OrthoPediatrics Corp.

Corporation third quarter 2021 earnings 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 Baxo from the Gil Martin Group for a few introductory comments.

Thank you for joining today's call. With me from the company are Dave Bailey, President and Chief Executive Officer, and Fred Height, Chief Operating and Financial Officer. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meanings 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, 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 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 to the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, November 4th, 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 review of the financials, I'd like to highlight that we helped approximately 10,400 children in the third quarter of 2021. bringing the total number to more than 226,000 since the inception of Orthopediatrics. Doing the right thing for children remains our top priority. Consistent with our pre-announcement on October 13th, we generated quarterly revenues of $25.1 million, representing growth of 13% compared to third quarter of 2020. Before commenting on each business segment, I wanted to address three key topics that have a broad scale impact across the medical device industry. First, being COVID. While pleased with our mid-teens growth rate in the third quarter, it is important to point out that the recent spike in Delta variant cases impacted children more than any other period during the pandemic, thus negatively impacting elective procedural volumes. Secondly, we also saw the impact from hospital staffing shortages and increased cases of RSV, which in recent months have increased dramatically. In September alone, the impact of COVID, RSV, and staffing shortages generated our largest number of canceled procedures since April of 2020. While all of these factors negatively impacted elective procedure volumes in the quarter, we view them as transitory in nature. That said, we believe the demand curve to recapture backlog cases will be flattened this cycle as parents wait for COVID infection rates to decline before revisiting clinics for diagnostic evaluations and staff shortage at hospitals reducing capacity. Given this dynamic, we do not expect to recapture the entire Q3 backlog until early 2022. Lastly, the disruption associated with the global supply chain so far has had little to no impact on our company. We are proud to say that we source approximately 98% of all materials and inventory domestically, which significantly reduces our exposure to global supply contracts. Moving to our revenue segments. In the third quarter of 2021, we generated quarterly trauma and deformity revenue of $16.8 million, representing growth of 12% compared to prior year period. Growth was primarily driven by a strong international recovery, continued trauma growth, as well as PNP and cannulated screw growth as a result of ongoing investments in set deployments. Due to a reduction in elective procedures in the third quarter from increased COVID and RSV hospitalizations in children and staffing shortages, deformity revenues declined on a sequential basis. Although it was an unfavorable environment for elective procedures, we continued to expand the number of active users using Orth-X and other deformity correction systems. In the third quarter of 2021, we generated quarterly scoliosis revenue of $7.3 million, representing growth of 11% compared to the prior year period. International revenue was the primary growth driver in the quarter, while domestic environmental headwinds mentioned previously negatively impacted elective procedures in the third quarter. Specifically, our international business generated sales of $5.7 million, an increase of 118% compared to the third quarter of 2020. Growth in the quarter was primarily driven by recovery and procedural volumes in EMEA and South America, improving agency sales, and increased set purchases from stocking distributors. Additionally, in the third quarter of 2021, we sold the largest number of international instrument sets in the last 18 months. While international procedure volumes have lagged the U.S. recovery, We believe increased set purchasing is a positive catalyst and gives us confidence in a more sustainable recovery over the immediate term as COVID headwinds continue to dissipate. I will now provide an update on our key initiatives, which we have compared to five strategic pillars, focusing on high-volume children's hospitals, product portfolio expansion, set deployment and sales expansion, strategic partnerships, and clinical education. There was substantial progress on several of these initiatives during Q3, starting with strategic partnerships. In the third quarter, we announced distribution agreements on two enabling technologies. In September, we executed an exclusive distribution arrangement with C-SPINE for the 7D surgical flash interoperative navigation platform for pediatric applications. This five-year agreement enables OP to provide children's hospitals with a unique market-leading navigation solution that we believe is ideal for children. Over the last few years, there has been an increased rate of adoption of interoperative navigation in children's hospitals, primarily for scoliosis surgery, and we expect that trend to continue. During that time, we evaluated different navigation solutions and also successfully launched the Mighty Oak Medical Firefly patient-specific navigation guides, In the end, we determined that the combination of the Firefly and 7D products would offer our customers two radiation-free solutions that we believe are the safest and most accurate options for children. The 7D flash navigation system is the only approved image guidance system that utilizes novel and proprietary camera-based technology and machine vision algorithms. The system uses only visible light, reducing radiation exposure by eliminating intraoperative CT and fluoroscopy for purposes of registration, both of which are commonly used with other technologies. This results in a registration workflow that takes just seconds and allows surgeons to control the system within the sterile field. Our continued commitment to enabling technology is also demonstrated by the recent extension of our distribution agreement with Mighty Oak Medical to sell its Firefly patient-specific technology as part of our strategy to offer a unique suite of enabling technologies that complement our surgical system. Transitioning to Apifix. In the third quarter, we added an additional clinical site in the post-approval study registry and subsequently added new Apifix users. We now have 18 U.S. clinical locations that have both required IRB approvals, enabling those locations to enroll patients in the registry. We have, however, strategically pivoted away from adding additional clinical sites and focused on securing the next 10 to 20 commercial sites. While the patient registry is extremely important from a data collection perspective, it is now independent of our broader commercial launch plans in 2022. We conducted three major in-person sales training courses in the third quarter, with upcoming surgeon training courses scheduled. We have identified numerous non-registry sites, completed initial commercial cases, and booked additional cases in the fourth quarter. Turning to clinical education. In early August, we were a diamond sponsor of the Baltimore limb deformity course, where several Orth-X training sessions were conducted, which led to multiple surgeon conversions, Additionally, in October, we continued our leading sponsorship of other key educational events, including the annual SRS, or Scoliosis Research Society, meeting in St. Louis, and the sixth annual Pediatric Orthopedic Surgical Techniques, or POST course. I am proud to say that orthopediatrics was the originator and continues to be the leading supporter of the POST course since its inception in 2016. This CME course focuses on senior residents, fellows, and early career surgeons to provide training in a variety of pediatric orthopedic surgical techniques through both didactic instruction and hands-on labs led by pediatric orthopedic surgeons from prominent US pediatric hospitals. We believe our efforts address an unmet need for surgical training, which has a direct and positive impact on this subspecialty. We look forward to supporting physicians at all career levels and driving superior outcomes. The timing of the SRS conference lined up perfectly with our recent 7D partnership announcement. We were able to showcase this technology to interested surgeons, and many who saw demos were deeply impressed by the navigation system and its synergistic application to our broad product portfolio. While only a few months into the strategic partnership, this early excitement gives us confidence we will be able to drive robust surgeon adoption. In addition, we hosted our first Apifix user group at SRS, which was well attended by surgeons both from institutions in the registry and outside. The user group was conducted by renowned surgeons from Children's Healthcare of Atlanta, Dayton Children's Hospital, and Sanford University. Lastly, we were fortunate to have Dr. Jeffrey Haft of Sanford University lead a live Apifix webinar with approximately 30 surgeons registered. 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. In summary, we are pleased with our resilient mid-teens growth in the third quarter and view the factors which negatively impacted elective procedures in August and September to be transitory in nature. While we cannot control COVID and RSV, we are taking action and making the investments to ensure our long-term success as the market leader in pediatric orthopedics. In the next few quarters, we expect to recapture COVID backlog cases which ultimately gives us confidence to reiterate our 2021 revenue guidance range of $97 to $101 million. With that, I'll turn the call over to Fred to provide more details on our financial results. Fred? Great. Thanks, Dave.