OrthoPediatrics Corp. Common Stock Canaccord Genuity's 46th Annual Growth Conference
Review the key takeaways and the transcript of this earnings call.
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Good morning, everyone, and thanks for joining us at this year's Canaccord Genuity Growth Conference. My name is Caitlin Roberts, and I am one of the medical device analysts here at Canaccord Genuity. I am pleased to be joined this morning by OrthoPediatrics, a publicly traded medical device company addressing a range of pediatric conditions with a product portfolio spanning deformity and trauma, scoliosis, and specialty bracing. With me today is David Bailey, CEO. Before we begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and our firm website. We will begin with a fireside chat, and I will try to leave a couple of minutes at the end for any questions from the audience.
Maybe starting off with the Q2, Dave, can you walk us through the key takeaways from the quarter and what you want investors to really understand about the business and how it is positioned exiting the first half of the year?
Absolutely. Thank you. Thank you for having us. It has been a great conference, and we have got a busy day today. Certainly, I think Q2, very pleased with a record number of kids helped, record revenue, record EBITDA. I think it really represents a nice inflection point for the business. Certainly, it is also probably the first quarter that we started to see a little bit of impact from our super cycle products, although it is very early there, and you start to see the impact of those super cycle products flowing through the P&L. It is a really good setup for us in H2, because we are targeting further records, certainly from an EBITDA and a cash flow perspective.
I think it sets us up well to achieve our goals of $25 million in adjusted EBITDA this year, as well as positive free cash flow or break even to positive free cash flow on the year.
You beat Q2 expectations, also raised guidance. Anything you want to highlight from a cadence perspective as investors think about the second half?
Just that we have nice momentum. I think we are very early in terms of these new products, so we launched the majority of the 3P Hip System here in the second part, or really the second few weeks of June. We had not seen a lot of impact there. It is likely that we would start to see impact of some of the new product development that we see. Obviously, the cadence of our business, we tend to have very high volumes in the summer when kids are out of school. So we have had a nice summer season so far, good volumes. I think there has been a lot of noise in the marketplace around just patient volumes and reimbursements. We have not seen any macro trends that have really affected the business.
Scheduling was very strong into the summer and extended into July, so it gives us a lot of confidence that we are going to perform really well in the second half of the year and have a great year.
Maybe just turning to NPD. So you have described the current pipeline as the most clinically exciting in company history. Can you elaborate on why this launch cycle is different from prior cycles?
Yeah, great question. I think as we look at these products compared to maybe some of our legacy products, I would argue that they are dramatically more clinically relevant. We have been doing this now for 20 years, and with the relationships we have with the KOLs in the marketplace, I think we are able to take certain development risks maybe that earlier, as we were a smaller company, we were not willing to take. I think some of that development risk has produced some products that are extremely clinically relevant, offering surgeons opportunities to do surgeries in the pedes population that they had not done previously. I think what that is producing for us is generally higher ASP products. When we get higher ASP products, we are getting better asset utilization metrics than our legacy.
We had historically, I think post IPO, talked about a single dollar of sale to every dollar of deployed assets on an annualized basis. Now we are starting to see that in the twos and threes and fours in terms of dollar of sale to dollar of inventory. Certainly clinical relevance, and then we are seeing that flow through P&L with really high margin products that are also improving our free cash flow. That is, again, it is very encouraging and it is very early, so I think this is something that we will be deploying these sets over the course of the next several years. Super cycle is deep, and I think it sets us up really nicely.
Just on that financial point with the newer products carrying higher ASPs, requiring less set deployment, how meaningful could that shift be to the financial profile of the business over time?
Yeah, I think it could be very substantial. I think you are already, again, you are seeing the work that we have put in over the course of the last few years. I think we are really trying to balance the top-line revenue growth with improving EBITDA margin, improving EBITDA, and then ultimately EBITDA margin, and then improving free cash flow. When you think about 2024 using $40 plus million in cash, last year using approximately 15, we have only used eight here in the first half of the year. Generally speaking, we are positive free cash in the second half of the year. I think the proof is in the pudding already that the work we have done over the course of the last 24 to 18 months to get the business where it is now.
Now you start to see what we think are kind of inflection points in terms of very solid revenue growth, 15.5% or so this quarter, with more new sets coming, more new products, OPSB growing extremely rapidly. I think the business is starting to inflect here, and I think it's going to have a positive impact throughout the P&L, and certainly from a cash flow standpoint for the next several years.
And you moved to a fuller launch of 3P Hip and VerteGlide in Q2. Can you just tell us what you're seeing from early adopters and how you expect contribution to ramp in the second half in 2027?
Yeah. So we had just a few sets here for the first half of the year, and certainly the demand for those sets are very high. But it's early. I think the procedures that have been performed with this have been the surgeon feedback has been very strong, both with 3P Hip as well as VerteGlide. I think what's really unique, and it's been part of the strategy, is that if we can deploy these very clinically relevant, highly differentiated systems where there essentially is no threat of substitute. There aren't like products in the children's hospitals for some of these procedures. It has the pull-through effect, a halo effect, if you will, on the other products. I think what we saw so far here in the first half of the year was less impact from those products, although there was some.
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