KIDS - Earnings call transcript Q4 2020

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Operator

Welcome to the Fourth Quarter and Full-Year 2020 OrthoPediatrics Corp. Earnings Conference Call. My name is April and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Instructions]. [Operator this recorded. that is conference note being Please I Petraglia. turn the to Christine call over will now you. Thank

may You begin.

Christine Petraglia

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

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

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

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

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

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

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

Mark Throdahl

when domestic Their importantly, most XX not would we by our We consistent to employee agencies and remotely. XXXX, for cuts to morning, quarter earnings And year call. is the entered low joining that us sales you the that today new a Good March stabilize organization announcing full-year reductions. partner than new with reassured century. XXXX position the health at demonstrated reduce us their job base I XX, We providers and in growth the our so associates, we salary one resilience, greatest or as and we our the suppliers crisis stand meet the available lives how families, us pandemic efforts past loans our working, patients sales interest which from we pandemic, stronger our and public who to surgeons My year. and in fourth there particularly ways COVID-XX be stabilized orders during consignment thank would conference making execution and for office brought of also impact deeply who healthcare XXXX On colleagues of it. closed our no the anniversary we are continued working our XXXX inventory. everyone. on rose disciplined challenges, found of fortunate best reminded began company unprecedented by of strategies. and out our to the immediately resolved emerge well and and

its of company not OrthoPediatrics I'm that industry that year. to or best sponsor the by manner that to reduce pediatric a in places throughout fifth pandemic We for Indiana, the the the as befitting through eliminate one recently, the XXXX. to financial our a in work recognized managed on depend has world stand And proud has surgical in been we were societies that leading these support. did contributions continue financial organizations only

a million, fewer of were deformity stocking As resilience X% result full primarily by markets. delivered $XX.X down of affected of the international to elective economic due XXXX, surgeries from and of we distributors their collapse year sales our who the people,

the decreased were in business the repurchase revenue fourth Switzerland from This by stocking by and XX% also fourth to in revenue Austria growth revenue and to and this total of in impact sales accounting quarter from However, due X%. quarter annual a a that growth million to of XXXX fourth sales reduction continued a important $X.X the distributor December. separate impacted inventory quarter. booked Germany, which by the $X.X year It's December in agency fundamentals treatment the reduction million reconverted to of improve

In fact, XX% domestic our to Total domestic million. quarter, $XX during XX% the business grew million. $XX.X sales fourth to grew

also converted impacted slowdown in in XX% aforementioned $X.X domestic model purchase of to December, saw encouraged XXXX, in we a sales million which Germanic continued from reluctance six distributors impacted of an by and the continued XX sales acceleration quarter XXXX in our inventory stocking in weeks, due several to the over of XXXX. surgeries by look the were of their representing While $X.X sales million, to first agency of we they the past International we as sales decline are the growth to markets. inventory weeks by into forward International decrease in reporting the of first negatively December. elective repurchase countries a were the year-over-year

growth, We XX%, double XX% And of growth will conversion stimulate of and XXXX. encouraged in However, international are out important on to COVID, international in further of December to for agency XXXX and the was in Even quarter, we're impressive domestic XX% in growth to XXXX sales have note $XX three sales year, the review domestic $XX will sales to of purchases, sales procedure acquisitions. one, Austria transition This quarter XX% which these XX in financials third turnaround then model growth in third an represented in turn XX% to our unit. our which and before we grew that This range seamless were XXXX Point the Switzerland, this declined focus on the now outlook year. and demonstrate the recovered for of is to four agencies us the international the continues that geography it would and agency compared plan of same increase were this fourth quarter detailed is and a not agency to countries. Germany, international full-year and woods growth discuss Fred reaching agency of I'll sales business when XX call recoveries give in I give beyond. throughout execute by a half a nearly by confidence management momentum synergies rates sales second number results the guidance the distributor XXXX like XX.X% sales open after which period anticipate factors our morning, to $XX.X XXXX. the $XX.X provide up the in momentum, XXXX, the least four Fred, million sales the our fourth pleased for and to and They continued sales turnaround us agency domestic optimistic revenues the growth of are confidence the international XX%. over from expanded yet domestic a the the million XXXX the at though and million. growth from of significant to the There acceleration second quarter to are XXXX, we revenue about XXXX, in in from In of include outlook. we will million, US the momentum. call our your questions. stocking quarter reasons

progress While saw in domestic COVID a surgical COVID to when of cases six the future of which XXXX patients, encouraged of and volumes, introduction next rates, months XXXX temporary to any fourth coupled with adults we when sales over in were improved our the on quarter six treat fourth performance vaccines XXXX. since vaccination the vaccinated. We us that have and we its believe the since trauma PNP|FEMUR, majority as headwinds during been such we a late allow the exceeded American that by decline quarter in of of faced first XXXX greater domestic have the in time. hospitals cases dramatically products, weeks capability and Domestically, elective of should spikes weather recent X,XXX

XXXX. hospitals for $X.X the reduction orthopedic sales companies $X.X million, category Our impact Navigation reflected to products, last additional commit UK, they've revenues XX% Throughout aforementioned small XXXX in Germany, successful in international to fourth doubling and Brazil. prices, the in million margin the on of in Many as The context system revenue us stocking to conversions stocking RESPONSE well initial quarter receiving time, prices. why million, converted of Austria distributors our because in of countries, the surgeons international European private with and we several markets of specialty sales and reluctant backlog many revenues focused Point cite of has distributors. surgical countries international that XX.X% to by It quarter year, the produced inventory two, home system sales This regulatory purchasing enormous procedures quarter. can of the what in of million to distributors other rate agency from addition we delivered growth market, have from approximate FIREFLY quarter to significant pleased XXXX, the distributors from have as $X.X more we these the stocking organic compared than overwhelmingly weak agencies, distributor increased international our the where the been as the of our and to Point is feedback million at is in of sales and we're XXXX by their fourth same sales largest of retail in the XX.X% growth a $X.X we fourth business a the as accelerated and use Telos number European initiating clinical instruments are believe million to in of ApiFix continued three, for revenue Switzerland, international depletion added Over in Guides $X.X the stocking quantities as X.X/X.X. due other year, we however, in medicine increased decrease dislocations Beginning begun be at Pedicle was markets an agency confidence in international momentum coupled rebounding. this given by PNP|FEMUR while XX% built bill third been conversion their to selling of may the backlog product. the also sales revenue, in compared was that UK number the wholesale give aggressively. positive. have sports benefited economic be is demand, consigning an inventories, and Scoliosis That rather revenue markets. new and to $X.X increase both as period RESPONSE January well turnaround Screw in users. gross a of solid clearance XX sales. we

Europe surgical in in launching Europe, European in to the Orthex February and Additionally, across of deformities for the Middle the look first half and We were orthopedic first East the during performed this January cases and locations forward at Hospital Orthex year. pediatric Medicover Paley XXXX. Africa Institute additional

Orthex, we X.X/X.X received Europe, BandLoc. PNP|FEMUR, and in approvals including Canada XXXX, to addition and PediFoot, X.X/X.X XX RESPONSE in In regulatory

offering We four. PNP|FEMUR, Australia and to also number product Orthex. Point include RESPONSE expanded X.X/X.X our in

to successful to domestically first conversions confident XXXX. for and has flexibility, set we're has ApiFix in history. been ApiFix for so XXX the XX cases the to ApiFix fusion. and registry, correction, approval IRB degrees account XX% January IRB built degrees enables provide and Our XX anticipate whereupon to compete XX represents hospitals, impressed we positioning allows April reach results and XXXX, expand in that, strong received continue has expand Orthex we ApiFix two patients. both with end we to degree XXXX, conducted by in XXXX, synergies And surgeries. progressive from to of increases XX% the XX technologies, the our the had complete capital. a acquisitions curve International anticipate FDA has Mark surgeons revolutionary use for our XX addressable launch in compared to one high cases Telos acquired Orthex spinal approach sales to approved head XXXX. XX only delivered while will which the recent from Europe. sales XXXX, trauma in its deliver market, internationally. extremely in very which and conversions, our return and non-fusion the our recently total how curves full and of spine and then ApiFix per they continued improves will be company the XX which robust received XXXX. deformity even to approval to to have ApiFix, XX to dollar CE immature procedure We will technology spinal agencies a received inventory largest for United permanent of Surgeons launch in acquired in surgeon scoliosis do head reasonably label have with States. we international other is fulfilled on to inventory approved is treated. company's growth. less approvals we growth what their retaining skeletally tethering, performed it for of And strong is In of promise will the the at the non-fusion also revenue produces of to be contribution fill Orthex, produced we invasive an surgical in greater and At previously,

We for contracts regulatory complex Telos XXXX $XX the not We $X summarize, are million the the that To other same fourth would at significant sweeping on expected total and continues international rationale the significant in are continued pandemic. acquisition consigned device and Telos' which to synergies of the XXXX. and in delighted environment. companies, bringing the in win medical some make domestic all worldwide this we expertise state-of-the-art in space. are to the potentiated had the investment sets to that deployed despite acquisition in we during by to momentum, of be to Our demand, orthopedic made XXXX gain in commercial in expertise was access changes quarter, investments level turnaround, million, investment

believe XX,XXX distribution in commitment a square pediatric investments and provider our years. foot around to advance the will time past products us in markets international facilities being completed our the which headquarters, facility that globe. our the represented two of second also surgical We in We orthopedic the expansion end-to-end Warsaw expansion and sets of our allow to

shareholder and succession process XXXX, an and three XXXX the that, appointments June April my At Medical CEO as will and operations character. the represented been years, years, chief closely his and six succession, president at CEO and to our will and seen General I board aside professionalism, Turning that you upcoming in expected officer had as Fred elected Dave's as our strategy the company. new of it both goal remain extensive Fred and and of acumen, recall chief of ago board. to and at to throughout investor Hite of officer. and to firsthand has management took relations, has These an informed world. children the my desire and Dave generation when contribute financial many the leadership and development, make with intention in with X, expected years, board of have their will has Fred a deep years personal executive president David reaching years operating in officer my become been I've cultivated while way with board's on I meet customers, and our to to Bailey Bailey sales began technologies, succession annual our step meeting, executive intention continuing I appointment has his I from XX seamless and an upon development for helping experience he CEO of XXth birthday of Dave during OP, OrthoPediatrics annual pleasure CFO the involved time over effect orderly knowledge company's will that to and Dave management, for XXXX. over organization. Electric. plan travel chairman corporate execute a the working in is field the Symmetry meeting, become

will to Dave company a to the even next might lead And are team management goal of its I'm one say and that orderly, stage Our an development. succession. inevitable, has been Fred powerful that the an confident conduct

review Before take to Fred by and over early shareholders to turning for late our standing I to XXXX us call financials, thank the the to XXXX. moment want in a

transparency, integrity lives continue the cause transforming will of guided We of by operating with with company's and orthopedic conditions. our children

last of to call like that, I'd in As week, world. outlook Fred? surgeries an just started. Fred to getting the And turn throughout for provide to over OrthoPediatrics' have results used been the we're With estimated products and our an XXX,XXX first financial now quarter. review the

Fred Hite

strongly X.X% last Total in $XX.X region of sales decrease In from compared quarter the Total December repurchase fourth of to million million, Switzerland for revenue impacted revenue the million compared representing DACH $XX.X revenue XX% large XXXX compared revenue. inventory to Mark. agency $X.X momentum million, million revenue million million, total of we the year XXXX, build the the to XX% could the has XXXX. year. as quarter the decrease was XXXX of $XX.X to US compared pediatric and to the are of resulted of last quarter International to quarter increase, for representing a times, million International $X.X on X.X% a to a growth $X.X recovery we growth Thank representing aforementioned same we XXXX the was total which XXXX, the the a XXXX. procedure recorded a taking thus XXXX, and in million the fewer by negative reduction XXXX recovery total Outside market said, of quarter converted fourth impacted was $XX.X continues of revenue of total million, revenue. a sales international of The Austria carried The million due $X.X in again Germany, a that distributor little revenue revenue hospitals, and negative deliver stocking in X%. increase with for in in to $XX.X We're in Pacific, the performance fourth a sales domestic revenue we the in XX% quarter revenue growth reduction same XX% was reduction to $XX.X $XX.X US as fourth same That the $X.X XX%. decrease compared no model. compared lag in revenue. $X.X total was stocking in million third $XX.X representing international ex-US a of X% accelerated seen during mentioned decrease agencies. period XXXX total being standalone a XX% million period by encouraged XX.X% for with XXXX million, strongest EMEA to to year, to you, for fourth normalize period Asia distributors. set million, for XXXX our XXXX for was quarter longer US, revenue. year, Mark fourth $XX.X US, many to XX% of last far for particularly our was from the trends revenue

by fourth million period XX% Cannulated and stronger compared deformity elective full-year period signs full and of to to year, our growth FIREFLY quarter category $X.X revenue quarter as to our resulting surgeries, lower million Guides the recovery revenue million particularly million, $XX.X and driven and $XX.X PNP|FEMUR XX% Scoliosis the decrease negative Screws XXXX, compared $X.X was the million million the deformity of aforementioned $XX.X procedures. in the same by in a The million XXXX reduction trauma compared of system quarter RESPONSE XXXX, Our decrease growth the Systems. from Pedicle X% fourth a and a increase XX% fourth X% was Screw Trauma The last of growth year X%. a year full-year trauma by same $XX.X decrease sales XXXX encouraging and in corrective Navigation and $XX.X $XX.X decrease quarter in driven of revenue million for revenue and of was fourth XXXX, in revenue elective in fewer compared X.X/X.X XXXX. follows. by the by $X.X to million, in in impacted last impacted product rate and was deformity XXXX negative a specifically

acquisition revenue $X.X revenue period compared primarily the of Sports $X.X sports in in million, compared XXX% fourth in Lastly, of was in when same medicine/other XX% to to XXXX same XXXX representing $X.X quarter $XXX,XXX the XXXX, due increase a last million, the in increase Telos. the was million year. medicine/other period to

and XX.X% growth XXXX last XX% compared $X.X marketing X% fourth related compensation recent related expenses, The the business; primarily ApiFix a was to by Sales XXXX third in addition in increase $X.X our sales the expenses period fourth million of by of prior increase expenses year. ongoing increased fourth growth, In the to increase $XX.X The same primarily domestic settlements increased expense in personnel commission the driven and million agents a due quarter additional increased and well was the the stock of acquisitions; consigned in an period to million multiple stock was XXXX. our to in an year when year quarter depreciation $XX.X margin markets, increase $XX.X margin executive the to to last to from down for and XX% we fourth period future cycle XX% same fourth to increase sales the to the compared of $XX.X million G&A reduction XXXX. driven due became compared statement, X% acquisition quarter And $X.X compared of expense legal year. the for restricted transitions; was XXXX for million expenses in of quarter to Telos. same cliff profit The Full-year accrued an resources X% administrative amortization stock in $X.X increased for the quarter to of year. $X.X in amounts Gross quarter compared our of XX.X% in in by the our in in one-time quarter and fourth $X.X marketing the and quarter in and increased $XX.X XX.X% both million to XXXX. international the expenses sales the may accrued expenses legal Research due increase full-year revenue. markets. of amounts increased of grants to increase profit and the XXXX, as compared mix. fourth million, the XXXX $XX.X million million, the in The in international were million $X.X G&A was $XX.X of year. and X% sales to agents from increased profit quarter income driving General differ gross profit XXXX. margin related of of $XX.X three litigation the grants the compared the from primarily Gross full-year management increased those support Moving million, both expense our and $X.X as our amounts. vesting and sets; million were was XXXX the estimated sales for XXXX of increased compared probable. million was acquisitions; favorable for to million development from G&A expenses when with domestic to associated revenue impacted XXXX, and a of gross XX.X% of negatively Gross the million, for million fourth last of XXXX due of aforementioned the an XXXX million Gross addition in full-year was was to as fourth increase converted $XX.X to XXXX.

$X.XX research for to in million settlement. For expense decreased negative increase the G&A fourth Operating full-year Adjusted loss continuing previously of million contingent EBITDA of driven to Total Full-year of in and previously was our $X.X million XXXX. operations $XX.X expenses on quarter value million for with considerations increase ApiFix $X.X last expense our adjustment $XX.X demand. negative million compared the $X.X for the were $X.X million a decrease to XXXX of negative compared million full-year and $X.X accrued changes and with COVID negative of in negative same full of Net year, losses for for XXXX. The the The continue from the zero were in represent to to for by value million system four increase money for varying a acquisition million quarter XXXX the $X.X legal the legal the the were million will $X.X the on These development time amounts was second for associated for XX% to full impact payment was operating XXXX well as as $XX.X XXXX. quarter until to of The related research compared driven for of in Interest operating XXXX mentioned, in million and a the fourth period XXXX. year expense $X.X fourth was Fair $X.X in fourth $XX.X quarter by including compared for to fourth a the primarily a the period negative amounts decline $X.XX net reduced million XXXX, million XXXX. XX% $X.XX to accrued to increase XXXX Net fourth a was period compared was sales XXXX million in in per settlements in the in last million a year XXXX. year was the to same last quarter for was diluted year. COVID-XX last in the full-year the was during diluted the $XX.X fourth share operating same year, compared compared permanently compared diluted for share in of to per the basic and $XXX,XXX the Net in same negative XX% of expense the was XXXX. basic compared for million $XX.X and and as XXXX compared share quarter quarter continued XXXX negative million, G&A driven loss dollars pandemic. sales quarter as full a The XXXX. negative million $X.X $XX.X net XXXX. EBITDA the and per of fourth Adjusted million diluted and expenses year period of share X% XXXX, negative primary was XXXX million to from operations the by of $X.X other basic and per full the per of XXXX development to of $X.X loss in investment were $XX.X for basic research XXXX. share in million due expense $X.XX development share in compared quarter the to and loss projects result from increases million, loss $X.X mentioned. compared per year. XXXX $X.X year

our balance to Turning sheet.

the which trays. $X.X the XXXX. implants, to and year the the compared million for same $XX.X investment during during compared XXXX, were with in $XX.X million on of as XXXX consigned credit As XXXX compared Currently, as to includes were no in million million period fourth This to facility, and to million of of in purchase have $XX.X sets cases consigned September January and quarter XXXX. fourth was last outstanding deployment our our cash quarter which $X.X obligation net short-term PP&E December million million deployed of Including expires compared we instruments sets, change fourth $XX.X restricted of the of in and revolving XX, XXXX. $X.X the of XX, of cash, product-specific $XX reflects $X.X quarter million XXXX The investments million of during XXXX.

outlook million like deployed consigned $XX.X XXXX, sets in compared to for I For now million the the full-year of full-year to $XX.X to turn our would XXXX. XXXX. we

to close several into deferred we Domestically, remain landscape pay California of the being in quarter surgical the the evolving and head and we northeast. Southern hospitals in first of diligent and were full surgeries year the procedures. elective attention As XXXX, of at

positive quarter cancelled COVID in have for time being However, continue wide said, of during With XXXX unlike we vaccinated. come to environment. the for larger Australia, patients Zealand of COVID the pediatric as surgeries. cases XXXX, there as second cases. appear first Internationally, and the of children's to is controlled Recently, this as widespread COVID expect the cases New that are that affected that well COVID the elective reported a on demand no adult did to effectively in surgery. very decline more population have prior adult were to we the impact. as treating end divergence to less percentage deferrals significant impact the of by on tested continue start becomes well appear during pandemic surge as Germany, be to of there's hear fourth quarter of seen the and well, a to and quarter a selected in increase the patients little some XXXX, Hospitals the hospitals

However, there several are the partial and deferrals of elective in significantly impacted. surgeries EU, countries UK remains in the

the see $XX benefit the to will expect $XX of ApiFix of stocking and demand they XXXX. or of for representing full with conversions XXXX in the by expected will and Major first are sales registry And Benefits will sets growth during which from very contribute in late Switzerland the to to and we second time completed XX to continue March Austria we are products Europe Orthex center sterile will over We accelerate domestic significant consigned For the agency million from distributors $XX completed quarter for of XXXX. package international deployed orders. million of XXXX, already full-year case XXXX a starting users to will countless million the to conversions XXXX. training, continue and and domestic the quarter XXXX significantly of replenishment starting XX% Orthex our reaching place hours impact to play XXXX markets. in set pediatric launch have XX% meet virtual of goals increased new International impacts prior and growth. beyond. XXXX. larger since believe and the reaching sales will market. first Germany, showing in favorable in XXXX, year, conversions to following and more. in our their year the XX% the the sales to are developments XXXth orders have

our execution, positions to containment a execute these and on As strong business we model, us robust new to evolve, balance cost adapt challenges. optimally environment the pandemic believe continues and focused to sheet,

over Mark the now final call comments. me some back to for Let turn

Mark Throdahl

Fred. you, Thank

strong uplift sales With Orthex, issue yet correct from it. believe growth, that the synergies we we emerged from continued from in strong company stocking sales have seen domestic significant had the we While Telos, with the in XXXX. entered we and agency performance stronger and growth emerge distributors. even ApiFix to COVID will than indeed should pandemic, the when pandemic a recently international we not have coupled turnaround, international This

outlook dedication which your of company's honor for asset. that challenges this to who turn best that to XXXX due the for our named culture, of designation so reinforces risen our valuable in work this performance recently in the OrthoPediatrics' As is With the call the the associates questions, the are the to fifth is due admirably our let's world Indiana, one to our that, most places XXXX always, as conviction have and past year. around of year, to over please. our

Operator

[Operator Instructions].

Truist from Your Securities. Kaila Krum first with comes question

Kaila Krum

what First, you can on change What resulted more in revenue that number? guys reduction? the this detail I million pre-announcement Just have bit little the learned, of from just preliminary change? that today $X.X prompted from guess, you and a the the January time provide

Fred Hite

XX Switzerland January. reporting was at January we on conferences normal the we our The And Germany, agency of on that Austria with time. the And issued signed in XXXX. XXXX. And we that XX agreement signed early stocking had of in pre-announcement the process first was new distributor then December sales agreement before week the January the completed investor and in

that in as situation a a of guess, bit for in independent very, accounting ASC with its unique, us smaller, As the guidelines, of then XXXX. we new correct complexity. revenue our really this revenue And book this unlike working This required in us, the and determined auditors, other our to family-owned we XXX, light is reduction recognition December I is of some businesses. transaction, the we that large, got it stocking distributor very treatment a examined recognized into

our agency in had, other today. the agreement it results the than That shows auditing it obviously, processes were we I current that And that as agreements so, we up agreement in as would the financials. termination the does we culminated different, place. new all closing And throughout you're were agreement have seeing say, and the

Kaila Krum

a of That ton makes sense.

in up to You guys quantify stocking quarter. Is mentioned a the this first benefit? way there that international potential picking

Fred Hite

to $XX growth as expect us the increase report I'm that overall as it the put making our not we sure exact year, for we to an to number want would gives in million confidence of continued quarter and say $XX high the statement million business in on well it. first that for But I in here XXXX.

Kaila Krum

expecting us on that on ApiFix. lot get supply It sounds and one ApiFix. a the early of registry myself Can the that think frame year. complete the Because rollout the well you're Just line really I just help this capacity? like is to you going excited sort of pretty about numbers and us

you are comfortable capacity how have this you you. and Just right next. of year that the sort Thank

Fred Hite

Those have. for problems to for time. some been are demand this, good Listen, have the we anticipating

increase these as anticipated this surgery we come in so, had more building inventory the we of XX demand been And significant more hospitals of And product of a anticipation for launch. product in and online. this

these inventory that we for to investment a not Again, for Mark the this sets have very, of lack small. pleased I are report required said, as product. will So, am very

of So, demand well of the it for to can increasing meet plenty plenty have make inventory on ton sure we this across sense available, product. a to as as world shelves sets the of makes our ever

Operator

question is Ryan with next from Zimmerman BTIG. Your

Ryan Zimmerman

to kind a seasonal you're in of if the Fred, and obviously, helpful. could of more or unique Dave the give with think, quarter. appreciate, a thoughts year, get about year just I this? its just the given the got season, [indiscernible] through third cadence for some be seasonality if But a what thinking there, the XXXX we'd around terms your and year? in maybe Curious would back to little KIDS cadence typical impact Mark quarter. obviously, normally expectations think second sales for in of and was, of mid-year, color or scoli you I normalized any first How we example, want

Mark Throdahl

to environment say stage, appear, patients can't know quarter while this expect the are the that back and and volumes to back season. point. the does affect, to normal we're that We that the how hope reasonable done. that environment. no I the exactly a summer. But throughout more are a patients pediatric our of have more part see particularly back backlog there's see a summer Ryan, impact a to there that But summer moving business. to in still really think, to fourth back would sure. normalized a may be Obviously, difficult will an volume backlogged quarter. time part environment there's on back return will normalized now, get fair the Again, for it's balance still revenue we've had from continue more understand that to this summer we at of where the at think question do we seeing But last early And don't online seasonal even we of last to COVID increased believe several is and come the busy with normal didn't our get impact of of of We continues. season. weeks, say this that obviously, hopefully I us those And first we we get the through our throughout speculation I this the of cadence it patients guess, the

Ryan Zimmerman

Historically, expectations of Maybe one, Fred, XXXX. for in you. given for capital us your you've deployment

for talked you capital, expectations XXXX your you You capital deployed about for XXXX. a in sets talk particularly did about XXXX? the and bit in deploy Can little

Fred Hite

that volume. a deploy would invest to We're the putting going just than like the going throughout say we we're rather to sure. to despite guess on business number it, lower to continue continue sets in I XXXX for I just did

lower to to those drive required start also going the I capital ApiFix numbers. we're think the benefit to see growth of

to we So, multi million amount significant deploy the capital more. can and with dollars of deploy will drive slightly necessary growth to continue and more little ApiFix of reduce capital which very

catch demand but the done So, a last with we're we as to the meet up what it sets pace, continue here at going in let kind of be slightly demand years. and our the deploy lower may to of two we've products,

Ryan Zimmerman

If I in. more could squeeze one

rep kind of in we XXXX. and the You group agent if taking think sales will, about the help that ended Thanks the Hey, particularly necessary implied per how as step reps. you XXXX, question. with guidance for you increase productivity productivity understand XXX about requirements, and for us think in ups,

Mark Throdahl

between a geography As track necessarily metric that of the of benefit has this it, the difference track We productivity for don't isn't on but reps primarily you such because know, market. a it – we the it's rep we a by see United more basis you terms meet normalized demand. in think environment That the adding I to hospital. a and can said, rep a our States sales probably in agents of to specific is what reps expect the within volumes

our XX% XX%, know, you of As are covered. surgeries

So, those to are cases. to to XX% people sales sales cover as require to XX%, simply rep by be in grow And it's just more able those going the room.

in better XX% And saw It range, it than so, will I may will sales that think rep growth. but that you probably near be to see XX% XXXX. not you certainly

Operator

question from next is Wise Rick Your with Stifel.

Frederick Wise

some cadence, me start of Let course, and level. higher come at a off, of your to the quarterly thinking back

Are trends March sort we to half of are better versus up? guidance the first get us think clear see where assume. seen? the the accounting? your all change, Stronger first it's of than you're the I quarter, appreciate unfolds? you've we quarters things off quarter fourth given I second the year the flow the it about you help I it's say seeing some could how fourth myself, to quarter help of assume but sequentially stocking Should first, as shape and Just thinking you to through trends, how us that XX, now-reduced through number quarter because with the starting think likely can Just first to could quarter. the

Just any be quarter great. would

Fred Hite

increase the think rate. growth in I see we continued

So, we saw X% quarter. in the third

on first something be could quarter $X.X quarter, If fourth you back has negative the XX% the XX% to growth. out a like which million,

of because continued tremendously pattern So, high would going we continues and historical. the to the quarter then ex-COVID kind impact but be the recovery is business revenue of growth as last increase revenue think, obviously, similar growth the of to year, see increase continue of second to I a And us. follow

swing. So, back many schools of the in are today full

patients months not some in until summer surgery because, school. right are that are there they're getting So, now, the

would so, June the revenue probably third July. lower very then, a be if expect dollar we quarter, continue and And to as fourth than expected, things quarter. strong And the

Frederick Wise

always, Fred, dollars slower and say, hopefully, ahead so third just quarter, the seasonally quarter understanding, as I'm fourth you to first quarter make of strongest normal, as first, to, of second fourth sure of more ahead sort quarter. returning

one the be that sequentially lower hearing year? of Am So, would you correctly? as the quarter we I sort frame

Fred Hite

you. correct. absolutely is thank said, Better that Yes,

Frederick Wise

you've hoping And mix this alluded I about GM greater a now returning, to us the quarter. Germany, through well. versus US got in but How was it. more than XXXX gross for I also get to we Switzerland. year? little sort of O-US. better largest you think yes, three margins looked much markets, Austria, margins. say this myself, direct of gross margin setup that's as versus rebounding, O-US – I for Because Gross do color volumes Help your US were to on Again, the think assume we

Fred Hite

a gross X, discount. fourth at X, the back they're important returned, products And The on it's negative at sold stocking last the XX years. came used distributor million quarter that the rate to XX.X%. think to margin that to I we impact understand $X.X sets we over had they us

books the XX% And so, gross it came at margin. back a to

So, it's a negative.

which a of of it's because that quarter gross sales XX%, margin rate transaction. the return did So. inflate fourth of

then the But we basis and forward. if the that's our impact XX-ish, selling full-year agencies. a impact. our having a stocking distributors sets at the more so, is I where XX%, kind think were business like it's which to XX%, something of going that be if we see to And a on normalized you going start of positive negative cost, to overall back out,

So, it's another kind of for XXXX. offsetting one

Frederick Wise

your your me. thinking going that's on, questions integrating might how thinking recent to from about other M&A as you think way as it? Two right or deploy front strong et XXXX? be everything technology XXXX, not about be sheet in I is and balance not that, it in of you tuck-in going past? about given to talk your a probably cetera, Can the and Should bit you've you're front that that the acquisitions been active on the little Or

Fred Hite

I can to would say for industry. technologies that and help that good deploy we we continue look this

out an debt continue continue soon. today, would that. we to this any like sheet that of really of opportunity strong And we to so, balance sheet the said, sit being to balance get And for there, if look decisions. making don't on some anything smaller anticipate With We'll we don't help us take finance us look have it, regardless But if something to debt, helps could to advantage size. that the necessary, industry we could go look. tuck-ins. announcements which I there's any we those But continue help make anytime

Frederick Wise

last. just And

accounts For Is your point kind define what the around I'm reason, we business business? is percentage it activities of the about your obsessed to possible you outlook total or with account many your you. account of tell think total how conversion? US story. How pipeline? that of today on – as at a XXXX And mindset Thank or do around that the impact would there some and aspect conversion this us of what color any

Mark Throdahl

call. have We before it – consists pipeline. I fact, a just pipeline That this of in looked at

We to hope kind but specific improve category and every in say, possibilities, as that accounts order our that well of that, move for we number limb very to into of quarter of high monitoring couple accounts looking to pipeline are with move of those deformity and accounts want about very a normally have that close business and XX% share, the XX to trauma very very, and plus, place We of those year. a we obviously, a every accounts XXX also particularly XX% area. over to have opportunities, contract specifically let's to

runway. this so, XX basis quarter. have long a of executive the observe, accounts few leadership and and a like accounts very measure we of these stage, we that, about those a quarter-over-quarter on of an group, conversion we every of as And pace against And at kind of

got in United of you know, I children's talk most as at trauma grow few range in And of kind world. products. the this stage, to from about contracted year and going we XX% we're we're last may limb account. of right those lot know very hospital States to there, like XX% XX% XX% position last a developed a present major As sets every seeing tend would you like into And we a the larger, that said, whether into in inventory hospitals. are specific of were number those the ultimately deployment get see inventory our at we was we are are deformity and we we year and last year, we say that when an the or That have few deploying be the but worth those And that But sales to expected deployed even that types not by over inventory day, affected a starting $XX.X to we rep on months, of a we the account. XX% obviously, shelf put be when deployed deploying every now. to of the are the of not, pandemic. our to XX a and out we million inventory that last into space, we few few share. be we that's – accounts, that have sets accounts present the And right funnel And contracts

Operator

Needham. from with question Matson Mike next Your is

Michael Matson

first, XX-K? to And the been completed? guess expect Fred, do has your I you when audit file

Fred Hite

Yeah, absolutely.

filed clean everything. completed have opinion Have yesterday. the XX-K a we We from Deloitte and

should there. that be out So,

Michael Matson

put quantify distributor the For million acquired, $X.X you contact, can revenue annual that into the of you sales? their to adjustment

Fred Hite

COVID, say was million that $X opportunity today, about XXXX's million. to it's doing revenue, I probably grow. year annualized probably that with definite They're a throughout sales $X of but would around

Michael Matson

pace? were the O-US just the these conversion of effort? normal kind lot Has going to phase, at it that through of is distributors has fact that kind Or the caused of COVID continuing destocking accelerate with and the your really you experience a stocking

Fred Hite

we it partners invest normal of the years we we pace. and not think cash of the down benefit available many lumpiness I benefit have this to rely saw continuing Clearly, eliminating road see of, or our would when started I not having in the business. the say, is some revenue the ago as – No,

know But And of going absolutely direction forward. to I so, because it. we're to that think don't really change encouraged it I us continue moving any

Mark Throdahl

expect that don't a was in It a big as to I substantial think the this and one. into impact about one This I see complex. would near the is haven't we year revenue this talked time. this these But add. ones of a two is This earlier, one Fred have complex, scale. maybe maybe one, very the I and certainly, term docket pace then, for definitely small that on a future. long we've had on are of accelerated we year. extremely these. we But the resume And Even will of anything

So, it's well. matter as of a bandwidth

Michael Matson

provide can settlement, Finally, accrual just Thanks. involves? that on detail what there, the any additional the legal around you

Fred Hite

Barry got Florida, with KXM, Dr. IP. we've to there's matter, the knows, everybody related most IMED cases there's think in I outstanding items typical several

probable. some have And recently, have become potential here things I those have, estimated settlements, become that guess, progressed and such

those. put see time the can books in is those now And of first on the because we many so, on insight we for end the

And up us. things get closer just so, are six to behind lot final, we not these ago months while of and than we're amounts were them think estimates, we wrapping they're some those a

Operator

from Your Dave next question Turkaly JMP with is Securities.

David Turkaly

and to I hopefully. it puts Fred, I understand just bed, think this, this so

but reverse in it? familiar XX ASC or that, imagine let's with contra sales years, not And the Is stocking buy says, And one You take cumulative revenue, new all before? you know, is you I I XXX the And you seen say, have with it don't think $X.X this you Are something that fair? that familiar mentioned. I that Hey, sales, over period. that million even pronouncement new? distributor, that you recognize the if in maybe that I'm last, is X, mentioned,

Fred Hite

it I before. have seen

can not to As that to them absolutely service AASC They're many, able XXX sets, yes, required we inventory is what related which and to And you serve used but marketplace. said, be and so to to sets marketplace. we've those they're the hospitals are bought, over recognition years. revenue we sold is the sets, continue the consign sets, returns. the the many sold into We

And – our number is it on as would back brought where it and so, in before a absolutely this I that books. seen $X.X case, to correct, it you have this, we is lower – book million for revenue

David Turkaly

leverage in if us give the think color growth at loss, return I you net there for are what XXXX. or line? the experienced like incremental XXXX on grows want comes whether as the Looking some solid level was loss you operating revenue in or terms guidance, we or wondering do might to your of in maybe the just its terms shrinks high growth kind color any bottom back, to of of any guys thoughts

Fred Hite

from the settlement, we aggressively was on grow time, business Obviously, bottom business. of by top continued adjusted point, those, negatively EBITDA want this same at impacted an the line, by the have improve and COVID, the we legal from by statement line to But the other that things. aside operating

have and deploying communicating those how methods. to travel continue deploy do we'll some and and Zoom money. with some learned obviously, to things in other definitely related to effectively, to And We differently be save XXXX those

will that sure. XX%, So, improving controlling business revenue line of as spending returns aggressively, bottom our be to and the for very XX% the

David Turkaly

could. one one I'm last I going to if sneak

you agencies said XX you think O-US I stocking and sales had XX distributors.

you the I them just smaller? of XX you level I most for at guess, Or there look would, think others of considering meet you those And ones certain are potentially converting. that maybe the size so don't I idea some in figure entities. are the if don't have you're of seeing materiality Because it this conversion, there? Thank there's thoughts of an there As past, I XXX? of you. in ASC know, any the recall

Fred Hite

nobody just What in largest, is distributor. size. else say This But sophisticated the place there it that, stocking wasn't It that legal would our well. really, out the contracts to the there's was close as contracts, this were was by size. I far anywhere most

evaluate we'll make forward sure. But we smaller going and independently much them right so, each as the in move of decision. to And all for they're one a be nature

Operator

with The next O'Brien from is question Piper Sandler. Matthew

Matthew O'Brien

stay business. going you're with to stewardship in just joining. your the I know company involved I Mark, the wanted to recognize outstanding since

Mark Throdahl

Matt. very I that much. Thank appreciate you,

Matthew O'Brien

the if it cases, scoli as we elongated scoli strong obviously in saw deconstruct a around, talk just QX far of you we some what how can it about guess can I this deconstruct was little performance bit maybe durable and ApiFix of market because guess account not and as next time terms over going importantly, QX, eye capture, is but in importantly catching that that you was. scoli the of couple the maybe kicking season dynamics backlog forward are And for a opportunity accounts, but like in, the in of underlying deeper I years. more that, other new things obviously enormous existing – in huge more going

Mark Throdahl

we saw the companies into in seeing first rate about We demand the periods. demand, quarter. December, that we're early the effect. almost of other a slowing elective was now we then really saw it for quarter, a backlog in of kind the fall. across deconstruct the spine demand this a first the had here number a of think early board saw And that To quarter, solid And really here bit again a but part whiplash throughout saw fourth what was of where really, we a had Then I surgeries those continued of strong November, October, scoliosis scoli. of

from with some on the other reading, So, I consistent what spine from elective. companies we've scoliosis side at seen been side think the a least demand what on the I have in is or standpoint pretty of

and number in have XX really the XXXX. captured that surgeons that there's a And about we users that we're what only of think again, only new – regularly scoliosis. do pleased I XXX we is numbers hospitals orthopedic children's certain pediatric

magnitude really a share again us. off a kind start. and was users goal new year, substantial of really, gain feel this XX that of very we for So, that a of we're good to And like have and order concrete of representation for

percentage accounts that's no some of we're getting question already. of of There's think durable. the our a take larger I So, what's

that we're XX of being for new some think, is growth penetration. are a users, very in extremely the for that Obviously, scoli the about we deeper though, can you remain will concrete I of before customers very XXX I a part on people and new sites, there calling we're clearly is resting continue patient, as that see know, although, we will What a we're to know, this patient the have non-fusion XX surgery. – connected interest clearly we every this consistently accounts from very we we as ApiFix. But So, fill had system, these our And say, – users being you getting I think non-fusion we're candidate accelerated deriving registry. to next well excited technology. ApiFix newer revenue RESPONSE our and and IRB acquisition until for the is of thing Not adding year.

driven And RESPONSE there previous to patients with at clinics access to site. being ultimately, that fusion have where that the increase those this number where sites, a are access business. of have of are system in our we're locations so, places fusion these technology. we have And didn't to ApiFix And seeing in business an some definitely

So, that And synergies business to part see would synergies our expect XXXX, in expand only to and a the as get there. of continues better. XXXX, bigger we like that become

Matthew O'Brien

deeper? to up going penetrate bigger future is, Are domestic business to hadn't guess or to more normalized in the historically some growing you been the sum just able able around can the get I you times? just the got in places it are you keep XX% you of the of all and haven't of you just you're up said those Following XX think XX? business, Are on target, there one on the the domestic those you've I some where children's in questions already. sizable areas you kind centers Rick's assuming how around really are been US past? into some I'm core accounts, you question big that

Mark Throdahl

the – we in of innings are that question we this early are growth curve. the no kind of early start There's on still

use one as or by Matt, But systems implant let's We XX are in percentage accounts lot major only that the with surgeons of that of surgeons, all in say, product have here of products. account. the we out our XX, past, or may in by volume conversion. United so every States. a the a that this And lot said XX we've of two product present is in accounts have children's of and a obviously for surgeon these But hospital surgeon, that

this of for in few there particularly moving And dollars, million share most of in accounts we're T&D. we like say yet And and to early into again, long are kind a would like and so, some more a the a and accounts those individual really of the of on we that more TAM. range. time that – is feel can in as excess But excess by accounts which phases future. in just excessive again, I million And for with that we're accounts their dollars are certainly XX% in basis an that the measuring pace those that happening pace measuring accounts we're XX% of worth maintain

Operator

are there no And at further time. this questions

Mark Throdahl

mission year, normal interest of very certainly And XXXX the We expect to be for you the to call. to we'd of company. although good. to and support pivotal me children you thank Well, thank like for joining throughout a All prove all a for help everyone year let today's world. more continued right, our your

have So, good a day.

Operator

Ladies participating. concludes call. today's and gentlemen, conference this you for Thank

You may disconnect. now

OrthoPediatrics (KIDS) 11 Mar 212020 Q4 Earnings call transcript