OrthoPediatrics Conference Call Summary Company Overview - **Company**: OrthoPediatrics (NasdaqGM: KIDS) - **Industry**: Pediatric Orthopedics Key Points and Arguments Financial Performance - **Third Quarter Revenue**: Total revenue was $61.2 million, which was below expectations due to two main factors: delays in 7D capital sales and ongoing growth challenges in Latin and South America [6][7] - **Revenue Growth**: Excluding 7D capital sales, global revenue grew by 17%, and domestic revenue grew by 19% compared to the previous year [9][16] - **International Revenue**: Preliminary international revenue was $12.5 million, representing a 6% increase year-over-year [16] Challenges and Adjustments - **7D Capital Sales**: The expected 70 capital sales did not close before the quarter ended, leading to a significant revenue impact. The demand for 7D remains high, but timing and administrative delays in hospitals have created unpredictability [10][11][36] - **Latin America Sales**: Continued challenges in Latin America, particularly in Brazil, have led to a decision to limit new stocking and set sales, negatively impacting growth [12][13][72] - **Revenue Guidance Adjustment**: The company has lowered its full-year revenue guidance to $233.5 million to $234.5 million from a previous range of $237 million to $242 million, reflecting the impact of the aforementioned challenges [13][18] Strategic Focus - **Core Business Strength**: The company emphasizes that its core business segments, including trauma and deformity implants, specialty bracing, and international agencies, continue to show strong growth and higher margins [8][9] - **Long-term Growth Outlook**: OrthoPediatrics has set a long-term revenue growth target of 12% or greater annually, adjusting expectations due to the unpredictability of capital sales and international markets [14][30] - **Free Cash Flow Goals**: The company aims to achieve free cash flow breakeven by 2026, with expectations of positive free cash flow in the first quarter of 2025 [14][19] Market Position and Competitive Advantage - **Product Portfolio**: The broad product portfolio and commercial footprint are seen as key drivers for future growth and market share capture in pediatric orthopedics [8] - **Competitive Landscape**: The competitive environment remains stable, with no significant changes affecting the company’s market position. The 7D unit has gained a competitive advantage by eliminating the need for CT scans, thus offering zero radiation during procedures [52][53] Operational Insights - **Sales Cycle Variability**: The timing of capital sales is described as "lumpy," meaning that delays in sales can significantly impact quarterly revenue, making it difficult to predict future performance [36][47] - **Working Capital Utilization**: The company plans to improve working capital utilization to offset lost revenue and achieve free cash flow profitability without cutting into other performing areas [74] Additional Important Information - **Future Conference Call**: The company plans to provide full third-quarter financial results and additional commentary in a conference call scheduled for October 28, 2025 [20]

Financial Data and Key Metrics Changes - In Q2 2025, worldwide revenue reached $61.1 million, a 16% increase compared to 2024, driven by strong performance across Trauma and Deformity, Scoliosis, and OPSB [26][27] - US revenue was $48.1 million, a 17% increase from 2024, representing 79% of total revenue [26] - International revenue totaled $12.9 million, reflecting a 12% growth compared to 2024, accounting for 21% of total revenue [27] - Gross profit margin decreased to 72% from 77% in 2024, primarily due to higher 7D growth and increased international set sales [28] - Adjusted EBITDA improved to $4.1 million, a 50% increase from $2.6 million in 2024 [32] Business Line Data and Key Metrics Changes - Trauma and Deformity global revenue was $41.7 million, a 10% increase year-over-year, driven by PMP femur, PMP tibia, DF2, and OPSB [27] - Scoliosis global revenue reached $18.5 million, a 35% increase compared to the prior year, driven by increased sales of Response, ApiFix, and 7D Technology [27][28] - The OPSB business grew over 20%, surpassing initial guidance for 2025 territory expansion [14][20] Market Data and Key Metrics Changes - International sales were solid, particularly in Europe and the Middle East, with strong surgical demand [6][23] - The company achieved its first EU MDR approval through LP Canada, which is expected to catalyze future growth [24] Company Strategy and Development Direction - The company is focused on expanding its OPSB strategy through territory expansion, accelerated R&D, and scaling its sales force [14][20] - The 3P pediatric plating platform is expected to enhance market share in trauma and limb deformity, with multiple new systems planned for launch [13][89] - The company is committed to helping more children and significantly growing revenue while improving adjusted EBITDA and reducing cash burn [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong momentum throughout 2025, driven by successful scaling of OPSB and innovative product launches [8][9] - The company raised its revenue guidance for 2025 to a range of $237 million to $242 million, representing year-over-year growth of 16% to 18% [33] Other Important Information - The company hosted 182 unique training experiences for over 3,420 healthcare professionals in Q2 2025 [25] - The company ended Q2 2025 with $72.2 million in cash, short-term investments, and restricted cash [32] Q&A Session Summary Question: Can you discuss the clinic strategy and the performance of existing clinics? - Management noted that existing clinics are seeing growth due to investments made on the sales side, while new Greenfield clinics are contributing to revenue but not yet at maximum volume [39][40] Question: Can you provide insights on the Scoliosis and T&D business growth expectations for the second half of the year? - Management expects Scoliosis growth to remain strong, potentially exceeding overall company growth, while T&D growth may be lighter due to previous quarter comparisons [45] Question: What caused the selective case slowdown in the limb deformity segment? - Management indicated that the volume was lighter in the first part of Q2 but rebounded strongly in June, attributing the fluctuation to normal business ebbs and flows [49][50] Question: How is the international product expansion strategy structured? - Management stated that international growth is expected to outpace US growth, with new product launches planned on a quarterly basis following EU MDR approvals [64][66] Question: What are the expectations for the trauma portfolio and potential product gaps? - Management highlighted the introduction of the 3P system as a significant opportunity to fill gaps in the trauma and deformity market, with plans for multiple system launches over the next few years [88][89]