OrthoPediatrics Corp. Common Stock 2026 Q2 Earnings Call

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer, and Fred Hite, 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, the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K, which was filed with the SEC on March 4th, 2026, and its subsequent quarterly reports on Form 10-Q.

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 second quarter 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. The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, August 4th, 2026. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect the 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 afternoon, everyone. Thank you for joining us today. I'll start with our most meaningful performance metric, patient impact. In the second quarter, we helped nearly 46,000 children, another new record, increasing our cumulative impact to 1.4 million kids helped. At OrthoPediatrics, we are entirely committed to improving clinical outcomes for kids through our dedicated technology, targeted innovation, and unrivaled level of focus on serving our pediatric patients. Our second quarter results further validate the strategy we have been executing over the past several years. We continue to gain share across our core markets. OPSB is emerging as a meaningful driver of both growth and profitability. Our multi-year product launch super cycle is just beginning to contribute to results, with the largest opportunities still ahead.

Revenue increased 15% year-over-year, driven by an exceptional performance in trauma and deformity in OPSB, strong scoliosis implant sales alongside healthy international growth, partially offset by 070 units sold in the second quarter of 2026 and significantly fewer OUS set sales in scoliosis. We finished the first half of the year with strong momentum, delivering robust revenue growth, meaningful adjusted EBITDA expansion, and significant improvement in our free cash flow profile. Importantly, top-line strength in the second quarter across both our implant and OPSB businesses drove bottom line adjusted EBITDA to a record $6.8 million. Our disciplined capital allocation and focus on higher quality, more profitable revenue streams, combined with working capital improvements, reduced free cash flow usage by $11 million, or 78% versus the prior year, demonstrating that our focus on profitability and free cash flow is paying off.

At this point, it's evident that we have reached an inflection point in our financial trajectory. Our results this quarter give us high confidence in our commitment to achieve positive free cash flow in the second half of 2026 and free cash flow breakeven or better for the full year. We believe the continued execution of our strategy reflects the strength of our competitive position, disciplined execution, and the material operating leverage potential embedded in our business. Our updated outlook remains aligned with our progress and our long-term growth objectives while also reflecting the disciplined approach we have consistently taken to guidance. We are raising our full year guidance to a range of $265 million-$269 million, representing 12%-14% growth.

As we march through our high volume summer season, we continue to see strong surgical volumes. We would remind everyone that the procedures supported by our technologies are not elective. Before moving into updates of our businesses, I want to provide more color on the innovation super cycle of product launches we have introduced. It's important as a strategic growth, profitability, and free cash flow driver of OrthoPediatrics over the next several years. First, it is important to emphasize that we are in the early days of the multi-year cycle. While we are starting to see very early contributions to growth from select product launches, we are only scratching the surface of the super cycle's impact on both the patients who this technology will serve and our business.

The super cycle pipeline is deep. The new technologies developed by our incredible engineering team will span all portions of OP, deepen hospital relationships, enabling bundling of solutions across accounts, support broader contract opportunities, and bolster share gains across our portfolio. Importantly, these products offer stronger economics for OP than many of our legacy systems. The products generally carry higher ASPs, higher gross margins, require less capital deployment, and should generate better return on capital. Many are highly differentiated, clinically relevant, and have limited to no direct competition. The bottom line is this is not just a product launch story. It's a multi-year growth, margin, and capital efficiency story. Moving to our businesses. In the second quarter of 2026, the T&D business delivered 26% growth and was the primary driver of our total company performance.

The strength in the quarter was driven by increased sales across our core trauma and deformity implant systems, continued share gains, strong procedure demand, and early contributions from new platform launches, as well as continued strong growth from OPSB. Zeroing in on our pediatric plating platform, also known as 3P, we are pleased with the continued progress of the 3P Hip system. 3P Hip contributed to incremental revenue growth in the quarter, and surgeon demand remains strong. That said, the more substantial impact of 3P Hip is still ahead of us, as meaningful set deployment did not occur until late June. We expect 3P Hip revenue to continue to build and become an increasingly important contributor to T&D growth. Moving down the 3P pipeline, we also initiated a small beta release late in the quarter and performed our first 3P Small-Mini surgical cases, which couldn't have gone better.

3P Small-Mini represents the second system in the 3P plating family. The early clinical feedback has been extremely positive, and we are excited about the long-term opportunity. Contribution from this system will remain minimal until full market release, which we currently expect in early 2027. More broadly, the 3P platform continues its push forward, and we are as confident as ever in our belief that it will become the most advanced and comprehensive pediatric plating system in our field. We continue to advance additional 3P systems. Beyond 3P, we're also excited about our plans for PNP Retrograde and PNP Skeletal Dysplasia, the next systems within our pediatric nailing platform. Additionally, in line with our mission to increase the scope of differentiated technologies we offer surgeons, we recently announced an exclusive distribution agreement with OSSIO, bringing biointegrative metal-free fixation technology to children's hospitals nationwide.

Combined with our existing Bioretec partnership, we now have a wide-ranging portfolio of bioabsorbable implant products. These products expand treatment options within our portfolio and will leverage the same commercial model as our implants. Taken together with the complementary beta launch of 3P Small-Mini, this demonstrates our ability to leverage our specialized pediatric commercial platform while advancing product offerings in procedure areas that are newer to us, such as pediatric foot and hand surgery. Overall, T&D continues to serve as a core component of our growth engine, highlighted by exceptional strength in implant sales, OPSB, and a robust development pipeline. Turning to our specialty bracing business. OPSB once again delivered an outstanding quarter with over 20% growth, and the business remains a major strategic catalyst for OrthoPediatrics.

Supported by strong clinic execution, same-store growth, volume growth, new product introductions from our super cycle, and disciplined clinic expansions, the business continues to contribute meaningfully to both revenue expansion and profitability. Within OPSB, our specialty bracing product development engine is producing a significant impact. Overall, OPSB products are playing a pivotal role in our innovation super cycle. DF2 is surpassing our performance expectations with adoption in over 150 children's hospitals and is quickly becoming the new standard of care for pediatric femur fractures in very young patients. The modular hip brace portfolio is progressing through ongoing launch activity and expanding our role in the treatment of pediatric hip deformities. Additionally, we are advancing Machi4, an upper extremity prosthetic and orthotic platform that provides lightweight, modular, 3D-printed solutions intended for both function and play.

The pending launch of TractorFix, a specialty bracing solution designed to manage knee and ankle contractures by connecting the brace with our external fixation systems, and a number of other products expected to launch over the next several years. We are also pleased with the early progress of the TRAXIO Halo Gravity Traction system, one of our most clinically significant products to date. TRAXIO extends our role in pediatric spine care by supporting Halo Gravity Traction therapy and helps position OPSB as a broader pediatric care platform. This is another example of our strategy to develop clinically relevant solutions that are often overlooked by larger companies but remain highly important to children's hospitals, surgeons, patients, and families. Overall, we continue to make progress across our three-pillar OPSB strategy by growing the sales force, advancing product innovation, and executing disciplined clinic growth.