OrthoPediatrics Stifel 2026 Healthcare Conference

Hello again. Welcome to our next presentation. My name is Rick Wise. I am delighted to welcome Dave Bailey, President and Chief Executive Officer of OrthoPediatrics, stock symbol KIDS, and Joe Hauser, to Dave's left, President of the Trauma, Deformity Correction, and OPSB business. OPSB, the fastest-growing division at OrthoPediatrics. Very impressive. I will say, these last three quarters, just 20% plus, Joe. Good job. With that. Dave, seriously, I want to start today both in focus, both near term and longer term. Let us just start off with your truly excellent third quarter results, and not just the setup for the fourth quarter, but as a staging point for 2027. The quarter was excellent, better than expected sales growth, positive adjusted EBITDA, and free cash flow, very solid directionally. All key goals for you and the team.

Am I overstating it, or was that your reaction as well?

No, I think the quarter was fantastic. The quarter before was very, very strong as well, particularly if you take the 7D and some of the headwinds that we have had in Brazil. I think the organic side of that business, minus some of those one-times, grew really, really rapidly in the second quarter. The year, now we come more towards the close, but if you look at how the company has performed across the entirety of the year, it performed really well. I think what I am most pleased with is it is very balanced, and Q3 was extremely balanced.

Yeah. Obviously, 19% growth, very, very strong, but it was not from any big one-time sales.

It was across all the businesses. Trauma, Deformity Correction performed really well. Scoliosis performed really well. The international business performed really well, and obviously, the rock star here, Joe, in the OPSB franchise growing north of 20%. All the businesses performing really well. The EBITDA was a record for us. We still have some work to do to continue to see that EBITDA growth, and continue to get leverage, and then to generate positive free cash flow in Q3. As you know, we generated for the first time in Q4 last year, $10 million in positive FCF, and had drastically reduced our cash usage from 2024 to 2025, committed to 2026 break-even from an FCF standpoint.

I think given that we did $10 million in fourth quarter of last year, we're a good setup here to generate at least $6 million in Q4 and get to our goal that we've stated now for the last few years, and been quite methodical about that. I'm very pleased to see the way the business has grown, and I think it's partially because of the new products, but also just really strong use of our legacy products and pull-through from a lot of those legacy products because of some of the Super Cycle products. I think it sets us up really well for 2027 and beyond as well.

Just not to dwell on the fourth quarter, but it feels like the business obviously is strong, but momentum is positive heading into the fourth quarter. I know that not like every medical device company, maybe third quarter is often a little stronger period for a variety of reasons than the fourth. But my numbers to get to, like in rough numbers, $69 million in the fourth quarter, that's a 5% sequential deceleration. Is that the right way to think about it? Are you feeling I don't know how to ask about it, but the business itself, the tone, the new product uptake, things are going along pretty smoothly.

Yeah, I mean, overall, if you just look at the seasonality of our business, Q4 is generally weaker than Q3 and weaker than Q2. Kids are out of school in the summer, so they're getting braces fitted, they're having scoliosis procedures. A lot of our high ASP, most complicated procedures occur during the summer months. We had a very, very robust summer. So it's rational to think that the seasonality would follow suit like it's followed for the last several years. Some of that seasonality gets offset as the OPSB business grows because of deductibles and people trying to get their bracing taken care of into the fourth quarter. But we still think seasonality is a rational way to forecast the business. We're going to continue to be relatively conservative in our guide.

Not giving guide, I know you'll ask, but not giving guide for 2027, but I think you can expect us to hew to what's worked here and not get in front of ourselves. We also have a 7D comp in Q4, and as you know, we've tried to eliminate most of the 7D sales out of our guide. We can't exactly determine when those units are going to come through. We did have a pretty strong Q4 last year.

of 7D, and we also continue to limit set sales to partners in Latin America because it is balancing. We want to get our AR balance up there, and it is a focus on profitable sales that are contributing to positive free cash as opposed to potentially slowing us down in terms of our goal of generating positive free cash.

You have signaled previously expectations for OUS growth to exceed the U.S. in coming years after some of the moves you have made in recent years, and yet the third quarter U.S. was faster. Fourth quarter, I mean, I realize there are some headwinds, or cross-currents, if you will, but with the product Super Cycle uptake initially so strong, and we are going to talk more about it in a second, is that the right way to think about the growth outlook now?

Yeah, I think we are under-penetrated internationally. Obviously, we started in the U.S. much earlier. We have more of our focus in the U.S., and we have some headwinds. Certainly with some of our stocking distributors, we are just not offering the kind of payment terms that we had in the past.

Right. We still have headwinds, particularly in Brazil, particularly in LATAM.

We are facing some tough comps where we have sold sets in the past. But I think if you look at the underlying growth, like just the replenishment usage of our products outside of the United States, the replenishment usage overall is probably growing much faster if you kind of take out some of the one-time sales and headwinds.