OrthoPediatrics(US:KIDS)2020-11-08 06:59Financial Data and Key Metrics Changes - Total revenue for Q3 2020 was a record $22.2 million, a 7% increase from $20.7 million in Q3 2019 [42] - U.S. revenue for Q3 2020 was $19.6 million, a 17% increase compared to $16.8 million in the same period last year, representing 88% of total revenue [42] - International revenue for Q3 2020 was $2.6 million, a 34% decrease from $4.0 million in Q3 2019, representing 12% of total revenue [43] - Gross profit for Q3 2020 was $17.6 million, an 11% increase compared to $15.9 million in Q3 2019, with a gross profit margin of 79.4% [49] - Adjusted EBITDA for Q3 2020 was $1.1 million, compared to $0.7 million in Q3 2019 [53] - Net loss from continued operations for Q3 2020 was $4.5 million, compared to a net loss of $2.9 million in Q3 2019 [56] Business Line Data and Key Metrics Changes - Trauma & Deformity sales increased 8% to $15.0 million in Q3 2020 compared to $13.8 million in Q3 2019 [46] - Scoliosis revenue increased 1.3% to $6.6 million in Q3 2020 compared to $6.5 million in Q3 2019 [47] - Sports Medicine & Other revenue grew 56% to $0.7 million in Q3 2020 compared to $0.4 million in Q3 2019 [48] Market Data and Key Metrics Changes - U.S. sales grew 17% year-over-year, with Scoliosis increasing total users by 33% year-to-date compared to Q3 2019 [14] - International sales declined 34% year-over-year, with EMEA sales growing 5% and APAC sales up 7% [17] - Agency sales grew 26% and accounted for half of third quarter international sales [18] Company Strategy and Development Direction - The company aims to maintain market leadership in pediatric orthopedics through innovative product development and selective acquisitions [39][40] - Plans to launch Orthex in Europe with CE Mark in Q1 2021 and continue expanding agency sales [23][61] - The company is focused on converting stocking distributors to sales agencies to enhance revenue and gross margins [34] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about potential deferrals of elective surgeries due to COVID-19 spikes but remains optimistic about U.S. growth [15][59] - The company anticipates continued strong domestic growth in Q4 2020, with international recovery lagging [59][60] - Management highlighted several tailwinds for growth in 2021, including robust ApiFix growth and the launch of individually packaged sterile products [61][63] Other Important Information - The company has maintained financial support for surgical societies during the pandemic, contrasting with other industry sponsors [30] - The company is constructing a new warehouse in Warsaw, expected to be completed in Q1 2021 [37] Q&A Session Summary Question: Thoughts on the extended scoliosis season and its impact on Q4 - Management noted a tail in the summer scoliosis season extending into fall, indicating potential for increased cases in Q4 [71] Question: Interest in individually packed sterile products - The company has been working on this initiative for three years, driven by regulatory demands in Europe [73][74] Question: Expectations for gross margins in 2021 - Management expects gross margins to revert to mid-70s levels in 2021, influenced by stocking distributor purchases [78] Question: Concerns over COVID hotspots affecting domestic procedures - Management is currently not seeing significant impacts domestically but remains cautious about future developments [82] Question: Potential for additional distributor conversions - Management is focused on three major conversions in Europe, with discussions ongoing for additional markets [86] Question: Impact of international business decline and destocking - The majority of the international revenue decline was attributed to a lack of set sales, with agency sales showing growth [90] Question: M&A pipeline outlook - The company plans to digest recent acquisitions before pursuing new major deals, with interest in small bolt-on acquisitions [97] Question: Instrument set deployment expectations - Management anticipates continued rollout of new sets in Q4 and into 2021, focusing on capital-efficient systems [107] Question: ApiFix site approvals and customer base - A mix of existing and new customers are involved in the ApiFix IRB sites, with potential for increased sales through established relationships [110][112]