OrthoPediatrics Corp.

Hello and welcome to Orthopediatrics Corporation fourth quarter and full year 2024 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. Please go ahead.

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 upcoming annual report on Form 10-K, which will be filed with the SEC on March 5, 2025. 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 as analytical tools and should not be considered in isolation or as 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 today, March 4th, 2025. 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 fourth quarter 2024 conference call. As always, I'd like to start by reporting the metric which most clearly defines our continued success and in which we are most proud. During the fourth quarter, we helped more than 34,000 kids and over 138,000 kids in the full year, both record highs for orthopediatrics. Now having completed our 18th year at Orthopediatrics and having helped over 1,140,000 kids, my associates and I recognize the positive impact our company has had on so many children and their families. And we take our responsibility very seriously. Our customers and all healthcare providers in the pediatric space have been forced to make do with less than ideal options for children. And we will do everything in our power to right that wrong. While 18 years have passed since our inception, In many ways, OP is just getting started, and our resolve to be a company that eventually helps 1 million kids every year has never been greater. During our journey, we have established Orthopediatrics as the clear-cut market leader in pediatric orthopedic implants, and we anticipate our continued execution will lead to a dominant market share position in trauma and deformity correction and scoliosis implants in the coming five years. In the last few years, we have established ourselves as a leader in pediatric specialty bracing with our OPSB franchise. On top of deepening our commitment to the field and meeting more of the needs of our customers, this expansion of our business enables orthopediatrics to grow in a more capital-efficient way. In the coming several years, we plan to execute our clear-cut strategy to obtain market dominance in this very large $500 million marketplace. Given the OPSB business is generating a higher contribution margin than our implant business, these investments will enable us to generate increased EBITDA and improve cash flows. Every day, every quarter, every year, we become more ingrained in the children's hospital by growing our market share and displacing the retreating incumbent competition and living out our near fanatical commitment to doing what is right for children and their caregivers. We demonstrate this commitment by delivering new products and technologies that meet major unmet needs, providing unparalleled customer service through the world's only global sales channel in pediatric orthopedics, and through a network of dedicated pediatric-specific orthotists and prosthetists, by our outsized support for surgeon clinical education and training, and to put it simply, investing in important things that our customers care about and that impact the field of pediatrics. When you look at the success of our company across our 18-year history, our ability to execute on our commitments, our consistent track record of sales growth through share-taking, deliberate step function improvements in adjusted EBITDA laying a clear path to free cash flow break-even in 2026, and more recently, our record performance in 2024, we believe our market valuation is entirely inconsistent with the company's performance. We recognize as a public company, certain metrics and external macro dynamics will always be scrutinized, but we believe the fundamentals of our business have never been stronger. Regardless of the quarter to quarter gyrations and variations that can impact valuations for companies like ours, the unshakable truth is that Orthopediatrics has carved out a unique position in the public growth med tech sector. Unlike other med tech companies, we are not in a bare knuckle struggle against focused competition which gives us confidence in our growth trajectory while allowing us to leverage our P&L, and soon we will produce free cash flow positivity. Therefore, we will continue to be aggressive and execute our strategy on our way to helping 1 million kids per year and creating substantial shareholder value. To this point, throughout the year, and again in the fourth quarter, we have successfully delivered positive results. we've produced extremely strong total revenue of $52.7 million, representing 40% growth from the comparable period. We saw quarterly growth in both T&D and scoliosis with 35% and 62% growth respectively, led by domestic strength with quarterly growth of 52% from a particularly robust performance from domestic T&D, as well as the addition of Boston O&P. Our international growth was impacted by our decision to slow-set sales shipments to South America, specifically Brazil, in order to reduce AR balances negatively affected by rapid currency fluctuations. However, we still saw extremely strong EMEA T&D growth due to high demand, and OUS scoliosis growth was great despite challenges in Brazil. With extremely significant revenue growth, and more than doubling our adjusted EBITDA during the fourth quarter of 2024, we improved our financial profile and took another step towards free cash flow breakeven in 2026. All of our businesses continue to grow rapidly entirely from share taking due to continued demand for our products, large scale set deployments in 2023 and 2024, major new products, successfully scaling of our past acquisitions such as Orthex, Apifix, and Pega Medical, and the more recent launch of OPSB and the acquisition and full integration of Boston OMP. With all of these levers in place, we are confident we will continue to reach new highs and deliver important results for orthopediatrics. We expect our business to continue this momentum, and our success in 2025 and beyond is driven by three main factors. Execution and scaling of OPSB, share-taking across the business by leveraging prior set deployments, and ongoing success of our innovative product launches. This year, we expect to generate revenue of $235 to $242 million, representing annual growth of 15% to 18% as we lap the Boston O&P acquisition. Importantly, we also expect adjusted EBITDA of $15 to $17 million to be greater than $15 million of set deployments in 2025. We also expect to have our first quarter of positive free cash flow in the fourth quarter of 2025. In the fourth quarter of 2024, the T&D business continued to drive significant market share gains across several products, as well as the addition of Boston O&P revenue. This quarter's performance was highlighted by both trauma and OPSB products, including P&P Tibia, DF2, Canulated Screws, and Boston O&P sales. We continue to leverage our prior set deployments, which are driving increasing share gains for trauma and deformity across the breadth of our products. U.S. trauma and deformity was extremely strong, and in fact, U.S. trauma is likely as robust as we have ever seen it in company history. Mainly attributable to set deployments in 2023 and 2024 and the more rapid adoption of our new products, In addition, during the quarter, several sets of PMP tibia were launched, and we expect this will remain an important growth driver for the next several years. DF2 demand is now far exceeding our expectation and is quickly setting a new gold standard for femur fracture management in young children. DF2 recently received expanded indications for postoperative care, which we believe is a much larger market than the femur fracture market. All of this has created the need for expanding our supply chain to meet exploding demand. On the R&D front, we're excited about our projects on the surgical side of our T&D business. Our pediatric plating platform, or 3P, a world-class system with significant opportunity to fill unmet needs, is progressing according to plan, and we anticipate a beta launch of 3P HIP. Once launched, 3P HIP will spawn further share-taking opportunities for us within the plating franchise. Overall, T&D continues to be a solid performer for us as we leverage our scale, capture market share, and bring new products to market that fill unmet needs and drive continued growth across the board. As for the non-surgical specialty bracing business, or OPSB, from the start, we have been very bullish about this franchise, which represents a large new source of capital-friendly growth. Following the successful integration of Boston O&P, we are very pleased to see our strategic rationale validated and playing out as we expected, maybe even better than we expected. As previously announced, we expanded our clinic business for both Greenfield Expansion in Indianapolis and Aquahire in Florida and Colorado. The opportunities for clinic expansion are immense. The demand from our customers is high, and our funnel for clinic expansion is very large. The standup of the early expansion clinics is going well in providing a reproducible playbook that represents a substantial growth lever with significant runway. We are pleased with how we are tracking to our guidance for four new territories in 2025 and expect that there will be more updates on this front throughout the year. On the product side of OPSB, and as previously mentioned, we are experiencing rapid growth of our DF2 femur fracture brace, which is growing so rapidly that we are seeking additional manufacturing sources so that we can meet current and future demand. Beyond that, our OPSB R&D team launched multiple products such as a new scoliosis brace sensor with patient compliance software and additional DF2 sizes as we extend its use beyond fracture management. And we signed distribution and licensing agreements for the Move D brace to minimize tremors developed at Children's Hospital of Orange County. And the Thrive product portfolio, including Thrive Orthopedics F3 Hero Pediatric AFO, the True Stretch Pediatric Aquinas Brace, and the Thrive Pediatric X-Glide Carbon Fiber Insoles, all focused on three unique pediatric orthotic conditions. These solutions are more evident, supporting our thesis that OPSB can become the clearinghouse for specialty bracing products specifically designed for kids. Further, the pipeline of new opportunities coming on the business development side of OPSB is really ramping. We are certainly attracting entrepreneurs and inventors with new product lines and technologies that they desire to scale globally through our growing sales channel and clinic network. This is coming in licensing, distributing, and in some cases, small acquisition opportunities that will continue to allow us to leverage our channel, thus growing revenue and adding profit. We are building a flywheel. At this point, it is small and it's spinning very fast. But with scale comes increasing momentum, and we are very confident our flywheel will become quite large in the coming years. We recognize the huge potential within OPSB to drive our patient impact potential for treating more patients with capital-efficient growth. And early traction within our strategy suggests that we are on track with our plans to execute through the remainder of 2025 and for several years beyond. Moving to the Scoliosis business. Our strong growth seen in Scoliosis this quarter was driven by continued share gain combined with new users from large accounts. We anticipate that this trend will continue into 2025. As we increase our volume, we expect to reap the benefits of the new user acceleration from late 2024. To highlight a few key products, we continue to see strong growth in our ResponseFusion franchise from new customer acquisition. We saw additional 7D placements in the fourth quarter in large institutions and the continued introduction of our first EOS product, Response Ribbon Pelvin. We have a substantial opportunity to grow scoliosis revenue over the next three to five years. Additionally, we are seeing a consistent stream of new Apifix users and growth that only continues to pick up. More users are learning where Apifix fits in their treatment algorithms. This supports our vision that eventually, Apifix will be a tool used by almost every pediatric scoliosis surgeon. While still relatively small, we expect Apifix to continue to grow rapidly in 2025 as more surgeons better understand the best use case for the device in their practices. Looking at our EOS products, our EOS product portfolio development remains on track, and we are directly discussing the requirements for product approvals for Ellie and VertiGlide with the FDA. We have been working on confirming the regulatory path, and recently we've had encouraging feedback from the FDA. The most recent discussions have led us to believe that there is a higher likelihood that VertiGlide will be approved in the U.S. sooner than expected and under 510K clearance. Moving on to international. In the quarter, we saw slower international sales, generating revenue of $9.8 million and delivering 5% growth year over year. Despite significant international demand, we made a conscious decision to limit additional stocking order shipments to certain stocking distributors in order to stimulate timely receivables collections, which had been negatively affected by the rising dollar against South American currency. Trauma and deformity implants were most affected by the shipping holds in South America, while scoliosis delivered very nice growth year over year. That said, general demand across the entire T&D and scoliosis portfolio was healthy. especially in our agency market, where we saw strong sales growth. In fact, non-LATAM T&D growth exceeded 20% and Scoliosis grew nearly 30%, highlighting the extremely compelling underlying demand. International Scoliosis performed well due to solid revenue in our direct markets, where we are seeing new users come on board. We are very happy with the progress made in 2024, launching the Scoliosis business in the EU. and expect that with the anticipated EU MDR approvals, our EU spine franchise is set for high growth in the future. As we look ahead, EU MDR approval remains a large catalyst for our growth in 2025 and beyond. And we are confident that we are well positioned for approvals. We are awaiting the notified body audit to finalize our EU MDR status, which we expect to be completed in mid 2025. And once we receive our first, We will launch a wave of products into the EU and then expect additional waves as further approvals are accomplished over the next 18 months. I want to point out that the EU MDR approval for implants is an expensive process, but we believe it is the right thing to do for kids who need these devices outside of the United States, and it strengthens our strategic position. Additionally, we are exploring further expansion opportunities for OPSB outside the U.S. in 2025, which comes with a light touch and quick turnaround when it comes to regulatory approvals. Overall, the international business is set up nicely, and we believe the remainder of the year will contribute toward a healthy 2025. Finally, this brings us to surgeon training and education. In the fourth quarter, we hosted 132 unique training experiences for over 2,700 healthcare professionals, including during IPOS, the International Pediatric Orthopedic Symposium, where Orthopediatrics continued our leadership position as an Emerald-level sponsor. Once again, our team was well-represented and connected with customers to share hands-on learning experiences with our new and innovative products. We were excited that through our booths and our educational events, we were able to introduce our new enabling technology division, as well as highlight all the great work we are doing in non-operative care through OP specialty bracing. Our time at events like this is incredibly important as we prioritize providing clinical education opportunities to grow alongside the pediatric orthopedic community. So with that, I'd like to turn the call over to Fred to provide more detail on our financial results.