Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OrthoPediatrics Corp (KIDS, Financial) reported a record revenue of $52.8 million for Q2 2024, a 33% increase from the same period in 2023.
- The company helped over 32,000 kids in Q2 2024, marking a 52% year-over-year increase.
- Strong performance in global trauma and deformity, domestic scoliosis, and the newly formed specialty bracing (OPSB) businesses contributed to growth.
- The Boston O&P acquisition has been positively integrated, showing large expansion opportunities and synergies with the implant business.
- OrthoPediatrics Corp (KIDS) projects to produce $8 million to $9 million in adjusted EBITDA in 2024, with a significant step up expected in 2025.
Negative Points
- Revenue showed variability on a month-to-month basis, particularly in the surgical segments of trauma and deformity and scoliosis.
- International scoliosis revenue was somewhat muted by negative growth in the quarter and a slower-than-expected start in June.
- Total operating expenses increased by 30% to $46.5 million in Q2 2024, driven by the addition of Boston O&P and increased commission expenses.
- Research and development expenses decreased by 14% to $2.5 million in Q2 2024 due to the timing of external development expenses.
- Total cash usage in Q2 2024 was approximately $19 million, higher than expected, including several significant payments.
Q & A Highlights
Q: Why did you not raise guidance despite a small beat and positive outlook for the second half? What was the organic growth this quarter?
A: We maintain a conservative approach to guidance. Organic growth was around 18%, excluding the Boston O&P acquisition. We expect high-teens growth and are seeing a robust summer season. (David Bailey, CEO)
Q: Can you elaborate on the international momentum and scoliosis revenue growth expectations for the second half?
A: International scoliosis revenue has been choppy due to stocking distribution patterns in South America. However, demand remains strong, and we expect a strong second half. Growth in Canada and the EU is promising and will stabilize revenue. (David Bailey, CEO)
Q: What is the expected annual contribution from Boston O&P, and are you accelerating the clinic strategy?
A: Boston O&P is expected to contribute around $25 million annually. We see significant opportunities for clinic expansion and are bullish about the potential for growth through both greenfield locations and small acquisitions. (David Bailey, CEO)
Q: How has the integration of Boston O&P been progressing, and what successes have you seen?
A: Integration has gone extremely well, with cultural alignment and successful integration of the OPSB portfolio. We are working on R&D projects and have received positive responses from surgeons and hospitals regarding clinic expansion. (David Bailey, CEO)
Q: What is the approval pathway for the eLLi Growing Rod, and will clinical data be required?
A: The Pediatric Breakthrough Device Designation suggests a likely 510(k) pathway. We do not expect clinical data to be required for approval, but we plan to capture data post-market to ensure clinical effectiveness. (Fred Hite, CFO)
Q: Why did you decide to implement a stock repurchase program?
A: The stock repurchase program is related to the convertible notes offering. It effectively raises the strike price and provides flexibility in managing our capital structure. (David Bailey, CEO)
Q: What are the economics of investing in new clinics, and how quickly do you expect a return on investment?
A: Opening a new clinic involves about $0.5 million in upfront costs. We expect clinics to be cash flow positive within three to four months, with significant growth potential thereafter. (Fred Hite, CFO)
Q: Can you provide an update on enabling technologies like 7D and FIREFLY?
A: Both technologies have been well-received and are opening doors for us. We have a large pipeline of placements for 7D, which will drive future growth. We are also working on additional digital health tools. (David Bailey, CEO)
Q: What are the constraints or macro challenges that might affect your guidance?
A: The primary concern is the potential impact of RSV and flu season in the fourth quarter. We are assuming a similar impact to last year but remain conservative in our guidance. (Fred Hite, CFO)
Q: How do you reconcile the capital intensity of clinic expansion with your EBITDA growth expectations?
A: We expect to leverage organic growth and high contribution margins from the bracing side of the business. The cash portion of G&A expenses will see leverage, supporting EBITDA growth. (David Bailey, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
