KIDS - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 OrthoPediatrics Corp Earnings Conference Call. At this time all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Tram Bui from Ruth Group. you. Thank ahead. go Please

Tram Bui

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

Vice Mark from Officer; Executive Executive the me Throdahl, and company Bailey, Financial Joining Chief are Chief Hite, Officer; David President. Fred

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

to risk on including company’s Securities related COVID-XX, Exchange the filed have Form you encourage of report discussion a the challenges, related pandemic with be the the risks on others, products to and For most I impact may the such recent review factors, quarterly respond soon. to XX-Q, among the for the company’s and will company’s demand which the to ability Commission

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

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

XXXX. review to place update as of after obligation take live of of call. the company by that time-sensitive this accurate that or In broadcast, Except reflect only or information to law required the content circumstances no the call contains date statements date as the undertakes of any this events addition, May X, conference the is

the to I said, that like Mark. would to call turn over With

Mark Throdahl

for We conference quarter hope healthy its impressed the healthcare I’m and our the the pandemic. our for like this Good during addressing crisis. staying us today entire empathy, been up by that not you also would earnings way thanking safe. I stepped surprised morning, skill, everyone is joining organization XXXX by resilience although on We and has call. COVID-XX community first and thank begin global everyone have to

saw than we corporate the on initiatives the start a hit, have the strong us from when While sustained allow it. entered to to will pandemic we momentum crisis year stronger emerge that COVID we our before

you we then in crisis, elective open With approaching begin mind, anticipate we give questions. the to are it before assessment of provide year-end. by the and financial to OrthoPediatrics a Fred thought will foremost how through leading be month rescheduled this pandemic review call to an everyone’s levels this surgeries we see appropriate would normal we as

a in XX% the and revenue generated XXXX. all quarter For stocking March. the product as to February, distributor beginning set of lines, Asia QX sales America strong for the to delivery impact XX% however quarter also the and XXXX, the with set XX% domestic and month deferral by the the halt of the in the January start of came first impact COVID-XX. a very first reflected we and growth was of near March. growth quarter, the in strong despite supported XX% start XXXX, growth of Internationally elective in We earlier This surgeries decreased achieved of QX in orders, South sales trajectory for in purchases, continuing despite reflecting Europe, crisis sales year had

the to the first increased quarter margin quarter XXXX of the XX% in mix higher XXXX. to Given domestic first in compared gross of revenues, XX%

the Correction grew XX%. in Deformity first of sales XXXX and quarter Trauma

deferral complete in the XX% by quarter. March. a the last surgeries Sports of medicine/other declined Scoliosis Our the XX% weeks by grew and impacted in in business of few quarter was

Our Deformity of in the roll part was System Orthex the out driven Hexapod acquired continued by Correction that growth we June. Trauma last and External Fixation

approval for Orthex, large avoid This resume. products. surgery our includes approved of Scoliosis recently only allows or early indications that rollouts for XXXX, of we launch when balance cannulated expanded offering one FDA portfolio, its Deformity combination addition is a the other our patients significantly our recent MID-C forward In which all we the fusion we system of new In important anticipate fragment ApiFix and with Invasive and Minimally surgeries to April acquired two RESPONSE system, elective to the expanded System FDA to of in technologies launched and Correction, screw products, potentially and of look altogether. broadened

consultants. of on As we surgeries year we pediatric our XXX sales levels, forward and the of to approaching domestic force remainder market, by product portfolio the the look OrthoPediatrics can that the believe leverage of the orthopedic normal supported impact strongest

objectives, to update steadily COVID-XX surgeries like grow this year. to how growth execution the the global elective detailed on leading month the I’d are throughout through turn a I as and company more against Before resume we pandemic, discuss

million. XXXX our guidance particular, in and and range sets Although third rapidly consigned of of in a to because we guidance annual to quarter XX% were million surgeries. range revenue on and on the this consecutive growth of uncertainties of $XX its growth, plus track impact our $XX growth previously evolving previous late to impact withdrew of on we XX% revenue step took deliver March, the announced in COVID-XX, elective the and We in investment of in duration XX%

pandemic will this XXXX in surgeries of United to and backlog postponed Scoliosis Furthermore, our will surgeries the be strong particularly describe for many surgeon impacted We normalize that States. We following significantly supports the that so-called the elective be Correction even businesses business start and correction year. year are This our same confidence the are rebound to critical to not do expect of expect and and customers that of a scoliosis suspension degree. near-term the procedures Deformity the Trauma guidance maintaining and long deformity our our impact perhaps full cannot considerable surgeries. year, the

the near-term are cannot possible timing April model magnitude note or rebound, or sales worst-case estimate we this At showing we we than suggested but in and May will sales improvement. considerable the sales our of better that recovery financial the slightly saw time,

We are at in close communication with the of XXX top outlook selling each accounts. our worldwide and tracking are our organization

hours have institutions summer been their cancel extended Some surgeons announced run holidays. have to a with will their that days X ORs week told some

however, in to bringing This flow and repaid the no We have pediatric including work to that fact to anticipate day A made we model normal of first OR uncertainties XX, that hospitals direct normal our and to do employees support until will by for unaffected It their soon the $XX concerns be in relief U.S. motivated I so freestanding few It basis year elective subsequently. the model we OrthoPediatrics international seen of cuts pay returning fully base that It establish expect us surgeries hospitals. the clinics interest a Fred. in is United assurance allowed has test on could a the the my COVID, be workforce. colleagues will us that in sales parental that that has there with impact fund, At by those remotely, outlook. of stressed will down need as in job the to return too served availability, to first and We decisions key point, million be to States. very staff June accelerate children March XXXX to by to that QX enabled particularly levels July, to reviewed cash or levels and surgery. about stabilized not prepared our since U.S., patients is XXXX low agencies XXXX. mind remain, our and the this distributor began assure end cash. keep On mid-March ended reductions comment draw loans

While meetings this whom independent weekly hall week it allowed personal town consultants, key with suppliers sales Orthex These training, corporate executive every together of by critical superseded by fund call a the developing stabilized every morale. actions officer intensified company, believe sales These but our global sterile have a inventories OrthoPediatrics force has working maintained webcast Paycheck to and level most have nothing, as Program, sell Federal cohesion the individually and to of Protection to such an that compliance, initiatives MDR advancing of of and in with EU continue steps be us we products. Europe telephone employee packaged build high for products may products.

industry have seminars young leading and position surgeons. for training conduct our used to resources We

investigational review Once System. dark focus normalize, decor, and a the continues foundation the a global is executive recovery. surgeries senior we the the corporate we the host execution utilizing sites website systematic of the culture all position on COVID for revenue targeting we deployments. scope recently, situation succession and begins will been pandemic, the groups for matter finally, commenced ApiFix XXXX children that the and be the to growth MID-C have on our initiatives treating to process. discussion to set meantime, which have And worked orderly estimate establishing surgeon success. an our company on impact better worldwide have testament the In More growth to and anticipating in now during of U.S. our board with We is spree a

tibial for ease launch with capital femoral new More subtalar of March, features The includes long address removal we Large products. is implant millimeter fixation or and for Fragment bone joint fracture, System, of to to facilitate represents to Cannulated designed the joint. sacroiliac turn innovative and specifically, procedures starting trauma the bones implants designed Let’s system in system which with screw iliosacral a it XXth system screws cases femoral and of now intercondylar pelvis greater epiphysis The two disruption, the the fractures, precision. and SCFE, plateau includes fragments. SCFE thread insertion announced the Indications limited and long to these cannulation Screw an increment In removal. patented fractures, surgical system. arthrodesis, company’s femur initiatives, slipped neck

In include our received expanded System March, clearance indications we Scoliosis to surgery. and also neuromuscular for FDA XXX(k) RESPONSE

implants This of be components forward hyperlordosis attributes RESPONSE our look will industry. that System, further set address unique insertion. its Neuromuscular added, with which extreme of first to we As the becoming in a the the instruments and simplify RESPONSE feature new will for system kind this and are complete basis NM,

work IP We from on of also second an and that to developing technology license adult In and surgeons, enhancements to addition early screw interfaces a generation Trauma and improve further the with development the onset the spine system. we’re Imperfecta Osteogenesis plate our panel advanced inventor Deformity in company continued use with progressing to some scoliosis to Correction System. of we systems Nailing screw driver who in tandem,

new systems screws and all as nail recent represent pipeline, addition systems In development such PediFoot near-term to FEMUR intramedullary product growth our significant the PNP cannulated vehicles.

While have we XXXX, investments systems XXXX these significant launches sets in year this only announced these made been their were for and strong launch following demand. initial and in

Furthermore, before take through continued sales new Turning of a competitive demonstrated. that Orthex the on Vilex with all the products to an is on trained place than related $XX announced bidding our sales webinars process to through with in we where continue by meetings, This pandemic. being software the a conversions. three-fold greater easily expansion directors. system very Orthex in license board the our Tennessee, adult surgeon as acquisitions, basis virtual commitments in million. January, Currently, of is the panel divestiture non-executive a Meanwhile, with to space can surgeon COVID was attendance and be mid-March for calls daily divestiture and strong assets of well through almost the conducted adult for sales as Orthex substantially independent the evaluations product as conducted organization

AIS. In ApiFix or acquisition its idiopathic surgical of system. company’s April, has and non-fusion we XXth System adolescent become Limited for This the progressive treatment the announced of MID-C scoliosis

XX for game and period an a four reminder, a avoid system the gap a Lenke XX unilaterally The fusion common of a Lenke MID-C X patients of As It altogether. of of potentially $X to with closing, concave curves and earn-out the acquired to is believe and plus in implanted shares the surgery curvature payments brace degrees type treatment XXX,XXX We System years. on we major million acts at changer. X for patients aspect OP and ApiFix like type internal fills allows over that degrees. is milestone an stock cash

on know It this competitive the technologies of horizon. and Importantly, of limiting one motion removable. We FDA solution avoids other products range no intervention surgical in approved is of and easily the permanently only patients. market two expands for AIS non-fusion is

The U.S. patients more with years MID-C of System is backed by the clinical XXX eight history outside than

patients continuum acquisition option in not Importantly to segment the treated new being and care with are offers the a successfully treat opens bracing. of scoliosis this who

surgery, limbo, a non-fusion Before MID-C less less more. in risky surgery these are progress fusion than or far often degrees curves they other patients can XX move shorter, to until solution to complex The their provides tethering, available. technology the and

stand with crisis. even pleased advance the We’re to COVID our in and initiatives tall the this of acquisition, major strategic midst

supplier, that significantly prepare new European from to cell when established our surgery headquarters also as volume address postponement quick quickly OP quarter, and the in to we the our regulations to until of ensure implant product inventories development. Union consolidate summer $X.X and sets that this contract major we regulatory vendor-managed of we with quality sets, medical supply support new instrument orders employment Turning consigning we a compliant located maintained launches, has of our minutes Warsaw these to the great $X into the times the is by from of this our which challenge on typically critical products, product this full device which where after some Despite its and continue inventories. and the implant directive majority season QX. affairs prototype majority build of operations to lead fully possible. as our continue is we manufacturer, reduces are most QX million anticipate responsive hands the of based represent million turnaround of XXXX, for highest to orders vast consigning XX we

the international us country, to our our implemented that sales converting we total our to sales in and U.S., thus, the domestic a XXX organizations, model distributors Italy in distributor stocking March, Turning by of eight currently XX agency size period selling of organization is internationally. in which In bringing from stocking last is up consultants, and year. same sales the agencies sales the XX%

major their represent put U.S. significant a they introduced Orthex, While company’s been Deformity our potential of with that are systems supported source about and Trauma discussions leadership IPO of addition further and by its in since recent is primary hold, ApiFix, culture. temporarily time new the becoming surgical tests pediatric XXXX. products a have our future and centers on and This

the and We selflessness are at delighted to leadership, of all see levels of spontaneous initiatives, demonstrations company.

and a XX, worked with since have we remotely cohesive we Although March remain high-degree morale of productivity.

Indiana employer work proud February one our of the progress by companies tangible places of orthopedic the pulled industry are Indiana. recognition of of becoming in choice the We with toward the to Employees at for in in thousands as fourth year Therefore, are competitive this than best we XXX will momentum continue our crisis. sales that drive are fewer Commerce to as selected COVID we and are of during employees, honor. and confident personnel, our the we advantage the for even Chamber our retain

call the me review that, over to Fred? turn to results. now financial our let With Fred

Fred Hite

million, XX% million of same representing in XXXX to quarter in $XX.X period total for XX% revenue $XX.X was decrease period the $XX.X quarter in $X was same of compared total International representing to million, a the of first year, revenue compared XX% revenue XXXX million XXXX $X.X last last when in up $XX.X the of million Total XXXX. revenue. to same the XX% period XX% million year, in to the first revenue. U.S. quarter Mark. Thanks the increased in compared first

quarter. our markets of by the COVID-XX in international end typically orders with stocking sales to distributors mentioned, the U.S., Mark than weighted are As that impacted earlier canceling were the

Deformity by of Hexapod and introductions, million, revenue the million Scoliosis million quarter first quarter $X.X the in was new Trauma System compared Correction was from quarter correction as of year, a same was Orthex offset deformity to last in XX% slowdown revenue decrease XX% contributions last revenue first million, which year. surgeries. included $XX.X product XXXX in period the compared in in first elective increase breakdown category Deformity the to a period $X.X same XXXX product follows: $XX.X the Our by and

by surgeries business as scoliosis impacted were COVID-XX more Our was elective quickly deferred.

representing increase the revenue to the XXXX, XX% medicine/other same of year. sports $XXX,XXX $XXX,XXX, compared Lastly, last quarter period was a first in in

in to expenses XX.X% driven of margin XX% year. year. compared increase the XXXX quarter last first first mentioned. last XXXX. and Moving the and associated sold gross same was quarter gross the same $X.X of in the million Gross million $X.X a was previously the volumes of increase The commissions higher was compared at profit $XX.X to down This and in sales period marketing to first statement, was $XX.X domestic XXXX marketing higher increase of Mark compared in million first in mix of quarter income U.S. by Sales unit the period XX.X% the in million, quarter a when the margin, XXXX as XX% to expenses. ongoing in increased in an to attributable

the General in driven of increase increase stock depreciation million regulatory when primarily compensation. the The increased XX% increased were quarter in compared as from quarter expenses $X.X by significantly of set an expenses XXXX. in as and first million, first of and in administrative increased well to deployment quality XXXX $X.X non-cash expenses, years, prior increased was

of the first higher the quarter to million years. million driven higher quarter were compared deployments of million increased the the compensation, XXXX quarter a expenses depreciation quality regulatory, when loss the million first first XXXX, development was in first in in result of last loss of an and $X.X operating to period by and compared of quarter compared stock million as operating of non-cash $X.X and of million prior in the $X.X and a the same set higher to quarter first in Total XXXX XXXX. increase X% XXXX, of for expenses $XX.X in were Research the $X.X $XX.X year

same the million a quarter to million, of and in was first XXXX a was stockholders $X.X the increase share first XXXX net Adjusted compared $X.X XXXX. per in $X.X the period Net of $X.X in XX% last $X.XX to of to in last for XXXX was and XXXX million same last compared per expense EBITDA to $X.X And $X.X share million year. of $X.XX loss quarter loss a year. loss the period million basic for of a in negative share period first quarter the quarter Interest first attributable common net negative the year. of compared diluted the diluted to million same compared was the basic in per first quarter

March, the Turning of in to reflecting $X $XX.X sheet, process, $X.X credit during $XX.X million during facility, consigned after our available. were quarter the with off million XXXX partial of million decrease compared period cash implants sets approximately million during were indebtedness restricted million of $X.X our million last compared company million, million as quarter the on of equipment XX, XXXX property amount of including outstanding a balance XX, $XX its to sets be Purchases of a which first to waiting includes in million currently the facility as of and credit $X.X $X.X December XXXX was decrease deployed, XXXX. quarter construction had the the $XX.X paying and full and same to cash our during compared revolver and the XX% total year, first to deployed

additional first look new meet quarter to we is sets deployment in those deployment the of of second a sets this beyond. the anticipated and significant forward and to of demands As the mentioned, Mark stage our

not was will of also an year-end Orthex-Vilex of and of we elimination to increase regulatory expertise available to transaction this in sheet. Telos purpose LLC, technical challenging of accounting affairs field, practice. at our updated consulting IP resulted million made most with The in soon, sophisticated anticipate of enabling in our of in specialty to XX-Q March Partners the When reflect sale which purchase was a it the access this related XXXX a world. that reference OrthoPediatrics generate $XX.X reported medicine/other mention XX-Q with The The with future revenue they of material value, to around size impact in regulations XXXX the file also transaction, the to wanted P&L sales sold and this which year-end the makes comply balance external acquisition acquisition and I deferred the small adjustment Vilex. any sports be offset will then sales were conjunction we and it in category.

million XXXX COVID-XX. of of annual we as and you terms due prior consigned million growth of evolving and in the to in guidance, XX% the to surrounding and know, environmental duration the investment XX% sets $XX uncertainties $XX continued range to the our withdrew rapidly range In impact in revenue of

me for turn Mark the back now Let closing some to call remarks.

Mark Throdahl

Thanks, Fred.

and environment events we us accountability reminded for unforeseen to in confident time been quarter personal the As to have all entered OrthoPediatrics’ in can position their upend and continue all to the we focus that the in from XXXX. children drive pediatric I’d operate. our which help like this the market extraordinary pandemic, the our throughout thank through of has associates XXXX XXX,XXX enabled first that am leading will orthopedic we industry. I execution consistent leadership

Dave from I strong Officer, questions, the our is who my discussions of informed Before XXXX, Chief since sometime it executive in Executive outstanding headquarters when Dave XXXX and stems been rare to and Bailey, our direct candidates maintain an emerged Chief believed yesterday, triggered to my This appropriate being I effective process insight operational our at with And its expertise. Warsaw When in promotion of XXXX. in that some and that is Dave has customers, was Hite executive, investor from as which well These transition orderly field. in in complementary birthday. brings began organizations, will XXXX. point named development as work Board aside to XXth corporate Hite the who Fred the deep relations, of step commence process of following has OP travel two and procedures financial strategy succession continue orderly and a founding, promotions both to release from Executive following selling succession in our operational skills. to XXth technologies, our in surgical with knowledge ultimately Therefore, involvement development, call Chairman when The Chairman’s of of I have occurs, we I This Dave as with Executive continuity President as birthday press the when the Fred anticipation titles CEO I we I constitute forward transition Financial and Bailey expect X, open as announced role. powerful Fred senior worked have unconcerned Officer the the doubt Officer Chief U.S. their continue into Operating step an three company and June and and I us to that already hierarchy team level no next a abilities internationally. in and to of to a duumvirate. seamless the long driving of success. planning in

And questions. the with your open to let’s that, up call

Operator

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

line now Your is open.

Rick Wise

achieved. want Good perspective? you to on to in I to personally, team the pick morning am And going Mark, that communications to are deserved. all. everything congratulations Dave I you you’ve but don’t to still be around and gust, to Congratulations and well Fred, And for you thrilled

Mark Throdahl

are Well, thank kind you, words. Rick. Those

Rick Wise

you each hard us about you again little turning help has you geography just stabilized to comments color, want case, April considerable to comments than better ground talk thank might all Now, like you. when Thank and and your I today, be a and volume are expectations, my considerable different about the for comments of April or you do last week feel detail each about more there Can is and there? improvement not procedure sure the make improvement, relative ourselves give us worst understanding, say just that some again with When I to for seeing? just what you you your to appreciate start it’s May. relative slightly to May’s

Mark Throdahl

stress of the down correction cash XX% noteworthy was In our Yes. model. April. slightly was normal. more were international and that Deformity in Scoliosis anticipated It had than was but less worse less XX% test approximately domestic than from that, than decline than Trauma and that was in flow we was that April month summary,

Now are than we stress a a while much reasonably little few test still we below in have stress, we QX. anticipated April you days we place much into that but in as data but data called about are. we line this by that and that’s tell would point the days our month, I Rick improvement a are normal the and only I can take called a about probably is we increase, seen where model, a May, amount as a would but better one in considerable think are But few are second into actually we point substantial with May,

Operator

And you. Sandler. from our Matthew next question Piper comes O’Brien from Thank

Your line is now open.

Matthew O’Brien

Good morning.

critical here, you Mark, comments of should scoli interest Let COVID overhang. summer around, this there. Congratulations these long the guess, to in on on that of can business, coming about the for reconcile new think your with are me starters comments procedures are echo parents’ for some to we’re obviously the I Rick’s these C-suite bring and up everybody. season about months for it’s given we their willingness that that cases the or the about time the season kids as some – scheduled it’s being as how

Mark Throdahl

that? would Dave, to you want comment on

David Bailey

that good Matt. the we procedures. be are we only bookings, the to in booked cases booked start weeks And done we are last looking Yes, said, we the we month May. least haven’t to I starting March back Hi, number of that far of of to very Yes, like lost or the is three in those at that felt a May number so see at think see talk to of to you. were a encouraging it in

number first well as cases the cases a few canceled. of get in get of seen so, as And weeks, we’ve number scheduled, those a

returns Mark which it encouraging of And suggested, are it’s but see we witnessed early at April. seeing bookings, is in all But is that to this the at what driving something those days. is can’t so, We bookings. some stage, as cancellations, to not very necessarily moment at speculate we this

we and and the hospitals of of back ultimately guess, parents’ already into have room passes. patients’ pandemic Now, to of for willingness see for scheduled determine kind But take to of the ultimately June. go how I ease that’s to think in into back the the a into to operating things it’s going us hospital as May cases anybody’s some back month June, I think number

Matthew O’Brien

That’s really helpful, Dave.

kind it’s lines of then how year follow do to And – in lot how but a in traditional along of a type right just this I does maybe how that point June more, of up at kind early versus and Just now, a those that little and bit normal there’s look year? to have that what you point? more does volumes confounding at know those Again, factors does visibility this July? look

David Bailey

great that’s Yes, a question.

to be possible so need that OR a in inventory, some cases with it’s with post back gets I connect we to on and get have we to weeks at normally advance a hours speaking cases about of force done back X in I been would after obviously back accounts, would say a and this the not weekend specifically us to their that have or we aggressive ensure for I’m surgeries or XX% particularly try when Scoliosis. if month any scheduled least understand physicians to they So that these our those month their point, instances, them we of visibility sales could to say, where at given and time. very with over physician where

be off weeks at off be we make in clear it normally of is summer May better few So similar being that we is in of are this that on Matt? would to sure this as to in aggressive clarity. month as said, normal sense, on cases we summer, of well as the the to would we I now expect albeit the month encouraging Does than time that the as time June have are and our it’s our well of a where pretty at volume volume a where have is into we that think that That do I June May have clarity the the of cases say have on clarity in we very that we are we earlier. we even month in expected that And June. making right substantially

Matthew O’Brien

as from It obviously little coming bit there. And highlights it. February, and real to can some growth January Scoli, kind love out could or some and the far you January favorable. would a saw sense. in makes I and Got out tease just the just commentary Deformity, some domestic, where that tease points if was was Trauma as about strength as see follow-up, February of international, that quick a total XX% anything stronger you just of you

Mark Throdahl

Fred, would comment to that? you on want

Fred Hite

absolutely. Yes,

start strong I very say domestic very our year. international stronger if a had the growing very, back T&D, would stronger was than you Orthex, that than to we business. out our strong. the was business, even So The international

add pleased with we’re you So just domestic then on And on Orthex was performance top when growth very the of business. organic our the T&D of outstanding. that,

So we are off great start. to a

slow when side sooner. of down continued it very March very, trend that stuff was much of obviously that first to on as start international sales and on dramatically saw fourth side things to week third, domestic and started and The they March little the went actually week the really second,

Matthew O’Brien

Thank you helpful. so Very much.

Operator

And Zimmerman thank comes next from question Ryan you. BTIG. And our from

Your open. now line is

Ryan Zimmerman

Thank players large are stay-at-home country. some from the roles. and having on ortho me the sentiments. trauma T&D, that talk on of Great. impact everyone’s on orders everyone echo about let particularly around side. the We’ve I Congrats some trauma to want the you heard the

Are and your would there business. still kids confidence trauma still of And thoughts I are so, around think some that? seeing Just relative love playing in cases color to I’d helpful. that just result Trauma a side be to your get the as you

Mark Throdahl

XX, be less seriously stress evaluated trauma the Even the and model, and dark we that off that, think would trauma I on of was be when albeit case surgeries, what from these the we which will Deformity cases, it that Fred’s elective normally were confirms the assumption seeing not days impacted in April, made is because with were we Trauma the Scoliosis Correction. test business March

Ryan Zimmerman

of I unleashing So a at this to to And manner? sales ApiFix just Thank there. thinking power you, commercialization do then of the a consultants understand appreciate talk I that. how would you’re color in the you there? Mark. specific could for Is just phased Are the that about XXX love roll into a going full if kind something some time? you’re on you minute, out about

Mark Throdahl

is is there on both due world XXX first that an and that are and – ApiFix. technology. commence the And, comparatively the and of get certain finally, to record this Yes. very good those for to now Review be working on is others track a potential demand want HDE of go cases There product. are IRB registry focus to a on into many they XX patient, before hands will outcomes Board XX But for will We to them we of some followed has good accounts confirm a registry, make remember few, of must hand our Investigational training we cases around surgeon side, by good the this because those sites, The the we at from surgery, sites. their innate surgeons some of in XX. in another support getting want very been which these will years. extraordinary be good robust course,

we So, controlled unleashing this in a reps doing going sales XXX manner. we’re more this not to be going be with to thing, are

Ryan Zimmerman

Okay.

Mark Throdahl

want you add answers additional I’m question, Ryan, color? that your would any fine. sorry Dave, if that’s to

Ryan Zimmerman

Dave great one please, would sneak – to from colors more no Dave No, be some I then have and in.

David Bailey

to very right managing be how specifically of starting we now of we the several use is cases, – process use as high in in as doing physicians have training are we have even the very one the counsel our these some the level commenced to that to on able field, with Ryan, OrthoPediatrics potentially cover of implants. things Alright. directors the that instrumentation to how well to and engineers

While we’ve articulated body to early these that extremely particularly procedure, cases focused ensuring extremely well, this tethering, we on that go fairly compared are on. particularly is a simple vertebral

or great the coming each of have We by critical operating room these of have that one thousand scoliosis product. have procedures would have and likely such very covered ApiFix a in Israel from that very of it’s if directly can surgeries a well. several not from a presence of either several a ensure expert specific with these over staff, the surgeons this experience go think that we been our hundred, I extremely cases our members first part commanding couple hundred who of

be So we on spent at internal – spent like time the enormous people force are spending of Mark time this our Orthex, our fair we who about ApiFix. amount talked we amount OR of an stage training a training also in will sales about,

Ryan Zimmerman

for of I it. to color appreciate orders, your the lost Fred noting orders potential and the this that just we the those the tail-end timing tail-end on the maybe were one stocking those And that are Got timing how you stocking dynamic lost of in, at up? there, think what’s do that this just Thanks. in estimation Is some about of Dave. you a a recruitment these sneak Or order quarter? international the pick distributors, just quarter? of

Fred Hite

they the their to, confidence surgeries in have They the cash that and great a imagine, and are think in managing think, be then before is will back I back. those cash question. their all, returning business. their that’s would the Obviously, can some situation Yes, understanding question. ready sets. They their I of investing repurchase through big own you wanted they aggressive gain be and in position up building come as and more orders timing to business impact the Those to

it’s timing on So, just they haven’t when return. gone away, question a they would I think

Ryan Zimmerman

taking Thanks Okay. Thank for questions. the you.

Fred Hite

Thanks, Ryan.

Operator

comes question Krum from next our from Kaila SunTrust. And

Your now open. is line

Kaila Krum

the Hi in taking on our transition new thanks role. congrats your promotions and and a planned on Mark and Great. guys, for to questions Thanks. Dave Fred to

mentioned bookings could mentioned you’ve sense of for if rescheduled of And curious May. I’m this that’s So, decline how being deferred point. you but in you give the many in too any April are procedures to in also guys in being XX% at us and surprising, those April or processing not a return rescheduled

Mark Throdahl

what the Kaila the don’t have think stage to than historically, Dave this very than a that for to, at at days anything very I surgeries were other last and i.e., in other have of say in the cases much in they stronger sales of the the early referred in good levels albeit we in seven of been feel scoliosis month, elective States, clearly six, half than return the operations. different roughly reflect states April United

I Deformity you, not unless color know Dave, any So or sure and things than would regard there, Fred, other other of Correction I’m scoliosis. to with more have you detail

David Bailey

to in our of but and one at way – noticing, that point the the obviously account I is geographically we’re opening procedures every is Yes. this don’t elective for same nuances know. I we this up procedures to the the weeks not a we in anecdotal April. that surgery had we isn’t booked Kaila, think accounts, of trying of kind across have booked have so scheduled consistent side a in speculation our are are kind But that Scoliosis speculate. month point. so back again, speculating number inevitably away and customer back that know may the coming certain last the but that catch of and have accounts key back say, what bookings noticed of we’re footprint the of seeing in went entire particular we’re particularly us at to May, on had back to I would base from of online three this a is that already up March cases of that we it number in pure leads we And would of

the or elective procedures they possible result so but as United summer, in those procedures to And States. we’re of it’s seeing return these in the done into a is of fact scoliosis ahead pockets elective volumes that account seeing kind of uniform before accounts any we’re go get to in other trying particular higher that getting the they’re not of some the of a what

Kaila Krum

Got it.

that Okay. Partners time? you for to sense. small it’s Thank this realize of at for That prompted but deal, deal LLC there? does background makes I more Telos curious ton you. And a then what – Just this guys, be

Mark Throdahl

year, we happening through there with new last sea change Europe Regulation. was think Medical Device in that was experience I Well, this recognized where regard a this went to we

were to and guy’s future. what an partner way And regulatory very of to what it but to is gotten in professionals, on efficient at in know not the just secondly, that in with very we impressed comply high which Europe, affairs level only was with the had grasp, so, on how we going a and Telos, anticipate that handful lead

to would that the catch-up, – technical possible in the with and world think learn how we to was to regulatory basis sophisticated the this expertise manner. had I play anticipate whole to enable on was goal in most then affairs access thrust of the be to at and this us to here but a So comply regulations permanent encountered best future be not those able

far one that out that ongoing therefore is able area. still to other they that are And final company, this fact span than an the like and expertise Telos for to intended clients it which comment they thinking just are was orthopedics, the not out have many this center talking immediate we area the profit better of a with was better say greater do, because in have to do, although the huge be will become basis. And is really the and to at we access cutting to edge I on to the companies

Kaila Krum

Got it. Thank you.

Operator

next from our Matson & from And Needham question Company. comes Mike Thank you.

is line Your open.

Mike Matson

thanks Hi, questions. my taking for

a few the P&L. on have Just

looking – just what in repercussions or quarters? to gross either margin going for the is if the the quarter the quarter in outlook second is this to margins, decline that curious know is in or next see I the have manufacturing gross decline your outsourced, So that but out you sizable any big over few

Fred Hite

great of the because be manufacturing XXX% our impacting a Yes. because gross have all fixed we’re period outsourced. really Mike, a costs this and of glad variable actually it’s negatively it’s that is margin rate don’t a when we it is will facilities question all time of

as quarter international business may particularly return the that pleased gross first and think continued domestic the in very margin we the the second sooner will be We’re very I third strong very quarter, the in it and than strong and business was XX% will of be leveraging favorable we other the throughout to rest margin have down and in the have year. that gross that margin that really that expect the no we cost There that strengths is fixed weighting mix gross so U.S. quarter continue

Mike Matson

And it or of million with in the like similarly regard being your first Okay. around $XX to are you real aggressive you cost-cutting with OpEx, And it kind sounds looks anything then not were that. like like quarter.

in over to but some quarters? discretionary that is and expect of know should some things of spending, don’t the I be So to there there Maybe on decreased range? couple OpEx that, we next it kind thought continue just travel like your

Fred Hite

Yes, is of sales, XXX% a sure. Again on variable. the that’s commissions, which XX%, almost XX%

to down as with it And as of all that stock in comes doesn’t so, that change. revenue exact The we’ve obviously change are compensation and keep obviously comes compensation depreciation our variable committed down, The are the ratio. things not employees. doesn’t

So gone that savings semi-fixed meeting to well all other fixed. expect that as rest dramatically view and some are of travel, obviously things for we are controllable expenses, as the semi-fixed. I as those down down we of expenses, be which Where are those like that’s and year see advertising, in the area some the things

We are throughout the savings year. that continue expect those the and definitely second the we in quarter rest seeing to of

Mike Matson

when there, then but next if kind to you imagine of end on you’ve I placements, just helpful. be placed original year you was Okay, of forward as thanks. will at in so the guidance That wanted well. set And look we amount fast next know the I’d your year, suspended the ask to plan, considerable

of that guess, that that in the doesn’t kind get would and or of the assuming get that recovers quarter on it catch-up by at you of fall, you even the kind have end assuming set worse the maybe where this placements, pandemic? I second can regard the year you think you’ll you next in do to So, it’s been be can third otherwise in slower with

Fred Hite

Yes. question. That’s a great

So this year of order. we early our had sets on a lot for

in focusing are XXXX. getting down, And of on set and being so us replenishment many the with orders orders to our here those those suppliers completing

away, a would we to And demand been as a expect to not considerable field what deferred. meet of we the that’s inventory it’s going just into see so amount deploy

continue albeit the deployment lower and deployment so maybe to And third in an then the increase fourth out field, and those so than quarter overall into get is in there our sets see slightly quarter, in the second goal forecast. we our would

in in we the did fact fortunate very last are of $XX raise December We million that year.

we and through this both so And deploy to enough cash sets position. to those cash take year us have in way a of next to those sets year and while to next the be deploy the strong the end have still able cash year all the

‘XX but to guess we next your end expected answer question, yes, would and the we deployed have the our I would So answer sets our is XXXX fully that of my expect by year. long

Mike Matson

a Thanks great. lot. Okay,

Fred Hite

Thanks Mike.

Operator

from And comes from you. JMP question next our Securities. Turkaly Thank Dave

now is open. line Your

Dave Turkaly

too in It’s Mark morning Thanks. but duumvirate Latin, to early ahead? the and way the congrats for

Mark Throdahl

done. Well done, Well Dave.

Dave Turkaly

You you like expand mentioned seems it the continuing are consultants. to

I think you said XXX.

job and no plans but year be terms you of on might the curious what and doing as here reductions, mentioned, internationally? So in started to I’m you where the either hiring you front

Mark Throdahl

Well, felt ground things have motivation that progresses. to to degree as we’ve to of our the of to be committed current adding a are high maintain our the well the to headcount. to certainly have a couple that this how organization months direct we headcount and employees got hiring see rather than to halt just over be on front as we’ll But and selling both last

be and less there pediatrics was exercise market that by less orthopedic COVID in I on competitive. COVID, little and will focus will thing Dave, become whole very this think, the most even focus the now fundamental is companies there before even

to state surgeries capitalize decks it that as competitive So hard on running less put back the orientation our future and of being on are hit very the been whole has book.

of was with degree us. high motivation our a really staff this to maintaining So paramount concern

Dave Turkaly

senior you that? prepared every week, want to think live just I that, the about maybe management follow-up to remarks talking it confirm on but And to in just something consultants I you said said

Mark Throdahl

has – one our week. base calls, We of every so a senior just team, touches HR non-business VP your And the powerful they can impact to a that actually on family that Iowa Moines, feel don’t ask little our in how so and entire very Des call to as with people weather us imagine working puts out you associates how dissociated. are who and are keeping, but remotely, Yes. telephone management of chain one is these is it’s the

Dave Turkaly

product it. Cannulated Thanks Large area is the that or Last curious, for you older a was I an Fragment mentioned just an one, entirely upgrade new an that you lot. guys? is Screw, of Got

Mark Throdahl

Dave, on you want that? comment to

David Bailey

Dave, a that’s great question.

So a the of that in a a specific we cannulated – lot single It was have a Large cannulated promoting it a instrumentation screw size. screw cannulated System. X.X epiphysis the to aggressively, femoral we had and Fragment slip large new didn’t are capital procedure

the of a of that new lot in to in kind because different the premier see expect Frag of for the a hospitals. SCFE of Cannulated procedure system the So, cannibalization I System but number becoming indication, used system, SCFE would existing gets Large screw we our Screw business, expect wouldn’t children’s

Dave Turkaly

Thank you.

Operator

like I to Mark showing back no the thank further CEO would for to remarks. turn And over And you. further I am call questions. now Throdahl,

Mark Throdahl

your we interest all to then and you itself. for to company timely forward updates able of we hope everyone will healthy. thank to clarifies and the like just our with situation And this we in stay safe you being as look and Well, provide progress

a great thanks So, much so day. and have

Operator

call. you this Ladies participating. Thank gentleman, concludes conference and today’s for

You may now disconnect.

OrthoPediatrics (KIDS) 10 May 202020 Q1 Earnings call transcript