OrthoPediatrics (NASDAQ:KIDS) reported record revenue, adjusted EBITDA and number of children helped during the second quarter, as the pediatric orthopedic device company began to see early contributions from its newer “super cycle” products, Chief Executive Officer Dave Bailey said at the Canaccord Genuity Growth Conference.
Bailey said the quarter represented an “inflection point” for the business, citing approximately 15.5% revenue growth, improved profitability and lower cash usage. The company is targeting $25 million in adjusted EBITDA for the year and free cash flow that is break-even to positive.
Summer volumes and new-product launches
Bailey said OrthoPediatrics has experienced strong scheduling and procedure volumes during the summer, a historically busy period as children are out of school. While the broader market has included discussion of patient volumes and reimbursement, he said the company has not identified macroeconomic trends that have materially affected its business.
The company launched most of its 3P Hip System sets in the final weeks of June, meaning the product had limited impact on first-half results. Bailey said the company expects implant revenue contributions from 3P Hip and the VerteGlide system to begin increasing as additional sets are deployed in the early part of the third quarter.
Early surgeon feedback on both systems has been strong, according to Bailey. He said the products are designed to address procedures where children’s hospitals may not have comparable alternatives, potentially creating a pull-through effect for the company’s other technologies.
Bailey said newer products generally carry higher average selling prices and require more efficient inventory deployment than legacy offerings. Historically, OrthoPediatrics targeted roughly one dollar of annualized sales for every dollar of deployed assets, but he said the company is now seeing figures in the range of two to four dollars of sales per dollar of inventory for certain newer products.
Portfolio expansion and bracing growth
The company is also preparing for potential first cases of its Veraxis fixation system later in the year, subject to an FDA decision. Bailey described Veraxis as an adjunct rather than a full replacement for the company’s RESPONSE fusion system, which he said continues to grow at a double-digit rate.
Veraxis is intended to support more modern techniques used by surgeons to reduce pediatric spinal conditions, while strengthening OrthoPediatrics’ positioning at leading children’s hospitals, Bailey said.
In specialty bracing, Bailey said the OrthoPediatrics Specialty Bracing, or OPSB, business supports the company’s strategy of serving pediatric orthopedic customers across the treatment pathway rather than only in the operating room. He noted that pediatric orthopedic specialists spend much of their time outside the operating room and that bracing can help avoid surgery for some children.
OrthoPediatrics expects the OPSB franchise to grow more than 20% annually for the next several years, Bailey said, citing demand for clinics and products. A company representative said OPSB gross margin is slightly below the rest of the business because of its product mix, but that the segment generates a strong contribution margin. The company has also directed much of its recent merger-and-acquisition activity and expansion toward OPSB.
International opportunity and capital discipline
Bailey said OrthoPediatrics’ earlier investment in European Union Medical Device Regulation, or EU MDR, approvals has strengthened its position in Europe. Some larger original equipment manufacturers have opted not to support certain pediatric product lines or have removed products from markets because of the regulatory requirements, he said.
About half of the product portfolio available in the United States had not previously been available to European customers, Bailey said. He cited 22% international growth and said the business outside the United States could outpace domestic growth over the next several years as the company builds share in Europe.
In Latin America, the company has adjusted its approach to set sales, particularly in Brazil. Bailey said OrthoPediatrics removed certain expected scoliosis set sales from guidance because sales to stocking distributors can involve long import cycles, extended payment terms and lower margins. The company is seeking to improve profitability, cash generation and accounts receivable through a revised Brazilian operating structure following the acquisition of a distributor.
“We are not going to use our capital to deploy these sets with long payment terms in an area where we get very low margin,” Bailey said.
A company representative said OrthoPediatrics deployed more than $20 million of new sets in 2024 and is targeting $10 million this year. The company does not expect the lower deployment level to hinder revenue growth, citing improved utilization from existing and newly launched sets.
Competitive position and partnerships
Bailey said larger competitors have reduced support for certain pediatric categories, withdrawn some products or declined to pursue EU MDR approvals. He estimated that 40% to 50% of OrthoPediatrics’ trauma and deformity portfolio may now face no direct substitute, potentially supporting pricing and contracting leverage.
The company also recently signed a distribution agreement with OSSIO, whose technology is intended to absorb and potentially avoid the need for implant-removal surgery in children. Bailey said the arrangement fits OrthoPediatrics’ strategy of bringing differentiated technologies to children’s hospitals through its pediatric-focused commercial organization.
As its portfolio becomes more clinically specialized, the company is increasing surgeon education efforts. Bailey said OrthoPediatrics has trained 124 surgeons on VerteGlide since its launch and continues to support clinical education and training programs globally.
About OrthoPediatrics (NASDAQ:KIDS)
OrthoPediatrics Corp., founded in 2007 and headquartered in Warsaw, Indiana, is a medical device company dedicated exclusively to providing orthopedic solutions for children. The company focuses on developing, manufacturing and marketing a broad portfolio of implants and instruments designed to address a wide range of pediatric conditions, including trauma, deformity correction, spine disorders and sports injuries.
The company’s product lines include locking plates and screws for upper and lower extremity reconstruction, intramedullary nails for femur and tibia stabilization, and specialized systems such as the MAGEC Magnetic Growth Rod for treatment of early-onset scoliosis.
