KIDS - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Q3 2018 OrthoPediatrics Corp Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Ms. Ruth may The with Bui Group, begin. you Tram

Tram Bui

for today's call. operator, and in everyone, thanks Thanks, participating

Joining the and Fred me Executive Hite, Chief from Chief company are Financial Officer. Throdahl, Mark Officer,

that risks Act I'd provisions Private to material this begin, statements of uncertainties, call forward-looking federal the meaning include of Securities the forward-looking company's within will by involve the securities we Before laws, conference caution listeners including XXXX. management and comments These like and results during the of Reform differ may statements Litigation made Safe Harbor actual materially.

Form of I XXXX, which Form XX, and night. last For risk a was the the Commission review Exchange you and company's its discussion filed filed Securities XX-Q, with factors, on encourage most March to recent on XX-K report quarterly

today, operations During performance. measures supplemental also useful information in will used non-GAAP for these provide discuss of are which financial measures period-over-period. management investors the its call measures, as The believes company certain evaluating

measure not financial GAAP financial financial call, non-GAAP release. accordance the isolation results tools have comparable directly non-GAAP limitations reconciliation financial the most OrthoPediatrics non-GAAP as financial in for in should measures as each its the substitute that a included GAAP. referenced and Please measures earnings of For be measures has considered to with company this note or analytical on a in prepared

that of take of of Mark. company call conference of date to the as contains update any is said, call turn as to the statements by the no reflect Except this I'd content obligation only time-sensitive X, law, live or that undertakes date the to this or after to that addition, live the required circumstances like events broadcast, place XXXX. In accurate the November over call. With revise information

Mark Throdahl

are overview success a provide our us again performance, financial million, drivers that joining and for In the the including strengths of XX% of our thanks begin the contributing for an factors with then to XXXX call drove ongoing turn call. call over quarter third and quarter on business. today we our everyone, morning, third $XX.X growth. across I'll of earnings any conference year-over-year our I'll all before Good revenues growth. our opening quarter record detailed future consecutive quarter review of demonstrated another will representing Fred, to questions. segments of This who third the

Third international XX%, our up business was which quarter led sales acceleration scoliosis XX%, benefits rate and deployed scoliosis were deformity the in from growth domestic this the up particularly by $XX.X months trauma of were first U.S. sets up by consigned XX% We of worldwide reflected up domestic and pleased the nine and year. sales XX%. million our the initial

to four we continue this the group Australia, converted agency a also that benefit and sales model the Kingdom, to from markets New in United third Ireland, growth We Zealand, added and in we have Canada to quarter.

and the as products, expanded supports position XX.X% to to Stature also These levels. clearance Scoliosis the reflects $XX continued Screw sets of ability our the Navigation as Platform, to indications Small recent to range for investment full-year innovative revenue leading our million our outperformance products our steady indications a consigned industry the future to execution XXX(k) strategy our of for at for in guidance and Overall, FIREFLY We growth Guides Response Nailing us of growth Pediatric XXXX. a cadence the and XX.X%, growth including of well full increased consistent FEMUR, new deliver launch Pedicle for demonstrate Systems.

to full-year $XX address for specific solutions. we During our up our continue as million for pent the deployed in broad quarter pediatric increased $X.X sets we consigned the million demand surgical to and the additional target

in new are our agencies international our market stocking upcoming the sets, the surgeon XX team reps to X the saw benefits dedicated our force is we we adoption unfocused with and distributors sales full sales effectiveness these best sales evaluating This impact of quarters combined utilization. anticipate more very as company. OrthoPediatrics dedicated their and integral While international continue initial constantly we drives sales represent to distance as gaining we more of our strive Therefore competitors. and for to recognizing from

challenge our issues. several the in the continuous equivalent another sales to international and said, as to addition of portfolio next expect by are hit we expect world reps we surgeons such broadest driving surgical a look of Nailing boarded rep on of involuntarily orthopedic team we we to lost where That underrepresented. during our Pediatric the We're and agency the by FEMUR. staffing on the team impressed believe children. market While year launched around took we of sales to end two three study the Furthermore, the the to to due industry, reps in we unique XX of months. procedures dedication pathologies sales treat utilization pediatric Canada, orthopedic recently of quarter, the commencing surgical full-time we pediatric in the reps underperforming continues goal Platform, during supplement The noncompete and fourth its convert action to products used territories being as to rise

avoided before. the can positive they perform had now are comment would they feedback never company always solutions our to surgical from have receive otherwise surgeons they is that because We delighted procedures who providing

needs surgeons such growth our potential surgical confidence of understanding of of in Of years result These the their are the product our pediatric the deepening and solutions supports line. of XX patients. course feedback of unique

surgery. For idiopathic and on can smaller designed rod XX% three of adult to ergonomic lumbar instrumentation based example, accommodate scoliosis, for this we're We treat patients. an subset our by speed scoliosis specifically children expanded excited can that help XX% represent to it surgeries stature sizes that of and System estimate screw. being Response ability adolescent sophisticated intraoperatively than It is rather boasts X.X/X.X our

testing the anticipate comply with quarter system, or We imperfecta polyester both ready systems. launch. end recently year. that this we're for systems has PediFoot new fourth Duo, to additional at banding ready required also Mark BandLoc Development to also CE European case the also new This While nail is launching launch our learned requirements. is we osteogenesis have sub-laminar our the is and which on early next [ph] of completed been system with

which challenging indications early both same subject Navigation expected requirements exclusively These the sacroiliac The patient launch testing However, for also of precise to FIREFLY experienced which joint. Screw are adoption. July and to in we in which scoliosis. new sacroiliac specific have trajectory XXXX. fixation the the crosses Pedicle indications SX-Alar nature announced for is strong and U.S. ideal this trajectory surgeon Guides In distributed screw are we in include expanded guidance

navigation solutions does as reminder, thus provides intraoperative not can printed, patient X-D Just radiation on FIREFLY reduce surgery considerably that and specific require time. a

technologies being Our their the OrthoPediatrics brought companies by to are orthopedic gateway partnership with only as increasingly indicative Mighty us that to Oak new that of market. Medical is recognized pediatric the

active growing development on by third spinal an are the partnership in reached on we also encouraged quarter important milestone our proceeds schedule. and implants Our The tethering program progress.

October. company. a and designed. role support continue as based, development a Palsy for the inaugural We [ph] surgical the Cerebral is young Closer space. pediatric Indiana of Annual We the Third and and in product Surgical million York orthopedic training as again was the American Memphis, home, Research clinical Headquarters, will which day helped sponsored in of expansion Academy fully to OrthoPediatrics Orthopedic sponsor in societies much-needed surgeons attended It we and education to of the $X fellows for Pediatric that our Hip course. the and by announced Dysplasia cadaver Scoliosis include Annual warehouse taught of we Course well manner surgeons. education to Ribbon Blue reflects Medicine we University as and addition leading subscribed Meetings which a New which dedicated office course Panel by orthopedic the supported it facilities both multiple also Society, Techniques our OrthoPediatrics, In Developmental

growth surgeons double XXxX. January. At informal around It third of are surgical which in cases the and meetings. society take DocMatter. platform the social that world signed nearly and replicates platform, up is their the of place media by to can the we post This to discussions surgeons colleagues Lastly, number had XXX questions during end our allows the the quarter, excited

are industry such only orthopedic have a in company to We the platform. the

any Before have Office. the turning on hold do inter the call partes litigation IPRs over is which and we updates to Trademark Fred, not on let reviews or note States by me of Patent resolution that the the United is KXM pending

results. February three turn in to the by IPRs Trial for our scheduled the the filed a the and Board remains Fred I'll Fred? our financial over two third XX, date for Appeal trial quarter of review XXXX. additional IPRs we However, previous Patent now call for and

Fred Hite

same compared of million $X.X Total $X.X $X.X total quarter year, compared XX% for same $XX.X to U.S. revenue million total prior million year when the quarter to the XX% up to of to prior XX% revenue revenue of Thanks XXXX XX% year. million, increased third was to revenue. XX% representing prior Mark. for the the increased third period representing period for revenue for $XX.X million for revenue. International compared $XX.X million our our same the total period XXXX

the $X.X and XX% breakdown XXXX Guides third Our trauma to to same previously Navigation compared XXXX, million million increased the $XX.X the revenue was increased scoliosis a product for quarter third year, for discussed. with third by XX% category FIREFLY impact $X.X having Screw million period revenue to quarter to revenue compared meaningful $X.X follows; as quarter Mark Pedicle as deformity million for last

$XXX,XXX revenue last medicine/other for Lastly for compared the sports third $XXX,XXX quarter period to decreased XXXX to XX% the same year.

Sales income in attributable the $X.X XX% to $X.X to Gross XXXX to an $X.X $XX.X same the lower XXXX in million the the quarter was increase the a third to quarter period quarter increase margin third third statement, gross of XX% the to last the for to expenses in international marketing gross quarter for in year. XX% third G&A XX% of same down for last XXXX $X.X compared for compared when million period Moving the period third was year last year. XXXX. profit compared same million the margins. increased quarter were XXXX profit XX% million, million $X.X and expenses compared million,

from both our expense excluded fees $XXX,XXX professional higher well nonrecurring increase in which included quarter are unusually G&A calculation. of Third $XXX,XXX costs, as adjusted XXXX public EBITDA being company of as

was compared expenses million underlying compared the the operating $X.X EBITDA basic loss same the to $X.X million attributable last to was stockholders compared stable to discussed. the compared quarter for Excluding and of mainly increase G&A expense last was same XXXX. quarter Operating third XXXX. expense interest XXXX. a year, of increase period the year. and in $XXX,XXX million the common XXXX to our third operating third of $X.X period increased per the million third attributable for period $X.XX share to our $X.X the for period versus related of million development expenses XXXX of XX% these Total The for share cash quarter for for quarter in million a XXXX Net Adjusted fourth the decrease of interest prior $XX.X for from quarter was quarter the $XXX,XXX, grew from decrease the $.XX by third significant on loss million Net in approximately interest the the to $XX.X and expense loss the the third for income year. year. revenue. quarter share was $X.X resulting for to Research last items, same IPO third the per XX% were diluted just diluted were for in quarter a $X.X per for at the compared XXXX XXXX basic common same quarter million was as Net year. positive third last by loss the stockholders driven of attributable balance period to $X.X for to the expenses primarily XX%

during of models the of most during to trays. in compares due set $X.X XXXX, to balance million distributor stocking investment XXXX. instruments were conversion was June however, XXXX This the United the sales markets. specific consigned the sales third international agency In which quarter of sales in of $X.X independent most XX, States cases equipment third XXXX; as and XXXX at $X.X property sets purchases quarter and flat million $XX.X of million implants, select XX, This Turning specifically XX focused our pediatric a to sheet, in million. $XX.X of of compared balance from our on quarter to September Net equivalent as fulltime employed million the orthopedics. representatives the our which agencies includes deployed cash reflects of were and procedure,

available was net outstanding Corporate XX, be today September statement including revolving registration first the $XX.X three million for following; a IPO facility. financial available call Mark under we at turn credit be the me concludes it is date file to filing of our last later given will for XXXX our update and last the Best let could years. and $X.X note, will October remarks. One total over we shelf Practice now back million closing debt Standard Governance That As the

Mark Throdahl

our Fred. year to four growth. expectations marked foundation over for years future the October full the as company proud IPO Thanks and last accelerate the sustained progress quarters, has our we strategy ago. of first us public enabled and established a The outperforming we're building

orthopedics. leadership rests This in on pillars. four category is Our goal strategy pediatric

systems with the specifically for surgeons orthopedic of pediatric surround needs designed children. unique First,

clinical experts. at fellows, outstanding offer for all attendings education surgeons levels, residents, Second, and young

develop only organization important on of the Third, orthopedics. selling focused expand exclusively Fourth, to the and the grow all world. markets pediatric

and quarter model. and on sponsored international third to education sales four deepened more fronts. We clinical new agency reach converted our competency programs, progress Our innovative important more an developed systematic more the products, these market reflects sets, deployed

take the the third or XX% quarterly demonstrates in us advantage whether gives quarter maybe or the the quarter to More in orthopedics. OrthoPediatrics as competitive that, XX%, than pediatric for increase important guidance leader confidence category questions. with performance continues Our And revenue that build the to growth XX% any we'll year.

Operator

from Stifel. with Rick And Instructions] Thank Wise comes you. first question our [Operator

proceed may Sir. You

Frederick Wise

right, morning truly and to good impressive exciting see. congratulations All sincere the on quarter, gentlemen

start me if and follow-ups I some some could additional Let with sets. on followup comments

the that you've about And we again on the million? years third we ahead? investment reflect if set us is of you Just right in maybe normalized inning $XX in a up general, deployment sixth demand should inning, bumped will the pent-up think where are number in up new Mark set catching process there now consignment help with annual in

Mark Throdahl

let Fred is impression there could is start deployment decisions and then still My up is He closer of am. pent Well, me additional and Rick perhaps than specific quantification. these provide to that demand. I

could we supply this than a just where request Certainly probably would the sales year $XX order we force. be all million to of decide of of We it do go sets higher $XX think year million sales unvetted go at rep. at of we comparable the I deploy next to requests though could the the a and magnitude. not

We that. of have a process internally here doing

many, had And so, I past don't there think that we have hands the egregious were years couldn’t problem that were in our stuff. they frustrated we who on their surgeons many that where get

this? thoughts $XX is releases at that that deployment there next will so The a set where that require though, a new year products million products, degree point look new are on of additional and bottom. consume other be of what considerable number Fred will will of as we your I there that think fair plus that

Fred Hite

response. I quarter with We about $X.X launched legacy up when In quarter, was third $X.X quarter were as the deploy $X.X historically and getting of most this million we in was $X.X million. most million we of you absolutely. and mean million we that systems in product the of business that's followed that majority the the in PNP XX% that growing it third we first we Yes, legacy all tremendous again new quarter here the which recall systems. then launched that Rick,

some products launches increasing quarter to next will are in year to be higher of probably XX, first quarter happened the quarter million, roll could fourth the $XX the So the gone here full launched year X, to year. the of and up into going first other those that new have in date if

years the we we $XX now product see from year couple of the between demand based I rollup customer and continue would the next demand launches. right think range customer for that be continued it's something Next force. going probably of our on as at cadence expand to on that based new and in launches of as sales well the to in as the million the new And $XX teams million product looking business

Frederick Wise

scoliosis turn up XX% important Yes, response scoliosis, just sense. obviously approved very that the across even small system. If stature accelerated without growth makes we to quarter and my XX this understanding

just So looking growth growth impressive accelerate? how truly a do really we the little with we've sustain now or approaching think approved ahead about bit does how there it maybe about talk we the seen commercialization you're system? And

Fred Hite

Yes absolutely.

is thing technology have in first keep that we this to mind mentioned. FIREFLY the think I

So of started starting fourth year. field benefit quarter the we that some last in see that into launched XXXX we and technology licensed of of that and product then to in the July

fourth of we're So XXXX driving comparable of where really in going quarter have definitely coming first, incremental and in aggressive time third quarter all second, quarter growth we third was first truly of XX% tremendous. of is year of some was growth the anniversary this that will this the the that year-over-year to was and

surgery really enable current system other which big is which had objection. our sizes, the a that of expanding one address not will our for system, pretty for an all looking obviously is an in procedure. we As XX% start it mentioned, but and Mark the And we we impact will will procedures small used as four launched it are going to system think out have that to of it surgeons and stature stature for revenue, offer criticism which impact be is base not And we then have us any the is to using that understandable quarter quickly small next to have about surgeons into that overall adopt the don't year. also

growth what the compared initial second third XX% quarter business us are very grew very, in we in increasing we into saw very as lot with here a and domestic quarter domestically very overall can the next excited that for XX% the that to as and trauma do the driven uptake by strong us. pleased of of year that to deformity and the we're about for sets these was nicely So

Frederick Wise

competitor about for Yes us me, your of consolidation? benefit term that's on recently you is implications sense great, are freed no just after Thanks. larger there from or by be here, how where much you thoughts of Could industry this and there names was last industry think often but company, have short competitor would any acquired or ortho a the dynamics ortho potential competitive of long consolidation some any or changes kind we've good integrated? term in as or general seen up disruption reps deals is a the some bad

Mark Throdahl

opportunity to managing Yes, have do good potential opportunity. recognize for spine situation. and Those as question Rick very that's view it a us and think a from we acquisitions there and and to say who sales a there competitors is that advantage of I dislocation, huge come we window businesses take n distributors of is reps

of of do than significant in are regard companies are purport activity companies to that that degree beyond orthopedics. orthopedic think see many of change areas from that into diversified any see other we with not little be showing one that focused the any dynamics very we relatively much business. see nothing I two smaller interest large or or pediatric that adult emphasis in We We the pediatrics. the to competitive have on terms

Frederick Wise

Thanks again.

Mark Throdahl

Rick. you, Thank

Operator

Jaffray. from question next Piper comes O'Brien And with our Matthew

You may proceed.

Matthew O'Brien

for bit contributor, do to hoping had Fred. the XX% This well? you apart on if sets key FIREFLY sustainable morning strong, growth a see new driven from this and good for in versus Mark, break how new by understand Will that I how was spine an Thanks of penetration perspective? is just the that the questions. morning, quarter, I is Matt. you more detail, as very mentioned but maybe deeper impact much Good maybe little growth a was clinicians, taking

Fred Hite

the also It before. it Yes, sets where that penetration and FIREFLY within markets it point deeper new is it sets in we driver keep which all would key mind definitely global then launching international system coming is penetration answer. growth And again that. growth, of is be above surgeons is I the growing includes of the It in a the is and the so international think were other on is to that are our short has surgeons using as the well. definitely

is There things. growth continue. it's just So the those which of not the drivers news good are any one multiple of

Mark Throdahl

banding synergy growth. the revenue amplify I a by system the truly might that between BandLoc products of call delighted strength, of from standpoint are the we're X.X/X.X just all strength diversified that there spine both the in FIREFLY, Response, is that, the polyester business, and that we here the

so extremely encouraging us. that's And to

entering fourth of in volumes dramatic decrease We scoliosis a difficult terms this are procedure to going period on. what so our where quarter is always is however there a and of in is project

who see is that of a used terms we then and business the use by it the also have of new of greater system diversified accounts might Finally, there in surgeons expansion initially.

Matthew O'Brien

thanks that then Great, are And to of OrthoPediatrics those existing to or being the those customers? with stature XX% small procedures, new that. for customers XX%

Fred Hite

means surgeon it definitely it customer be patients, would If the new. is Well, means if same. it

Mark Throdahl

I to to just it, Yes, get that. add

the somebody surgeons the system the only system X.X/X.X they're for today else's using using are application. use X.X/X.X can the So

of to of we systems. able now surgeons will early So our use anticipate that all adoption those be

the they surgeons convert had use have don't to to addition few can't systems. X.X/X.X from that a our our in pushback want some everything that, past we In they because

using So of new over not our will we're that this to that objection that eliminate will any surgeons time and systems are hopeful that convert enable today. us

Matthew O'Brien

So there franchise? for the be pull-through could T&D

Mark Throdahl

cases and between businesses definite deformity deformity there course is trauma scoliosis more scoliosis do we and Yes, cases. many because synergy of do we the than a the trauma

do they kinds procedures us the of and constantly are Our that we are spine build and of trauma surgeons with versa. in helps brand equity these and so who generalists, deformity OR sales vice reps both the with remember

Matthew O'Brien

followup. and then quick just one Great,

going a would color of to it? just then right about still million, assume still if sales would dollar for that know there I way assume dollar of a but to is opportunity plenty be So is the upside think $XX any there year for upside, that we And in of sets that assume is about deployed, net you helpful?

Fred Hite

Yes, do revenue period to targeting dollar to that anticipate that's they XX-month sets, that investment. X deployed right. of utilized and we a dollar become after of We fully of are

third fully $X.X in quarter XXXX first deployed million So and launched the million dollar quarter at in quarter the not revenue one first first in The dollar in the the be the would running of is fourth going be second utilized become deployment to It that the quarter just the year. won't to of quarter. of over of third start to next in probably or quarter we XXXX. fully third utilized $X.X

Matthew O'Brien

Great, thanks the for taking questions.

Fred Hite

Thanks Will.

Operator

And our BTIG. Zimmerman from comes line of question Ryan with next the

You may proceed.

Ryan Zimmerman

morning. Good

Mark Throdahl

Hey, Ryan.

Fred Hite

Hello, Ryan.

Ryan Zimmerman

morning. Good

very That strong first a scoliosis tremendous So congrats off, on number. was a quarter.

to PNP use the fact product tremendous we've response. some the does checks appear on of to in be begin, done channels getting recently a and it Just

at this capacity so, of And we are and sets have the just more in in and with talk in of there you so kind dig where much rollout about your little risk? product for bit we and distributor more market could a how the

Mark Throdahl

for adults or said with to Frankly, surgeons this response release limited we so seen rollout the the as rigid delighted anticipated Well, seen who a to that – by have well I finest in nailing as early nailing pediatric days the was it's the the robust had think acceptance application. had we it ever system been system. they had and because regard

for the very in the and think important potential growth. we business, to there rigid product. most a trauma is deformity product. It nail significant would foundational Typically I So increased see is the be

anticipate this a And of have to so legs we growth would lot left. of

Ryan Zimmerman

trend for turning into to is commentary margins I gross more directionally the just for strong, be feel you continue have there taking The any is guys. gross you continue Thank could be you on to this - XXXX? questions where understood. guess, Okay, Fred up, margins going

Fred Hite

Thanks, of gross as Mark is stocking so Ryan. agencies big the margin of one distributors. mentioned, the agency away our from OUS to the Yes, shifting drivers

which stocking fourth our and we've for and We now a selling Ireland, are adding distributor up the a the year. obviously two So agencies products Canada had that was Zealand, previously Australia, have We in in be basis. over and third on we convert UK, here third have a limited now the quarter did we'll hopefully there quarter. it New

do definitely impact And quarter those impacts have more or of potentially and has on the as that to continue that first favorable of our year. early margin. quarter We plans a in we conversions fourth next

I now XX% is that as we increase and to little additional a for bit to normal probably right it's So XX% overall the think business can agencies rate model. the that add

Ryan Zimmerman

Understood, you. thank

Operator

that call over portion to for like would now concludes Q&A Throdahl, I of today's call. Mark And our the back remarks. turn to CEO closing

Mark Throdahl

into Well, continued all shareholders place business. of our also joining efforts we'd to of like are for of and us those robust the once to ongoing like the you who for to again thank put ingredients support. for thank quarter proud your you we'd third and We're growth very of by the

all So thank again. you

Operator

gentlemen, great you today's Everyone today's day. you have and program and attending for thank may a all Ladies This disconnect. concludes conference.

OrthoPediatrics (KIDS) 3 Nov 182018 Q3 Earnings call transcript