OrthoPediatrics Corp.

Good morning and welcome to the Orthopediatrics Corporation third quarter 2023 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 Tripp Taylor from the Gilmartin Group for a few introductory comments.

Thank you for joining today's call. With me from the company are David 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 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 actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent quarterly report on Form 10-Q, which will be filed with the SEC today. 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 measure to the most directly comparable GAAP financial measure in its earnings release. Please note that the non-GAAP financial measures have limitations of analytical tools and should not be considered in isolation or as substitute for orthopediatrics financials 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 today, November 7th, 2023. 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'd like to turn the call over to David Bailey, President and Chief Executive Officer.

Thanks, Tripp. Good morning, everyone, and thank you for joining us on our third quarter 2023 conference call. As we start all earnings calls, I'd like to begin by highlighting that we helped nearly 22,000 children in the third quarter of 2023, a new record for orthopediatrics. And since inception, we have helped over 692,000 kids. Helping more children remains the best measure of our success. Before I continue, I'd like to acknowledge our 14 OP colleagues in Israel, who regardless of situation, continue to tirelessly support one another and this company through unimaginable time. In the third quarter of 2023, we generated record quarterly revenue of $40 million, representing growth of 14% compared to the third quarter of 2022, and produced a record adjusted EBITDA of $3.6 million. We are proud of the progress we're making, balancing strong revenue growth with improving profitability and continued progress towards achieving cash flow breakeven sooner. Our business continues to grow by taking market share in an environment where children's hospitals' inpatient surgery volumes remain suppressed. As expected, we continue to see incremental staffing and efficiency improvements, yet these factors remain a headwind. During the quarter, we benefited from the diverse nature of our business, as the trauma and deformity in international businesses were very strong, offset by lower growth in scoliosis due to an extremely tough comparable quarter. a decline in international scoliosis revenue due to abnormal ordering patterns from a few large South American distributors, and continued procedural headwinds in a few key U.S. accounts that are easing in Q4. With that said, our October scoliosis performance indicates an extremely positive growth trajectory in Q4 and continued strong performances in T&D and international. We are reiterating our revenue guidance for full year 2023 of $148 to $151 million, representing growth of 21 to 23%. We're raising our full year EBITDA guidance to $4 to $5 million from $3 to $4 million. And we now estimate set deployment of $23 million as we continue to focus on profitability and cash usage. From this rock-solid foundation and continued advancement of our strategy, we expect a similar annual company growth profile in 2024, while we further improve EBITDA and reduce the need for increased set deployment. With a plethora of growth drivers in place, continuing legacy product growth, several new organic product launches, PEGA sales expansion, normalization of international markets, positive long-term Apifix data publication, a newly formed and rapidly expanding specialty bracing business, OPSB, and an early start in digital healthcare, we believe this company is well-positioned for continued success. Importantly, we remain in an extremely strong financial position and are confident that the current balance sheet enables us to execute our long-term strategy without additional equity capital. I would also like to directly address the recent noise resulting from hypothesized market implications from GLP-1 that has impacted the sector's valuations in recent months. Orthopediatrics patients are children, and the conditions we treat are almost entirely acute injuries or congenital conditions. We have not experienced any impact on our current business, nor do we expect any impact to our future market opportunities. Our business is not exposed to downstream GOP impacts. Moving to our revenue segments. In the third quarter of 2023, we generated total trauma and deformity revenue of $28.8 million, representing growth of 21% compared to the prior year period. Revenue growth in the quarter was led by strong performances from Pega Products, Trauma, and OPSB. The quarter saw record Pega product performance with fantastic growth in the U.S. and international growth just beginning. Trauma growth was strong globally, again highlighted by P&P FEMER and cannulated screws, and continued share-taking across the entire portfolio. Sales at Pega remain better than we ever expected, and we anticipate this to persist for a few more months as we deeply penetrate our U.S. accounts with the full Pedeca product portfolio. and complete the transition to our international sales agencies and stocking distribution network, as well as continued relaunch of many of their products which had limited sets deployed. For the first time, international Pega revenue grew significantly in the third quarter, as we have nearly completed all of the distribution transition. We expect this growth to follow the U.S. trajectory and become a major revenue driver internationally in 2024. Beyond the revenue performance, we are excited to have received FDA approval and beta-launched the PMP tibia system, which is a first-of-its-kind pediatric rigid tibial nailing system modeled after our market-leading and largest trauma product, the PMP femur. Initial surgeries have gone extremely well, and several more are scheduled. We expect a full market launch of PMP tibia to start in Q2 of 2024 and continue for many quarters. Throughout 2023, we have seen an increasing number of customers using more of our products as a result of the continued execution of our key account conversion strategy. We have additional new high technology products on the way, and our robust pipeline was strengthened by the Pega acquisition. The T&D business is well positioned to continue to deliver sustainable growth. Further, we believe certain players are placing even less focus on pediatric trauma and limb deformity if not entirely exiting the space in the coming years. This places us in the driver's seat to claim the dominant share position across the next five years. Within the T&D business, our orthopediatrics non-surgical specialty bracing business, or OPSB, continues to perform extremely well. As we mentioned on our Q2 call, we are successfully executing a build aggressively strategy in OPSB. and anticipate it to grow very rapidly in the coming several years. We see many of the same characteristics in the OPSB opportunity that we witnessed when we started OP 17 years ago. There are countless unmet needs and opportunities to innovate, a concentrated customer base who we already service, an opportunity to further support clinical education, and no focused competition. Beyond all of that, it fits with our goal of surrounding our customers with all the products they need to treat children with orthopedic conditions, and it builds further brand loyalty across our entire surgical and non-surgical portfolio. Since the acquisition of MDO in April of 2022, we have been bombarded with new product ideas and partnership opportunities and opportunities for expansion, which we continue to prioritize as part of our strategy. For example, In early Q3, we completed the asset acquisition of Rhino Orthopedics and the Cruiser Brace, a product developed and popularized by legendary pediatric orthopedic surgeons, Drs. Dennis Wenger and Scott Mubarak at Rady Children's Hospital in San Diego. The Cruiser is the first of many new products designed to treat hip disorders in infants and children. Earlier this month, We executed an exclusive distribution agreement with Aura Medical and expect to launch their new product called the Levity in the next few weeks. The Levity device supports patients with cerebral palsy, allowing a one-of-a-kind, hands-free experience that reinforces muscles for optimal walking rehabilitation. Internally, organic product development, both within the MDO team in Iowa and with the orthopediatrics team in Warsaw, has been very productive. After releasing the MDO Move Bar earlier in the second quarter, we recently announced the launch of the Ponseti Plus clubfoot brace and anticipate the launch of Ponseti Lite in the coming weeks. Further, the much-anticipated DF2 femur fracture brace was recently launched through a limited release, and our supplier is currently scaling production capabilities for a full global release in early 2024. Beyond these product launches and partnerships, there will be several more. supporting our thesis that we can build a more capital-efficient $100 million business in this space in the coming years. As we have said previously, OPSB, along with other key products such as Apifix and Orthex, produce very strong returns on capital by requiring low or no confined inventory obligation while generating high revenue. As we grow OPSB, we will see a diminishing need for capital deployment while we bolster our growth prospects. Moving to the scoliosis business. In the third quarter of 2023, we generated revenue of $10.3 million, representing global growth of 3% compared to the prior year period, driven by a continuation of our strategy of promoting the combined strength of Apifix, Response, and 7D placement. Growth in the quarter was lower than normal due to difficult international and domestic comps of 33% and 38% respectively. irregular ordering patterns from a few large international stocking distributors in South America, and continued procedural volume headwinds in a few key U.S. accounts. U.S. scoliosis revenue grew 9%, driven by strong response and Apifix demand and the onboarding of several new first-time users of both products. Surgery schedules strengthened late in the third quarter and has continued into the fourth quarter. Despite difficult third-quarter domestic comps for Apifix, Usage grew both in new users and increased amongst several previous users, but was offset by an ongoing major slowdown from three of our largest sites as those surgeons transitioned to new practice locations and only started performing a few cases in Q3. Based on scheduling visibility, we expect this to largely reverse in the fourth quarter and throughout 2024. Further recent positive publications related to the longer-term performance of the Apifix device are driving more and more surgeons to seek access to Apifix, and we are seeing an increased rate of IRB approval requests from new potential users. Additionally, we expect to see published two-year data from the U.S. registry in the coming quarter. Moving on to international. In the third quarter of 2023, we generated international revenue of $10.6 million compared to $8.4 million the prior year period, delivering 26% growth, led by extremely strong performance with our legacy T&D product, offset by slow scoliosis sales to stocking distributors in South America. We are pleased to see a continuation of the rebound in our international business in the third quarter and expect it to continue into the fourth quarter in 2024. International agency market sales were particularly strong both in trauma and deformity and scoliosis, signaling a normalizing surgical environment. Progress in our German direct sales model continues to track favorably. Additionally, sales of PEGA products materially contributed to international revenue growth in the third quarter as we completed most of the final stocking distributor and agency transition. We believe third quarter growth is just the start for PEGA products internationally and expect to see similar results to that of the U.S. and believes this will be a major tailwind to international growth in the fourth quarter and in 2024. That brings us to surgeon training and education. In the third quarter, the company had strong attendance at several premier surgeon training events. Overall, throughout the quarter, we conducted 70 training sessions and educational programs reaching over 1,200 healthcare professionals. In August, we were a lead supporter of the Baltimore Limb Deformity Conference, which featured five days interactive hands-on labs on complex limb reconstruction using the Orthex external fixation system. Then in September, Orthopediatrics continued its gold-level sponsorship of the Scoliosis Research Society meeting, which took place in Seattle. There, we highlighted the Apifix technology. In October, we announced our strategic partnership with Children's National Hospital under the Alliance for Pediatric Device Innovation. to advance the development and commercialization of medical devices designed for children. OP will serve as the Alliance's strategic advisor and role model for device innovators whose primary focus is children. This coalition of thought leaders will advance all aspects of pediatric medicine for years to come and provide orthopediatrics with exposure to exciting opportunities and technologies beyond trauma, limb deformity, and scoliosis. With that, I'd like to turn the call over to Fred to provide more details on our financial results. Fred?