OrthoPediatrics Corp.

Good morning and welcome to the Orthopediatrics Corporation's second quarter 2021 conference call. At this time, all participants are in a 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 Matt Basco from the Gilmartin Group for a few introductory remarks.

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer, and Fred Haidt, 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 action results may differ materially. For a discussion of risk factors, including, among others, the risks related to COVID-19, the impacts this pandemic may have on the demand of the company's products and the company's ability to respond to the related challenges, I encourage you to review the company's most recent quarterly report on Form 10-Q, which will be filed with the SEC soon. 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 in evaluating its operations period over period. For each non-GAAP financial measures 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, August 5th, 2021, except 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.

Thanks, Matt. Good morning, everyone, and thank you for joining us. We hope you are safe and well. Before providing a business update and reviewing the financials, I'd like to take a moment to say how honored I am to have the opportunity to lead Orthopediatrics Forward. I joined OP more than 14 years ago, just after its founding, and I did so because I felt it was a calling on my life to help children. As I take on this new responsibility, I am humbled by all we've accomplished to improve the lives of children. As you know, Orthopediatrics was founded on the cause of improving the lives of children with orthopedic conditions. Over the years, we have partnered with key opinion leaders in the field of pediatric orthopedic surgery from around the world who share in our dedication to this cause. While we are proud of our accomplishments thus far, there is so much more we can do to ensure that children have access to the best healthcare. We are still very early in our growth story, and Fred and I are excited to build on our past successes. I'd also like to take this time to thank and congratulate Mark Throttle, our new executive chairman, for his commitment to our cause and his service to orthopediatrics over the last 10 years. Mark has been instrumental in building who we are as a company and what we represent. On a personal note, Mark has been an incredible mentor and friend. Thank you, Mark, for your leadership, guidance, and for your continued service. It's also true that there is no one who can match Mark's polished delivery of our prepared remarks on a quarterly earnings call, but Fred and I will do our best. With that said, let me turn to our quarterly results. We are proud to report that we helped a record 10,500 children in the second quarter of 2021, bringing the total number to more than 215,000 since the inception of orthopediatrics. Our team is very proud of this number, which is unusually large for a company of our size. And so we intend to lead off every quarterly call with this statistic, which represents the ultimate measure of our success as a business built on that cause. We are also pleased to report that Orthopediatrics posted record quarterly revenue as our associates continued to execute in this extremely demanding operating environment. In the second quarter, we generated quarterly results of $26.7 million. representing growth of 96% compared to the second quarter of 2020. As a reminder, the prior year quarter was significantly impacted by COVID-19. This robust growth was driven by all three businesses, strength in the domestic market, and improved trends in international markets. Achieving this milestone is a testament to the fundamental strength of our business and the resiliency of our team. In the second quarter of 2021, U.S. revenue was $21.7 million, a 79% increase from the second quarter of 2020. We believe that pediatric orthopedic clinic visits and surgery volumes in the U.S. have largely normalized at pre-COVID levels, and surgeons appear to have worked through much of the backlog. We generated international revenues of $5 million, up 243% as compared to the second quarter of 2020. While we are pleased with our performance in the quarter, unlike the U.S. market, international continue to be negatively impacted by COVID, leading to increased variability quarter to quarter. Additionally, while we believe U.S. surgeons have worked through their backlog of cases, it is our belief that most international markets will take at least 12 months to work through their backlog. Lastly, a leading indicator for us has always been set deployment by international stocking distributors. In aggregate, their set purchases still remain below 2019 levels. I'll now provide an update on our strategic initiatives. Since becoming a public company nearly four years ago, we have methodically strengthened our ability to deliver durable, long-term, double-digit revenue growth, which is consistent with our track record over the past decade. Moving forward, our corporate strategy will not change. Our focus will remain on five pillars of growth, which include, number one, focusing on high-volume children's hospitals and academic centers around the world that treat the majority of pediatric patients. Number two, surrounding pediatric orthopedic surgeons with a broad product portfolio uniquely designed to treat children. Number three, deploying instrument sets and sales personnel to meet the strong market demand. Number four, expanding the addressable market and meeting unmet needs through aggressive investment in R&D and select M&A opportunities. And finally, number five, expanding our already robust clinical education program to train and support the next generation of pediatric orthopedic surgeons. Our strategy is simple and proven, and it will allow us to continue to execute in a disciplined manner. Going forward, we see no reason to deviate from the formula that has produced consistent annual growth in excess of 20% since our founding. With respect to our continued product portfolio expansion, in May we announced the launch of the Response Neuromuscular, or Response NM, scoliosis system. This represents the 36th surgical system orthopediatrics has launched since its inception and is the latest addition to the response scoliosis platform. This new system is dedicated to the treatment of neuromuscular scoliosis and was developed in conjunction with pediatric orthopedic surgeons to address the unique challenges treating this challenging patient population. Building on the base of the response spine system, response neuromuscular features a complete set of implants and instruments that help simplify these extremely complex spinal procedures. Response Neuromuscular provides specific options to address extreme hyperlordosis and sacral pelvic fixation. The product was also designed with specific instrumentation to improve the speed of these procedures, provide greater deformity correction and stability, and thus optimize outcomes. While still early in its commercial launch, the reception from our key customers has been very positive. Additionally, in mid-June, we announced the full commercial release of our SCIFI cannulated screw system. This system was designed in collaboration with pediatric orthopedic surgeons as a solution for treating traumatic slipped capitol femoral epiphysis. Specifically, this system offers flexibility to treat SCIFI injuries with fully threaded and partially threaded screws. Unlike other systems on the market, Our fully threaded Skiffy screws are available in 2mm increments, providing the surgeon with more options to properly treat a wide range of pediatric patients instead of simply making do with what's available. The screws also incorporate unique features that help surgeons remove the implant more effectively. We now offer cannulated screws ranging from sizes 2.5mm to 7.3mm with various thread lengths to service virtually all the needs of a pediatric orthopedic surgeon. Within our trauma and deformity business, we continue to roll out our Orthex external fixation systems in the EMEA region, leading to our first cases in the major markets of Germany and the UK. We continue to expect that the Orthex EMEA launch to have a positive impact on 2021, similar to what we'd seen in Canada, Australia, and Brazil. Additionally, Orthex was recognized in its first clinical publication from British Columbia Children's Hospital in Vancouver, Canada. This paper highlighted the ability of Orthex to significantly reduce infection rates, leading to improved patient outcomes at a lower cost. Lastly, we finalized the settlement agreement with K2M Stryker, which has been an issue outstanding for the past four years. This settlement saves us from incurring considerable legal expenses and being exposed to risk in the future. Transitioning to our game-changing Apathix technology, In the second quarter, we continued to initiate clinical sites participating in the post-approval study, or PAS registry, and subsequently added new Apifix users. We now have 17 U.S. clinical locations with both required IRB approvals, enabling those locations to enroll patients in the registry. We expect the remaining three registry sites to receive their final approvals in the next few months, putting us at full strength. To date, 75 of the target 200 registry cases have been completed with an additional 20 cases approved or scheduled for surgery. While it is still early days, the clinical sites are delighted by the outcomes we've seen so far. With our first U.S. patient past her one-year follow-up this past June, and more than 25 patients at least six months past their surgery dates, we have had zero reported device-related complications and no reoperations or revisions. It's important to note that we have continued to experience COVID-related delays to IRB approvals at our 20 sites, which have impacted the pace of scheduling. Furthermore, as one might expect with a game-changing technology, many of the registry sites have also taken a very conservative approach to patient selection and scheduling. Given these two dynamics, we expect to meet our 200 registration target early next year. Due to Apifix's early clinical success, as well as patient, family, and surgeon demand, a parallel commercial release of the APOFIX system is being initiated prior to the actual completion of the first 200 planned cases for the PAS registry. We intend to start onboarding the next 10 to 20 commercial sites in the second half of 2021, of which six already have the single IRB approval required by the humanitarian device exemption and are in the process of training, patient selection, and scheduling of cases. These new commercial sites will not have to contend with the second IRB approval and the burden of the PAS registry requirements. Now turning to set deployment and Salesforce development. In the second quarter, we continued to execute our strategy of set deployment. Specifically, $4 million of sets were consigned in Q2 of 2021 compared to $5.8 million in the second quarter of 2020. Year-to-date 2021, we have deployed 9.4 million compared to 9.1 million in the first half of 2020. We anticipate 13 million to 15 million of set deployments in 2021, a somewhat lower number from recent years because of the significant lower cost and greater return on investment of Apophix and Orthex instrumentation sets. In the second quarter, we grew our domestic sales organization headcount to 182 sales reps, compared to 164 in the second quarter of 2020, with five new reps hired during the second quarter of 2021. Further recruitment efforts are now underway by many of our domestic sales partners, underscoring their confidence in the recovery of our business. As the U.S. market continues to normalize, we expect an increased number of sales associates will be added over the coming year. Outside of the United States, we are selling our products in 45 countries through 42 stocking distributors in 33 countries, and in 14 agencies in 13 countries. After the major conversion of Germany, Austria, and Switzerland announced earlier this year, we continue to work on several smaller agency conversions, which may be announced before the end of the year. On the M&A front, we also continue to work on several interesting projects, but we are very pleased to announce recently the important extension of our distribution agreement with Mighty Oak Medical, which secures our Firefly patient-specific 3D-printed pedicle screw guide franchise in the future, while also enabling us to evaluate navigation technologies from other sources. Lastly, turning to clinical education and sales initiatives. We remain focused on investing resources to train and support our surgeon partners. In May, we attended the Pediatric Orthopedic Society of North America, or POSNA meeting, annual meeting in Dallas. As a double diamond sponsor, we provided ongoing support of a subspecialty day symposia and awarded eight scholarships for residents and fellows to attend the meeting. We are proud of our ongoing partnership with POSNA and supporting pediatric orthopedic surgical societies. Another highlight in the quarter was our return to live clinical education events, hosting an external fixation education seminar this past June in Dallas. Our expert surgeon faculty hosted attendees from around the United States in lectures, discussions, and hands-on sessions highlighting external fixation and the orthics system. Feedback from the surgeon attendees was overwhelmingly positive, and 100% of survey respondents stated, that they were likely or very likely to recommend this course to their colleagues. Additionally, in the second quarter, our field sales force conducted more than 75 clinical and product education sessions with residents, fellows, attendings, and hospital staff members. These sessions are critical for the efficient and effective use of orthopediatrics products in the operating room. As a market leader, we believe it is integral to our mission to partner with pediatric orthopedic surgeons in advancing the entire field of pediatric orthopedics, not just selling more of our product. Our commitment to clinical education initiatives fosters collaboration and stronger partnerships with surgeons, thus furthering this mutual objective. As we look ahead, I am proud of how much our team has achieved since I joined Orthopediatrics. We have built a strong business that delivers growth from innovative, differentiated products that improve children's lives. We are pleased with our track record of sustained double-digit revenue growth, but we are still in the very early innings of penetrating this large underserved market. As we continue to execute our proven growth strategy, we remain confident in our ability to deliver and, in fact, accelerate growth and help the lives of more kids worldwide. With that, I'll turn the call over to Fred to provide more detail on our financial results. Fred?