OrthoPediatrics(KIDS)2024-08-06 18:36Financial Data and Key Metrics - Revenue reached a record 50 million for the first time in company history [6] - Adjusted EBITDA was 2.3 million in Q2 2023 [29] - Gross profit margin increased to 77% in Q2 2024 from 76% in Q2 2023, driven by higher domestic growth and favorable purchase price variance [27] - Total operating expenses increased by 46.5 million in Q2 2024, primarily due to the Boston O&P acquisition and increased commission expenses [27] - The company ended Q2 2024 with 30.9 million in cash, short-term investments, and restricted cash [29] Business Line Performance - Global Trauma and Deformity (T&D) revenue grew 37% YoY to 37.8 million in Q2 2024, driven by strong sales of Pega, PNP Tibia, ExFix, and OPSB products [11][12] - Scoliosis revenue increased 26% YoY to 13.7 million in Q2 2024, led by new users of spinal implants and the addition of Boston O&P revenues [16][17] - Specialty Bracing (OPSB) contributed to growth in both T&D and Scoliosis businesses, with the Boston O&P acquisition driving significant synergies [8][15] - International revenue grew 16% YoY to 11.6 million in Q2 2024, primarily driven by T&D products, partially offset by soft Scoliosis revenue [21][25] Market Performance - Domestic revenue in the US grew 39% YoY to 41.2 million in Q2 2024, driven by T&D, Scoliosis, and OPSB businesses [25] - International growth was strong in Europe and Canada, with new accounts opened in Ireland, the UK, Germany, France, and Canada [22] - The company expects strong international growth for Scoliosis in 2024, with stabilization in ordering patterns from South American partners [21] Strategic Direction and Industry Competition - The company is focused on expanding its product portfolio, including new launches like PNP Tibia and DF2, which are expected to drive growth in the coming years [13][14] - The Pediatric Plating Platform (P3) is expected to launch in H1 2025, further strengthening the company's position in pediatric orthopedics [14] - The OPSB business is a key growth driver, with plans for clinic expansion and new product launches contributing to long-term profitability [15][24] - The company is investing in digital health technologies, including 7D and Firefly, which are expected to drive future growth [66][68] Management Commentary on Operating Environment and Future Outlook - The company is operating in a normalized surgical environment, with improved hospital staffing and minimal disruptions to the summer surgery schedule [6] - Management is bullish on the second half of 2024, with robust case schedules and a stable operating environment [7] - The company expects to generate 8-9 million in adjusted EBITDA in 2024 and anticipates a significant step-up in 2025 [9][33] - The company is targeting cash flow breakeven by 2026, with positive adjusted EBITDA expected to offset investments in 2025 [10][33] Other Important Information - The company plans to host an Investor Day in September 2024 to provide more details on growth initiatives, particularly in the OPSB business [24] - The company recently refinanced its credit facility, securing 5 million was approved, primarily to manage the strike price of the convertible notes [61] Q&A Session Summary Question: Why was the guidance not raised despite strong performance? - The company maintains a conservative approach to guidance, with organic growth estimated at around 18% after excluding the Boston O&P acquisition [36] - Management remains cautious until Q3 results are finalized, despite a robust summer season [36] Question: What is driving confidence in international Scoliosis growth? - Growth in international Scoliosis is expected to stabilize, with strong demand in markets like Canada and the EU, offsetting volatility in South America [37][38] - The company is managing cash positions by controlling set sales to stocking partners in Latin America [40] Question: What is the outlook for the Boston O&P business? - The Boston O&P business is on track to contribute 0.5 million, with expected cash flow positivity within 3-4 months [63][64] - The company is confident in the ROI of clinic expansion, given the high demand from hospitals and surgeons [64] Question: What is the outlook for digital health technologies? - The company is seeing strong adoption of 7D and Firefly technologies, with a robust pipeline of placements expected over the next 12-18 months [66][67] - Additional digital health tools are in development, with beta launches expected in the coming months [68] Question: What is driving the conservative guidance for Q3? - The company is cautious due to potential disruptions from RSV and flu season in Q4, which could impact surgical volumes [71][72] - Despite a strong July, management prefers to remain conservative until Q3 results are finalized [71] Question: How will the company achieve EBITDA growth in 2025? - EBITDA growth will be driven by volume leverage, reduced G&A expenses, and higher contribution margins from the OPSB business [74][75] - The company expects adjusted EBITDA to cover set deployment costs in 2025, moving closer to cash flow breakeven in 2026 [75]