoliosis, and Specialty Bracing businesses.
In light of this positive performance, OrthoPediatrics has raised its full-year revenue guidance for 2024 to between $200 million and $203 million.
Key Takeaways
- OrthoPediatrics served 27,600 kids in Q1 2024, a 47% YoY increase.
- Q1 revenue reached $44.7 million, up 41% from Q1 2023.
- The company’s T&D segment experienced a 42% YoY growth.
- International sales grew by 33%, driven by strong T&D and scoliosis product sales.
- Full-year revenue guidance for 2024 has been raised to $200 million to $203 million.
- Adjusted EBITDA loss improved to $1.1 million in Q1 2024 from a loss of $2.1 million in Q1 2023.
- The company ended Q1 with $49.7 million in cash, short-term investments, and restricted cash.
Company Outlook
- OrthoPediatrics raised revenue guidance for 2024, reflecting a 34% to 36% YoY growth.
- They expect to generate between $8.0 million to $9.0 million in adjusted EBITDA in 2024.
- The company plans to deploy fewer than $20 million of new sets.
- New product launches are planned for the first half of the year to capitalize on market normalization.
- Hiring around 20 sales staff for Boston in 2024 to support growth in the non-operative space.
Bearish Highlights
- The company reported an adjusted EBITDA loss of $1.1 million in Q1 2024.
- A delay in the EU MDR audit could affect the planned product launches in Europe.
Bullish Highlights
- Strong growth in T&D, International Scoliosis, and OPSB franchises.
- The company is well-capitalized and confident in maintaining its growth momentum.
- Anticipated new product clearances in the European market.
- Over 20% organic growth observed in the non-O&P business.
Misses
- Despite the overall positive outlook, the company still faces an adjusted EBITDA loss.
Q&A Highlights
- OrthoPediatrics plans to expand into key European markets within the next 12 to 15 months.
- The company is prepared for the EU MDR audit and has updated their technical files.
- There is significant potential for growth in the product line, with expectations of strong uptake due to demand for improved early onset scoliosis treatments.
- No significant pent-up demand was reported, which could affect market dynamics.
OrthoPediatrics’ strong performance in the first quarter of 2024 indicates a solid trajectory for the year ahead. The company’s strategic focus on expanding its product portfolio and international reach, coupled with its commitment to addressing the needs of pediatric orthopedic patients, positions it for continued success in the global market.
InvestingPro Insights
OrthoPediatrics Corporation’s (KIDS) first-quarter performance in 2024 not only demonstrates robust revenue growth but also aligns with several key financial metrics and analyst insights. According to InvestingPro data, the company holds a market capitalization of $830.38 million, indicating a significant presence in the pediatric orthopedic sector.
Despite the company’s lack of profitability over the last twelve months, with a P/E ratio (adjusted for the last twelve months as of Q4 2023) standing at -36.66, its liquid assets surpass short-term obligations. This financial stability is underscored by the company’s cash holdings, which exceed its debt, reflecting a solid balance sheet that may reassure investors.
InvestingPro Tips suggest that while analysts have revised earnings expectations downwards for the upcoming period, OrthoPediatrics has shown a significant return over the last week, month, and three months, with respective total returns of 13.4%, 22.32%, and 23.76%. This performance could be indicative of strong investor confidence and market recognition of the company’s growth potential.
It is also noteworthy that the company does not pay dividends, which could be a strategic decision to reinvest earnings back into the business for further expansion and product development. This strategy might appeal to growth-focused investors who are less concerned with immediate income and more interested in long-term capital appreciation.
For readers looking to delve deeper into OrthoPediatrics’ financial health and future prospects, InvestingPro offers additional insights and metrics. With a total of 9 InvestingPro Tips available, users can gain a comprehensive understanding of the company’s financial nuances. To access these insights and enhance your investment strategy, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript – OrthoPediatrics Corp (KIDS) Q1 2024:
Operator: Good morning. Welcome to OrthoPediatrics Corporation’s First Quarter 2024 Earnings Conference Call. At this time, all participants are on a listening 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 Trip Taylor from Gilmartin Group for a few introductory comments.
Trip 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. 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 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. 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, May 7, 2024. Accepted 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, Trip. Good morning, everyone. Thank you for joining us on our first quarter 2024 conference call. As we start all our earnings calls, I’d like to begin by highlighting that we helped a record 27,600 kids in the first quarter of 2024. This remarkable 47% year-over-year growth is the metric we’re most proud of out of all of the stuff we’ll share with you today. It embodies our fundamental commitment to helping children and demonstrates our ability to continue to expand our reach and create a more significant impact for children worldwide. So, today we’re excited to join you live from just outside of Washington, D.C. at the EPOSNA Conference where EPOSNA and EPOS are collaborating to host a joint annual meeting. This is the largest pediatric orthopedic conference in the world and once again, OrthoPediatrics is the leading sponsor of this event. The shared mission across our three organizations will be advanced through clinical data presentations and educational sessions highlighting the most cutting-edge pediatric orthopedic treatments and technologies. We’re looking forward to connecting with our customers and colleagues this week and there is no better place to deliver our exciting business update. OrthoPediatrics is off to a great start in 2024, generating first quarter revenue of $44.7 million, representing growth of 41% compared to the first quarter of 2023. Driven by strong performance across the businesses, we continue to demonstrate robust top-line growth, maintain healthy margins, and outperform our adjusted EBITDA expectations. The execution of our business plan is delivering both financial results and progress on our strategic initiatives. Looking closer at the quarter, after an initial RSV spike seen in early January, revenue and surgery scheduling quickly bounced back. Children’s hospitals have learned to manage RSV waves efficiently and effectively mitigate disruptions previously seen. Overall, improvements in the surgical environment are tracking our expectations. Hospitals are now better staffed and the training of new associates is contributing to improved efficiency. Improvements continue every month and by our estimations, we’re approximately 95% back to normal levels. Given the seasonality of our business, the improved children’s hospitals capacity will be tested in these critical summer months. Throughout the next few quarters, we will continue to monitor this progress closely. However, our confidence continues to increase that this headwind will have less and less of an impact moving forward toward a completely normalized state. We’ve built a business with a highly diversified portfolio that surrounds our surgeon customers with high technology products that continue to take market share and drive OrthoPediatrics growth. During the quarter, the global Trauma and Deformity, International Scoliosis, and our newly formed and rapidly expanding Specialty Bracing business, or OPSB, were all particularly strong. First quarter global T&D was very strong with 42% year-over-year growth led by sales of Pega products, PNP Femur, ORTHEX, early sales of PNP Tibia, and growth within the OPSB franchise, as well as the addition of Boston O&P’s T&D product sales. PNP Tibia demand continues exceeding expectations and DF2 revenue has started strong. In addition, total surgeon users of Ex-Fix, increased by 29% in the first quarter and total accounts increased by 37%. We believe these numbers imply strong quarters are ahead of us. Looking at our international business, we reported strong overall growth of 33% led by a rebound in scoliosis and very strong sales of T&D with Ex-Fix at 59% growth and Pega at 152% growth. Operations commenced at our recently established German headquarters, which is improving customer service and increasing surgeon access to OrthoPediatrics products across the country. We are already seeing a return on this investment as the German business grew 22%. We’re also seeing very high growth in Canada, where recent product registrations and our account conversion strategy have been extremely effective, leading to large share gains in some of the country’s largest, most prestigious children’s hospitals and global teaching institutions. In addition, the macro environment in Brazil has improving. This momentum internationally is expected to continue throughout 2024. Scoliosis revenue had substantial 44% growth led by domestic ApiFix, international sales in Europe and Latin and South America, along with another quarter of share taking in our fusion franchise, as well as the addition of Boston OMP scoliosis custom bracing products sales. We expected the OUS scoliosis to rebound aggressively in 2024 and to act as a tailwind, and this is exactly the trend we’re seeing to start the year. OPSB contributed to growth in both the T&D and scoliosis businesses as a result of Boston OMP acquisition, coupled with increased sales from products unrelated to Boston OMP clinics, such as MDO, DF2, Ora Medical, and RHINO. Increases in OPSB sales continue to rise as we hire additional sales staff exclusively focused on this franchise, and we are confident that as we build this business, there is a massive opportunity to capture growth. The various levers driving the next phase of OrthoPediatrics growth and profitability are becoming more visible, and we remain quite bullish about our prospects for 2024 and beyond. For the remainder of the year, we’re focused on continuing legacy product growth, launching several key new organic products, expanding Pega sales, capitalizing on normalization in international markets, publishing positive longer-term ApiFix data, and execution on OPSB, and an early start in digital healthcare. The continued advancement of our strategic initiatives, paired with our strong financial position, will enable us to execute our long-term goals. With a solid start for the year, we are raising our revenue guidance for full year 2024 to $200 million to $203 million, representing growth of 34% to 36%. The plethora of growth drivers outlined have positioned this business to continue growing on the top line while improving profitability on our way to cash flow break-even sooner. Moving to our revenue segments. In the first quarter of 2024, we generated total trauma and deformity revenue of $33.3 million, representing growth of 42% compared to the prior year period. This quarter saw strong performances from Pega products, trauma, specifically PNP Tibia, Ex-Fix, and OPSB, as well as the addition of Boston OMP, T&D product sales. Our prior investments in set allocations are generating a return and driving meaningful share gains for the T&D business across the entire growth of products, specifically Pega, which once again grew nearly 50% globally. Sales of Pega continue to be better than we ever expected. As we more deeply penetrate our U.S. accounts with the full Pega product portfolio and we ramp international sales. Now that the distributor and agency transition is complete OUS, Pega will likely to continue this trajectory globally in 2024 and for the foreseeable future. Excitedly, the full US market release of PNP Tibia and GIRO are underway. With several sets expected to arrive at accounts in the second quarter and every quarter thereafter for the next several quarters. The full market release of DF2 is also underway and there is extremely high demand for this product and it’s helping grow OPSB sales. These products are great additions to our portfolio and will create an immediate impact. Product portfolio expansion remains a top priority for the business. We seek to surround our surgeon customers with everything they need to treat each patient and treat more children. OrthoPediatrics is building a dominant share position across our entire T&D portfolio. Each quarter, more customers are using more of our products driving increased market share. Adding new high technology products like Pega helps advance the key account conversion strategy. The T&D business is increasingly well positioned to continue to deliver sustainable growth for the next several years. On the R&D side, there are several exciting products within the surgical side of our T&D business. We’re making great progress developing our entirely new pediatric plating platform or P3, which we expect will be world-class and spawn further share taking opportunities for us within our plating franchise. We’ve also made solid strides on new external fixation devices that will continue the growth trajectory of our Ex-Fix franchise. Further, there will be several new CE Mark products that are positioned to launch in the EU market in the coming year to 15 months. The OrthoPediatrics non-surgical specialty bracing business or OPSB is performing extremely well, and we continue to view this franchise as a significant opportunity to help more kids. Before diving into some of that progress, I want to reiterate the OPSB opportunity briefly. In addition to furthering our strategy to provide pediatric orthopedic surgeons with everything they need to treat children, we see this as another opportunity for market dominance as we scale a historically fragmented market to become the clear cut leader. 80% of pediatric orthopedic care is delivered outside of the operating room, and we estimate the U.S. non-surgical specialty bracing market is at minimum $775 million in total and conservatively a $500 million opportunity within the top 300 children’s hospitals. From a business models perspective, importantly these custom fit devices do not require the upfront capital investment in consigned inventory or instrument sets. As mentioned on our previous calls, we continue to successfully execute a build aggressively strategy in OPSB and anticipate it to grow very rapidly in the coming several years. OPSB is in the early innings of what we believe can be a business well in excess of $100 million in the coming years. The planed sales force expansion, product developments, and the addition of new clinics will scale this business rapidly. Progress expanding the sales force and integrating our specialty bracing products with Boston’s are already contributing to growth. Our existing R&D pipeline will support launching four to five new products within the OPSB business every year. Lastly, we’ve identified several new clinic opportunities and expect these to have a major impact as early as next year. Moving on to the Scoliosis business. In the first quarter of 2024, we generated revenue of $10.2 million, representing global growth of 44% compared to the prior year. This global growth was led by a return in international sales in Latin and South America, new business in Europe, and strong ApiFix growth, as well as the addition of Boston OMP, scoliosis, custom bracing product sales. First quarter domestic sales increased by 38%, led by the addition of Boston Brace from the Boston OMP product portfolio. We are proud to add the most studied and utilized Scoliosis Brace in the world and a product that is considered to be the premier system for non-operative treatment of scoliosis and kyphosis to the OPSB portfolio. We’re pleased with the rebound from the International Scoliosis business, which outpaced our domestic business, generating 114% growth. We expect to see a continuation of strong international growth, coupled with a robust summer surgery schedule in the coming quarters. The increased number of total response users over 2023, earn-outs on 70 units placed in 2023, continued ApiFix growth, improvements in South America, and our European launch, all together keep us bullish on 2024 scoliosis growth. The Scoliosis R&D pipeline is continuously progressing, and the funnel is rich with highly novel technologies that solve major unmet needs for our customers, specifically for patients with early onset scoliosis, a category in which we have never had products before. In the first quarter, we launched the first of three products in the EOS space. The first surgeries with response Rib and Pelvic were completed in the first quarter, producing excellent results. We’ve made great progress with our new growing spine system for EOS, called Vertiglide, and hope to have FDA approval secured in the second half of 2024. Further, the FDA recently classified our electromechanical growing spine rod, eLLi, with the breakthrough device designation, both a major milestone on our way to FDA approval and a strong endorsement of eLLi’s potential for patients suffering from EOS. Lastly, substantial progress has been made on the development of our next generation fusion system. The next 18 to 24 months will be the most prolific period of new product development and launches in OP Scoliosis history, transforming the already impressive product portfolio into the most substantial offering available to surgeons treating pediatric scoliosis. Moving on to international, overall international growth improved substantially compared to the prior quarter, generating revenue of $10.4 million, delivering 33% year-over-year growth. This major rebound was supported by a return to normal ordering patterns for scoliosis products in South America, the launch of scoliosis in Europe, Pega products, and general demand across the entire T&D portfolio. The international growth seen this quarter is very encouraging. As I mentioned earlier, we are seeing meaningful traction within several of our core international markets. The results we’ve seen in Germany are particularly pleasing as we begin to reap the benefits of our investment in building a direct sales channel and local customer service. As we await the notified body audit to finalize our EU-MBR status, we are thrilled about all the progress we’ve made internationally and that 2024 has started off on such a strong footing. We expect completion of our audit in the second half of 2024, enabling the potential launch of several new products in Europe shortly thereafter. Given the general lack of new pediatric orthopedic product launches in Europe over the past four to five years, it is particularly impressive that we’ve made so much headway and have many more opportunities in front of us. Overall, the international business is set up nicely. We believe that the first quarter represents a great start to an improved 2024. That brings us to surgeon training and education. Since inception, facilitating educational opportunities for the pediatric orthopedic community has been a foundational component of OrthoPediatrics strategy. That’s why we are live from the IPOS today and we look forward to updating you on how productive and impactful this meeting will be for the pediatric orthopedic community. Back in April, the company was again, a lead sponsor of ICSS, a meeting that offers a comprehensive program of lectures given by an outstanding international faculty and didactic cadaver labs focused on the cervical spine, lumbo-sacral junction, neuro monitoring and various aspects of scoliosis. This interactive forum was a great opportunity for us to engage with pediatric orthopedic fellows and attending surgeons and provide training on the latest technologies and surgical techniques. We highlighted response and the new pelvic fixation system at this year’s meeting. In the quarter, we conducted a total of 46 unique learning experiences, highlighting over 162 different product touches, including labs, workshops and sawbones stations, and we reached over 1,100 healthcare providers and other staff members. As we continue advancing our ongoing commitment to training the next generation of pediatric orthopedic surgeon and leading innovation in our subspecialty around the world. Lastly, because of the continued focus on our people and culture building, I want to again highlight that for the eighth time, OrthoPediatrics was named as one of the best places to work in Indiana. We are committed to fostering a culture that is positive, engaging and allows our associates to do their best work. This has become a key aspect of our competitive advantage and continues to expand our ability to help more kids around the world. With that, I’ll turn the call over to Fred to provide more detail on our financial results. Fred?
Fred Hite: Thanks, Dave. Our first quarter, 2024, worldwide revenue of $44.7 million increased 41% compared to the first quarter of 2023. Growth in the quarter was driven primarily by strong performance across global Trauma and Deformity, International Scoliosis, and OPSB as well as the addition of Boston O&P. US revenue was $34.3 million, a 44% increase from the first quarter of 2023. Growth in the quarter was primarily driven by our Trauma and Deformity product lines, Scoliosis and OPSB as well as the addition of Boston O&P sales. We generated total international revenue of $10.4 million, representing growth of 33% compared to the first quarter of 2023. Growth in the quarter was primarily driven by Trauma and Deformity, Scoliosis and OPSB. In the first quarter of 2024, Trauma and Deformity global revenue of $33.3 million increased 42% compared to the prior year period. Growth was primarily driven by strong growth across numerous product lines, specifically Cannulated Screws, PNP Femur, PediPlate, External Fixation and Pega Systems as well as the addition of Boston O&P, Trauma and Deformity correction product sales. In the first quarter of 2024, scoliosis revenue of $10.2 million increased 44% compared to the prior year period. Growth was primarily driven by increased sales of our RESPONSE-5.5-6.0, ApiFix systems, and revenue generated from 70 technologies as well as the addition of Boston O&P Scoliosis custom bracing product sales. Finally, Sports Medicine/Other revenue in the first quarter of 2024 was $1.2 million compared to $1.1 million in the previous year period. Turning to set deployment, $4.3 million of sets were consigned in the first quarter of 2024 compared to $3.0 million in the first quarter of 2023. The increase was driven by the strategic decision to bring in inventory earlier in the year and to play a greater percentage of the annual sets prior to our busy summer months. Touching briefly on a few key metrics. For the first quarter of 2024, gross profit margin was 72% compared to 75% for the first quarter of 2023. The decrease in gross profit margin was driven primarily by increased international set sales in the first quarter of 2024, as well as less purchase price variance released in the first quarter of 2024 compared to 2023. Total operating expenses increased $9.7 million, or 30% to $41.9 million in the first quarter of 2024. The increase was mainly driven by incremental personnel costs associated with increased headcount, increased commissions, and the addition of the Boston O&P acquisition. Sales and marketing expenses increased $1.6 million, or 13% to $14.2 million in the first quarter of 2024. The increase was primarily driven by increased sales commission expense, with a limited increase coming from the addition of Boston O&P acquisition. General and administrative expenses increased $7.6 million, or 44% to $24.7 million in the first quarter of 2024. The increase was driven primarily by the addition of Boston O&P acquisition, as well as resources to support the continued expansion of our business, and increases in non-cash expenses such as stock compensation, depreciation, and amortization. Research and development expenses increased $0.6 million, or 23% to $3.0 million in the first quarter of 2024, due to the incremental product development and the addition of personnel to support the future growth of the business, as well as the addition of the Boston O&P acquisition. Total other expense was $0.6 million for the first quarter of 2024, compared to $1.2 million of other income for the same period last year. In the first quarter of 2023, we recognized a $0.6 million favorable adjustment to contingent consideration that did not repeat in the first quarter of 2024, as well as increased interest expense from our $10 million mid-cap loan. Adjusted EBITDA loss was $1.1 million in the first quarter of 2024, and this compares to a loss of $2.1 million in the first quarter of 2023. We ended the first quarter with $49.7 million in cash, short-term investments, and restricted cash. Cash usage in the first quarter of 2024 includes $22 million paid for Boston O&P, increased set deployment, as well as increased inventory to support future set deployments. With our current cash position, as well as our debt facility, we are well-capitalized to continue to execute on our long-term strategy. Given our strong balance sheet, positive annual adjusted EBITDA, our line of sight to cash flow break-even, and the addition of Boston O&P, we are in a position of tremendous strength. Turning to guidance, we are raising our expectation for full year 2024 revenue from the previously announced $197 million to $200 million up to $200 million to $203 million, representing year-over-year growth of 34% to 36%. We continue to expect to generate between $8.0 million to $9.0 million of adjusted EBITDA in 2024. Additionally, we continue to expect less than $20 million of new sets deployed in 2024. This represents our continued focus on driving the business to cash flow break-even sooner rather than later. As mentioned, this year, we plan to deploy sets earlier compared to prior years. I will now turn the call back over to Dave for closing remarks.
David Bailey: Thanks, Fred. Looking at the first quarter, we are extremely proud of how we’ve started 2024 and are confident that we will continue this momentum into the remainder of the year and beyond. We continue to capture share across the entire business, record robust top-line growth, maintain healthy margins, and outperform our EBITDA expectations. We will continue to move toward profitability growth and cash flow break-even as we execute our strategic initiatives to drive value and capitalize on our opportunity. 2024 will be a tremendous year for OrthoPediatrics, and I look forward to updating you again soon. In closing, I’d like to thank our surgeon partners, my OP associates, our investors, and all of the innovators in pediatric healthcare for standing together to help kids. Operator, let’s open the call for Q&A.
Operator: Thank you. [Operator Instructions]. Our first question is from the line of Ryan Zimmerman with BTIG. Your line is now open.
Ryan Zimmerman: Good morning, and congrats on a strong start of the year here. I want to ask about guidance. Two-part question here. You beat by about $3.5 million, you’re raising by $3 million at the midpoint. Just curious if you’re seeing anything kind of ahead that you’re a little cautious about or maybe reserving that incremental $0.5 million? The second part is, you are passing through that $3 million, adjusted EBITDA guidance are staying the same. So just talk to us about kind of that flow through on higher revenue into the business and kind of what you’re putting that to work on.
Fred Hite: Yeah, so first of all, we’re obviously very excited about 41% growth in the first quarter. It’s a great start to the year and sets us up very nicely. We had some RSV in late December, a little bit of it in January, and then I think some of that December got pushed into January, which helped pretty strong January to start the quarter, which is great to see. The wild card for us, as you know, Ryan, is always the summer months, right? June and July are typically the dramatically larger months for us throughout the year, and how those summer surgery seasons play out is really unknown until we get there. So, I think that’s probably where the $0.5 million maybe is on the revenue as far as why it didn’t flow through for the full year. It’s really the only thing that gives us pause, if you will, on increasing it further at this point.
Ryan Zimmerman: Okay and the EBITDA guide relative to the beat, are you putting that back in the business Fred?
Fred Hite: Yeah, the EBITDA number, the range is pretty wide. Again, the summer months are so large, that’s when so much of it drops through. So as you saw in the first quarter, it’s negative 1:1. Basically on or maybe a little better than our expectation, but we want to wait and see what the summer months look like. Then we can increase that as we move throughout the year.
Ryan Zimmerman: Got it. Then just last one for me, Boston O&P looks like it’s been a real good contribution and asset to bring in. Dave, love to hear your thoughts on clinic development, and it’s really the longer term plans of what you can do with Boston O&P relative to your broader surgical customer base.
David Bailey: Yeah, good question. Yeah, we see, I think you’ve heard me say this before, Ryan, the volume of inbound interest we’ve gotten from our customers related to that Boston O&P acquisition is probably it’s great, if not greater than any other transaction or product we’ve done up until this point. So, there is clearly a serious need out there to have a company focused exclusively in this bracing space and providing that service that Boston has done so well in about 15 institutions in the Northeast. We want to obviously expand that to everywhere in the United States. So, huge opportunity to do that. It’s going to take us some time. I think by the fall this year, we’ll probably be able to give some guidance as to what we think the pace is going to look like in terms of clinic expansion. But, there is no shortage of opportunities for us from a clinic expansion standpoint. We have kind of an outpouring of ask here from a number of locations, and it’s just going to take us some time to spend some of those things up. It’s possible that we’ll have some of these deals done and some clinics moving here by year end, but we’re not forecasting that. We do have the opening of our first clinic inside Children’s National, or Nationwide Children’s in Columbus, which is, I believe, the highest volume children’s hospital in the United States. So, that should start here in the next few months. So, really positive in terms of long term. I think what we were really most pleased to see here is the fact that as we’ve added the sales channel, and then we’ve added a number of products to the MDO portfolio since the acquisition a few years ago, it’s great to see all of those products already contributing to revenue growth. You know, not the clinic side of this stuff, but we’ve talked about a three-part strategy; number one, of sales channel and selling the products we have; number two, accelerating R&D, which we’re definitely doing on pace to do four or five — have four or five new products a year; and then lastly, a clinic expansion, and to see the first two of those portions of our strategy already start to contribute, and then to think that, we have this huge TAM expansion opportunity, really large growth opportunity that should really kick in 2025 when we start to realize the benefit of clinic expansion. It’s just really exciting. I think it’s given us a reason to be very bullish.
Ryan Zimmerman: Sounds good. Thanks for taking the questions, guys.
David Bailey: Thanks, Ryan.
Operator: Thank you. Our next question comes from the line of Matthew O’Brien with Piper Sandler. Your line is now open.
Matthew O’Brien: Morning. Thanks for taking the questions. Just maybe to start with, morning. On the Boston O&P contribution, I know, I think you guys had mentioned it being about a $25 million business, roughly historically, and I think that’s kind of what we were modeling this year. Is the increase that we’re expecting in the guidance for the year just all Boston O&P related, the extra $3 million really related to that? So it’s more like $28 million. So you’re kind of running ahead of schedule, or how do we kind of frame up how well Boston O&P has done so far on its own?
Fred Hite: No, I wouldn’t assume that at all. I think you can assume that it’s similar to historical levels. I think, as we’ve mentioned in the past, about 23% of that, $25 million typically falls in the first quarter, 25% in the second, third quarter and 28% in the fourth quarter. But the extra $3 million is not from Boston, and very pleased with the legacy business, if you will.
Fred Hite: Yeah, Matt. I mean, we see growth across every segment at this stage. I mean, it’s just really good to see really positive momentum. I do want to specify that we are seeing above average growth in OPSB, but we’ve been doing that for a long time, right. I mean, we have taken — ever since we took on the MDO product portfolio on the Clubfoot side and then added products last year, that business has been growing in excess of 20% really since the acquisition. We’re seeing more of that, and so the OPSB, let’s say minus the Boston clinics is performing extremely well. It’s certainly adding all those product lines to the T&D growth. So, yeah, from that perspective, let’s say the non-Boston component of OPSB, really pleased for what we’re seeing there. But listen, this is a growth story that’s going across every product line right now.
Matthew O’Brien: Okay, okay, that’s great to hear and super encouraging. Just maybe back to that other point. I’m assuming it’s too early to be getting any kind of halo effect from Boston O&P, but the Pega numbers and some commentary about ApiFix and other areas seem like they’re kind of, the momentum there is extremely strong. So I’m just curious about just the core business or the more organic, historical business, where some of that growth is coming from and the durability of some of that growth, especially Pega. I mean, I know you’re not going to grow 150% of recorded with that thing, but just some of the durability that you’re talking about now and the more traditional orthopedic franchises would be helpful. Thanks.
Fred Hite: Yeah, I think what we’re seeing, first on the implant side of trauma and deformity. I mean, it’s no secret that we put out a lot of inventory over the course of the last few years. It’s also no secret that some of that inventory utilization has been maybe stifled a little bit just because of pure throughput inside Children’s Hospitals. So I think what we’re seeing is a combination of the fact that we’ve landed a lot of inventory and we’re starting to see a normalization almost back to normal in terms of the surgical market. So we’re seeing efficiencies in that inventory and you see, you might assume that we’re being pretty aggressive in terms of wanting to pull up some of that product launch into the first half of this year because we’re starting to drive real efficiencies and see real growth from the inventory that we put out in 2022 and especially 2023. So it’s good to see a lot of that legacy growth come because, obviously we were betting on that when we put out that volume of inventory. I would argue that, we’re obviously seeing, the really the first returns of a lot of inventory of Pega. So still seeing great growth domestically, I think it was about 50% globally. So stronger international, much smaller business for us, but now that we have Pega in all of our agencies and converted to all our distributors, I mean, we do expect to see pretty strong growth from Pega outside of the United States for a long time. I would also say PNP Tibia is performing better than we had expected. Admittedly, I think we’re almost to our annual sales growth number forecast on PNP Tibia through April. So that’s a pretty strong indicator that that product is going to work for us. I think it is also driving a bit of a rebirth in the usage profile of PNP Femur, which is our largest trauma product. So, those things really cranking. Then, I mean, the numbers don’t lie in terms of our ORTHEX growth. The Ex-Fix portfolio has grown ever since we made that acquisition, now what 3.5 years ago and to see 3.5 years later, that business growing at that rate and it’s still really now just starting to catch its stride outside of the United States. We think we’re a top two player in Children’s Hospitals, at least in the U.S. and the Ex-Fix market. So, and all of those things are working for us, and that’s a good momentum as we think about heading into the balance of the year. Last thing, ApiFix is, I think we’re starting to benefit from some better data. We’re going to have longer term and better data going forward. But ApiFix is cranking and, the halo with ApiFix 70 driving response sales. That’s what we’ve been saying for a long time, and I think the beat continues there and as surgeons see as making investments in OPSB, surgeons see us doing the deal with Boston. I think it gives people a sense of permanence for our company. They can trust that we’re going to be around a long time. It also gives people a sense of, wow, these guys are putting their money where their mouth is that they’re very serious about continuing to advance the entire field of pediatric orthopedics. Of course, that creates a big halo across the whole business, not just a few products.
Matthew O’Brien: Got it. Thanks so much.
Operator: Thank you. Our next question comes from the line of Rick Wise with Stifel. Your line is now open. Q – Rick Wise Good morning, gentlemen. A couple of things for me. Very exciting quarter, obviously. But getting into the weeds a little bit. Fred, maybe you can help us talk us through how to think about gross margin progress for the year, sort of from a quarterly perspective. I heard what you said about some of the gross margin, if you will, mixed pressures in the quarter that took it a little lower than we were thinking. The OUS set sales and the purchase price variances, et cetera. Can you help us understand how that plays out over the course of the year? Does it step up sequentially? Are we understanding in the second quarter? Does it step up sequentially in some kind of way that sort of gets it back more to the 74%,75% range? Just help us — by quarter and the implications for the year now.
Fred Hite: Yeah, absolutely. So the gross margin rate really varies a lot based on volume. So over the last many, many years, the third quarter is typically the highest gross margin rate. I think it was like 77% last year. The second quarter is typically the second highest quarter. Then with the first and the fourth quarter revenues being much smaller, obviously, than those two quarters in the middle, the margin is typically a little lower in those quarters. So, yeah, I would expect an increase second quarter compared to first quarter, and then possibly another increased third quarter compared to second quarter.
Rick Wise: So still getting to mid 70s kind of area for the year, despite the start? Or ..
Fred Hite: Yeah [Cross Talk]. I think I mentioned 475 on the call last time.
Rick Wise: Great. Turning to the pipeline, obviously, Dave, you’re talking about really exciting pipeline. I can tell you’re excited about it. Maybe talk to us about a couple of things. Some of the organic product launches in a little more detail, which ones you’d have us focus on most and just a little — a little more sense of timing. You highlighted a couple of them, but maybe dig into a little more. As part of that, why this electromechanical Growing Rod opportunity is such a big deal and what the breakthrough designation might mean for launch expectations. A lot in there, but if you could just break some of that down.
David Bailey: Great. Yeah, sure. So, I think the near term opportunity, right, is with products that we just had launched here, or kind of kicked off in Q3 and Q4. So PNP Tibia, as I mentioned earlier, really doing well. I mean, we have, I don’t know, Fred, 15% of the sets that we’ll have out on PNP Tibia.
Fred Hite: Well maybe 10%.
David Bailey: Maybe 10%. So to see it performing the way it’s performing with a volume of inventory that hasn’t even been launched, I think that’s going to be a story for us. GIRO, certainly a story for us. DF2 on the OPSB side, that was a product that we developed for fracture care for patients really under the age of four. That has been well-received. So those products, kind of the here and now, we’ve got them in our hands, they’re going well. Started doing first cases with, as I said, our first EOS product line. You hear us talking a lot about the EOS space. That represents about 15% of scoliosis procedures, and up until this point, we’ve never had a product in that space. So, three different products, the first of which we talked about the RESPONSE Rib and Pelvic that just launched, and we have sales going on and procedures going on with that. Then this Vertiglide device, which is another very substantial, I think will be a strong revenue producer for us. Hopefully we can get it out — in the second half of this year. And then eLLi, as you mentioned, which is the device that was this Electromechanical Growing Rod, just received breakthrough device designation. I mean, our strategy in the early onset scoliosis space is not to provide the customer with a single solution. Most of the kind of adult ortho or adult spine companies may have a single product line for early onset scoliosis. Again, true to a form, we want to surround the surgeon with everything they could use across that very, very complicated set of indication. So very excited. I think all of that creates, again, a seriousness in our product portfolio that requires the top institutions in the world very seriously, because we would be the only company in the world with that type of portfolio for that really difficult set of circumstances. The FDA, the breakthrough device designation, essentially allows us to have a direct one-on-one with FDA to process the approval of this device. Certainly is no guarantee, Rick, that it gets approved, but based on our testing and based on the capacity to have these one-on-one discussions with FDA and get a very clear sense of what FDA wants to see from us to get this device approved, it gives us a lot of confidence that we’re going to be able to do that. I think it’s the first time in our company’s history, and maybe that’s why I’m personally so excited about this. It’s the first time in our company’s history where we’ve ever had a technology that was deemed so significant to the healthcare of pediatric patients that it got treated this way by the FDA. I think, I can’t imagine a stronger indication of the need profile for a device like this. For those of us who have been around a while, there’s a certain, well, it’s just a realization of some of our dreams to be able to get involved in some, not just shaping kids’ lives or helping kids improve life, but in some of these procedures, these are potentially life-saving surgeries. Again, I just think it’s a real accomplishment for the company. We think within the next year or so, that device can be out and be implanted in children, and that’s a real breakthrough for us.
Rick Wise: That’s exciting. Thanks for all the color.
David Bailey: Thanks, Rick.
Operator: Thank you. Our next question comes from the line of Mike Matson (NYSE:) with Needham & Company. Your line is now open.
Mike Matson: Yeah, thanks. So I wanted to ask about Europe. I think there was some commentary that you’re expecting some new product clearances there. You mentioned an audit or something. Can you just provide a little more detail on what’s happening there? Sounds like it could be meaningful in terms of — the number of new products you’re expecting.
David Bailey: Yeah, great question, Mike. So, basically, you can think about our product portfolio and how it’s developed over the course of the last four years and assume that almost none of those products that we’ve developed, particularly organically, none of those products have hit the European market yet. So, if you just look at the slide deck and see how much we have developed and put out into the US market and certain other markets outside of the US, most of that hasn’t hit Europe, yet we’re still growing very rapidly in the European market. So, you can kind of think of this as really a massive opportunity for us to launch several new brands that are new to Europe. Here we’re at the culmination meeting between the EPOS, the European Pediatric Orthopedic Society, and the Pediatric Society of North America here in DC. I mean, a lot of these surgeons have seen these products. They’ll certainly see them exhibited here, but they haven’t had access to those products, and markets like Germany, UK, Ireland, Italy, France, Spain. So, this is a big deal for us when we can get this approved. We are ready for the EU MDR audit. Our technical files, everything is updated. We’re ready to roll. It’s just a question, frankly, of getting notified body into our offices. They’re backed up with all kinds of these audits. So, as soon as we get that audit done and we will be ready to start launching these products, I’m not certain we can put a date. Is it November or December or early next year? That’s why we’ve kind of said 12 to 15 months. But when it happens, it’s a big deal for us, and I think it represents the launch of almost four or five years of US products into the European market.
Mike Matson: Okay, thanks. Then I know that you don’t really disclose your sort of organic growth, but if we assume that Boston O&P was sort of like $5.5 million, it implies about 24% growth for the non-O&P business. So, it seems like its safe to assume your organic growth was probably over 20%. I mean, is that reasonable?
Fred Hite: I’d say that’s an extremely reasonable assessment, Mike. Yeah.
Mike Matson: Okay. All right. Thank you.
Operator: Thank you. Our next question comes from the line of Dave Turkaly with Citizens JMP. Your line is now open.
Dave Turkaly: Hey, good morning, guys. Sorry, I’ve been bouncing around a little, so I hope I asked something that hasn’t been asked. But, you mentioned, I think, that you’re going to hire some staff for Boston. I was just curious, could you just refresh our memory in terms of the footprint that you have today? And then I think you even said that you think that you could build that to $100 million. What kind of headcount came with them? And how many people do you need to add? And how quickly can you do that?
David Bailey: Yeah. So what we’ve been talking about, Dave, is just the scaling of the sales force. So when we acquired Boston and MD Orthopedics, literally there was no direct sales staff. We had a couple people that were kind of sales managers, and we have some really great folks that have been helpful, kind of one-person teams, really, leading in the United States, and then a few people outside of the United States that have done great for Boston and for particularly MDO. Now we’re trying to get those people and others an actual sales force. So, the aspiration here in 2024 was to have about 20 people added within the sales channel, and we want to partner those people with our current US and international distributors. We don’t want these people to be entirely separate. So, they’d show up on the doorstep of a customer who they don’t know. Obviously we have very close relationships with really every pediatric orthopedic surgeon around the world. So we want to be able to leverage our relationship and the fact that they know OrthoPediatrics and then bring some people into the sales channel that focus exclusively on the non-operative side that aren’t obligated to stand in the operating room and work with surgeons all day long, but certainly can work in their clinics. So that’s what we’re really talking about. We have added, I would say, I don’t know for sure, but I think we’ve probably added the majority of those sales people already. So those costs have started to figure into our P&L already, and obviously we’ve got that forecasted for the balance of the year. As that portfolio expands and clinics expand, and maybe even our business expands further internationally, you could assume that we will want to continue to scale the sales channel. We’ve talked about building a $100 million business here. I think you heard me say in the call, a business well over $100 million, I don’t want to put a number on that right now, but all systems are go here for us to build a very, very large business in this space. We love the financial metrics associated with it, and we see very little resistance to us continuing to do that over the course of the next several years. It’s just, this is a big new TAM with a big new growth opportunity all the way around that should drive really strong top line growth for us for the next several years.
Dave Turkaly: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Sam Brodovsky with Truist Securities. Your line is now open.
Sam Brodovsky: Hey guys, can you hear me okay?
David Bailey: Loud and clear, Sam.
Sam Brodovsky: Great. Thanks for taking the question and congrats on a solid start to the year. I just want to start off a higher level question and appreciate the commentary on where system capacity is back at. Can you just remind us what’s contemplated in guidance as it relates to capacity coming back online and if there’s any sort of backlog component in your estimation out there in the market that could potentially come into volumes this year?
Fred Hite: Yeah, I don’t think we tried to anticipate dramatic increases in capacity in our guidance. So, it’s pretty much what we see today is what we try to use to forecast and include in the guidance. We honestly, other than a little bit of carryover from RSV, December into January, don’t feel that there’s some huge pent up demand that’s going to flow through the system in our guidance either.
Sam Brodovsky: Great, and then switching to EOS, just as we think about that opportunity, how quickly do you think the new products could see uptake there? Is it going to be similar to what we saw with ApiFix where they need to needs to mature a little bit before you can see broader adoption? Or do you think there’s room for that to potentially adopt even more quickly? Thanks.
David Bailey: Yeah, that’s a really good question. So, I think with the EOS, and what’s different about EOS than ApiFix is that the ApiFix surgery, this non-fusion spine surgery is a procedure that not every surgeon does. This is asking surgeons to do something different within their practice that they don’t currently do. The fact remains is that a child with early onset scoliosis, young kid that’s having substantial difficulties, there really isn’t a non-surgical treatment option available. These are procedures that are happening, and surgeons are struggling right now to find adequate technologies to do those procedures, perform those procedures. So, I think technology wins in this space. There’s a great hunger from the pediatric orthopedic community to have technologies that can benefit these kids. A lot of times surgeons are forced to use kind of last resort types of products. So these procedures are happening, and so I think if we have better technology, which we believe we will, and then we can round that technology out with three different products, we think really the three products you would need to take care of this very tough set of indications gives us a real distinct competitive advantage. We do think that the uptick can be really strong with these product lines. Again, I think as much as the uptick in the EOS revenue, it also places the company and, I believe, a fairly prestigious spot in the minds of our customers that say we’re willing to take on the extremely difficult things that the majority of ortho is just not taking on. I mean, these are pretty fairly rare conditions, but they’re very complicated, and surgeons haven’t historically had great partnerships to take care of these kids. So, we think that kind of creates, again, another halo around the business, gives us an opportunity to help more kids, but also probably drive usage profile of the balance of our other products.
Operator: Thank you, and I’m currently showing no further questions at this time. I’d like to hand the call back over to David Bailey for closing remarks.
David Bailey: Thank you. Well, I’d like to thank everybody for joining us today. We’ve got an exciting week here at EPOSNA. I think this will be the largest meeting of the pediatric orthopedic community in history. So we’re excited to get out there and meet with customers, show off what we’ve done, and it’s just no better place to talk about a fantastic quarter for us and all the momentum we have heading into the balance of 2024. So, appreciate everybody being on the call. Great questions, and we’ll look forward to reporting on how things go as we progress. Take care.
Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
