OrthoPediatrics Corp. Stock

Thank you. Good afternoon and welcome to the Orthopediatrics Corporation's second quarter 2026 conference call. this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Tripp Taylor from the Guild Marketing Group for a few introductory comments.

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer, and Fred Height, Chief Operating and Financial Officer. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K, which was filed with the SEC on March 4, 2026, and its subsequent quarterly reports on Form 10Q. During the call today, management will also discuss certain not-in-gap financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period over period.

For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure in its second quarter earnings release. Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for orthopediatrics financial results prepared in accordance with GAP. In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, August 4, 2026. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect the events or circumstances taking place. after the date of this call. With that, I'd like to turn the call over to David Bailey, President and Chief Executive Officer.

Thanks, Tripp. Good afternoon, everyone, and thank you for joining us today. I'll start with our most meaningful performance metric, patient impact. In the second quarter, we helped nearly 46,000 children, another new record, increasing our cumulative impact to 1.4 million kids helped. At Orthopediatrics, we are entirely committed to improving clinical outcomes for kids through our dedicated technology, targeted innovation and unrivaled level of focus on serving our pediatric patients. Our second quarter results further validate the strategy we have been executing over the past several years. We continue to gain share across our core markets. OPSB is emerging as a meaningful driver of both growth and profitability.

And our multi-year product launch super cycle is just beginning to contribute to results, with the largest opportunities still ahead. Revenue increased 15% year-over-year, driven by an exceptional performance in trauma and deformity and OPSB, strong scoliosis implant sales, alongside healthy international growth, partially offset by 0.70 units sold in the second quarter of 2026, and significantly fewer OUS setback. sales and scoliosis. We finished the first half of the year with strong momentum, delivering robust revenue growth, meaningful adjusted EBITDA expansion, and significant improvement in our free cash flow profile. Importantly, top line strength in the second quarter across both our implant and OPSB businesses drove bottom line adjusted EBITDA to a record $6.8 million. Our discipline's capital allocation and focus on higher quality, more profitable revenue streams, combined with working capital improvements, reduced free cash flow usage by $11 million, or 78% versus the prior year. demonstrating that our focus on profitability and free cash flow is paying off. At this point, it's evident that we have reached an inflection point in our financial trajectory, and our results this quarter give us high confidence in our commitment to achieve positive free cash flow in the second half of 2026. free cash flow break even or better for the full year. We believe the continued execution of our strategy reflects the strength of our competitive position, disciplined execution, and the material operating leverage potential embedded in our business.

As such, our updated outlook remains aligned with our progress and our long-term growth objectives while also reflecting the disciplined approach we have consistently consistently taken to guidance. Accordingly, we are raising our full year guidance to a range of $265 to $269 million, representing 12 to 14% growth. As we march through our high volume summer season, we continue to see strong surgical volumes. And we would remind everyone that the procedures supported by our technologies are not elective. Before moving into updates of our businesses, I want to provide more color on the innovation super cycle of product launches we have introduced and it's important as a strategic growth, profitability, and free cash flow driver of orthopediatrics over the next several years. First, it is important to emphasize that we are in the early days of the multi-year cycle, and while we are starting to see very early contributions to growth from select product launches, we are only scratching the surface of the super cycle's impact on both the patients who this technology will serve and our business. The super cycle pipeline is deep.

The new technologies developed by our incredible engineering team will span all portions of OP. Deep in hospital relationships, enabling bundling of solutions across accounts, support broader contract opportunities, and bolster share gains across our portfolio. Importantly, these products offer stronger economics for OP than many of our legacy systems. The products generally carry higher ASPs, higher gross margins, require less capital deployment and should generate better return on capital. Many are highly differentiated, clinically relevant and have limited to no direct competition. The bottom line is this is not just a product launch story. It's a multi-year growth, margin, and capital efficiency story.

Moving to our businesses. In the second quarter of 2026, the T&D business delivered 26% growth and was the primary driver of our total company performance. The strength in the quarter was driven by increased sales across our core trauma and deformity implant systems, continued share gains, strong procedure demand, and early contributions from new platform launches, as well as continued strong growth from OPSB. Zeroing in on our pediatric plating platform, also known as 3P, we are pleased with the continued progress of the 3P HIP system. 3P HIP contributed to incremental revenue growth in the quarter and surge in demand remained strong. That said, the more substantial impact of 3P HIP is still ahead of us, as meaningful set deployment did not occur until late June. We expect 3P HIP revenue to continue to build and become an increasingly important contributor to T&D growth. Moving down the 3P pipeline, we also initiated a small beta release late in the quarter and performed our first 3P small mini surgical cases, which couldn't have gone better. The 3P small mini represents the second system in the 3P plating family.

The early clinical feedback has been extremely positive and we are excited about the long-term opportunity. Contribution from this system will remain minimal until full market release, which we currently expect in early 2027. More broadly, the 3P platform continues its push forward, and we are as confident as ever in our belief that it will become the most advanced and comprehensive pediatric plating system in our field. We continue to advance additional 3P systems. And beyond 3P, we're also excited about our plans for PMP retrograde and PMP skeletal dysplasia, the next systems within our pediatric nailing platform. Additionally, in line with our mission to increase the scope of differentiated technologies we offer surgeons, we recently announced an exclusive distribution agreement with Osseo, bringing biointegrative metal-free fixation technology to children's hospitals nationwide. Combined with our existing bioreject partnership, we now have a wide-ranging portfolio of bioabsorbable implant products.

These products expand treatment options within our portfolio and will leverage the same commercial model as our implant. Taken together with a complimentary beta launch of 3P Small Mini, this demonstrates our ability to leverage our specialized pediatric commercial platform while advancing product offerings in procedure areas that are newer to us, such as pediatric foot and hand surgery. Overall, T&D continues to serve as a core component of our growth engine, highlighted by exceptional strength in implant sales, OPSB, and a robust development pipeline. Turning to our specialty bracing business. OPSB once again delivered an outstanding quarter with over 20% growth, and the business remains a major strategic catalyst for orthopediatrics. Supported by Strong Clinic Execution, SaneStore Growth, Volume growth, new product introductions from our super cycle, and discipline clinic expansion, the business continues to contribute meaningfully to both revenue expansion and profitability. Within OPSB, our specialty-brazing product development engine is producing a significant impact, and overall, OPSB products are playing a pivotal role in our innovation super cycle.

DF2 is surpassing our performance expectations with adoption in over 150 children's hospitals and is quickly becoming the new standard of care for pediatric femur fractures in very young patients. The modular hip brace portfolio is progressing through ongoing launch activity and expanding our role in the treatment of pediatric hip deformities. Additionally, we are advancing MACU4, an upper extremity prosthetic and orthotic platform that provides lightweight, modular, 3D printed solutions intended for both function and play. The pending launch of TractorFix, a specialty bracing solution designed to manage knee and ankle contractures by connecting the brace with our XTX2. external fixation systems, and a number of other products expected to launch over the next several years. We're also pleased with the early progress of the Traxio Halo Gravity Traction System, one of the most clinically significant products to date. TRAXIO extends our role in pediatric spine care by supporting halo gravity traction therapy and helps position OPSB as a broader pediatric care platform. This is another example of our strategy to develop clinically relevant solutions that are often overlooked by larger companies but remain highly important to children's hospitals, patients, and families.

Overall, we continue to make progress across our three-pillar OPSB strategy by growing the sales force, advancing product innovation, and executing disciplined clinic growth. In scoliosis, reporter revenue was down 9% in the second quarter despite implant growth in the mid-teens. Growth in the US and European implants and OPSV was more than offset by the impact of 0.70 unit sales in the quarter compared to multiple units in a comparable period and significantly lower scoliosis set sales into Brazil. Excluding these timing-related items, scoliosis revenue grew in the mid-teens on the strength of an extremely strong scoliosis summer schedule, which is continuing into Q3. Looking closer at some of the highlights within scoliosis, we continue to be very pleased with the early adoption of VertiGlide. VertiGlide contributed to the incremental revenue growth in the quarter, but similar to 3P-HIP, the relative impact will continue to build as set deployments began late in the quarter and are ongoing. Early clinical feedback remains very positive and we believe VertiGlide represents a highly differentiated growth friendly treatment option for young scoliosis patients with complex pathology.

We have completed additional training and now have 124 surgeons trained on the system. Additionally, we continue to advance the development of ELLI, our next-generation smart electromechanical lengthening spinal implant, and remain on track to perform first inpatient procedures with ELLI in late 2026, pending FDA guidance. As a reminder, ELIA is designed to deliver consistent and reliable power to grow the rods through advanced RF power transmission and represents our third and most complex EOS product. We are also continuing the development of Varaxis, our next generation scoliosis fusion system. Raxus is being developed as a purpose-built pediatric deformity fusion platform designed from the ground up for growing patients and the surgeons to treat them. Together, VertiGlide, Traxio, Ellie, Varaxis, and our suite of pediatric bracing products and services deliver a truly unmatched portfolio of pediatric scoliosis technologies. Orthopediatrics is the only provider enabling clinicians to treat the entire scoliosis continuum of care, including the most complex and severe spinal deformities, with a comprehensive set of advanced solutions inside and outside of the operating room.

Moving to our international business. International revenue grew 22% in the second quarter, driven by a record performance in Europe, strong execution, and continued demand for OP's pediatric-specific technologies. We're in the early stages of benefiting from the EU MDR approvals from our T&D portfolio, scoliosis products, and external fixation devices. With these approvals, we are beginning to provide European markets with products they have long been waiting for, and we expect broader access to these systems to support our growth over the second half of 2026 and beyond. This strength was partially offset by the previously noted significantly lower set sales in Brazil. We remain confident that the structural improvements we've made in Brazil over the last six months, including the purchase of one of our Brazilian distributors, will continue to steadily improve cash collection, normalize ordering patterns, and support additional growth in market penetration over time. In summary, we believe Orthopediatrics is entering the most compelling phase of expansion in our history. Our momentum comes from multiple levers, including our legacy implant business, OPSB, and our innovation super cycle.

With this in mind, we believe we have reached the inflection point where our sustained and durable revenue growth, improved profitability, and dramatically improved cash usage, and stronger returns on capital positions us to progress toward our most meaningful mission of helping more children around the world every day. With that said, I'd like to turn the call over to Fred to provide more detail on our financial results. Fred?.

Thanks, Dave. Taking a closer look at the P&L, our second quarter of 2026 record revenue of $70.5 million increased 15% compared to the second quarter of 2025. The increase in revenue in the quarter was driven primarily by extremely strong performance across trauma and deformity and OPSV. robust underlying scoliosis implant and bracing sales, on growth internationally, and continued execution across the business. U.S. revenue was $54.8 million, a 14% increase compared to the second quarter of 2025, representing 78% of total revenue. Growth in the quarter was primarily driven by strong performance in trauma and deformity and OPSB, partially offset by zero 70-unit sales impacting scoliosis growth. We generated total international revenue of $15.7 million, representing growth of 22% compared to the second quarter of 2025, and 22% of total revenue. International growth was highlighted by record performance in Europe, partially offset by set sales timing in Brazil. In the second quarter of 2026, trauma and deformity global revenue of $52.6 million increased 26% compared to the prior year period.

Growth was primarily driven by strong procedure demand, share gains across our core implant system, strong OPSB performance, and early contributions from new product launches, including 3P HIP. In the second quarter of 2026, Scoliosis global revenue of $16.9 million, representing a 9% decline compared to the prior year period. Sales were led by strong implants and OPSB-related product demand in U.S. and Europe, offset by the absence of 7D unit sales and fewer set sales. Importantly, the underlying fundamentals of the business remain strong, and excluding these timing-related items, scoliosis revenue would have grown in the mid-teens. Finally, sports medicine other revenue in the second quarter of 2026 was $1.0 million compared to $0.9 million in the prior year period. Touching briefly on a few key metrics, for the second quarter of 2026, gross profit margin was 74%, an improvement compared to 72% in the prior year period. The increase was driven primarily by product sales mix, including strong growth in higher margin areas and negative growth in much lower areas, such as 70-unit sales and international set sales.

Total operating expenses increased $1.8 million, or 3%, compared to the prior year period, to $56.4 million in the second quarter of 2026, driven mainly by increased sales commission expense, as well as additional personnel supporting clinic expansions and prior small-scale applications. acquisitions. Sales and marketing expenses increased $2.2 million, or 11% compared to the prior year period, driven primarily by increased sales commissions and overall case volume growth, to $21.3 million in the second quarter of 2026. General and administrative expenses increased $2.4 million, or 8% year-over-year, to $32.8 million in the second quarter of 2026, primarily due to the additional personnel supporting clinic expansions and prior small-scale acquisitions. Second quarter of 2025 included $3.0 million of restructuring expenses as compared to a nominal amount in the second quarter of 2026. Research and development expenses were $2.3 million in the second quarter of 2026 compared to $2.2 million in the prior year period. Total other expense was $2.9 million for the second quarter of 2026, compared to other income of $3.6 million for the same period last year. The year-over-year change was primarily driven by unrealized, non-cash, translation impact of foreign exchange rates.

Foreign exchange losses in 2026 were driven by changes in the Euro exchange rate as the Euro declined in values in 2026 compared to the Euro appreciation in 2025. Gap net loss per share for the period was 30 cents per basic and diluted share compared to 30 cents per basic and diluted share for the same period last year. Non-GAAP net loss per share for the period was 26 cents per basic and diluted share compared to 11 cents per basic and diluted share for the same period last year. The year-over-year change was primarily driven by the unrealized non-cash foreign exchange rate differences. Adjusted EBITDA was a record $6.8 million in the second quarter of 2026 compared to $4.1 million in the second quarter of 2025. This is This represents record adjusted EBITDA for the company and adjusted EBITDA margin of nearly 10%, driven by strong growth, gross margin expansion, and operating leverage, particularly in G&A. We ended the second quarter with $47.9 million in cash, short-term investments, and restricted cash, and still have another $20 million of term loan available to us.

Set deployment for the quarter was $2.9 million compared to $4.6 million in the second quarter of 2025. We continue to focus set deployment on high return systems and remain disciplined in allocating capital to support growth. Free cash flow used in the second quarter of 2026 was $3.1 million, a $10.8 million, or 78% improvement as compared to $13.9 million used in the second quarter of 2025. Increased adjusted EBITDA, improved gross margin, discipline set deployment, and working capital management all contributed to the year-over-year improvement. Turning to guidance, as Dave mentioned, we are raising the top and bottom end of our range for full year 2026 revenue by $2 million to be in the range of $265 to $269 million, representing growth of 12 to 14%. We are also reiterating our adjusted EBITDA guidance of approximately $25 million. We continue to expect to deploy approximately $10 million in sets and to achieve free cash flow break-even or better in 2026.

We expect positive free cash flow in the second half of 2026, resulting in free cash flow break-even or better for the full year, driven by continued improvement in improved adjusted EBITDA, discipline set deployment, and continued working capital improvements. As we've discussed previously, adjusted EBITDA and free cash flow can exhibit quarterly seasonality, but we remain confident that we are on track to our annual guidance. Ultimately, we are building a company that can deliver strong revenue growth while also generating positive free cash flow. And our second quarter and broader first half results demonstrate that our strategic and financial goals are achievable.

Operator, let's open the call for Q&A. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. stand by while we compile the Q&A roster.

Our first question comes from Rick Wise at Stiefel. Good afternoon to you both, and it's great to see the solid second quarter. Help us think through a couple of things. You know, there's so many interesting questions I'm sort of reflecting, but let's think about guidance maybe just at a high level before we get into the details. you're only guiding to 13% for the year. I hear Dave's excitement at the super cycle just beginning. I hear how strong the business is. It sounds like some of the people pieces of the business that weren't exactly where you wanted or going to get better over the next, in the second half and into next year, why is that the right guide and maybe help us think through.

what might make it better. We feel highly confident in achieving. The business continues to be seasonal, and certain revenue streams, particularly the capital equipment, 70 placements, and international stocking distributors can be timing dependent. We finished the first half very strong with great momentum and have good visibility into the summer surgery schedule, which does give us high confidence. But I think we continue to apply an appropriate level of conservatism. And as we continue to execute through the second half of the year, we'll feel more confident, obviously, in raising that in the third quarter and then hopefully again in the – and over delivering again in the fourth quarter. So some of it's just timing, the seasonality of the business, and some of those variables that we've talked about in the past.

And turning the super cycle, Dave, maybe you can unpack it further for us. What did the super cycle contribute? This quarter it's just beginning to contribute. And is this going to be a very, very gradual process of contributing Or are we going to see a sharper, you know, as you move into full launch and more products? Or starting in the second half, are we going to see more accelerated, more visible contribution from all the new products?.

Yes, certainly pleased with where we are in the super cycle launch. As we said in the call, contribution from the super cycle really was not as strong as it will be certainly in the coming quarters as those sets get deployed and then they get adopted in hospitals and moving in the right direction. So I think certainly over the next several quarters and into the, frankly, the next several years, that's where we'll see the impact of the super cycle. I'm not certain that we're going to see some major inflection point in any one given quarter, but we did start to see some growth from the super cycle products here in Q2, certainly in the second part. really pleased with what we're seeing there because generally speaking, we see higher ASPs, higher margin on those products, faster return on capital. And so I think when we get those products to the market and get those placed in hospitals here, close the second quarter and into Q3 and Q4, it'll have a bigger impact on the in the second half of the year and probably a bigger impact on 2027, 2028. I guess one thing I would also point out about the super cycle is it's not just a few products. I mean, there are a number of products that we think we will be able to launch over the course of the next several years.

And I think that as we start to see the contribution from super cycles,.

Supercycle growth, it'll be something that's very durable for a long period of time Great and I'm going to be selfish and ask one more on Scully sales down percent but mid teens implant growth says the business is healthy and yes, okay timing Help us think about what that means for the second half and the setup for 27. It seems to me that you believe, there's no reason not to believe this, that we shouldn't believe, Scholar sales are coming back. I'm not sure I understand the timing, but if they come back, it seems like, assuming T&D stays strong, you could be growing... approaching or exceeding 20% again. What's wrong with my thinking? Thank you.

Well, I like your thinking. I like that it's very hopeful and encouraging. I guess we are very pleased with the performance of the SCOLE and plant side of the business. We obviously capture 70 revenue in the SCOLE numbers and we sold 070 units. As you know, that's why we have guided this way, such that we can ensure that quarters where we don't have 70 sales. We, you know, we still have great quarters like we did here with, you know, 15% growth. Certainly we expect to see some 70 sales throughout the balance of the year and into next year when those sales will actually occur. You know, we're not here to speculate at this stage, but certainly we expect them to happen.

I think what we're seeing on the implant side and we saw very particularly in the month of June, which is one of our busiest scheduling seasons for scoliosis implants, we saw a very strong summer that's extended into Q3 and we're extremely pleased with the fusion business, the kind of the core fusion business. business as well as the contribution we're seeing from VertiGlide on the EOS side of our business. Again, one of the things we like about EOS is these are high ASP products, high margin products with really good return on capital. And to see the VertiGlide impacting the Q2 revenue, we expect it to impact strongly Q3, Q4 revenue as well. I couldn't be more pleased with how the Scoliosis business overall is performing. Certainly timing blunted that in terms of the headline number for Q2, but the baseline of how that business is performing is probably as strong as it's ever performed.

Thank you for all that detail. Thanks, Rick. Thanks, Rick. Our next question comes from Caitlin Roberts at Kennecourt Genuity.

Great. Thanks for taking the questions and congrats on the quarter. Would love to just continue with Scully and maybe touch on the lower set sales in Brazil. Just any more color on, was this a market demand issue or just an execution challenge as you work to implement some of the initiatives that you've.

have been working on over the past, you know, six months or so? Yes, I would say it's not a demand issue, it is us balancing cash collections with the demand. And so, you know, as we continue to focus on profitable revenue growth, and less focus on the lower profitable demand for sets it's just us making the decision on when we're going to release some of those sets into the market, both in Latin America and there was some into set sales in Europe as well.

Understood. And you also talked to some of the fuller set deployment for new products coming late in the Q2. For the balance of the year, how much more set deployment do you have left of the 10 million that you've guided to?.

Yes, we're about 5 million in at this point. The operations doesn't always comply with calendars. So a lot went out the first week of July. as final parts were delivered. And so that'll show up in the third quarter, obviously. So we're still on track for our $10 million. A large amount of that will go out here in the third quarter. The vast majority of it was already in hand and in our inventory, just waiting for the last instrument or specialty item needed to complete the set before it was released into the field and shows up as deployed dollars for us.

But the majority will go out here in the third quarter and then a small amount in the fourth quarter to achieve the full $10 million for the year. Great, thanks so much. Thank you. Thank you.

Our next question comes from Matthew Blackman at TD Cowan.

Good afternoon, everybody. Can you hear me okay? Loud and clear, Matt. Great. Thanks for taking the questions. I got two. So maybe just appreciate some of the color on vertical. I think you said something to the effect of having trained 124 surgeons. I'm just curious what the denominator is for that opportunity. How far along are you? in terms of surgeon adoption training on that front. And then off the follow-up, because it's sort of the same thread and similar line of questioning that Rick gave you at the outset, but we've done quite a bit of work on vertical ID and LE and, you know, with very modest... penetration assumptions you could see a pretty meaningful uptick in Schooley and even worldwide growth coming to the effect of you know a couple points of worldwide growth if you get like five points of penetration of those products so I guess the question is so that make sense that math I know I've really loud at you there, sort of in the context of these two opportunities.

And then as we think about 27 and beyond as these begin to scale, do we think about vertiglide And I guess EO's sort of portfolio as a whole being growth-sustaining for the Scully franchise, or could it be growth-accelerating? I apologize for throwing all that at you at once, but I'm here if you need me to repeat it. Okay.

No, I think I understand the gist of your question. Listen, I think we're reiterating here, we're very early. We're training surgeons. The majority of surgeons are now looking for patients, trying to decide which patients make most sense. As you know, and we've talked, the early onset scoliosis category is not one where surgeons are doing individually 50 of these things a year. Oftentimes, surgeons do a few of these procedures a year. That said, at the ASP and the volume of surgeons that we have trained, you could assume that when vertiglide is fully deployed and we have the majority of surgeons trained and surgeons know which patients... that qualify for this particular technology. Yes, VertiGlide will definitely have a meaningful impact on growth, certainly impacting growth now and will impact growth in the second half.

And I would expect that to continue into 2027. You know, you pile on top of VertiGlide with Ellie, and again, Ellie is not available now, We're making great progress. And I think LE is probably a bigger opportunity overall for us than VertiGlide. And on top of all that, Matt, what you have is, these are the most complex surgical procedures that pediatric orthopedic surgeons are doing on the spinal implant side. And I think for us to be able to bring these very unique technologies and be working with surgeons that in many cases are having some of their first experiences on the scoliosis side with orthopediatrics and treating some of their most problematic pathologies with our technology, we're already starting to see nice pull-through with our response fusion systems and our other scoliosis fusion products. And I think as we time all this out with VertiGlide, Ellie, and then the Varaxa system, which we expect to do first cases probably early into next year, it's just a really nice setup overall to see scoliosis growth continue to accelerate over the next, frankly, over the next several years. So that's why I guess you hear my optimism in the commentary with Rick.

I think we have a really good setup. We've got to get these products out. We're early, but it will definitely start to impact the scoliosis business in a bigger way here in the second half of the year, and really through the balance of 2027 and 2028. Great. I appreciate it, David. Thank you for throwing in that sort of pull-through halo effect as well. I think that's an important point. So, appreciate it. It may be the biggest impact, honestly, Matt. I mean, it's probably as important as what we're seeing with the absolute growth we get with some of the EOS products.

Got it. Thank you so much, guys. Absolutely. Our next question comes from Matthew O'Brien at Piper Sandler.

Great, thanks. This is Anna on for Matt. Thanks for taking our questions here. I want to ask on the bracing business. It's been growing well over 20% for a while now and you're at I think north of 45 clinics Currently, so as this network of clinics continues to expand, I'm just wondering how the growth algorithm is shifting if a larger share of that growth is now coming from more mature day-to-day sales growth versus new clinics still ramping. And then with that in mind, does that change change the durability or predictability of the 20% plus growth rate that we've seen historically? And then I have a follow-up. Thank you. Yes, that's a great question. I think growth is coming across the board here.

We're seeing growth as we're scaling some of these new clinics. Obviously, as we scale a lot of these new clinics,.

You're growing off of zero base, and so that's important. Certainly seeing growth within our existing clinics in markets where those markets are less mature for us. And so same store sales strong, certainly new clinics strong. I think what probably gets lost, and maybe I haven't done as good a job in the past of talking about the new product launches inside the super cycle. I mean, DF2 continues to grow very, very rapidly. And I think we cite 150 of the 300 or so children's hospitals now are using DF2. Again, this is a high margin.

There's no inventory. for us here. We like that business. And so DF2 is growing very rapidly. And there's just a welter of new products on the OPSB side that is contributing. And it's taken us a little longer to get that pipeline going. We didn't have an R&D team inside OPSB when we started it. And now we've got a very good R&D team that's generating some pretty compelling technologies. Like we said, you have DF2, we have the modular pediatric hip brace portfolio that's coming out, Maccy 4 that's now out, the Traxio and TractorFix.

I mean, these are compelling products and if they have a similar trajectory that we had seen with DF2, they will have a very substantial impact. And I think they all contribute to the synergies that we're trying to build between our implant business, the clinic side of our business, the OPSB new product business. And I think from a super cycle standpoint, they just have a huge impact, a compounding impact on one versus the other. So I guess in short, yes, we're growing new clinics. We're, you know, feeding new clinics and the new product launch side is probably going a little better than we would have expected.

All right. That's awesome to hear. And then I guess sort of on that profitability point, profitability was really strong this quarter. And just wondering what the reasoning is for holding your profitability adjusted EBITDA target for the year, holding that constant in light of the outpouring? we saw and if that has to do with you know 70 and international sales potentially being made up in the back half or just what what the components are for the reiterated adjusted EBITDA guide.

Thanks. Yes, good question. So first half of the year, we're at $9 million against the $25 million target. We are up $5 million year over year in the first half of the year. And for the full year, we increased our 15 from last year up to 25 million for this year. So it's a $10 million increase. We're halfway there with the $5 million increase. We've got another $5 million to increase on top of the second half of last year. And we'll get to that $25 million.

So I would say just more conservatism and making sure we have plenty of room to make sure we get there and deliver the numbers. The biggest reason.

Our next question comes from Ryan Zimmerman at U.S. Bancorp.

Hi, everyone. This is Izzy on for Ryan. Thanks for taking the questions. Fred, just to start, I wanted to touch on the gross margins for a little bit. I heard your comments around what drove the strength in this quarter, but I was curious as we start to see the super cycle start to contribute a little bit more and make shifts towards these higher ASP products. how much of margin expansion in the future will be driven by mix versus volume? And do you think that 73 is still the right target for the full year? Could we see further increases?.

Yes, obviously very pleased with the margin. It shows up when there's no 7D, which obviously we distribute that product so it goes out at a lower margin and limited set sales. So with that mix, we could see something similar to that in the third and fourth quarter potentially. But, um, yes, I think we are still sticking to that 73 rate for the year and we'll see what the second half of the year brings, I would anticipate there will be some 70 sales in the second half of the year, which would put pressure on that number. Your first part of your question about the super cycle, you're absolutely correct. Those products will. Today it's a very small percentage of the future, of the total, sorry. But in the future, as that becomes a larger portion of the total business, particularly into 27 and 28, then yes, there may be an opportunity to see an increase in the future years.

Got it. Appreciate it. And just to stick on the super cycle for a little bit, Dave, could you talk a little bit more about the Osseo distribution agreement, kind of your expectations around there and kind of what brought it to the table? Thanks for taking the questions.

Yes, good question. I think this is pretty exciting for us. I mean, it's obviously a technology that we were not going to develop in-house with a bioabsorbable technology like that. We do have some experience with bioretech where we sell a fair volume of that product as well. And so, you know, the advantages of a bioabsorbable technology are that it's not as expensive as a bioretech. absorbable implant are obvious for pediatric patients because the majority of these implants are removed. And so in certain applications, I think these devices are surgeons are very interested. I think what I really like about this is how this connects to our small mini product launch here in early 2022. and kind of our beta launch here in the end of 2026, because the small mini starts to move our portfolio into very small bone fractures and small bone osteotomies in the foot and hand, and that's where a product like Osseo is used quite frequently. And so I think it's very complimentary.

We use the same commercial channel, Our sales force is very familiar with this type of material and the surgeons who use it. And it's a great expansion opportunity. It also, given the fact that it's exclusive for us in children's hospitals, it's another point of leverage for us in contract negotiations because we're the only company that offers these types of technologies. you know, combine that with 3P, with 3P Small Mini, with PMP Tibia, with all the products, you know, our Pega products. I mean, it's just a growing portfolio of products that really, you know, have no threat of substitute. And so that gives us a lot of leverage, a lot of confidence as we go into contract negotiations. And so I think Osseo, you know, will certainly stand alone, will be a growth driver for us in the future, but I think combined with the full portfolio, it just strengthens our T&D portfolio substantially.

Our next question comes from Ravi Misra at Truist Securities.

Hi, good evening. Thank you for taking the questions. I'll just ask both of mine up front, please. So just on kind of the commentary around what you're seeing in 3Q sounds like a pretty strong quarter. You know, just how should we think about the cadence for the remainder of the year? the street is a little bit below what you ended up doing in 2Q for 3Q, and historically, you've done a little bit better in 3Q versus 2Q, so should that still hold? And then second, I'd love to hear any kind of updates that you could provide around the MDR environment out Europe and it's been a little bit of source of an edge for you I think in recent quarters is that still the case or any more detail there would be appreciated thank you.

Yes, absolutely. So right now we're forecasting third quarter and fourth quarter actually pretty equal to each other as they were last year. But third quarter and fourth quarter will be a little lower than what we saw here in the second quarter is what we're forecasting right now. a couple million dollars lower than the second quarter. I would say the June, both May and June, the early summer months were very, very strong. We feel good about July, obviously, with it in the books, but right now forecast is a couple million lower in the third and the fourth quarter. EU MDR, very exciting for us. Similar to SuperCycle, I would say, early days. So we got first approvals in the latter part of last year, a few more approvals here earlier this year, and now we're getting some sets over there.

And so we're getting our customers access to those new products. but very early days so lots of opportunity for us to deliver more sets over there into the european market and enable more and more surgeons to have access to it we did attend a conference earlier this summer and showcased several of those products and garnered a lot of excitement i'll say So now it's a matter of getting the cash, deploying the sets, and getting them into the surgeon's hands. I would say we'll continue to see a little bit of an impact here in the second half of the year. we saw in the second quarter and probably bigger impact in 27 and beyond as we continue for the next couple of years, continue to deploy SETS over into that marketplace.

Robbie, just to amplify that point, I think an astute question given what we've talked about, about the competitive landscape due to the EU MDR. And I think that we continue to see a landscape whereby many products didn't go through the MDR process, ours did, and so I think demand for the products that we have coming is very high because again, there's no threat of substitute for some of those products, and so we're encouraged. We have a lot of interest from both our agencies and our agency markets in Europe, as well as from stocking distributors in Europe. And so I think, you know, the next several quarters of product launch into those markets where in some cases we kind of run unopposed with some of these products will be very exciting.

Our next question comes from Mike Mattson at Needham & Company. Hi guys, thanks very much. It's Joseph on for Mike. Maybe just continuing with EUMDR and maybe just international broadly. Another strong quarter is like 22% growth in the quarter. similar to last quarter. I'm just wondering now, is this kind of like a baseline for 2026? And based off of your comments, know it sounds like 2027 would be a much higher contribution in terms of the newer eumdr products but um Should we expect sequential improvement in the next two quarters or just kind of similar to what Fred you had just noted 3Q and 4Q may be down sequentially. And then I have another one after that.

Yes, we're very pleased, obviously, with international. If you look back last year, growth was a little more lumpy, I would say. And so there's always the possibility of that. I don't know that we're ready to call 22% growth for the next couple of years, but I'm very pleased with what we saw in the second quarter. And I think there's a lot of momentum building in that side of the business.

Okay, great. And then maybe just two-parter on OPSB. I was curious, Q1, you guys had talked about some weather-related shutdowns. I was just curious to maybe the demand for that fully flowed through into Q2 or I doubt there's anything residual left, but maybe you could expound on that. And then just international OPSB, could you guys maybe comment on how that's been growing? I believe it's just Ireland where there's a clinic, but and maybe how that clinic's growing and how that's, you know, what's your current thinking on international expansion? What markets would they be? Is this like Germany, UK? Just curious in your thoughts, is this a 2026 potential addition or later on? Yes.

Yes, sure. So I would say, you know, we talked about it last call, but the majority of the weather-related things in Q1 were extinguished in April. And so I would say that that held throughout the quarter, though. We saw strong volume in our clinics. We saw nice volume in our clinics in June here through the summer. which was encouraging because sometimes the surgical season can blunt a little bit of the momentum that we would see in clinic visits So I think overall, you know, that has been extinguished and was primarily extinguished in April. So nice to see, you know, a strong April and that continues throughout the balance of the quarter. You are right about our opportunities in Europe being quite strong. We have a clinic in Ireland and now I have a couple of clinics in the United States. small clinics in the UK and what our strategy there has been primarily is to focus on areas where we also are driving strong scoliosis implant revenue and so we've got a kind of a building small yet rapidly growing business in Ireland and the UK for scoliosis implants.

And so we are kind of capitalizing on the scoliosis implant growth with surrounding those surgeons and those accounts with bracing products. There's a lot of demand internationally for our DF2 product, for the hip bracing, for Traxio and TractorFix. And so we are seeing growth outside of the United States in that. And you can imagine that we're way underpenetrated there compared to places like here in the United States. where we have 150 of the 300 children's hospitals already using DF2. So I think there is a robust opportunity for us outside of the United States. Again, right now the focus has been, you know, Ireland and the UK and then selling products to the end markets as opposed to setting up clinics in other countries. outside of the UK and Ireland. It's possible that we could scale into some of those other markets, but I think right now we have our hands full here in the United States and the UK and Ireland.

Okay, great. Yes, much appreciate taking our questions and congrats on the strong quarter.

Thank you. Our next question comes from Ben Hayner at Lake Street Capital Markets.

Good afternoon, gentlemen. Thanks for taking the questions. First off, for me, just on the kind of the super cycle and the halo effect that you expect to get, Have you seen any kind of movement or proof points on some of these kind of sole source negotiations, Have you seen anything on the margin already to this point? Without question. Yep.

I'm definitely seeing some of that, and I think that's some of what you're seeing in the strong trauma deformity sales numbers. I mean, couldn't be more pleased with 26% growth on the T&D side. You could assume that if 3P HIP wasn't a huge percentage of that growth that we're pulling through a lot of legacy products, And so I would argue that, yes, we are, we're definitely seeing our strategy play out well there in places where, you know, 3P has been implemented and seeing legacy pull through there. And again, we expect to see that that continue. I think, you know, part of the super cycle strategy here. isn't just to sell more of the SuperCycle products in isolation, but to make the full product portfolio more relevant. to move to more single source contracts, which is already starting to happen, which is really encouraging.

That's great. And then secondly for me, you mentioned being disciplined with the growth of OPSB. And not to be too flippant here, but... know with how that looks like it's going why not get a little nuts there.

It's back to the strategy of driving profitable revenue growth. Driving improved EBITDA and cash flow were better break even for 2026. And so it's a balancing act that all three of those levers at the same time, you know, can make us slow some things down. So how fast we roll things out. how fast we go after some of the OPSB clinics to conserve cash is a balancing act. And so we're the business a little different today than we were a few years ago when it was revenue at all costs.

Okay, fair enough. I thought I'd asked. Thank you very much, Sharon.

Thanks, Ben. Our last question comes from Dave Turkley at Citizens.

Hey, good evening. Thanks for squeezing me in here. Brad, when you look at the two scoliosis impacts, I was wondering if you might add a little colors to the size. I think it sounds like the 7D was the bigger. But the Brazil part, I thought last quarter we talked about, I think you acquiring one of your larger distributors there, which I would almost think might have eliminate that impact, but just, I guess, your thoughts on if that had anything to do with what happened in the quarter.

Yes, so 7D in the second quarter of last year was very strong. You know, a couple million bucks that didn't show up here this year in the second quarter. So pretty big impact on Scholey in particular, but also on the overall business. And then in Brazil, Again, we're very pleased. So in the fall of last year, purchased the largest distributor we had down there. And that business is doing very well for us with end market pricing and market volumes. We're now selling everything to our other stocking distributors through that entity and focused on collecting cash, which is a huge focus for us for the last six months and will continue to be for the next couple of years.

So we're making great progress, increasing the number of surgeries down there. there and the timing of some of these set sales, you know, somewhat at our discretion. And so we're not overly upset about it, to be honest with you. It's just part of how we're managing the business. And the demands there when the timing is right, we'll release some of that as collections, roof and receivable balance has come down for some of our partners down there. So overall, very pleased with the contributions we're seeing in that business and confident that it'll continue to be a big growth driver for us in the future as we get things stabilized down there.

Great, and in terms of the guide, the 12 to 14 percent. sort of your divisional performance. I imagine your commentary on Scully that the implants were kind of in that mid-teens. that we should be looking at the back half. You know, probably your divisions being kind of in that range, correct? Like a scully back up to something like, you know, 12 to 14 in that in that range, and maybe candy. know, in that range as well, even though it was particularly strong this quarter, would that be a fair way to look at the rest of the year?.

Yes, I think for the third quarter in particular, that's absolutely correct. I would call out that we did have some 70 sales in the fourth quarter of last year. We did not have any unit sales in the third quarter. And so if there are none in the fourth quarter of this year, then, again, that will negatively impact the growth of Scully. but it won't hurt the margin and it won't negatively impact our performance against our guidance. because we're confident in the numbers we've put out there. Thank you.

Thank you. This concludes the question and answer session. I would now like to turn it back to Dave for closing remarks.

Great. Well, once again, thank you all for your interest in orthopedic ethics, and I look forward to speaking with many of you at an upcoming conference. Have a great day, or have a great evening, and we'll talk soon.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good afternoon, everybody. Thank you for being here. We are pleased to welcome OrthoPediatrics. We have Fred Hite, CFO. My name is Jenny Rabinowitz. I cover U.S. Medtech and healthcare IT at Goldman with David Roman. And I'm excited to get started.

So kicking off, I think it would be great for anyone here newer to the company. If we could start with a brief company overview. Maybe the markets you participate in, the growth rate, the TAM and your 3 key segments.

Yes, absolutely. So first of all, thank you for having us. We very much appreciate the invitation. Had a great schedule today.

OrthoPediatrics is the only pediatric company focused in the ortho space. We serve a TAM of about $1.6 billion here in the U.S. and then about $3 billion on a global basis. If you look at the business, it's broken down into Trauma and Deformity correction, which is about 70% of our sales. And then the other 30% is Scoliosis. We also have a segment called OPSB, which is specialty bracing, that sells both trauma and deformity as well as custom scoliosis braces, as well as about 45 O&P clinics that we have here in the U.S. and a few overseas to also support the pediatric orthopedic surgeons around the world.

So you referenced your target customer base being the 300 children's hospitals, at least for the U.S. Are you covering all of those hospitals today? Are you in all these hospitals? And how do you evaluate territories to add or to focus on?

Yes. So domestically, we absolutely are selling our implants into all 300 of those children's hospitals. On the bracing side of the business, those -- we have about 45 clinics today, they serve about 20 to 25 of those 300 children's hospitals. Our goal is to eventually service all 300 with our clinics. And so very early days on the clinic side of the business. It was new to us in 2024. So we're only a couple of years into it, but we're very excited about the growth of that business and serving more and more of those children's hospitals, both here in the United States as well as outside of the U.S.

Well, speaking outside of the U.S., you recently received EU MDR approval and purchased a distributor in Brazil. So it seems like a bit more focused international. How would you characterize your international efforts recently?

Yes. So the business today is about 80% domestic, 20%, 25% OUS. It's been a nice growth driver for us over the years, but we're probably a little underpenetrated there compared to the U.S. EU MDR has been a big undertaking for us. We've been working on it for about 5 years, and very pleased to have received EU MDR approval last fall and then again, some additional ones here in the spring on the T&D, Scoliosis and Ex-Fix product portfolio. Really, in Europe, we haven't launched a product in about 5 years because of the EU MDR. So they've been starved for new products for a long time. So we're very excited about now having the ability to launch the products that we've been selling in the U.S. for some time into the European market. We do see that as a catalyst for additional growth, and we see the OUS market probably growing faster than the domestic market probably for the next several years, honestly, just because we're a little less penetrated. We sell our implants in about 70 countries outside of the United States and our bracing products in about 90 countries OUS.

On the Brazil side, we have a very nice business, implants only in Brazil. Historically, we have sold through stocking distributors. And in November of last year, we did purchase our largest trauma and deformity partner in Sao Paulo. And so now we own that business. So we go from selling wholesale to retail. So we're now billing the hospitals direct, that obviously increases our revenue, it increases our margin. But most importantly, it improves our cash flow. We now have a legal entity in Brazil, and we are now selling to all of our other stocking distributors there. Instead of big lump sales all at once, we're selling to them on a weekly or biweekly basis to fulfill their replenishment needs that they have.

So really, in 2026, it's more of a margin improvement, cash flow improvement initiative for us. And then in '27 and beyond, it will kick in and start to help us drive additional revenue growth as well.

Considering your foothold in all 300 of these children's hospitals, are there any subspecialties you would consider expanding to? I guess, like what are your customers begging for you to add?

Yes. So today, our ortho pediatric surgeons, we provide everything that they need, except for a mechanical growing rod on the spine side, which that product is coming out here later this year and probably a trauma femur growing implant, which we're working on today. But other than that, I would say the vast majority of the ortho surgeons we have covered with our now bracing and clinic operations as we continue to expand that. We continue to walk alongside some other technologies outside of the ortho space. We just recently started selling a cochlear lead implant robot. So iotaMotion is the company that manufactures that. They came to us, and we've partnered to have exclusive rights of distributing that product into the children's hospital because we probably have the largest channel to market in the children's hospital right now. And a lot of these other technologies are coming to us looking for a channel to market.

So we're walking alongside several of those right now. And down the road, we may expand into some of these other subspecialties, but not in the short term. It's a longer-term play for us as we get deeper penetration into the ortho space.

Diving to recent results a bit. So can we walk through the drivers of the 13% revenue growth in the first quarter? I think this also included some weather-related disruptions. So how are you thinking about your performance normalizing for that?

Yes, absolutely. So 13% overall revenue growth in the first quarter. The Trauma and Deformity grew at about 14%, Scoli at 13% and then OPSB at greater than 20%, and OUS growth was 22%. So really nice growth across all of the segments of the business. So very pleased with that. As important, I think, is our G&A only grew 2%. And so the overall EBITDA year-over-year had a dramatic improvement, which has been one of our strategic goals here for the last couple of years. So we are very pleased to see the EBITDA, very aggressive growth there.

And on the subject of the weather disruption, I guess, what have you seen on the volumes front since you reported earnings? So like in April and May, how things trended?

Yes. So in January, both in January and in February for an entire week, our clinics up in the Northeast were shut down. So we basically did no revenue for an entire week up there, given all the ice storms that took place back in January and February. We did catch up a little bit of that in March, but some of it definitely spilled over into the April time frame. And I think as we indicated on our first quarter call, the April volume was very strong. So we saw a strong rebound in March, and we are very pleased to see that continue in April as well.

So given the strong performance, including that disruption, walk through the 11% to 13% growth outlook for the year, given that you're kind of at the high end of that, including that disruption, what are you contemplating in terms of market growth and contribution from new products?

Yes, absolutely. So our seasonality is a little different than most businesses. Our June and July are two biggest months because kids are out of school. So the severe scoliosis procedures, which does have recovery time and some of the severe deformity correction procedures, a lot of that happens in the June and July time frame. So the first quarter is our smallest quarter ever [indiscernible] and then second and third quarter are traditionally a lot [indiscernible]. When we enter -- when we exit the first quarter, it's always a little bit of a question mark as to what that is going to look like, what's the schedule going to look like for June and July. So we're seeing the June schedule fill up nicely. We're starting to see the July schedule, which is great to see. Kids are out of school, starting to be out of school, not everywhere, but they are starting to get out of school. And so the summer selling months are starting to pick up.

The 10% to 13% overall revenue growth gives us some variability in those summer selling season in the few months in the summer. And then it also contemplates how much and how fast these new products, which I'm sure we'll talk about, receive adoption and how many sets we can get out and when we can get those sets out to drive incremental growth in the business as well.

You referenced the impressive G&A leverage from the first quarter. So can you walk through what influenced the decision to raise the revenue growth outlook while holding the adjusted EBITDA guide?

Yes. So in the first quarter, we outperformed by $1 million, $1.5 million. We did let that flow through to the full year. So we increased the full year revenue by $1 million, which is relatively small. The $25 million of full year adjusted EBITDA this year compared to $15 million last year is $1 million of extra revenue is in the round for that, to be honest with you. It gives us a little bit more confidence of achieving that as well as incremental revenue helps us on the free cash flow breakeven guidance that we've put out there for 2026 as well.

Turning to some of the new products you referenced. Can you walk through kind of the status of the ongoing ones. There's a bunch, 3P Hip, Small-Mini, VerteGlide, eLLi. Anything else you want to cover as well.

Yes. We're pretty excited. Dave Bailey, our CEO, is calling this new product launch super cycle. And it really dates back several years. So EU MDR, new increased regulations that came about really took our attention about 5 years ago. And so a lot of our engineering resources were spent [indiscernible] requirements of EU MDR. That left us a little bit of [indiscernible] launches for a couple of years. We've completed that work several years ago. We've now turned back to new product launches. And we're now starting to see this massive wave of new product launches that are coming out in the marketplace, not only in quantity, but is for us, as important, very, very high innovation factor on all of these products. So we're very excited about it.

To run through a couple of them, 3P, which is Pediatric Plating Platform. The first version of that is the 3P Hip system. So that was launched in the fall with a limited launch, had great response here in the first quarter of that system. We'll be doing a full rollout of that product here in the second quarter, and really for the next 3 to 5 years as we continue to put more and more sets out, we had an initial launch of 10 sets. So limited launch to get some feedback. It went very, very well.

Next will be 3P Small and Mini. So I think very, very small places, very, very small tiniest screws available in the marketplace for hand, foot, anything in the extremities that require very, very small plates and screws. That will be doing a beta launch here at the beginning of the third quarter. So that's a couple of them on the Trauma and Deformity side.

On the Scoliosis side of the business, very excited about a product called VerteGlide. VerteGlide serves the EOS market. EOS is early onset scoliosis. This is a very young, very sick patient, ages 4 to 8 years old, sometimes can have a curve of 90 to 100 degrees, so very, very severe. It's so severe, it starts to collapse their lung capacity and is very risky. This product enables a young patient like that to have a straighter spine. So we attach to the top and the bottom with screws. And then we put screws in the middle that actually glide, VerteGlide system. So as the child grows naturally, they can continue to grow and the rod system will continue to grow with it.

So very excited about the product. Very high ASP, serves a niche market, but very high ASP, high profitability and a very good set utilization metric for us. So that's received tremendous results. We only had 5 sets available on initial launch. More sets will be coming here of June of this year.

Following that is a new mechanical spine growing rod called eLLi. That will be first in human here this fall by the end of this year. And we've been working on that product for a long time. It also serves the EOS patient, but a little older patients. So maybe 6 to 10 years old, somebody who has severe curves, but is still growing, put this implant in place and then through radio frequency, will transfer power to a capacitor inside of the implant itself. And then with the controller, be able to expand the rod system as that child grows over time. So a brand-new product for us. It's probably one of the single biggest gaps we have today in the marketplace, and I'm very excited about getting that product into market and into patients and allowing them to continue to benefit.

Another one coming is Veraxis. So Veraxis is a redo of our entire fusion system, probably our single biggest portfolio right now, the RESPONSE Fusion system. RESPONSE fusion system. Veraxis, we'll be launching early in 2027 with brand-new implants, set screws, brand-new instrumentation, a lot of innovation in that system as well. Again, it will be a small launch, 5 systems, get some feedback, make some adjustments and then roll out more sets of that in the second half of 2027. So those are some of the things that we have coming into the marketplace.

Before I move on, that's the implant side. On the bracing side, we have a new product we just launched called TRAXIO. It is a halo gravity traction system that goes into the hospital. And we have several new hip braces that have been launched in the last 3 months. And then we have more and more of those specialty braces coming on the bracing side of the business over the next 6 to 9 months as well. So a long list to say the least.

Yes, definitely. Maybe a follow-up on VerteGlide. So I think you called out that 80 surgeons have been trained so far, at least as the last earnings call. I guess any update to that metric where we are today? And what has the feedback been entering full market release this quarter?

Yes. So VerteGlide, as I mentioned, those patients are very, very -- it's a very serious procedure, very difficult surgery. And so we are requiring anybody that is going to use that system to come in both the surgeon as well as our rep to come in and complete training and get certified before we'll give them access to that system. So we've had multiple training sessions prior to our first quarter call. We've had another training session since that call. So we'll continue to train more and more surgeons. It is somewhat limited on how many we're going to train because we only have so many sets available. So it's a slower, gradual rollout of it that is timed really with the availability of systems, so that they have access to the system after they get trained.

Do you have any sense of how many surgeons in the U.S do this procedure, like 80 surgeons trained out of how many?

It is a small subset of the surgeons that complete this training -- that complete this very difficult surgery. I would estimate it's probably a group of 300 to 400 surgeons. And so we're about 80 into that whole population at this point.

Got it. Switching over to 3P. I think, I mean, it applies to other product launches as well, but it seems like there's been strong demand, but somewhat constrained by sets available. So how much progress have you made in increasing availability for 3P since the earnings call? And how quickly can you ramp to full availability to meet the demand?

Yes. It's a great question. So the overall strategy of the business has continued to drive the top line, so 13% first quarter revenue growth, continue to grow the top line with profitable growth, aggressively grow the EBITDA of the business, so $15 million last year, $25 million this year and also get the business to free cash flow breakeven here in 2026. We used $15 million of cash -- free cash flow in 2025, and we'll get to free cash flow breakeven in 2026.

So when you talk about how many sets you're going to deploy, that comes into play with that equation. And so it's a balancing act to meet those metrics and to also not overspend on the free cash flow of the business. So in 2026, we're projecting to roll out $10 million of new systems, new sets. 90% of that is all of these new systems. There's probably demand for more, and we're probably holding it back a little bit to achieve the free cash flow breakeven for 2026. In '27 and '28, we fully expect that adjusted EBITDA to continue to grow, to generate additional cash from operations, and we will be increasing the set deployment in '27 and '28 to meet some of this demand on these new systems. The business will always be free cash flow breakeven or better. But the goal, I think, in the future is not to maximize that free cash flow, it's to just get to the positive mark and then reinvest in the business for continued revenue growth.

On the enabling tech side, can you walk through some of the feedback you've been getting on 7D and FIREFLY? What KPIs do you monitor there? Any metrics on placements or surgeon users on those?

Yes. So 7D is a great technology. It is a radiation-free spinal navigation system that actually uses cameras that's combining AI with an MRI scan ahead of the surgery to give you navigation during the surgery. It's a capital sale for us. We distribute that product. All of the surgeons that use it on a trial basis want the piece of equipment. And then it's a time-consuming effort to work through the hospital administration to get it into the hospital. We have probably 25 or so of those systems placed today. We have, I think, a backlog of surgeons who want it, that we are working through the hospital administration to get them placed in the hospital. It just takes time. And they don't have, I don't think, the same sense of urgency that we do, particularly around quarter end. And so we continue to work a long list of those opportunities to ensure that we're getting closure rates on it. So it's a great product. It's great for the patient, 0 radiation, lots of demand. It just is difficult to predict a little bit on when those are going to hit quarter-to-quarter.

FIREFLY is another great technology. It's a patient-specific custom printed guide that is used for scoliosis surgery. It has a 99.7% accuracy and tremendous success in the marketplace, and we continue to see growth with that across the product.

The other enabling technology that we're getting ready to put into the marketplace is called Playbook. It's a brand-new product that is to help the efficiency and the flow of the OR system. So it's got a pre-surgical planning. It's got preference cards. It's got additional steps throughout the procedure to help the overall efficiency in the OR. And we're excited about getting that into the marketplace. And getting some feedback on that product.

So again, the whole goal here is to surround the surgeon with everything they need, not only on the implant side, but on the bracing side, 80% of their time is spent outside of the operating room, as well as on the IT enabling tech on the AI side of their business as well to make sure that every need that they have, we have a solution for.

What's the business model for enabling tech? How do you make sure you get paid for these? Are these usually usage-based contracts? Or how does that work?

There's two different models, depending on the customer. So one is a pure sale. So the hospital will say, hey, we have a capital budget available. We will sell them a unit, they'll place it in the hospital. And then the other model is usage-based. So we'll put it in with a usage-based contract in place with the hospital, and we're pretty flexible on how we organize it based on the customers' needs.

Turning to the sales force for a bit. Where are you in your goal of reaching those 27 territories by 2027? And what territories are you finding particularly attractive now?

Yes. So as I mentioned, all 300 children's hospitals, we have those all serviced on the implant side of the business. On the specialty bracing side with the clinics, our goal is to get into 27 different territories out of availability of about 80 by the end of 2027. We started with 9. We've moved up to about 13, and we're on our way to that 27. We're pretty confident that we will get there by the end of 2027, if not exceed that number. When we started the business, bought the business in January 2024, we had about 20, 25 clinics. We're up to 45 clinics now, and we see that continuing to grow really for the next 10 years, which is how long it's going to take to get to all 300 children's hospitals.

As you're hiring reps, have you noticed any impact from disruption from larger orthopedics peers?

We don't have difficult time hiring reps. When you think about our cause of helping kids as well as a very, very positive culture that we have. We've won Best Places to Work for about 9 years now. And when you combine a positive culture with a great cause, we have a tremendous offering to any potential hire that's coming into the organization, whether it's a sales rep, an engineer regardless. So we continue to hire a mix of sales individuals, some right out of college, some with 5 years of experience, some with a little bit more, but that hiring of reps has not been a limiting factor for us at all. As far as disruption, it's not something that we're really focused on, to be honest with you or to try to take advantage of. We have a pretty good pool of applicants when we post for a job.

Got it. All right. Turning to financial results and P&L a little bit. What's your updated thinking on exposure to rising raw material costs? And what raw materials are you most exposed to?

Yes. So when you look at our implant business, we have domestically about 85% gross margin. So the cost structure is pretty small relatively, compared to other expenses. We outsource all of our implant manufacturing. We think that, especially as early on as a start-up company, our capital is more important to put into the growth side of the business as opposed to a manufacturing entity. So metal is the single biggest factor that comes into that. And with volume growing, we continue to focus on that as leverage to keep our costs down.

On the bracing side of the business, we do manufacturing, some of those custom braces, and plastics was a concern of mine. I went out and talked to some folks, and we have seen some inflation on plastic, single digits, high single-digit levels, but it's such a small level of overall cost as far as our P&L. It just doesn't have any big impact on the business.

The flip side is we always have and we continue this year, and we will continue into the future to get some selling price uplift to offset any inflation that we experience across the P&L. So we'll continue to do that. These new products offer an opportunity for us to continue to improve the margin and mix of our products to offset any small inflation that we may be experiencing.

We've talked about a bunch about the innovation super cycle. How do you think about spending R&D to support this pipeline and the future pipeline? And I guess, putting it another way, how is R&D down $100,000 year-over-year, given all these new products?

Yes, absolutely. We have continued to invest in the R&D side of the business. I think your specific question was first quarter. It was down $100,000 or 5% year-over-year. And some of that is pure timing of third-party testing results, buying the new products prototype and when do those get expensed through the P&L. So we continue to invest in R&D, not only the projects we're talking about and the projects we're launching right now, but we're now obviously working on even ones beyond that, that will come out in '28 and '29.

So we will continue to invest in R&D. Our goal is for that to grow with revenue. So we want to continue to invest there while we leverage some of the sales and marketing and most importantly, continue to leverage the G&A side of our business.

We talked about 2026 as the first cash flow breakeven year. I think it's pretty rare for orthopedic players of this revenue base to be able to break even, I guess, which part of your strategy or your business model is enabling this?

Yes, it's interesting. So 3 years ago, we were deploying probably $25 million of new sets drive to growth along with the new product introductions back in the day. And the question was always, why isn't it $50 million? If you're going to deploy $25 million, why not $50 million of deployment? And about 3 months later, the questions were, well, when are you going to get to cash flow breakeven? And so in the last 36 months, we've changed our strategy a little bit from growing at all cost to, as I said, having profitable revenue growth, growing EBITDA and getting to the cash flow. So 3 years ago, the business used $42 million of free cash flow as we were supporting the growth and deploying sets. Last year, we reduced that $42 million of usage to $15 million of usage, so a dramatic improvement. And this year, we'll get to breakeven.

We view it as the right thing to do for the investment community, but we also view it as the right thing to do to have a long-term sustainable business. And the things that are unique that enable us to do that, I think, are, number one, we have pretty high gross margins, at 85%, it is higher than most. And I think because we're in a niche space, because we have somewhat limited competition, and we have a pretty narrow and concentrated customer base, it enables us to stay very focused on just those pediatric hospitals and their needs.

So high gross margin, small footprint, concentration of customers enable that and pure discipline. We view this as critical to sustain the long-term growth, the long-term sustainability of this business. And that's pretty important to us as we think about helping more and more kids each year. Our goal is to help 1 million kids a year. We've helped 1.3 million kids to date, and we will help about 175,000 kids this year. So we're early on in our journey of helping 1 million kids a year, and we want to make sure that we're around long enough to be able to do that.

Got it. I think since your IPO, you've done 6 deals, 6 acquisitions. And the most recent one closed last summer, and it's been kind of quiet since then. So how are you thinking about M&A? And what types of targets would be of interest to you?

Yes, we're very excited about this Boston O&P, which is the business we purchased in January 2024, last business. It was another growth driver that we -- a strategic growth driver we added to the business to continue to grow the business. But in all reality, it also met our goals of being capital efficient. Because on the implant side of the business, we do have consigned inventory. And so we have to deploy capital on that side to grow the business. On the OPSB side, the specialty bracing side, there is no consigned inventory. So we can grow profitable growth on that side of the business with less capital. And so we're driving growth on both sides of the business, but it was all in an effort to continue to drive our strategy of this cash flow breakeven business.

We continue to look for opportunities. There's not a lot out there in the ortho space. As I mentioned earlier, we are looking at talking to building some relationships in areas that are close to us. But I don't think that's part of the short-term goal. The short-term goal is to prove the growth drivers are going to be delivered through the new super cycle, prove that we can get to this cash flow breakeven metric that we've committed to. And I think acquisition targets can come after that's kind of proven to our investor base.

Last one for me. If anyone in the audience, feel free to ask as well. But remind us of your LRP targets, I believe it's 2024 to 2027. There's been a lot of LRP blowups in the industry, but it seems like you guys are hanging on. So just remind us about your targets and how you're tracking against those.

Yes, absolutely. So we are committed to grow the top line, 12%, continue to grow EBITDA year after year, adding 300 basis points of EBITDA growth, and to continue to get the business to that cash flow breakeven, which we said we were going to do 3 years ago by 2026, and we are going to deliver on that commitment. So we feel like when we say those, that's something that we're going to put plans in place to deliver, and we're confident that we are doing exactly that to continue to grow the business.

We were talking to some investors earlier about the whole med tech space, and the valuations and why it's so low. And I've mentioned to them, in 2023, our stock went down 20% 1 day, when GLP-1 was announced. Three months later, when Eli Lilly got their drug approved, our stock went down 20% again. As you can imagine, GLP-1 has 0 impact on our patient population. Trauma, it's not impacting that, severe deformity, it's not impacting that, and scoliosis, it's not impacting that. So our patient population has 0 impact. But unfortunately, I do feel like we're still kind of lumped into that overall sector, which is unfortunate. We feel like getting to this free cash flow breakeven is a transition point for us. And we're hopeful that with the new product cycles coming, start delivering on that and get to this free cash flow breakeven, it will start to make us stand out as compared to the rest of the industry, if you will.

With the last minute, let me turn it back to you. Any closing remarks, anything interesting from investor meetings you want to highlight today or just something underappreciated?

Yes. Thank you for having us. I think the one thing that we haven't talked about when people ask about the company is it's not an easy company to understand. We do have 90 different products. It's a bunch of products that are necessary because our surgeon customer doesn't just sit there and do knees all day or hips all day, they service a patient and that patient can have deformities in their ankles, knees, hips, across their entire body. And so the surgeon customer takes care of that patient from when they're born, all the way through until they're maybe 18 or even 20 years old. And so it's our -- it's always been our goal to have a broad range of products to be able to help them serve their patient population. And unfortunately, that complicates the story. So we're trying to make it simple. The super cycle is very exciting. We're excited to make an impact and to continue to help more and more kids. And again, we thank you for having us.

Thank you for being here.

Thank you.

Good afternoon, and welcome to OrthoPediatrics Corporation's First Quarter 2026 Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Trip Taylor from the Gilmartin Group for a few introductory comments.

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer; and Fred Hite, Chief Operating and Financial Officer.

Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K, which was filed with the SEC on March 4, 2026, and its subsequent quarterly reports on Form 10-Q.

During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period-over-period. For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in its first quarter earnings release.

Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for OrthoPediatrics financial results prepared in accordance with GAAP. In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, April 30, 2026. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call.

With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer.

Thanks, Trip. Good afternoon, everyone, and thank you for joining us today. We are pleased to begin 2026 by highlighting our most meaningful metric, patient impact. In the first quarter, we supported the treatment of a record 45,000 children, extending our cumulative impact to nearly 1.4 million kids helped. Pediatric patients have long been underserved by solutions not tailored to their needs. We at OrthoPediatrics are dedicated to changing that through focused innovation and a continued commitment to this most important patient population. 2026 started strong with 13% first quarter revenue growth, further highlighted by significant improvements in adjusted EBITDA and free cash flow over prior year. As we look closer at the quarter, we saw a softer start to the first quarter due to weather-related shutdowns in many of our OPSB clinics in January and February, but trends rebounded in March. Since then, momentum remains strong as carrying into the second quarter.

Growth remains solid across the business with particular strength internationally and continued 20% plus expansion in OPSB, driven by new products and clinic growth. Importantly, we're at the earliest stages of a multiyear innovation super cycle, consisting of what we believe is the most clinically significant and technologically advanced series of product launches in our history.

During the quarter, we began to see small contributions from recent beta launches, including 3P Hip and VerteGlide. These products are generating strong demand, and we are confident that as we move into full market release and increase that deployments in the second quarter, we are positioned well for more meaningful impacts in each of the upcoming quarters. Early trends are reinforcing our expectations for higher ASPs, margin expansion and improved capital efficiency as each of these products continue to scale. As we expand our portfolio and reinforce our core orthopedic platform in this unassailable position, we see a clear opportunity for continued growth.

Our consistent execution underpins our confidence in sustained revenue growth, expanding profitability and achieving free cash flow breakeven in 2026. We continue to gain share across each of our businesses with our legacy product portfolio and share gain will only continue to accelerate as we execute our super cycle and further expand OPSB. Our powerful competitive position is becoming increasingly dominant and will only grow stronger as we further execute our strategy and demonstrate both top and bottom line expansion in a way that is unique in our industry.

We remain focused on enhancing shareholder value while advancing our cost of helping 1 million kids per year in the future. Accordingly, we are raising our 2026 revenue guidance to a range of $263 million to $267 million in revenue, representing 11% to 13% growth and reaffirming our expectations for approximately $25 million in adjusted EBITDA and full year free cash flow breakeven, driven by continued share gains, OPSB expansion and execution of our multiyear new product launch cycle.

Turning to our T&D business. In the first quarter of 2026, the T&D business grew by 14%, driven by increased sales of our flagship trauma and deformity systems and early returns from the beta launch of new implant and OPSB systems. We continue to see success in case volume growth as we move deeper into the launch of PNP Tibia and will pick up additional share as we launch 3P Hip. We are also pleased to advance towards the beta launch of the next 3P system, 3P Small/Mini, which should kick off late in Q2.

Beyond those products, we are advancing the next system within the 3P family as well as the next PNP system, PNP retrograde. Looking closer at 3P. Our 3P Hip system has exceeded early expectations with limited set availability in Q1. We will increase supply of the 3P Hip in Q2 and commence the beta launch of 3P Small/Mini. We expect a more meaningful impact on growth in the second half of the year. We will also continue advancing additional systems over the next several years.

The 3P platform is building strong momentum, and we believe it will become the most advanced and comprehensive pediatric plating system in our field. Overall, T&D remains a key growth driver for the business, supported by consistent execution and a pipeline that is both highly clinically relevant and increasingly robust. We believe the depth and quality of our development efforts position us well to sustain innovation, drive future revenue growth and reinforce our leadership position in the market.

Looking at our specialty bracing business. OPSB remains a key growth driver for the business and delivered over 20% growth in the quarter, contributing meaningfully to both the revenue expansion and profitability.

Our clinic expansion strategy continues to progress ahead of plan, supported by both greenfield openings and selective Acqui-Hire. Same-store sales growth remains strong, reinforced by ongoing new product introductions and continued sales force expansion. Overall, we are on track to meet or exceed our goal of expanding to 27 territories by the end of 2027. Within OPSB, we are seeing the impact of our new product development engine.

We recently advanced the modular hip brace portfolio into commercial release and initiated the beta launch of the TRAXIO Halo gravity traction system. Early feedback for TRAXIO has been strong with initial customer engagement, including multiple requests for quotes for this differentiated system. In addition, we remain on track to beta launch the OP contractor management brace, which is designed to integrate directly with our Orthex external fixation platform, further enhancing synergies across our surgical and nonsurgical offerings. OPSB is progressing as planned toward our goal of delivering 4 to 5 new product introductions annually, reinforcing a consistent cadence of innovation going forward.

We continue to execute effectively across our three-pillar OPSB strategy, which includes sales force expansion, targeted product innovation and disciplined clinic growth. Overall, we are very pleased with the performance of the business and its increasingly important role within our broader growth strategy. In scoliosis, we experienced 13% growth in the first quarter of 2026, driven by increased sales of Response and VerteGlide systems and revenue generated from 7D technology.

And once again, we were particularly pleased with our EOS products. During the quarter, we continued our push into the EOS space with RESPONSE Rhythm pelvic and the VerteGlide systems, which we believe provide a promising new growth-friendly treatment option for young scoliosis patients. Looking more closely at this progress, we continue to see strong demand for VerteGlide despite very limited set availability with approximately 80 surgeons now trained and additional training sessions scheduled. This success is triggering our move to full market release of this important system in the second quarter, supported by additional set deployment to meet the rising demand. This growing adoption, along with 70 placements is driving higher utilization of our RESPONSE Fusion system, all ahead of the anticipated limited release of our next-generation scoliosis fusion platform, Veraxis.

Purposely built exclusively for the treatment of pediatric spinal deformity. Designed from the ground up for growing patients and the surgeons who treat them, Veraxis represents a step change in fusion technology by combining advanced implant design, streamlined instrumentation and integrated digital planning into a single cohesive platform with first surgeries by year-end.

In addition, we remain on track for first inpatient procedures with eLLi, our third and most complex EOS product in the fourth quarter. As a reminder, eLLi is a next-generation smart electromechanical lengthening spinal implant designed to deliver consistent and reliable power through RF power transmission. We expect the first implantation of the eLLi device in late 2026.

We are proud of how far our EOS products have come, and they further bolster our belief that our EOS strategy is working. We believe that OP is continuing to establish an unmatched portfolio of pediatric scoliosis technologies, enabling clinicians to treat even the most complex and severe pediatric spinal deformities with a comprehensive set of advanced solutions.

Moving to our international business. OUS had a strong first quarter with growth in excess of 20%, highlighted by great sales in EMEA and a nice performance in Brazil under our new agency structure. Continued success in EMEA is being driven by increased sales of legacy T&D products in our agency markets and a small but rapidly growing scoliosis franchise. We're pleased to have received full EU MDR approval for our T&D portfolio, scoliosis products and most recently, our external fixation devices. We are now actively working to make these long-anticipated products available across our European markets, and we expect this expanded access to support improved EMEA growth in 2026.

[ Flat Sand ] is building on our structural improvement in Brazil. While we're still cautious, we do believe an improvement is on track. And over the next several quarters, we expect to turn this headwind into a potential tailwind. The structural improvements we've made in Brazil through the purchase of one of our Brazilian distributors will improve our cash collection and over time, will normalize ordering patterns and allow for additional growth and market penetration. In addition, we were once again the largest sponsor of the European Pediatric Orthopedic Society Meeting in Seville, Spain. In early April, we showcased a broad range of new products that had previously not been available in Europe under prior regulatory constraints. These offerings were well received by both surgeons and distributors and are expected to contribute to revenue growth in the second half of the year.

Lastly, looking beyond our traditional segments, we are building on the success of our 7D experience and are kicking off the launch of our digital preoperative, intraoperative workflow management platform playbook and expect deployment to beta launch sites in 2026. Beyond that, we've completed the deployment and the first cases with the IotoMotion robot for pediatric cochlear implant placement and expect additional deployments throughout 2026 and beyond. OrthoPediatrics is also making deliberate focused investments in artificial intelligence to drive meaningful clinical and operational impact. We are advancing multiple AI initiatives, including embedding intelligence into our playbook platform, leveraging AI-enabled tools to support presurgical planning and evaluating opportunities to enhance patient care and efficiency across our OPSB clinics.

Earlier this year, we completed an internal AI flight school to build organizational readiness, and we have established a corporate objective to deploy 6 to 8 targeted AI agents to drive tangible efficiencies. After prioritizing data security and foundational controls last year, our focus in 2026 is firmly on execution, moving from experimentation to scaled implementation that delivers real value to surgeons, clinicians and our teams. In summary, we believe the company is entering its most compelling phase of expansion to date, supported by a multiyear product launch super cycle that will increasingly shape results over the coming years.

These new technologies are meaningfully more advanced and clinically differentiated, addressing significant unmet needs, supporting higher ASPs, improved gross margins and stronger returns on invested capital. They also enhance our ability to bundle solutions across accounts, supporting broader contract opportunities in pediatric hospitals and reinforcing share gains across our legacy portfolio. At the same time, OPSB continues to scale through both new product introductions and disciplined clinic expansion via greenfield openings and Acqui-Hires, a trajectory we expect to sustain over the coming years. Collectively, these initiatives are expected to drive significant improvement in profitability and cash flow generation over the long term. More broadly, we believe our hospital and surgeon partners increasingly recognize the value of working with a dedicated self-sustaining pediatric platform focused exclusively on improving care for children. Together, we are advancing innovation in a historically underserved area of health care and building a stronger long-term outlook for patients and the business.

With that, I'd like to turn the call over to Fred to provide more detail on our financial results. Fred?

Thanks, Dave. Taking a closer look at the P&L, our first quarter of 2026 worldwide revenue of $59.4 million increased 13% compared to the first quarter of 2025. The increase in revenue in the quarter was driven primarily by strong performance across trauma and deformity, scoliosis and OPSB. U.S. revenue was $45.3 million, an 11% increase from the first quarter of 2025, representing 76% of total revenue.

Growth in the quarter was primarily driven by trauma, deformity, scoliosis and OPSB. We generated total international revenue of $14.1 million, representing growth of 22% compared to the first quarter of 2025 or 24% of our total revenue. In the first quarter of 2026, Trauma and Deformity global revenue of $43.0 million increased 14% compared to the prior year period. Growth was primarily driven across numerous product lines, specifically our trauma products, ApiFix and OPSB.

In the first quarter of 2026, scoliosis global revenue of $15.4 million increased 13% compared to the prior year period. Growth was primarily driven by increased sales of RESPONSE and VerteGlide systems and revenue generated from 7D technology. Finally, Sports Medicine other revenue in the first quarter of 2026 was $0.9 million, which stayed consistent year-over-year. Touching briefly on a few key metrics. For the first quarter of 2026, gross profit margin was 73%, which is consistent year-over-year. Total operating expense increased $2.5 million or 5% compared to the prior year period to $51.7 million in the first quarter of 2026.

Sales and marketing expenses increased $1.9 million or 11% compared to the prior year period, driven primarily by increased sales commission expense and an overall increase in volume of units sold to $18.5 million in the first quarter of 2026. General and administrative expenses increased $0.7 million or 2% year-over-year to $31.0 million in the first quarter of 2026. The increase was due primarily to additional personnel supporting recent clinic expansions and other small-scale acquisitions, partially offset by savings being realized from prior restructuring actions. Research and development expenses decreased by $0.1 million or 5% in the first quarter of 2026 to $2.2 million. GAAP net loss per share for the period was $0.45 per basic and diluted share compared to $0.46 per basic and diluted share for the same period last year.

Non-GAAP net loss per share for the period was $0.42 per basic and diluted share compared to $0.39 per basic and diluted share for the same period last year. Adjusted EBITDA was $2.2 million in the first quarter of 2026 compared to a loss of $0.4 million in the first quarter of 2025. We ended the first quarter with $50.9 million in cash, short-term investments and restricted cash.

Set deployment was $2.3 million in the first quarter of 2026 compared to $3.6 million in the first quarter of 2025. As a reminder, although the amount of sets being deployed in 2026 is lower than historical years, these are primarily all new products being launched as part of our innovation super cycle and are generating a much higher level of revenue per deployed dollar than our previous legacy systems generate.

Free cash flow used in the first quarter of 2026 was $5.0 million, a 40% improvement as compared to $8.4 million used in the first quarter of 2025. Increased adjusted EBITDA, lower sets deployed and improved working capital metrics all contributed to the year-over-year improvement.

On March 31, we amended our existing credit agreement with Briadwell LP to add $20 million delayed draw term loan facility. This amendment enhances our financial flexibility by providing on-demand access to additional capital through June of 2027, while maintaining consistent economics and covenants within our existing term loan. Importantly, this structure allows us to preserve liquidity and avoid dilution as the facility is fully discretionary and interest-only through maturity in 2029.

We view this as a prudent addition to our capital toolkit that further strengthens our balance sheet and positions us to opportunistically fund growth or strategic initiatives while maintaining disciplined capital deployment. Turning to guidance. As Dave mentioned, we raised our expectation for full year 2026 revenue to be in the range of $263 million to $267 million, representing year-over-year growth of 11% to 13%. We also continue to expect to generate approximately $25 million of adjusted EBITDA, deploy approximately $10 million in S and to achieve free cash flow breakeven in 2026.

We would expect the EBITDA and free cash flow to exhibit similar quarterly seasonality patterns to 2025. It is important to note some periods of free cash flow will be negative and others positive, but still cumulatively tracking to our annual guidance metrics.

Operator, let's open the call for Q&A.

And our first question comes from Matthew Blackman with TD Cowen.

Can you hear me okay? I'm going to start with a question for Fred, and then I got one for you, Dave. I heard you talk about the impact of weather, January and February. Is there any way to quantify the impact on T&D from the OPSP weather-related headwinds? And is that revenue that you recapture? Or is it just lost? And then I've got a follow-up question for Dave.

Yes. So that comment was specific to our clinics, which were shut down a week during January, week in February. And typically, those appointments get rescheduled. So as Dave mentioned, we saw a nice rebound across the entire business in the month of March, and that's continued into April. So I would say that the vast majority of those got cleared in the month of March and now here in April, and they're all -- it's all behind us by now.

Okay. But you did -- some of it did sort of soot into the second quarter, lost in the first quarter, though. That's some of the takeaway, right?

Yes.

Okay. Fair enough. And then, Dave, on the 3P platform, I heard you loud and clear early days, but very encouraging. You're going to ramp from here. It sounds like in the second half of '26, you'll be in a more scaled launch with 3P, maybe gaining some 3P small mini momentum. Do you think that translates into a visible at least to us uptick in T&D second half growth? Or do we need more sets, more pieces of the platform beyond 3P and 3P Small/Mini to inflect U.S. T&D growth? And does that happen in 2027? Just trying to think about the moving parts here and when perhaps we see a visible perhaps inflection in that franchise?

Yes, Matt, good question. So yes, we have very few sets available on the 3P side at this stage. And in fact, I think we have some opportunities to sell sets that we are -- we haven't we haven't done yet just because we want to make them available to more and more users as we're kind of moving those around through our loaner pool. Additional sets hopefully coming here at the back half of Q2. And certainly, Q3 will -- Q4 will be impacted by additional sets. It's not a huge volume of sets. So I do think that it's going to have some meaningful impact on the implant side of our T&D business. But these rollouts take years.

You've seen over the last several years, even products like PNP Tibia, which I think now have been out 2.5 years are still being rolled out and still impacting top line revenue growth. I think what we really like to see about the early days of 3P is very strong ASP in addition to extremely high demand. very strong margins. And consistent with what we've been telling the Street for a while, this new product and VerteGlide as well on the scoliosis side are dramatically more capital efficient. And so driving -- requiring less capital deployment to drive top line. So its impact is not just back half of the year in top line revenue, but profitability, cash usage, everything. And we'll see more of that from the small mini and more of that from PNP retro and the new systems on the scoliosis side. It's just very encouraging what we're seeing early on with 3P and these other systems and I think it will probably start to impact the growth of the implant side of our business here in the second half and really in 2027 and 2028.

Our next question comes from Rick Wise with Stifel.

Really is great to see that despite a challenging start to the quarter and weather and everything that you finished strong and that, that momentum is continuing. Now that I paid you a compliment, I was hoping to just at a high level, understand your -- despite the outperformance in the first quarter and everything we're hearing just on the execution front, just sounds so great. Each part of the business working well, some of the last year's challenges worked through, resolved, turning into potentially a tailwind.

The new product launches clearly well set up for a strong second half. Why leave guidance -- top line guidance unchanged? Is it just -- is there any particular reason other than just being careful as you set up the year? Or is there anything that we should hear or understand about maybe some challenges ahead as you start the rollout here? Just help us think about the rest of your -- left the rest of year guidance unchanged basically?

Yes. So obviously, increased the full year guidance by the $1 million that we did.

Dave continues to talk about the super cycle, which is awesome, and we have more sets coming, which is great. Those sets will be here in the second half or really the end of the second quarter here to help the second half of the year. But as normal, we like to wait for those things to show up and to show up in the numbers before we get too far ahead of ourselves.

So in traditional fashion, we'll continue to stay conservative and let the numbers speak for themselves when they show up, I think.

All right. Sounds good. And I'm sure it's a similar answer to the very strong performance on the adjusted EBITDA line. And I heard what you said, Fred, about the -- some quarters a little better or stronger given the demands of the business. But it seems like you're set up there well with higher-margin products and just coming on and volume and leveraging the fixed cost base. It just sounds like you're well positioned to do even better?

Yes. We were very pleased with the leverage that showed up through the P&L here in the first quarter, 13% sales growth, G&A grew 2%. And that, to us, was very encouraging. Typically, first quarter is the lowest sales quarter that we'll see for the year. And so if you add on some incremental revenue here in the second and third quarter, in particular, which are typically our strongest, that should drop through very nicely to the bottom line.

Our next question comes from Ryan Zimmerman with BTIG.

This is [ Izzy ] on for Ryan. So I just wanted to start with the international. saw that strong 22% growth for the quarter. And I was wondering if that's the right baseline to be at for the rest of the year or if we think it could potentially be a little bit stronger as you start to see more contributions from the new products, especially as that EU MDR comes online?

Yes. Good question, Izzy. I'm not sure we're going to get too far ahead of ourselves on 22% growth. Very pleased to see it. It was certainly an acceleration of growth over Q1 of 2025. I think we came in at 19% in Q1 of 2025. I think the headline here is that we are seeing very consistent performance and consistent growth in these agencies with a lot of the legacy products.

And as Fred mentioned, we don't want to get ahead of ourselves in terms of set deployment. and how much revenue that set deployment of some of these new products generates. But it is safe to say that we have a really nice opportunity here in the second half of the year as we start to deploy some of the sets that are now approved in Europe through EU MDR. And so timing of those sets coming into our warehouse and then getting out to our customers is a bit of the rate limiter, certainly not demand.

And so as we see some of those sets come in, I think we'll be able to give some updated guide as to what we think we can see in the second half of the year. So it's early, probably not going to get ahead of ourselves there yet, but it was certainly good to see that kind of acceleration in growth led by our agency markets. And I think of note, very limited set sales. We have been challenged over the last several years to balance margin and top line against some of the lower-margin set sales.

Most of that revenue, I would say, in this quarter and hopefully, in future quarters is primarily just replenishment orders coming through our agencies and coming through our hospitals in Europe. And I think the acquisition of our Brazilian distributor we called out has certainly started to stabilize the markets in Brazil. And I think we hope over the course of the next several quarters, start to create a bit of a tailwind in a market where there's extremely high demand, but we needed to adjust our model to be able to extinguish some of that demand. So as we see that develop, it's possible that we could see growth accelerate. But hey, if 22% growth is very strong. I think we're very pleased with that. And if we could stay in that ballpark, I think it would be a great year.

Yes. With that said, I would just say we do expect international to outgrow the domestic market for each quarter for the rest of the year. While it might not be 22%, we do think at this point that it will continue to grow very nicely and probably outperform the domestic growth for the rest of this year and starting into next year.

Appreciate it. And then I saw the press release today and heard your comments about the launch of TRAXIO. So I was hoping you guys could talk a little bit more about your plans there for the rollout and what we can look forward to going forward?

Yes. So TRAXIO is as it's definitely name, a halo gravity traction product. It's primarily designed in these children to help children and patients and physicians who are taking care of very complex early onset scoliosis products. And so the initial launch is of a few sizes of the traction device. Those devices are sold as a capital purchase. And then there is a replenishment or repurchase of different components of that device inside the children's hospitals. Eventually, we'll be launching the surgical component of TRXIO, which will be the actual halo itself that attaches to the goal of these kids. I think what is exciting about it is, number one, there's very high demand.

We've gotten a lot of hospitals that have called us for -- there's really nothing like it available in the market. Most of the hospitals that do traction are having to kind of [indiscernible] their way through that, building a lot of these devices in-house. And so you can imagine the demand that there is in hospitals, even from a pure risk management standpoint to have an FDA-approved device that can take care of that patient population. It's also really encouraging to see its connection to our EOS business and then ultimately the fusion business. And so we've talked about in the past, treating the entire disease state of scoliosis, not just the end state for fusion. And you can see TRXIO and how that fits in, where patients may be going from bracing to halo gravity traction to ultimately our suite of early onset scoliosis products and then to the potential non-fusion products like ApiFix and then ultimately, the final fusion if required. I think it creates a portfolio that is unlike any in the spine space. And I think it's a very strong adder in terms of our value proposition to these children's hospitals within scoliosis.

Our next question comes from Mike Matson with Needham & Company.

This is Joseph on for Mike. Maybe just given the rapid growth that you guys have been calling out in OPSB, just being an increasing part of revenue for the whole company. I'm just wondering if maybe you can provide more color on SG&A expenses, I guess, just on a percentage of revenue basis from here. Should we expect maybe some small gross margin improvement moving forward with real margin expansion coming here on operating leverage moving forward?

Yes, absolutely. I think just like we saw in the first quarter, that the true leverage down to the EBITDA line is coming from G&A. And this year, it's both on the cash and the noncash portion of G&A. I think the leverage we saw in the first quarter will be similar in the rest of the year in each of those quarters. A little bit on the sales and marketing, but that's really not our focus. It's all really on the G&A side of the business.

The dollars may go up a little bit on G&A as the business grows in the second and third quarter pretty dramatically, but the leverage will come through very nicely.

Okay. Yes, that's great. And then I guess maybe just pull-through for the scoliosis products. I know this may be early days, but you guys called out great beta launches, generating demand, RESPONSE growing really well. So I'm just wondering how that's compared to expectations prior. I could be wrong on this, but I believe you guys said the real pull-through driver for the scoliosis products maybe be driven by eLLi. So just wondering if that's still the case.

Yes. Certainly, eLLi is the most complex and probably the largest opportunity on the early onset scoliosis side. But what I can say is that we have seen remarkable interest in VerteGlide, maybe more interest in VerteGlide in that particular type of technique for the EOS indication than we had expected when we launched. I'm very pleased with the fact that we have nearly 80 surgeons already trained -- and at this point, we are having to have surgeons notify us well in advance when they schedule cases just to move inventory around. What I'm also really pleased by pointing to your pull-through commentary is that a number of surgeons and children's hospitals that aren't historically large users of our Fusion platform, Response are the main users of the EOS product, VerteGlide. And so I think what we called out in the script, this is exactly part of the strategy.

Certainly, we want to grow into this kind of blue ocean growth opportunity we have in early onset scoliosis with VerteGlide and with iLLe and rib and pelvic. But I think it also brings about opportunities to show just how good we are on the scoliosis side. to some of these major institutions where they may use a lot of our trauma and deformity products but haven't had a ton of experience with Response and our Fusion system. And we are picking up pull-through already. You can imagine that's fairly small given the limited access to VerteGlide, but we are certainly involved with children's hospitals and physicians that historically weren't as exposed to our Fusion platform. And that is one of the nice drivers we're seeing with Response. I think what I was calling out in the script and what we'll continue to hopefully see here is that as the EAOS portfolio more fully launches, we get more sets available to surgeons on the VerteGlide side. We launched iLLe, which, as you know, we just said, is a little bit bigger opportunity. You follow that up with continued deployment of Response, but also the launch of our next-gen Fusion system Veraxis, that is a really -- just a really compelling set of technologies and value proposition for the hospital, not to mention the fact that you've got the bracing on top of that, that provides some halo and synergies as well as now the TRAXIO system on the EOS side. It's a really good setup for us in the coming several quarters and really several years as those products roll out.

Okay. Yes. Great. That's all very helpful. Maybe just one quick one. Now that you guys are finished with the EU MDR approval in Europe, are there other geographies that you guys are targeting for further catalog expansion? Or maybe, I guess, is it time to be thinking about moving into China?

Just wondering what you guys are thinking about there?

Yes, we haven't given specifics, but you could assume that we have a very, very small presence in Japan, essentially no presence in India and no presence in China. And while historically, we have spent our dollars focusing on EU MDR, I think there is a remarkable demand for our products in some of those markets. And you might expect that we're working towards how we go to market, particularly in a market like India, where we have strong surgeon connections, surgeons who have trained in the United States and Canada that are leading surgeons in India. And so while it's not a part of the guide, not a part of right now kind of our future revenue forecast, I think in time, it would be natural for us to extend into some of those bigger markets. And I think over the coming years, that could be a real great opportunity for us.

Yes. Okay. Well, congratulations on the strong quarter.

Our next question comes from David Turkley with Citizens.

I just wanted to follow up on that last one. Did you give a timing for that Veraxis system?

So we expect first surgeries for both EE and Veraxis by the end of the year.

And is that -- I imagine does that mean that domestically, like that's cleared? Or how -- what is your approval or process with that device? Is that a 510(k)?

Yes. Yes. So it is a 510(k). And so we're working towards that at this point. It is not yet cleared, but we would expect it in the back half of the year. Certainly, that's a bit of a wildcard in terms of timing, but our success, particularly with these 510(k) products has been very strong. Generally, with all the testing, we get these things through pretty rapidly. Again, I don't expect Veraxis to have a huge impact on revenue in the second half of the year, certainly more of a 2027, 2028 rollout. But our goal is to get surgeons access to that product so we can start getting feedback at some point in time in the fourth quarter, and I think we're on track for that.

Great. And I think you said OPS-B grew 20% in the quarter. And looking back at notes, I think you said six territories maybe this year. I was wondering if you could give any color if you done any of those? And maybe if you have or what you expect in terms of greenfield or Acqui-Hire specifically for '26?

Yes. So far, the guide has been by 2027, we would be at '27 of these markets. I think we're at or maybe a little ahead of that. And I would expect that we would reach the necessary 6 markets in 2026 for sure. Continued demand here, opportunities for both greenfield as well as Acqui-Hire. And there is really even opportunities within some of the existing open territories to expand our clinic presence. Super to see same-store sales clinic locations where we've had now for a year. That has gone extremely well. We're seeing increased revenue there. And then there is opportunities to get clinics in those territories more fully penetrate the territories we're already in, while we balance that against opening new territories. Obviously, deeper penetration in our existing territories doesn't take as much expense base. And so when we've got opportunities to accelerate patient care and revenue in places where we're already at, we kind of have to weigh that against how far -- how much we would want to accelerate into new territories. But I think it's very safe to say that we are on track, if not ahead of track in 2026, and we'll meet or exceed our objectives for 2027.

Our next question comes from Caitlin Roberts with Canaccord Genuity.

In LatAm, you noted you purchased your largest distributor in Brazil. Just curious how much of the LatAm business this distributor encompasses? And would you look to apply the same formula and acquire more distributors down there to continue to drive more consistency in the region?

So historically, we've had about 15 or 16 stocking distributors. This was one of the larger, but not the majority of the sales down there. So it's kind of 1/15 of our sales in Brazil. The good news is, though, we now have a legal entity. We have an operating entity down there, and all of our other sales into the country in Brazil are going through this legal entity, which dramatically enhances our ability to collect cash in Brazil to deliver them inventory on a more timely basis because we're now stocking inventory in Brazil and to better serve those other stocking distributors. So we do not, at this time, have big plans to buy additional distributors. It's all about the ability to collect cash more efficiently and to better serve our partners down there so we can continue to grow that entire region in more and more procedures.

Understood. And just on Veraxis, what are your thoughts on the competitive landscape in pediatric spinal deformity as you look to launch here in the future?

Yes. I mean, certainly, the pediatric -- or the pediatric spinal fusion portion of our business is the most competitive. It always has been. Most companies on the adult side have good deformity correction systems that kind of dual function, so to speak, as pediatric deformities. I think where -- what we see with Veraxis is a system that's built ground up with pediatric spine surgeons, not a system that's designed for adults. And so I think when physicians see the development work there done by their colleagues for major pediatric or major children's hospitals, I think that the competitive position of that product in conjunction with products that we offer that aren't offered by really any of the other competitors, I think, is a value proposition that is really hard to beat. And so yes, we're excited.

Again, it's early. We haven't done first case, but I'm pretty excited to see how that stacks up against any of the other competitors. And the fact remains is that Response, which has been in the market for a number of years, continues to take share. And so leapfrogging our own really best-in-class technology, hopefully will even accelerate further the share taking that we've experienced over the last several years.

Our next question comes from Ben Haynor with Lake Street Capital Markets.

First off, on the almost 80 VerteGlide surgeons trained. Can you talk maybe a little bit about the number of folks that are doing these sorts of procedures nationwide? Is there kind of an 80-20 where surgeons are doing 80% of procedures. What is the total market kind of look like in terms of guys doing these things?

Yes. Yes, great question. This is a tough one, Ben, because I think that the technology that surgeons have had access to do some of these procedures has been so limited that, that in and of itself, the technology is a bit of a limiting factor to who would actually use the product like guided growth for spinal deformity correction. But it's fair to say that every children's hospital that does spinal deformity correction, which is 300 procedures has at least one physician there, if not multiple, that would be willing to -- that takes care of these EOS products.

Certainly, places like Children's of Philadelphia, Boston Children's, WashU, these accounts plus several others are doing higher volumes of those very complex procedures. But it's -- in total, we think between iLLe Veraxis, it's a sub-$100 million, maybe $80 million market opportunity with essentially very limited competition and a deep unmet need by our customers. And I think what we're seeing from our customers is a recognition that we're willing to take on these complex things that they care about, and that's what we're seeing from the pull-through already on RESPONSE.

Makes sense. And then on TRAXIO, just kind of obviously, hospitals, what are the -- obviously, it would improve the economics versus [indiscernible] these sorts of things. But what do the economics look like for the hospitals that do make these sorts of capital purchases? And then how did the relationship with [ Synthes ] Group come about?

Yes. So we got connected to Synthes through some other partnerships we have in Montreal. As you know, we have an operation up in Montreal after the acquisition of Pega. And so we were able to form a nice relationship with them as they have helped us with different products on the nonsurgical side through our specialty bracing business. I think as the economics go, this is one of those products that if you do this procedure, this is almost must-have for children's hospitals. And I would say that not all children's hospitals perform the procedure. It's got to have hospitals that are willing to have patients that can stay inpatient for several weeks.

Oftentimes, these kids get halo and literally live in the Halo device for as long as 6 weeks or so before they ultimately have a surgical procedure. So you can imagine that the economics are probably pretty strong for the children's hospitals where they have these patients in the hospital and then are doing multiple surgical procedures thereafter. I would also argue that the TRAXIO, this is not a $1 million PO the hospital is required to issue. And so it's not such a large capital purchase that we're seeing resistance to that. There is, though, a further opportunity for us to partner TRAXIO with 7D, with VerteGlide Response, some of these very, very novel systems that, frankly, you just can't get from any other company to leverage opportunities to bundle our services and our products.

And we are in more of those types of bundling discussions now at major children's hospitals than we have ever been in the history of the company, which I think as we develop that and as some of these more differentiated products launch like TRAXIO, our position to have those negotiations only strengthens and again, hopefully drives accelerating revenue in the next few years.

That's great. And then lastly for me, just thinking about the opportunities that you guys see outside of orthopedics within pediatrics, -- any kind of updates there? Any conversations that are happening?

Anything that folks should expect the remainder of the year?

Yes, I don't think so. I mean, we have long walked alongside a number of technologies in other subspecialties in pediatric health care. We'd like to think our -- like to think of ourselves as a bit of a beacon for other entrepreneurs who could help us in meeting some of these unmet needs that we see in a number of conditions in pediatric health care. So I think when the time is right, as we signaled, time is right in the right company with the right culture where we could potentially help scale revenue globally, we would be quite opportunistic in that. But I don't think anything that we see right at the moment is pending. But you never know. We'll continue to do the work that we're doing to be good partners with people like iota Motion, which is a little bit outside of our call point and continue to help both companies commercialize. And when the time is right, we'll probably step into some of these other subspecialties.

Congrats on all the progress.

[Operator Instructions] Our next question comes from Ravi Misra with Truist Securities.

Just maybe a philosophical question here. Just maybe kind of -- I'd love to understand the thinking of the company around how you're balancing this 11% to 13% growth outlook amidst what appears to be a pretty significant product cycle. And you've talked in the past about competitors leading the space, giving you opportunities as a pure-play focus on pediatrics. But then again, at the same time, set deployment is around $10 million this year. So sometimes I think about, okay, why don't these guys or the management team really accelerate the set deployment to capture revenue. I'd love to hear your thoughts on maybe that push and pull there. And are we underestimating the leverage potential from sets out in the field?

Or is it something you're being conservative about and measured about in terms of how you think about this?

That's a great question. There's certainly a healthy tension, I would say, within the organization as we think about how fast we would want to go to accelerate revenue versus generate positive free cash flow. And then when we inevitably generate positive free cash flow and that starts to become a bigger number, how much of that positive free cash flow we would want to use to accelerate growth. You're right in saying we have a very -- we have a great opportunity in front of us to launch these new products and to continue to scale even some of our legacy products, given the evacuation of the market of some of the quasi competitors in the space. I think we have been on a quest over the course of the last few years to deliver increasing EBITDA and to deliver on free cash flow breakeven.

Our commitment is unwavering there, and I think nothing will knock us off that path to being able to deliver that here in 2026. Now as we think in 2027, 2028, let's say, through 2030 as the super cycle really starts to ramp, I'm not sure our strategy will be to maximize the capital that the business would ultimately generate. We would probably start utilizing some of the additional free cash flow the business would otherwise generate to be able to scale some of these products. I think that would only be the smart competitive thing when you have the opportunity that we have in front of us.

But in the short term, delivering on our commitments, balancing top line revenue growth against our profitability expectations as well as the drive to free cash flow breakeven is what we have in front of us immediately. And then I think we will have some bigger decisions to make and good decisions, good opportunities to execute and maybe put out a little more inventory when we get more into even the first, second and third inning of the super cycle.

At this stage, we're in the batter's box. And so not having to face that right now. But as we get into 2027 through 2030, I think it's likely that we would want to put more inventory on the street, particularly inventory that has the kind of margin that products like 3P and VerteGlide have and have a return on capital that is just so much better than our legacy systems.

Great. And then just one last one. On the kind of 80 surgeon base around VerteGlide, should we kind of be thinking of that as seeding the field a little bit for iLLe once that comes in? Or is that going to be a different subset of pediatric specialists? It's very astute. I think that's -- we talk about iLLe, at least in -- obviously, it's not approved, but we talk about it in theory and the potential features of iLLe with the surgeons when we go through training. Any surgeon who is training or interested in training on VerteGlide is most certainly a candidate for the use of iLLe as well as our RSPONSE rib and pelvic, which is great news. You'll also see increased sales of our small stature system on the RSPONSE side because, again, these are very young patients and surgeons who treat those patients.

So again, astute question. The answer is absolutely yes, opportunity to talk about the pending iLLe launch. And I think it's important to note that iLLe is not a substitute for VerteGlide and VerteGlide is not a substitute for iLLe. There's different indications within this very complex patient population that require rib and pelvic that require VerteGlide and will require iLLe. And so without question, being able to capture mind share within that -- within the surgeons who treat that patient population is very good for our prospects in the future.

Thank you. I would now like to turn the call back over to David Bailey for any closing remarks.

Great. Thanks, operator. Well, we appreciate all of your time, and we'll be at a number of conferences over the course of the next several months, and we look forward to meeting with you all there. So thanks, and have a great evening.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good afternoon, and welcome to OrthoPediatrics Corporation's Fourth Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Trip Taylor, Investor Relations, for a few introductory comments.

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer; and Fred Hite, Chief Operating and Financial Officer. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation and Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K, which was filed with the SEC on March 5, 2025, to be updated next week and subsequent quarterly reports on Form 10-Q.

During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period-over-period. For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in its fourth quarter earnings release. Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for OrthoPediatrics' financial results prepared in accordance with GAAP.

In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, February 26, 2026. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call.

With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer.

Thanks, Trip. Good afternoon, everyone, and thank you for joining us today. We're proud to start this call with our typical and most meaningful performance metric. In the fourth quarter, we supported the treatment of more than 37,500 children, increasing our total impact to approximately 1.3 million kids held. Historically, the medical industry has overlooked the importance of offering custom-tailored solutions to the unique needs of pediatric patients. At OrthoPediatrics, we are changing the status quo by bringing an unparalleled level of attention and innovation to the pediatric market, and we will continue to advance this goal.

We closed out 2025 strong with 17% fourth quarter revenue growth, representing growth across the entire business, improved adjusted EBITDA over the prior period, and generated $10 million of fourth-quarter free cash flow, which is our first quarter of positive free cash flow in the company's history. Full year performance for 2025 was highlighted by 15% revenue growth, nearly 75% increase in adjusted EBITDA, and a drastic improvement in cash usage, down to $15 million from $41 million in the previous year. Our track record of execution is a strong indication that we can sustain meaningful top-line revenue growth while generating increasing profitability and delivering cash flow breakeven in 2026.

We are uniquely positioned among peers of our scale with the ability to drive both top and bottom line growth. To that end, we are the clear market leader in pediatric orthopedics, and we have now demonstrated that our self-sustaining business model can grow the top line, generate positive adjusted EBITDA, and deliver positive FCF. We feel that the investment community is underappreciating the strength of our position, and we intend to keep exploring all options at our disposal to improve shareholder value while advancing our mission to help 1 million kids every year.

I also want to emphasize today that in 2025, we commenced what we believe is the most substantial and technologically advanced series of product launches in OP history. This kicks off a multiyear super cycle of product innovation and launches that will serve as the foundation of our growth for years to come. Notable products include 3P Hip, VerteGlide, new OPSB products, Halo Gravity traction, playbook on the enabling technology side, as well as the EE electromechanical growing spine system, with first-in-human yet this year. As this expansion of our portfolio strengthens our foundation in orthopedics, over the medium term, we are looking to broaden our footprint into other pediatric subspecialties while expanding our can and further leveraging our powerful global commercial channel.

Considering all these factors, we are approaching 2026 on track to make excellent progress towards our goals with a few primary goals in mind: continued share taking across the business, further OPSB expansion, execution of our multiyear new product super cycle, leading to stronger EBITDA margin, as well as dramatically improved free cash flow performance. We are reiterating our 2026 revenue guidance of $262 million to $266 million, representing annual growth of 11% to 13%, and we expect to generate approximately $25 million of adjusted EBITDA while achieving free cash flow breakeven for the full year. Turning to our T&D business.

In the fourth quarter of 2025, the T&D business grew by 17%, driven by increased sales of our flagship trauma and deformity systems and continued deployment of new product sets. Highlights of the quarter included our continued full commercial launch of the first-ever pediatric tibial nail, PNP tibia, and the beta launch of 3P pediatric plating platform hip system. Our 3P hip system has exceeded expectations in its early stages, and this system is expected to contribute materially to revenue growth with the full commercial launch expected in the first half of 2026. We were also thrilled to receive FDA approval for the 3P Small-Mini, the second system in our 3P plating family. We'll be conducting the beta launch of 3P Small-Mini in 2026 and expect to continue advancing development on several new 3P systems that will be launched over the next 3 years.

With our 3P system continuing to build momentum, we believe that it will prove to be the most advanced and comprehensive pediatric plating system in the history of our specialty. To wrap up on our T&D business, we're following the extremely successful launches of PNP Femur and PNP tibia with PNP Retro, the first and only pediatric retrograde IM nail system, while also expanding our leadership in telescopic nailing for rare bone diseases with the next-generation FD rod. Overall, T&D continues to be the pacesetter for our business, and our development pipeline has never been more clinically relevant and full of promise.

Looking at our specialty bracing business. OPS-B continues to be a strategic growth catalyst, supporting both our revenue growth and profitability in a meaningful way while further strengthening our customer relationships. As such, the business continues to see success, and our clinic expansion strategy is ahead of schedule. In Q4, we expanded our footprint in Connecticut, and we expect to continue executing our successful strategy for both Greenfield and Acqui-Hire expansion. Same-store sales growth remains strong, and new product launches and sales force expansion are going very well. We also continue to remain open to opportunistic acquisitions that fit our strategic focus.

On the product side, OPSV saw a flurry of new launches in 2025, including expanding indications for the DF2 brace that has exploded in popularity and is changing the gold standard for treatment in pediatric femur fractures in young children. Additionally, we beta-launched a trio of bracing products for the treatment of hip deformities that are in the process of moving to full commercial release in 2026. Within OPSB, we are now fully on track to meet or exceed our annual goal of 4 to 5 new product launches every year for the foreseeable future. In addition to the full commercial launch of the 3 solutions that make up the PD Hip brace portfolio, we will launch 2 products aimed to be used in synergy with OP implant systems to treat the entire continuum of care for kids.

These are the [ TRxIOhalo ] Gravity traction system in partnership with the [ SynTec ] Group and the OPSB knee and ankle [ TractorFix ] braces meant for treating contractors following Fix surgery. It is evident that we are continuing to execute against our 3-pronged plan for OPSB, sales force expansion, focused new product development, and measured clinic expansion. Ultimately, we could not be more pleased with the OPSB performance and its strategic impact.

In scoliosis, we experienced 13% growth in the fourth quarter of 2025, and we were particularly pleased with our EOS product launches. Throughout 2025, we continued our push into the EOS space with the full launch of RESPONSE Ribbon pelvic and the beta launch of the much-awaited VerteGlide system, providing a promising new growth-friendly treatment option for young scoliosis patients. Notably, in the second half of 2025, we completed the first surgical cases with the VerteGlide system, making an introduction of this technology into clinical use. I think it's important to stop and recognize the impact technology like VerteGlide can have on a young person's life.

We recently received feedback from a surgeon on his first VerteGlide postoperative visit with a patient. The smiles on the patients' and their families' faces told him everything he needed to know without saying a word, and they shared a deeply moving moment. The patient's motor functions were improved, and that level of neurologic improvement is highly uncommon in this respective patient population. This technology is literally transforming patients' lives. We are seeing solid early usage of the new VerteGlide system in its limited release and plan to move to full market release in the coming months. We are proud of our successful launches in 2025, and they further bolster our belief that our EOS strategy is working.

In addition to the full launch of VerteGlide, we're nearing completion of our third and most complex EOS product, eLLi. As a reminder, eLLi is a next-generation smart electromechanical lengthening spine implant designed to deliver consistent and reliable power through RF power transmission. We expect the first implantations of the eLLi device in late 2026.

Beyond declaring victory on the most technologically advanced and comprehensive EOS portfolio in pediatric spine surgery, we also expect to complete development and beta launch our next-generation Scoliosis fusion system in the second half of 2026 in conjunction with a suite of unique predictive preoperative planning software. Once complete, we believe OP will offer an unrivaled portfolio of pediatric scoliosis technology that will allow our customers to treat children with the most severe and complicated pathologies.

Moving to our international business. OUS growth rebounded with a strong fourth quarter, highlighted by solid demand in our direct markets in the EU and Australia. Surgeon usage was high across the portfolio, and we saw a strong rebound in LASA from replenishment orders. EMEA and APAC revenue was very solid, which largely comes through our sales agencies and is a good reflection of high surgeon usage and higher-margin replenishment revenue. From a strategic standpoint, we made structural improvements in Brazil through the purchase of one of our Brazilian distributors, Follow Med, in late November. We believe over the next several quarters, this acquisition will enable us to improve our cash collection and, over time, normalize ordering patterns to drive additional growth and market penetration in the region. We are also very excited about the EU MDR approvals for several T&D and scoliosis products, as well as a recent approval for our X6 devices. Efforts are now underway to provide our EU markets with products they have long been waiting for, and we expect this to have a positive impact on EU growth in 2026.

Lastly, we'd like to underscore 2 developments outside of our traditional segments. It's very early, and revenue is small, but we are building on the success of our 7D experience and are kicking off the launch of our comprehensive digital surgical platform playbook. It is designed to support teams across the full continuum of care from preoperative planning through intraoperative execution and post-procedural performance analysis, and we expect deployment to beta launch sites in 2026. Additionally, as announced following the FDA approval of key pediatric indications during the fourth quarter of 2025, we have placed our first iotaMotion unit at Cincinnati Children's Hospital. Under our exclusive partnership with iotaMotion, we are moving towards the full commercial launch of OP's first non-orthopedic technology. This milestone allows us to leverage our existing capabilities and to bring the same discipline, focus, and pediatric first expertise beyond orthopedics, and we are excited to advance this innovative technology.

With that, I'd like to turn the call over to Fred to provide more detail on our financial results. Fred?

Thanks, Dave. Taking a closer look at the P&L, our fourth quarter of 2025 worldwide revenue of $61.6 million increased 17% compared to the fourth quarter of 2024. The increase in revenue in the quarter was primarily driven by strong performance across trauma and deformity, scoliosis, and OPSB. U.S. revenue was $48.6 million, a 13% increase from the fourth quarter of 2024, representing 79% of total revenue. Growth in the quarter was primarily driven by trauma and deformity, scoliosis, and OPSB.

We generated total international revenue of $13.0 million, representing growth of 33% compared to the fourth quarter of 2024, representing 21% of our total revenue. In the fourth quarter of 2025, Trauma and Deformity global revenue of $42.6 million increased 17% compared to the prior year period. Growth was primarily driven by strong growth across numerous product lines, specifically our Pega products, ExFix, PNP tibia, and OPSB. In the fourth quarter of 2025, scoliosis global revenue of $17.6 million increased 13% compared to our prior year period. Growth was primarily driven by increased international implant growth as well as OPSB.

Finally, Sports Medicine's other revenue in the fourth quarter of 2025 was $1.4 million, including Iota Motion robotics sales, as compared to $0.6 million in the prior year period. Touching briefly on a few key metrics. For the fourth quarter of 2025, gross profit margin was 73% compared to 68% for the fourth quarter of 2024. Total operating expenses increased $3.7 million or 7% compared to the prior year period to $53.3 million in the fourth quarter of 2025. Sales and marketing expenses increased $1.6 million or 10% compared to the prior year period to $18.4 million in the fourth quarter of 2025. General and administrative expenses increased $5.5 million or 23% year-over-year to $30.0 million in the fourth quarter of 2025. The increase was primarily driven by the addition of personnel and resources to support the continued expansion of the OPSB business and increases in noncash items such as stock compensation, depreciation, and amortization.

Trademark impairment increased $0.6 million for the prior year period to $2.4 million, and we recorded a restructuring charge of $0.3 million as a result of our prior cost rationalization efforts, as compared to $3.7 million in the fourth quarter of 2024. Research and development expenses decreased $0.7 million in the fourth quarter of 2025 due to timing of third-party related services to product development. GAAP net loss per share for the period was $0.43 per basic and diluted share compared to $0.69 per basic and diluted share for the same period last year. Non-GAAP net loss per share for the period was $0.30 per basic and diluted share compared to $0.29 per basic and diluted share for the same period last year.

Adjusted EBITDA was $4.8 million for the fourth quarter of 2025, a 59% improvement when compared to $3.0 million for the fourth quarter of 2024. We ended the fourth quarter with $62.9 million in cash, short-term investments, and restricted cash. Set deployment was $4.5 million in the fourth quarter of 2025 compared to $3.7 million in the fourth quarter of 2024. As Dave mentioned, we are very excited to have generated $10 million of free cash flow in the fourth quarter of 2025, contributing to a dramatic improvement in our total year free cash usage of $15 million for 2025 as compared to $41 million in 2024, a $26 million improvement or 63%.

Turning to guidance. As Dave mentioned, we reiterated our expectation for full-year 2026 revenue to be in the range of $262 million to $266 million, representing year-over-year growth of 11% to 13%. We also continue to expect to generate approximately $25 million of adjusted EBITDA, deploy approximately $10 million in sets, and to achieve free cash flow breakeven in 2026. We would expect the EBITDA and free cash flow to exhibit similar quarterly seasonality patterns as to 2025. It is important to note some periods will be negative and others positive, but still cumulatively tracking to an annual guidance metrics.

Operator, let's open the call for Q&A.

[Operator Instructions] Our first question comes from Matthew O'Brien from Piper Sandler.

Maybe just for starters, the scoli number in the quarter was quite strong. Can you just maybe talk a little bit about what you're seeing there? I know it's a category that is significant, but there's, I think, a little bit more competitive pressure coming from at least one spine company. So just maybe talk about what you're seeing there and then the outlook for that franchise going forward? And then I do have a follow-up.

[Audio Gap] That continues to take share. And then just early returns, as we indicated with the VerteGlide system and now that we've got the ribbon pelvic, VerteGlide out and working on eLLi, I think the EOS portfolio is really driving surgeons who may have not used our product in the past, at least on the scoliosis side, to take us quite seriously. A lot of our first procedures with VerteGlide are in accounts where we didn't have cases, or we didn't have a fusion business otherwise. So that's very encouraging as we look at 2026 and beyond. Last thing I would say is due to the EUMDR approval, we now will have or now do have the full product portfolio minus VerteGlide approved in Europe, and we're seeing really strong returns already with just the 5560 response system, but now when you add the rest of the portfolio, that business is growing really rapidly.

Obviously, you see that in the international number as well. So very pleased, and I think we continue to expect more of the same. And we've got a very robust pipeline of very unique products that are kind of unlike anything that exists on the market that's coming out over here in the next 18 months. So pretty exciting.

And then, Fred, just the margin progression in the quarter was really strong, gross margin and operating margin. I know you were talking about it recently or just in the last few minutes here, but just the outlook for those metrics going forward, I mean, are we in kind of a new era for OP in terms of how we should think about the scaling of the business and the profitability of the business, which is obviously very important right now.

Yes, absolutely. So very pleased with the drop-through in the fourth quarter. So revenue increased nicely, but it also dropped through nicely to the bottom line of the business, strong gross margin at 73%. As we've talked about in the past, we would expect full year of 2026 to be a similar 73% range of gross margin and then the adjusted EBITDA going from $15 million in 2025 up to the $25 million in 2026. And that will come from leverage on the -- a little bit of leverage on the sales and marketing side of the business because OPSB is growing faster than the overall business, and they have a lower percentage of sales on sales and marketing. And then the rest of the leverage will continue to come from the cash portion of G&A, which is where a lot of it came from in 2025.

Our next question comes from Rick Ross from Stifel. Our next question comes from Matthew Blackman from TD Cowen.

Dave, I can't resist. I'm new to the story. So maybe this is a comment you've made in the past, but I did pick up on you saying "exploring all options to increase shareholder value." Just anything worth expanding on what we should take from that comment? And then I've got one follow-up.

Yes. I think we have intimated to the team -- to this group for a long time that we believe that the infrastructure that we have built here at OP, particularly the commercial footprint that we have, as really the most powerful commercial footprint into children's hospitals, will benefit us down the way. And I think we continue to be interested in expanding that footprint and leveraging particularly the commercial channel to get into other pediatric subspecialties. And many of those subspecialties, obviously, are less capital-intensive than the orthopedic space. And so while I think we have a big several years ahead of us in terms of continuing to share -- grow share, particularly with the new products that we have coming down the pipe, I think you could expect us to continue to be quite interested in expanding our TAM through opportunities and other subspecialties and continuing to expand our footprint in the pediatric health care market overall. And so I guess that's what I'm pointing to more there.

And then, Fred, just you gave us some cadence guidance on EBITDA. Can you help us similarly on the top line? And is 2025 as well a good proxy for how we should see the revenue flow this year?

Yes, it's a great question. And the answer is yes. So 2025 is a good proxy for both revenue across the quarters, as well as EBITDA as well as free cash flow. So as a reminder, revenue is always softest, smallest in the first quarter. That will be true again here in 2026. The third quarter is always the strongest as the kids are -- many of the kids are out of school, and the revenue then drives the following, obviously, adjusted EBITDA as well as the cash flow. We try to get as much of our set deployment out in the first half of the year. So first and second quarter and first half of the year will be negative free cash flow, and then positive second half free cash flow to get the entire year to a breakeven, which is about a $15 million improvement over 2025.

Our next question comes from Caitlin Roberts from Canaccord Genuity.

Just starting on 7D, just updates on the placements in the quarter, and any updates to the strategy as well there?

I would say it was a fairly normal quarter, not wild growth. We did get some unit placements. So that was good. But still, I think we have at least experienced continued slow movement in terms of our customers' willingness to -- certainly, everybody is interested in trying and wants to get units in, but paperwork processing has been a little slower than we would like. I think the funnel is very large. We've got a lot of demos going on now, and we're optimistic that 2026 will be good for 7D. I think we're focused on what we're really excited about is the performance in places where we already have 7D that we placed throughout 2024 and 2025. We see really strong performance with our implant business. That's what's helping drive the Response fusion growth that we're seeing. And again, I think we've not forecasted in the model or in the guide a big jump in 7D, but certainly, we expect to place numerous 7Ds in 2026.

And exciting updates with Playbook and Iota Motion. Just anything built into the guidance in '26 for those launches and then just kind of the cadence of those launches as well?

Yes. I would say extremely small at this stage in terms of the guide. We obviously just sold our first unit within days of the FDA approval here in the fourth quarter to Cincinnati Children's. That said, there's a lot of interest, a lot of demand in that. And I think this product line has been used on the adult side fairly frequently. So we're seeing a lot of inbound interest in that, but we don't have a lot of that or the playbook technology baked into the guide at this stage.

Our next question comes from Benjamin from Lake Street Capital Markets.

For me, it's been quite a few months now since the last Investor Day. Can you maybe talk a little bit more about playbook, how that fits in, how things are done at most hospitals today, kind of what holes it fills, just where playbook fits into the overall mix?

Yes, absolutely. Good question. Again, playbook is, I would say, the first foray of ours into, let's call this, the digital health space. It's probably not an enabling technology, and then it's not a navigation platform or anything like that. But playbook ultimately helps hospitals and surgeons through custom workflows ultimately streamline surgical procedures and then capture data about each one of those steps, and then provide the hospital with metrics about how those steps can be sped up and improved. So playbook is a lot about improving the quality of surgery in the pediatric patient population, not that dissimilar than what you might see a lot of the bigger adult hospitals are obviously trying to maximize the efficiency with common procedures like total joint reconstruction and adult spine.

And I think there's enough variation in the techniques and use cases for a lot of our products that we see a lot of times wild differences between what one hospital OR might take in terms of total time to perform the same procedure than another hospital or another OR. And we're trying to drive some gold standard processes in pediatric orthopedics and help our customers ultimately capture best practices, and I think that is pretty valuable for patient care, no question. We think it's pretty valuable for our hospitals to be able to improve their efficiency, which makes them more profitable. And we ultimately think the data capture here is going to be very unique for pediatric orthopedics because there's no data. We're generating data and capturing data that's never been captured before. And our smaller kind of segment of the orthopedic marketplace, there hasn't been focus there.

So we got a lot of interest in the product line already. It's very, very early days. We hope to have a few of these systems beta-launched in a few accounts here fairly shortly. Again, not a lot of revenue baked into this, but this thing, once we get going, it could be really special for the business, and I think really helpful for our surgeons and the patient population.

So in other words, there isn't something that you're necessarily displacing. There isn't some software that's typically for adults or anything like that, that some of these folks are using.

This is first of its kind new to the children's hospital for sure.

And then just on the subspecialties that you're looking to expand into, are there any notable ones more attractive or less attractive than others?

Yes. I mean, obviously, we found that we've been very successful in our expansion from purely implants in the operating room to the kind of near adjacency on the OPSB side. We're going to obviously continue to scale in that space. But I think the iotaMotion deal is a good example of how we are commercially present in these very high-profile children's hospitals like Cincinnati Children's, and we are being approached by a number of these companies, oftentimes fairly small, with very credible but an interesting technologies that struggle to access these hospitals and aren't currently present commercially in these facilities. And so partnership with iotaMotion, I think, is a good test for this in that we're not in the ENT space. We're not selling cochlear implants at this stage, but we are certainly now toe dipping, so to speak, in the ENT space, and I think that would be a rational opportunity for us in the future.

We also really like a lot of technologies on the cardiovascular space, and I think there's an opportunity to ultimately grow a business in the cardiovascular space that could mirror the kind of market dominance that we have in pediatric orthopedics. And those are just 2 kind of right off the top of my head, but we find that each subspecialty in pediatric health care has a very similar volume of unmet needs that we used to see when we started OrthoPediatrics nearly 20 years ago. And I think what we like about some of those verticals is that you know that orthopedics is a capital-intensive business. It's taken us a lot of time, energy, and capital to grow to the dominant share position that we have in hospitals now. And now I think we need to be able to leverage that commercial position as well as our internal infrastructure to support some of these entrepreneurs with credible technologies and subspecialties that have maybe even slightly more favorable economic dynamics, particularly when it comes to cash flow and cash usage.

Our next question comes from Mike Matson from Needham & Company.

So I want to ask one on R&D. Just looking at our model, it occurred to me that I know it was down in the fourth quarter as a percent of sales, and you called out some timing, but just looking back over the entire year of 2025, it was down a substantial amount and not just on a percent basis, but on an actual dollar basis. So I guess it's great to see you're getting some leverage, but how do we get confident that it's not compromising the pipeline or something like that? I mean it seems to be you're launching a lot of products. So it does seem to be the case, I guess, but--

Yes. I think we are -- that's a great question. And I think it's a question that Fred and I have challenged the team internally. Our product development is extremely efficient, and we're doing a lot of things simultaneously. I think one thing is there is a lot of timing, Mike, associated with, for example, when test parts come in and have to be tested, and those are big swings, right? And so there are going to be swings probably in the coming 12 months here, especially in product lines like EE and our next-gen spine, some of the 3P systems where the internal work has been done. We are ready to start manufacturing and doing some more internal testing or testing for FDA that will drive that R&D line up a little bit.

But what I would just say is that some of that didn't happen, particularly here in the back part of 2025. But again, I've been here nearly 20 years. We have never had a more credible or clinically exciting R&D pipeline than we have now. And I think VerteGlide and seeing the early patient and physician feedback associated with VerteGlide and how that is driving scoliosis usage in our business, seeing the early use of 3P HI, we don't have sets out. We'll start deploying sets here in the first part of the year, but seeing the surgeon reaction to that and seeing that, frankly, the price point we're able to maintain for that kind of unique technology and then know that there are several more technologies that are probably even more significant that are coming down the pipe over the course of the next really 18 months, but probably extending over the next 3 years.

I'm very pleased with where the pipeline is and where we're kind of coining this super cycle here. We've got some serious products coming. And again, I think you'll see some additional spend on the R&D side in different quarters depending on timing.

And then I just want to ask one about, I guess, more specifically, on eLLi. So you said first in human, I think, later this year, I believe. But what about a pivotal trial? Or what's the regulatory process there to get that into the market in the U.S.?

Yes. So you can imagine we've been back and forth with FDA on this topic, similar to the back and forth that we actually quite enjoyed with FDA on VerteGlide, and we're able to come to a conclusion that I think really benefits patients. I think we're at a spot where we're going to be able to start to generate some revenue and also to generate some data with the VerteGlide here in this year when it's ready. It's not a huge part of our revenue guide here. And based on, I would say, relatively short- to medium-term data, we would expect an approval thereafter. And so I don't know if you want to call this a pivotal. As you know, this was one of our devices that was -- that had the pediatric indication or the pediatric exemption, so to speak, with FDA. And I think that we're in a good spot for a full approval, but it's going to take some patients, and we're going to start collecting those patients and that data here at the back half of this year.

Our next question comes from Ravi Misra from Truist Securities.

I have 3 questions. I'll ask them right upfront. First, just how should we think about pricing and margin impact given this new product super cycle that is coming in 2026? Second, can you just -- you mentioned in the last few calls, your MDR strategy, this 4.5 5.0 approval. It's been mentioned a number of times. Just curious, how does that kind of allow you to kind of either accelerate or get deeper into the OUS market? And then third, just the comment on cardiovascular, just recent -- just a few minutes ago, how should we think about if you do get into these adjacencies, the kind of margin profile change that might happen? You're kind of levering up on your EBITDA -- not levering up, but rather inflecting profitability, how does that kind of affect that trajectory if you get into kind of non-orthopedic areas?

Yes. So on the pricing side, as you would expect, these new technologies are definitely demanding a higher premium as compared to anything else in the portfolio. So the gross margin are very, very attractive. I would say small today in overall revenue when you compare it to the entire business. But over the next several years, it will definitely have a positive impact on the profitability of the business. And we're seeing that early days with the technologies today, just small, so it doesn't really impact the overall metrics. But definitely, when there's technology that is like anything else out there, when it's so innovative, it comes with a premium, and we're definitely seeing that early days on these procedures.

EU MDR is a great question. It's amazing to me that we're able to sell any products in Europe when you can only offer one of the sizes. So the 5560 has been sold and is being sold historically in Europe. We now have the 4550 that is approved as of last fall, and we have sets in Europe, and cases are being done here in January and February. They'll continue to advance. But it's difficult to convert a surgeon when you are asking them to use only one size of our products, and you cannot offer a full range of product sizes to meet all of their needs. And so now we are able to have all the sizes available that they need to convert entirely over to our portfolio. And as you can imagine, that helps the conversation with converting surgeons in Europe once we have everything available. So very, very pleased to have that approved. Sets have been shipped, and cases are taking place. That will continue to ramp over the next many, many years and add to the growth of the OUS business.

And then as you can imagine, on the cardio side, the gross margin profile of that business is definitely much higher than even our implant business. So as a reminder, domestically, we get about 85% gross margin on our domestic implant business. the overall is 73% because we're selling outside of the U.S. And many of the sales, about half of our sales OUS are going to stocking distributors where we're not paying any commissions, and that goes out at a much lower gross margin rate, as you would expect. So the overall cumulative is about 73% for the business.

The cardio business, as we're just starting to dip our toe in that space, the implant side of that business, particularly in the domestic side, is higher, I would say, than even that 85% that we're getting on our domestic implant business, which is obviously very encouraging and does help the gross margin profile of the business.

I am showing no further questions at this time. I would now like to turn it back over to David Bailey for closing remarks.

Well, thank you all for joining us today on the call, and we look forward to updating you throughout the course of 2026. I think it will prove to be a very exciting year for OrthoPediatrics and our mission to help 1 million kids a year. So thanks for your time and your interest in our story, and we'll talk to you soon. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good afternoon, and welcome to the OrthoPediatrics Corporation Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to Trip Taylor from the Gilmartin Group for a few introductory comments.

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer; and Fred Hite, Chief Operating and Financial Officer.

Before we begin today, let me remind you that the Company's remarks include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties, and the Company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the Company's most recent annual report on Form 10-K, which was filed with the SEC on March 5, 2025, and its subsequent quarterly reports on Form 10-Q.

During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period-over-period. For each non-GAAP financial measure referenced on this call, the Company has included a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure in the third quarter earnings release. Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for OrthoPediatrics financial results prepared in accordance with GAAP.

In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, October 28, 2025. Except as required by law, the Company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call.

With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer.

Thanks, Trip. Good afternoon, everyone, and thank you for joining us today. We are proud to start this call with our typical and most meaningful performance metric. In the third quarter, we supported the treatment of more than 37,100 children, increasing our total impact to approximately 1.3 million kids health.

With too few solutions designed specifically for children and the clinicians who care for them, pediatric health care has long faced critical gaps. At OP, we are committed to addressing these unmet needs, and our mission to close those gaps and reshape the future of pediatric care remains clearer than ever. We have made tremendous progress in this market, but there is still a substantial market opportunity ahead.

In the third quarter, we saw strength in all areas of our business, excluding 7D capital sales and LatAm international stocking and set sales. In fact, we saw total third quarter global revenue growth, excluding 7D capital sales of 17% and domestic revenue growth, excluding 7D capital sales of 19%. Both T&D and scoliosis implant sales were strong as we saw a very normal summer selling season and OPSB growth continues to be extremely robust with growth in excess of 20%. As a reminder, OPSB sales are approximately 80% T&D and 20% scoliosis, and we saw strong growth in both areas.

As we highlighted in our preliminary announcement, our revenue results fell short of our expectations, driven by 2 isolated factors: 7D capital sales that were expected in the quarter did not close prior to the quarter end; and headwinds from stocking and set sales in Latin and South America have continued longer than expected.

Although these 2 areas did not produce the results we wanted, these are 2 of our lower-margin segments. And because the rest of the business remains strong, we still delivered high gross margins and profitability in line with our expectations.

Looking beyond the top-line for the third quarter, we are pleased to see a significant 56% improvement in adjusted EBITDA, growing to $6.2 million. In addition, we also saw huge progress with our free cash flow usage, which was dramatically lower in the third quarter, decreasing $8.2 million. Both of these metrics have been a focal point of our strategy, and we are succeeding in delivering our goals.

Touching briefly on our outlook. As announced previously, for the full year, we now expect revenue to range from $233.5 million to $234.5 million. Adjusted EBITDA is still expected to be $15 million to $17 million, and we are on track to deploy $15 million in sets and generate positive free cash flow in Q4.

Even though our top-line expectations have been adjusted, we are maintaining our profitability and free cash flow outlook. As we drive toward our profitability goals, our core business, consisting of trauma and deformity and scoliosis implants, specialty bracing and our international agencies generate higher margins and better free cash flow than the capital sales and LatAm stocking and set sales.

Our core businesses are positioned to remain the key engines of revenue growth, adjusted EBITDA and free cash flow, and we are confident in our forecast of generating positive free cash flow in Q4 and breakeven in 2026.

Turning to our segments. In the third quarter of 2025, the T&D business grew by 17% in the quarter, driven by continued strong market share gains across several product lines. More specifically, growth was led by strong performances in trauma implants and a return to normal scheduling in the elective limb deformity business. Extremely strong exfix growth and the continued high growth of OPSB were the highlights in the quarter.

Taking a closer look at Trauma, we saw particularly strong revenue gains driven by continued rapid adoption of PNP Femur, PNP Tibia, ORTHEX and the Bioretec ActivaScrew. Looking closer at the 3P platform, following the FDA approval of the 3P Pediatric Plating Platform Hip system and its first surgical cases, we are seeing consistent case growth, which we expect to continue through the remainder of the year and to ramp aggressively as we begin the full launch of this product in 2026.

Additionally, we are pleased to have recently accomplished another milestone for this platform as we have just announced the next 3P system in the series, 3P Small and Mini has been approved by the FDA. This approval comes ahead of schedule, and we now expect to complete the first cases in the beginning of next year. With the 3P platform, we expect to launch new systems each year for the next several years, bolstering both Trauma and Limb Deformity revenue.

T&D remains a core growth engine for our business, powered by our expanding scale, ongoing market share gains and a steady cadence of innovation focused on unmet clinical needs. We have established ourselves as a market leader in T&D, and we are executing with confidence, especially as we see more competitors exiting the space by removing pediatric-specific product lines.

Our OPSB specialty bracing strategy continues to build momentum. And with continued execution of our operational goals, our confidence in this long-term opportunity only strengthens. This segment represents a high potential capital-efficient growth avenue and is an integral part of our company strategy. We will continue our efforts to drive targeted territory expansion, accelerate R&D efforts and continue scaling our sales force.

As a reminder, when we acquired Boston O&P in January of 2024, there were 26 operational clinics. As previously reported, since then, we have expanded to more than 40 clinics, entered into 8 new territories and launched several new products. Our preliminary expectations for new clinic return on investments of 25% for new clinic acquisitions and 40% for new greenfield clinics are being realized.

During the quarter, we expanded our footprint into 2 very large markets, New York City and California. We expanded Denver and Ohio. And for the first time, we expanded internationally with a clinic in Ireland. These latest additions continue to reinforce the importance and need for OPSB clinics, and we anticipate that the strong wave of clinic expansion opportunities driven by high customer demand and a robust pipeline will continue.

In addition to expansion opportunities, same-store sales growth has been increasing and generating positive momentum. Our OPSB strategy is delivering strong results and has proven to be a highly efficient expansion path for OrthoPediatrics. Our presence outside the operating room allows us to create deeper partnerships with our customers. This powerful strategy is extending our leadership position in pediatric orthopedics. We remain focused on executing our strategy with precision as we work towards securing a leading share in this growing market.

Moving to the Scoliosis business. Our growth of 4% seen in Scoliosis this quarter was led by strong U.S. Scoliosis implant and Scoliosis OPSB growth, offset by $2.3 million lower 7D capital sales.

U.S. Scoliosis growth continues to be led by new users adopting OrthoPediatrics technology, including RESPONSE as well as pull-through from past 7D placements. As mentioned, the underlying OUS business grew nicely, but was negatively affected by reduced stocking and set sales in LatAm, primarily Brazil. We expect this will continue for the next several quarters, but are working on an improvement plan to implement in the near future.

7D sales in the quarter were impacted by increased variability in the timing of unit placements that caused delayed capital sales and the corresponding revenue from those placements had a significant impact on quarterly sales and overall growth. Typically, there are a few 7D unit sales within the quarter. But for the third quarter 2025, there were 0 unit sales. This compares to our strongest 7D unit sales results in the third quarter of 2024.

We still expect 7D to be a revenue driver for us, but we cannot predict how much and which quarter sales will fall in. To minimize the impact of lumpy 7D unit sales, we have adjusted our outlook, so there is minimal impact on our expectations, which does result in negative growth assumptions from this segment.

Looking at our EOS product portfolio. We are pleased to see that our portfolio expansion strategy continues to be effective. In particular, we are seeing positive trends with our recently launched VerteGlide Spinal Growth Guidance System skeletally immature patients. Following the first completed cases in August, we are seeing solid adoption of VerteGlide through the limited release, and we remain on target for the full market release in the coming months. We are excited about the progress made within this portfolio and look forward to progressing the remainder of our EOS products.

Moving to international. International underlying sales were solid in the quarter due to extremely strong demand in surgical volume in EMEA and APAC, offset by unfavorable growth from LatAm. The underlying revenue largely comes through our sales agencies and represents a good reflection of high surgeon usage and higher-margin replenishment revenue. We are particularly excited to see our EMEA Scoliosis launch going so well and are eagerly awaiting the EU MDR approval of our 4.5 Scoliosis System, along with multiple other approvals expected before the end of the year.

On the other hand, the headwinds in LatAm have persisted longer than we anticipated. In an effort to focus on improved cash metrics, we have made the conscious decision to limit new stocking and set sales to South America. This dynamic continues to play out and negatively impacts our growth, particularly in Brazil. We believe that at this point, our LatAm business would be in a more stable position and that we would see the benefit of growth in Latin and South America again. However, we experienced continued disruption in sales, largely related to timing of large stocking and set orders. We're working towards solutions but expect there to be some variability here moving forward, which we have reflected in our outlook.

In summary, we are proud of the way the business performed, excluding 7D and LatAm. OrthoPediatrics continues to lead the pediatric orthopedic market and provide comprehensive solutions to support the care of children. We remain focused on execution across the business, including scaling of OPSB, leveraging previous set deployments and launching innovative new products. This strategy will support revenue growth, increase adjusted EBITDA while meaningfully reducing cash burn as we work towards achieving free cash flow break-even in 2026. Lastly, we believe our strategy positions OrthoPediatrics to help more children than ever before.

With that, I'd like to turn the call over to Fred to provide more details on our financial results. Fred?

Thanks, Dave. Taking a closer look at the P&L. Our third quarter of 2025 worldwide revenue of $61.2 million increased 12% compared to the third quarter of 2024. Growth in the quarter was driven primarily by strong performance across Trauma and Deformity, Scoliosis and OPSB, offset by a decline in 7D unit sales and LatAm stocking and set sales.

U.S. revenue was $48.7 million, a 14% increase from the third quarter of 2024, representing 80% of total revenue. Growth in the quarter was primarily driven by Trauma and Deformity, Scoliosis and OPSB, offset by a decline in 7D unit sales.

We generated total international revenue of $12.5 million, representing growth of 6% compared to the third quarter of 2024 and representing 20% of our total revenue. Growth in the quarter was primarily led by increased procedure volumes, partially offset by lower stocking and set sales to LatAm.

In the third quarter of 2025, Trauma and Deformity global revenue of $44.1 million increased 17% compared to the prior year period. Growth was primarily driven by strong growth across multiple product lines, specifically our cannulated screws, PNP Femur, PNP Tibia, DF2 and OPSB.

In the third quarter of 2025, Scoliosis global revenue of $16.3 million increased 4% compared to the prior year period. Growth was primarily driven by increased sales of RESPONSE 5560 and revenue generated from FIREFLY, offset by a decline in 7D unit sales.

Finally, Sports Medicine/Other revenue in the third quarter of 2025 was $0.9 million (sic) [$0.8 million ] compared to $1.3 million in the prior year period.

Touching briefly on a few key metrics. For the third quarter of 2025, gross profit margin was 74% compared to 73% for the third quarter of 2024. The increase in gross margin was primarily driven by favorable product sales mix as a result of lower 7D unit sales and lower stocking and set sales to LatAm, which generate lower gross margin profit.

Total operating expenses increased $9.0 million or 19% compared to the prior year period to $54.7 million in the third quarter of 2025. The increase was mainly driven by $2.3 million of restructuring charges, $2.3 million of impairment charges, increased noncash stock compensation as well as the ongoing growth of the OPSB clinics.

Sales and marketing expenses increased $1.9 million or 11% compared to the prior year period to $18.7 million in the third quarter of 2025. The increase was mainly driven by increased sales commission expense and an overall increase in volume of units sold.

General and administrative expenses increased $2.9 million or 11% year-over-year to $29.2 million in the third quarter of 2025. The third quarter increase was driven primarily by increased noncash stock compensation as well as the ongoing growth of the OPSB clinics.

Intangible asset impairment recorded during the third quarter of 2025 was $2.3 million related to our annual impairment test, where we determined the fair value of ApiFix, Telos and Medtech trademark assets and Telos customer relationship assets were below the carrying value. We recorded an impairment charge to reduce the carrying amount of the intangible assets to their estimated fair value.

Restructuring charges recorded during the third quarter of 2025 was $2.3 million related to the company's global restructuring plan started in the fourth quarter of 2024, aimed at improving operational efficiency, reducing operating costs as well as reducing staffing. For the third quarter, we recorded additional restructuring expense as we continue to review structural changes required to drive down costs. We saw savings in the third quarter, but anticipate greater impact in the fourth quarter and in 2026. Research and development expense decreased $0.2 million in the third quarter of 2025 due to timing of product development third-party invoices.

Total other expense was $2.5 million for the third quarter of 2025 compared to $3.6 million of other expense for the same period last year.

GAAP net loss per share for the period was $0.50 per basic and diluted share compared to $0.34 per basic and diluted share for the same period last year. Non-GAAP net loss per share for the period was $0.24 per basic and diluted share compared to $0.18 per basic and diluted share for the same period last year.

Adjusted EBITDA was $6.2 million in the third quarter of 2025, a 56% improvement when compared to $4.0 million in the third quarter of 2024.

We ended the third quarter with $59.8 million in cash, short-term investments and restricted cash. In the third quarter, we saw a significant improvement in free cash flow performance. For the third quarter, free cash flow usage was $3.4 million compared to $11.7 million of free cash flow usage for the third quarter of 2024.

Set deployment was $4.1 million in the third quarter of 2025 compared to $5.3 million in the third quarter of 2024.

Turning to guidance. As Dave mentioned, we adjusted our expectation for full year 2025 revenue to be in the range of $233.5 million to $234.5 million, representing year-over-year growth of 14% to 15%.

We are reiterating the guidance that our full year gross margin will be within the range of 72% to 73%. We also continue to expect to generate between $15 million to $17 million of adjusted EBITDA in 2025.

Additionally, we continue to expect approximately $15 million of new set deployed in 2025. This represents our continued focus on driving the business to free cash flow break-even by 2026, and we anticipate delivering our first quarter of free cash flow positivity in the fourth quarter of 2025.

Operator, let's open the call for Q&A.

[Operator Instructions] Our first question comes from David Turkaly with Citizens Bank.

Dave, you made a comment, I thought I heard you make it, so I just wanted to clarify it, something about competitors exiting the space. I was wondering like specifically, what were you referring to there?

Yes. Good question, Dave. Listen, we see some of the big OEMs that are -- have notified customers that they're pulling products that historically have been used in pediatric patient population. So we've seen that from J&J. We've seen that from Smith & Nephew in the last 6 months, more recently, J&J with a Hip product that would be a competitor to 3P. And so we have really nice timing that we're coming out with a new Hip system. And just, I think, seeing a continued defocus of these pediatrics in some of the large OEMs, which I think is not necessarily great overall for patients, but certainly good for us from a competitive standpoint.

And I know that you talked about sort of 12% being, I think, the new LRP limit or down, I guess, lower limit of growth. And it seems like you're doing a pretty good job with these clinics. But as we look ahead to the next couple of years, do you think there's an ability to possibly accelerate either the expansions or openings on the OPSB side, maybe to accelerate that number?

Yes. I think there is no question that there is extremely high demand for clinics. And this year, I would say we've gotten a lot of experience in terms of the timing of accelerating those clinics and the timing of getting those clinics started. We're pleased with what we've seen so far. And you can bet that if we have the opportunity to do more and do more faster, we would certainly want to do that. Certainly, trying to balance also that against the P&L requirements of trying to drive to increase profitability. But I think the demand is there. And yes, you could assume that if we have the opportunity to open more clinics, we would certainly want to do that.

Our next question comes from Ben Haynor with Lake Street Capital Markets.

First off for me, on OPSB and the 25% and 40% realized returns that you're seeing, is that something that includes any sort of halo effects that you see for other products on either the -- or I guess, on the QD and Scoliosis side?

No, it does not. We -- yes, it would be difficult, I think, to try to quantify that. So that's not included.

Okay. Got it. And then just thinking about the revenue range, the $1 million difference between the top end and the bottom end there with the $2 million difference between the top end and the bottom end of the EBITDA range. Is there anything that folks should read into there? Any additional color on what might drive that EBITDA range to the top or bottom end?

No, it's really product mix is probably the single biggest item that drives the change on the bottom line. That's where it was to start with, and we didn't feel like narrowing that gap on the last update.

Okay. That's fair enough. And then lastly for me, just on the competitors that notified customers that are exiting the market. Do you have a sense of where their shares stand at -- market share stands at for the likes of them?

Yes. I certainly don't know their market shares in each one of those individual product lines. No question that our largest competitors historically have been legacy products from those 2 large OEMs. And more of their product sales probably are in the commoditized small plate, small screws types of things like that. But certainly, when there are less options available in the market and we have the best products there, it certainly bodes well for us taking all the share we would credibly want to take in areas like hip deformity correction, for example.

Our next question comes from Ryan Zimmerman with BTIG.

This is Izzy on for Ryan. So I heard the comments about accelerating off of 12% for the long-term plan with new clinics opening. But I was just curious if you guys could talk a little bit about what's giving you the confidence in 12% as being the correct base to grow from.

Yes. I mean, I guess when we look at implant sales across the board and what we see adoption rates of all our products, the way the Scoliosis business has grown and then we strip out some of the uncertainty that we've seen from Latin America, and strip out the majority of the 7D, which inevitably is going to happen. But as we've said, it's very difficult for us to determine quarter-to-quarter. When you strip some of those things out and look at the momentum we have in all of those other areas of our business, it gives us a lot of confidence that a 12% kind of baseline is a good one for us.

And you're right, I mean, I think there's the opportunity for acceleration when you look at the speed with which we're -- the rate with which we're growing the OPSB franchise. I mean there's just a lot of demand for clinics. We're seeing same-store sales within our existing clinics go up. And I don't even think that we have seen the impact yet from the R&D initiatives that we've got going.

We launched a number of products on the OPSB side. I think DF2 is the primary one that we talk about because it's growing so rapidly. But I think in the next few quarters, we'll be talking a lot more about a number of new R&D projects that are coming out of the OPSB franchise. And I think when you add all that up, we feel very confident in kind of a baseline growth rate of 12% going forward.

Got it. And I heard you call out strength in other international regions outside of Brazil and LatAm. I was curious if you guys are taking any steps to kind of derisk international revenue volatility as we move into 2026. Are any of the other regions where you're seeing strength growing fast enough or strong enough to offset any of the headwinds that you've seen this year?

Yes. It certainly, as the international business grows, the dependence on revenue from Latin America, South America, particularly Brazil, becomes less impactful. And we are seeing really nice growth, particularly in Asia Pac as well as EMEA and particularly -- well, really across all of our implant businesses. I'd like to particularly call out the Scoliosis growth that we're seeing in both of those areas, which is new. We haven't really had a Scoliosis business, particularly in EMEA over the last few years. And here in the last 12 months, have really grown it from 0 to -- it's still small, but something nice and it's growing rapidly. And so all of that certainly offsets the volatility that we have from stocking distributors in Latin and South America.

And I think Fred and I are going to work hard to determine if there are better structures that we could put in place with our stocking distributors in Latin America as well that could potentially mitigate some of the choppiness or lumpiness that we see in revenue. And so a number of things that we can do. But yes, I think you're on a good track here thinking that as we grow these businesses in our agencies, as our agencies become a larger percentage of our revenue, particularly in EMEA, that will mitigate some of this.

Last thing I would comment on is the progress we're making on the EU MDR. So we have a number of files right now before our notified body, and we do expect by year-end, as we talked about earlier in the year to have a number of MDR approvals. I'd say the majority or the main one that we are excited about is the approvals for our small stature scoliosis system, the 45-50 system. Right now, we're growing the EMEA Scoliosis business rapidly, but really feel like we're doing it with one arm tied behind our back. We don't have half of the product portfolio there. And so to see customers so readily adopting RESPONSE when they really only have access to one embodiment of RESPONSE, is really encouraging, particularly knowing that we're on the dawn of getting approval for our small stature system.

Our next question comes from Matthew O'Brien with Piper Sandler.

This is Anna on for Matt. I guess I just wanted to ask a bit on the T&D franchise. You've got a bunch of good and new products there, but I guess we were maybe expecting a bit stronger growth. So how much room is left in the market? And maybe how much of that is low-hanging fruit versus penetrating the next layer of docs?

So we're really pleased right now with the kind of growth we see, I think, 17% for T&D global. And you could assume that we also see some T&D disruption in LatAm. So I think the underlying growth rate of T&D, our largest business is -- we feel really good about. There's a lot of growth remaining opportunities on the 7D -- a lot of growth remaining on the T&D side. Outside of the United States, as we've talked about, there's a number of EU MDR approvals that are going to help us continue to grow outside of the U.S. And then as you've heard, 3P Small-Mini, 3P Hip, these are product lines that are just now coming out. And again, we see the exiting of some of our competitors, I suppose, of the incumbent providers of products in that market.

So I think one of the things that we need to consider or we're considering on the T&D side is just the pace with which we want to grow that business given the volume of sets deployed. You see our set deployment number this year come down from nearly 25 last year to 15 this year. A big portion of those sets are on the T&D side. And so without a direct competitor there, we don't have anybody trying to steal our lunch money, so to speak, in that business. And we can flex our growth rate a little bit. And when we won't want to put as much capital out and driving hard to generate free cash here, we'll deploy fewer sets, and that can impact the growth rate negatively if we deploy fewer sets maybe by a few points or positively if we, in the future, decide to ramp up set deployment and grow the T&D business a little faster.

So a lot of low-hanging fruit, I think, still available to us. It's a question more of how we want to either throttle up the growth or throttle back the growth based on the cash usage we want to use in the future.

Got it. That's super helpful. And then on 7D placements, there tends to be a strong implant pull-through effect in the next few years following placement. So I was just wondering how the lowered outlook on 7D, how that has any impact on the growth of the core spine business going forward?

Yes. That's a great question. I think this is less about our outlook and more about timing. We -- obviously, the unit placements that we anticipated happening in Q3 certainly haven't gone away. you could assume that they're likely to close at some point in time in the future, whether that's a number of them in Q4 or a bunch in Q1 or vice versa, it's hard for us to determine. But I don't think that the delays in the placements of those types of units are something that is significant enough for us to impact the long-term growth rate of the implant business on the Scoliosis side. And so not particularly concerned about that.

I think we have more in the top of our funnel on the 7D side than we've ever had. And so I think there's a bright future in terms of set deployments for placements of 7D units. It's just -- again, it's hard to determine which quarter it will happen and pretty unlikely to affect implant sales.

Okay. Great. That's great to hear. And then if I can just squeeze in one last one on the profitability improvements we saw in OpEx, what was cut and how durable because you guys did a good job this quarter.

Yes. We're very pleased with the results we saw in the third quarter. Nice improvement both this third quarter compared to the same time last year as well as improvement over the second quarter. As mentioned, the restructuring actions we started in the fourth quarter of last year, took some more smaller actions earlier this year and then some bigger actions here in the third quarter. A little bit of those savings showed up in the third quarter, but more of those savings will show up here in the fourth quarter as well as all of 2026. So despite the softness in revenue, gross margins are strong. Profits are right where we expected them to be even with higher revenue. And that all means improved free cash flow for the business, which is obviously a key goal as well. So definitely taking steps in the right direction here.

Our next question comes from Mike Matson with Needham & Company.

This is Joseph on for Mike. So I guess maybe just to start off the EU MDR, the approvals or expected approvals you guys called out. Does that get you to half or above half of the Scoliosis portfolio available over there in Europe?

And then just the reduced staffing that you guys called out, I was just wondering, maybe you did mention it where that's coming from. Is that like demand driven? Is it location dependent? Is this just kind of bloat, I guess, just kind of trimming the fat for staff that necessarily wasn't needed?

Yes. So from an EU MDR approval standpoint, yes, on our Fusion platform, having the 45-50 would really give us a full complement on the Fusion side. Certainly, the newer products on the EOS, the early onset scoliosis products are not approved in Europe. That said, there are a number of hospitals and physicians in Europe that operate in locations where they can get those types of products through a critical access type of device or emergency use type of device. So we do expect some sales on the EOS side. But yes, we'd have a pretty -- we would have a full complement of product on the RESPONSE side once we get the RESPONSE 45-50 approved.

I think on the staffing side, a lot of staffing as we announced last year, we shut down the majority of the facility in Israel, and so we're starting to see some savings there. We have historically used our Telos business, both internally for R&D efforts related to clinical and regulatory efforts related to EU MDR as well as have the Telos business working with a few outside companies. I think as we have gotten to a point where EU MDR or at least the technical files have been submitted on the EU MDR side, we can start to throttle back some of those expenses we had with Telos. And so there was head count associated with that.

And I would just say, generally, we're just tightening things up here and recognizing that the business is going to be solidly profitable, and we're going to generate some cash here in the near future and making some changes around the edges that ultimately will help us drive profitability.

Okay. Great. Yes, that makes a lot of sense. And then I guess maybe just the, the next-gen or the new spinal fusion system. I guess, is that still expected this year? Or is that more of a 2026 launch? I don't know if that has to do anything with how much momentum you guys are getting with RESPONSE, if that's changing your thinking around the launch there. But yes, any color there would be helpful.

Yes. Certainly, Nextgen will be a 2026 initiative, probably not a full-blown launch in 2026, but our hope is to start doing some cases probably in the back part of 2026. you're fairly accurate in saying that while from an R&D perspective, we're heads down on making sure we got the best system. It's not critically imperative that, that product gets launched right away when we see RESPONSE growth as high as it is. So we're certainly not throttling anything back, but it's good to see that when Nextgen comes, we think we'll have an absolutely elite system there, and it will be building on the strength of RESPONSE and an already growing product line in RESPONSE. And so probably 2026, to answer your question, back part of 2026, probably a big launch in 2027, 2028 but not factored into our revenue here this year or really much revenue in 2026.

Our next question comes from Richard Newitter with Truist Securities.

This is Ravi in for Rich. I have 2 questions. So just the first one on 3P, a number of kind of, I don't know, line extensions or kind of new innovation and how to characterize that new innovation in the space. But just around that, can you help us understand how that gets you into -- I believe you talked about a $450 million or LatAm in that opportunity? Like how does that allow you to penetrate that?

And then presumably, should we be thinking of this longer-term as kind of a leverage driver, both SG&A as well as gross margins, given that you have kind of a unified platform of products for production and kind of sale? And I have a follow-up.

Yes. So there are -- as we mentioned, the 3P, there is a number of different implant systems in the 3P that will be more targeted to anatomic areas or specific deformity correction opportunities. I would say that the -- I would say that we are opening a lot of new opportunities with 3P because of our existing plating system doesn't have all of the indications covered. And I would say is a little bit antiquated. And so I think 3P being kind of the flagship for our trauma and limb deformity product portfolio on a go-forward basis has a big impact on our capacity to grow the T&D business.

I think that it probably gets us deeper, Ravi, into existing accounts. As you know, we're present in every major children's hospital. But I think what we struggle sometimes with is that when there's shelf space and shelf presence for things that are more commoditized and small plates and screws that have been there for a long time. It's going to take some more disruptive technology to get those systems off the shelf and get newer, more modern systems in. And so I do think that as we do the full launch of 3P over the next few years, you're going to see the opportunity for substantial displacement of more of the commoditized product and replace that with some pretty high-technology products that also have very specific plates and screws, shapes and sizes, instruments that ultimately allow surgeons to do the procedures easier. And so it's a big deal for us, and I do think it allows us to get deeper and deeper in the children's hospitals where we're already present.

Yes. And to the leverage question, that's a great call out. I mean it's called a platform for a reason. That's the design from the very beginning is to try to leverage this stuff and to really drive what we've been working on for the last really 3 to 5 years with all of our new product introductions, which is improved return on all of our assets that we're deploying. And by combining this into a platform, we can then leverage similar drivers, similar screws, a lot of the similar items across multiple platforms, which gives us tremendous improved return on investment on these new sets coming out.

So more leverage there, leverage with the suppliers than really on the SG&A side. So you'll probably see it show up more in improved gross margin. But absolutely, improved gross margin and better return on investment from a cash perspective is absolutely multiple benefits from that type of a system launch.

Yes. And just sorry to amplify Fred's point on the asset utilization metrics here. I mean we've talked to the investment community for a long time about how our legacy products probably where some of those products that are in the market still growing, but they've been out there for 10 and 15 years. And when we developed those products 15 -- nearly 20 years ago, asset utilization metrics were not top of our list when we were a tiny company 20 years ago or 18 years ago.

And since the IPO and really over the last 5 years, I mean, new product development is not only focused on meeting major unmet clinical needs in pediatric healthcare, but also being able to do that where we're getting better asset utilization metrics, so either high ASP against -- or less inventory. And I can say with confidence after seeing what we're getting on 3P Hip and what we're getting both from an ASP standpoint as well as just the inventory required to do those elective procedures that the 3P -- first iteration of the 3P platform is doing exactly as we want. It's allowing surgeons to do procedures on kids they would really struggle otherwise and really high demand types of patients, but it's also doing it at a really nice price point for us, a really nice margin for us. And I'm pretty excited to see the return on assets meeting our needs, meaning a substantial improvement over some of our legacy products.

Great. And then just maybe one last one. No, no I mean, it's an important product driver, right? So -- and then just on the last -- just kind of a question on the Q&A kind of just struck me around how you're thinking about Latin American growth right now and kind of Brazil as you kind of work your way through the dynamics there.

And when you're looking at kind of the long-term 12% outlook that you're putting out there for '26, '27 and beyond, how should we kind of think about -- if you're looking to restart growth, obviously, in that area of the world with a new business model potentially coming in, should we think about maybe trading some profitability for revenue there? Or any kind of comments that you can kind of give us as you work through your new strategy there, given the changes you've seen in the last couple of months would be very helpful into '26.

Yes. What I would say is I think you should expect more of the same in that revenue is important, but improving profitability and improving free cash flow is as important. And so it's not revenue at all cost. It's revenue that's profitable and it's revenue that generates free cash flow for us. And any change that we do, I think, in the business, you could assume is going to follow those same principles. So it's not necessarily going to maximize revenue growth, but more importantly, improve the profitability of sales down there as well as improve the -- dramatically improve the cash flow of that operation.

I'm not showing any further questions at this time. I'd like to turn the call back over to Dave for any further remarks.

Well, thank you for everybody for your good questions. Thank you for your time. And I'd just like to thank all of my associates and partners in pediatric health care and our investors for continuing to share in the mission to help 1 million kids a year. Have a great day, and we look forward to talking to you soon.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Good afternoon, and welcome to the OrthoPediatrics Corporation's Third Quarter 2025 Preliminary Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Hannah Jeffrey from Gilmartin Group, Investor Relations, for a few introductory comments. Please go ahead.

Thank you for joining us for today's call. With me from the company are Dave Bailey, President and Chief Executive Officer; and Fred Hite, Chief Operating and Financial Officer.

Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K, which was filed with the SEC on March 5, 2025, and its subsequent quarterly reports on Form 10-Q.

During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period-over-period. For each non-GAAP financial measure referenced in this call, the company has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in its earnings release. Please note that the non-GAAP financial measures have limitations as analytical tools should not be considered in isolation or a substitute for OrthoPediatrics financial results prepared in accordance with GAAP.

In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, October 9, 2025. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call.

With that, I would like to turn the call over to Dave Bailey, President and Chief Executive Officer.

Thanks, Hannah. Good afternoon, everyone, and thank you for joining us today. Earlier this afternoon, we announced preliminary results for the third quarter. Revenue totaled $61.2 million, and these results fell short of our expectations. There are 2 primary factors that impacted the quarter. First, the 70 capital sales that were expected in the quarter did not close prior to the quarter end. Second, the growth headwinds we have discussed this year regarding sales in Latin and South America have continued.

The combined effect caused a material impact on revenue in the quarter and has ultimately led us to reevaluate how we will factor both segments into our fourth quarter and future guidance. Although these 2 areas did not produce the results we wanted, the rest of the business remains strong and delivered significant high-margin growth in line with our expectations. These segments are expected to continue serving as the primary drivers of revenue growth and profitability.

Before diving deeper, I want to emphasize that our broad product portfolio and expansive commercial footprint continue to drive strong growth, take share and will remain the cornerstone of our long-term strategy. These strengths uniquely position OrthoPediatrics to further cement our leadership position in pediatric orthopedics and advance our cause of helping more children each year. As a reminder, our core business of trauma and deformity and scoliosis implants, specialty bracing and our international agencies all generate higher margin and better free cash flow than the capital sales and LATSAM stocking distributors. These segments are positioned to remain the key engines of revenue growth and free cash flow as we advance toward expanding profitability and our goal of achieving free cash flow breakeven in 2026.

In the third quarter, we once again saw strength in all areas within our business, excluding 7D capital sales and LATSAM international revenue. In fact, we saw total third quarter global revenue, excluding 7D capital sales growth of 17% and domestic revenue, excluding 7D capital sales growth of 19%, both T&D and scoliosis implant sales were strong as we saw a very normal summer selling season. And OPSB continued -- growth continues to be extremely robust with growth in excess of 20%. Early returns on our recent launches of VerteGlide and 3P have been very strong, and we're ahead of where we expected to be at this time. And OPSB clinic expansion and same-store sales are strong and give us further confidence in the ongoing growth of our T&D and scoliosis implant and OPSB businesses as we head into 2026.

Now looking first at the 7D capital sales shortfall. Overall, sales and placements of 7D units in key U.S. accounts have been relatively healthy. And historically, we've seen success with this segment. But during the quarter, there was more variability in the timing of unit placements. In the third quarter, new 7D capital sales were delayed and the corresponding revenue from those placements had an impact on the quarterly sales and overall growth. It's important to reiterate that the demand for 7D has not changed. And at this stage, we have a large pipeline of 7D targets that we expect to be able to build from to drive future sales. However, it's difficult to predict exactly when these placements will occur. Even if 7D capital sales are shifted just a few weeks, it can have a significant impact on results for certain periods. And while we continue to pursue the sales of 7D, we recognize that we need to account for larger timing cycles within our outlook.

Next, I'll talk in more detail about the continued challenges we are facing in Latin and South America. As we previously discussed, in an effort to focus on improved cash metrics, we have made a conscious decision to limit new stocking and set sales to South America. Unfortunately, this dynamic, which we initially believed would be temporary, continues to play out and negatively impacts our growth, particularly in Brazil. We anticipate that at this point, our LATSAM business would be in a more stable position and that we would see the benefit of growth in Latin and South America again.

However, we experienced continued disruption in sales, largely related to timing of large stocking and set orders. These international markets represent an opportunity for OrthoPediatrics to drive growth and capture market share, but we want to be smart about how we capture this growth while also driving profitably and improving cash flow performance. As a result of these impacts, we have taken time to assess both our full year 2025 and long-term outlook and feel that it is prudent at this time to reset expectations.

For the full year, we are decreasing our revenue guidance range to $233.5 million to $234.5 million from $237 million to $242 million. Additionally, we anticipate the timing of 7D capital sales will continue to vary, and our LATSAM business could be unpredictable for the next several quarters. Given those factors, we believe it is reasonable to reduce the expectation for these revenues in our long-term outlook. These are still priorities for our business with strategic importance and the potential to be growth drivers in the future. However, growth from those segments will be more varied and less predictable. To reflect the uncertainty and timing in these segments, we are adjusting our outlook for revenue growth to be 12% or greater annually for the next several years. We feel that this is the appropriate range for the company moving forward.

I want to reiterate that our new outlook still supports our improved profitability and cash flow goals, which include free cash flow breakeven by 2026, and delivering our first quarter of free cash flow positivity in the fourth quarter of 2025.

With that, I'll turn the call over to Fred to provide more detail on our preliminary financial results. Fred?

Thanks, Dave. Taking a closer look at some of the top line items on the P&L, our preliminary third quarter of 2025 worldwide revenue of approximately $61.2 million increased 12% compared to the third quarter of 2024. As Dave has already discussed, the timing of 7D capital sales and continued pressure in Latin and South America were the primary drivers of the revenue shortfall.

Preliminary U.S. revenue was approximately $48.7 million, a 14% increase from the third quarter of 2024, representing roughly 80% of our total revenue. We generated preliminary international revenue of $12.5 million, representing growth of 6% compared to the third quarter of 2024, representing 20% of our total revenue. We generated preliminary third quarter 2025 revenue, excluding 7D capital sales of approximately $60.7 million, representing growth of 17% compared to $51.8 million in the third quarter of 2024. Preliminary domestic third quarter net revenue, excluding 7D capital sales is expected to be approximately $48.2 million, representing growth of 19% compared to $40.5 million in the prior year period.

For the third quarter of 2025, we significantly reduced free cash flow usage when compared to the same period of the prior year. This gives us tremendous confidence in delivering on our commitment to generate positive free cash flow in the fourth quarter of 2025.

Turning to guidance. As Dave mentioned, we are decreasing our expectation for full year 2025 revenue to $233.5 million to $234.5 million, representing year-over-year growth of 14% to 15%. We are reiterating the guidance that our full year gross margins will be in the range of 72% to 73%, and we also continue to expect to generate between $15 million and $17 million of adjusted EBITDA in 2025. Additionally, we continue to expect approximately $15 million of new set deployed in 2025. This represents our continued focus on driving the business to free cash flow breakeven by 2026, and delivering our first quarter of free cash flow positivity in the fourth quarter of 2025.

I'll now turn the call back over to Dave for closing remarks.

Thanks, Fred. OP is a great company with a long track record of producing solid, predictable results due to successfully executing our strategy of dominating the pediatric orthopedic market and providing our customers all of the solutions they need to appropriately take care of kids. While we are disappointed with the quarterly results, we believe that a significant opportunity lies ahead of us and that we have the correct strategy in place to drive growth, deliver profit and generate free cash flow while helping more children than ever before.

We remain focused on strong execution across the business, which includes scaling OPSB, leveraging prior set deployments and driving growth through innovative product launches. Our commitment to helping more children than ever is unwavering, and we are equally committed to significantly growing revenue, improving adjusted EBITDA and meaningfully reducing cash burn in 2025 and beyond as we progress towards achieving cash flow breakeven in 2026.

Lastly, we look forward to providing our full third quarter 2025 financial results and hosting a conference call to provide additional commentary on these results following the release after market close on October 28, 2025.

Operator, you can open the call for Q&A.

[Operator Instructions] And our first question for today will be coming from the line of Ryan Zimmerman.

So just to be clear, first on the guidance, guys. So the missed expectations was roughly $2 million. I appreciate most of that was international. The $5 million that you're reducing for the year, Fred, that incremental $3 million, is that all coming out of international? I just want to be clear in terms of modeling.

Yes. I would just correct a statement there. I guess the biggest impact from all of this is the lack of 7D sales, unit sales, which are capital sales that did not happen in the third quarter as compared to the third quarter of last year. The secondary impact was on the international side. And it's about, in my mind, $2.5 million in the third quarter and $2.5 million in the fourth quarter. Again, as we reduce, I guess, the expectations, at least in our guidance for those 7D capital sales and large international stocking and set sales going forward, large demand for those, but they're not predictable as our replenishment business.

Yes. But Fred, sorry, I misinterpreted. So some of those 7D sales are domestic, implying that the guidance reduction, $2.5 million for fourth quarter, it's a mix of both U.S. and international. That's the interpretation I'm hearing.

Yes, that is correct. It's both domestic, which is primarily a 7D discussion. And then it is also some, but to a lesser extent on the international side from the large set sales.

Okay. Very clear. And then the second comment I want to just spend a minute on, Dave, which you made was around guidance for 12% plus. And just to make sure I'm clear about that, you're expecting that your long-term target, your long-term growth rate is now expected to be 12% plus for the next several years. And I want to make sure everyone heard that, I heard that correctly and how you think about the composition of what is driving that and maybe what you're removing from that?

Yes. So you heard that right. I mean we're setting the guide long term at 12% growth. Certainly, I think what we're removing that is that the uncertainty here that we see from quarter-to-quarter on the headwinds from Latin America as well as 7D. It's not to say that some of those things aren't going to ultimately get better. But at this stage, we don't want to count on large stocking sales or large set sales, particularly in Brazil that aren't particularly profitable for us and in some cases, have longer payment terms. We're not going to put those things aggressively in our guide on a go-forward basis. And I think given the uncertainty we have around the timing of 7D, we're essentially pulling back U.S. 7D placements from the guide as well.

And our next question will be coming from the line of Matthew O'Brien of Piper Sandler.

I wish we weren't chatting about this topic this afternoon, though. Maybe, Dave, just for starters on 7D, what exactly was the slowdown in the quarter versus what you're expecting? And then for the full year, what's causing the slowdown? Because I'm not hearing a lot about capital slowdowns, generally speaking, across most of med tech. So is it specific to you guys? Is it something broader? And then why can't you make it up in Q4?

Yes. I would just say the demand for 7D remains very high. And a few units that you don't get a PO in the close of a quarter have -- especially since we don't really have any other capital sale in our model, those things can have a pretty substantial impact on quarter-to-quarter revenue. So I think you could assume that's what happened that it wasn't as though we didn't have line of sight. Obviously, we gave guide in August, and we were pretty confident in how things are going to go. I think we will continue to place and sell 7D units. It's just we've been bid by this. We don't know exactly when those come. It's lumpy from quarter-to-quarter, and that's why we've pulled the uncertainty, I suppose, from the 7D placements out of the guide.

Yes, I would just add that the demand, as Dave said, is higher than it's ever been on this. And that is not the problem. The problem is getting all of the legal documents worked through the administration of the hospitals. And that process is hard to predict, to say the least. And as it has grown as a percentage of our overall sales, it becomes a bigger, bigger impact on the overall business. And when it doesn't happen by the end of September, but maybe it happens in the second week of October, the hospital doesn't care, but it has a dramatic impact on our quarterly reported revenue, obviously.

Okay. I'm just not sure why that's different than what you've been seeing, but we can follow up offline on that. Maybe to follow up on Ryan's question on the guide going forward. I mean you had an Investor Day somewhat recently. We were looking for higher numbers in terms of growth going forward. It's only about $10 million per year that you're basically taking out to get to this 12%. I don't know if you're just annualizing them this year in Q3 going forward or what. But at some point, you would start to lap these comps as far as softness here in Q3 and then Q4. And then what you're seeing in the T&D business outside of LATSAM and then the scoliosis outside of what you're seeing with 7D, you start to lap that. So why wouldn't the growth reaccelerate back? I know you said 12% at least, but everybody is going to anchor to that 12% number. So why isn't it 14%, 15% as you kind of get through this soft period?

Yes. I think we want to just simply set a baseline that we feel very strongly that we can achieve and hopefully improve on. And with the headwinds that we see in Latin America as well as the -- as we've said, the unpredictable nature of when these 7D orders come through, we feel like 12% is a number that we can very credibly bank on going forward.

And the next question will be coming from the line of Joseph -- I'm sorry, will be coming from the line of Richard Newitter of Truist.

This is Ravi on for Rich. So I just want to kind of -- go back to the 7D and the overall capital environment. It sounds like you're saying that the pipeline is strong, but we don't have really any commentary around when these sales are going to come in. So just what -- the sales deferment in 3Q, why doesn't that come back in 4Q? Or why doesn't that come through in 4Q?

Yes. The problem is the hospital administration process is not something that is predictable. We had commitments that were supposed to be executed in the third quarter from hospitals, and it didn't happen. And is it going to happen in the fourth quarter? I wish I could tell you. I thought sitting here 3 months ago that I knew what was going to happen in the third quarter. And for whatever reason, a whole multitude of these opportunities just did not happen. And so sitting here today, I can't tell you what's going to happen in the fourth quarter related to that, let alone the fourth quarter of 2026. And so there will be times when these things will show up and the revenue will show up, but we cannot predict that quarter after quarter after quarter, they're going to be nice and smooth and generate consistent year-over-year growth for us, the way that we are seeing the growth of the underlying business.

Sure. And then maybe just one related to the underlying business. Does the capital pull-through of underlying business, like can you talk about maybe the lost synergies that you might not be getting from this kind of elongated capital cycle? And it seems like you're reiterating a lot of the profit metrics, I would maybe have thought that would have been better without a kind of a capital piece taken out of there, higher-margin products kind of emerge more in the underlying RRP. So maybe you could talk about that a little bit.

Yes, you are absolutely correct. So the sale of capital equipment has a much, much lower gross margin and does pull down our overall gross margin of the business, which is what we've seen from time to time in the past. Without that, the gross margin, the reported gross margin will be higher than with it, obviously. I do think that longer term, the placement of -- the placement of meaning the consignment of these units into hospitals, which is different than what we're talking about here, which is actually the capital sale of the unit. Both of those scenarios, which are the 2 business models that we use, will continue to have a benefit on the response implant growth, which we're seeing today. It's just the size of the capital unit sale and the timing of it that is very hard for us to predict.

Great. And then maybe just one last one for me. Just anything kind of competitive that may be affecting you like in terms of prioritization of capital? Or is this kind of specific to 7D?

We're not seeing anything different in the competitive landscape here. Implants, capital, OPSB. And in fact, I think the markets, particularly on the trauma deformity implant side continue to get more benign.

I would just add, specifically to 7D, the unit has gotten dramatically more advantageous to the hospital, surgeons and patients in the last 6 months because they've now added the ability to have 0 radiation. So historically, you would have to have a CT scan that fed into the machine learning, the AI component of 7D. They now have eliminated that entirely. And so you don't need an upfront CT scan. You have no radiation in the operating room itself. And so it's the only unit that can actually do what it does, navigate the spine with 0 radiation. And so the competitive advantage of the unit itself has only increased in the last 6 months. The surgeons want the unit. There's a backlog of surgeons who want the unit. That's not the problem. The problem is the delays in working through the administration process.

[Operator Instructions] And our next question will be coming from the line of Joseph Conway of Needham & Company.

I really appreciate the call today and all the color. Just a quick one for me. So looking at 12% growth in the third quarter, fourth quarter looks like a pretty similar comp, maybe a little bit tougher. So just based off of your guys' long-term guide, I understand maybe it's more of a yearly projection, but just looking at fourth quarter expectation that you don't see any signs that whether it's Latin America or delays in capital equipment sales, the 7D could get any worse? Or does it sound like maybe stable moving into the fourth quarter? Or is there still a possibility that the delays could increase and whether on the capital equipment or the sales? That's all for me.

Yes, I would say that as we talked about for the 12%, the fourth quarter guidance assumes some but limited amount of both 7D sales and limited amount of these large set stocking orders to LATSAM. We're not counting on that segment of our business to deliver growth. We are counting on the core underlying business to continue to grow similar to how it did in the third quarter and honestly, in the first 3 quarters of this year. If those third quarter 7D units slip into the fourth quarter, then that would be great, but they may slip into the first quarter. We just can't predict that given this longer cycle and the unpredictability of the hospital administration that we're dealing with.

And the next question will be coming from the line of David Turkaly of Citizens.

I was wondering if you might be able to provide a little color about sort of the installed base side. I think it's still pretty small, but would love to sort of hear why you think this administration issue popped up now? And then if you could also help us just think through sort of the ASP of these capital sales. It doesn't have to be like the specific dollar amount, but like what's sort of a good ballpark number to be thinking of here per unit?

Sure. So I think we're somewhere 15, 20 units right now installed. We probably have -- well, we have a funnel, you can imagine that's extremely large on this, and we've got a number of demos that are being done. I think it's just become part of, as Fred said earlier, a little bit bigger part of our revenue. And if it doesn't happen in a specific quarter, then yes, we're certainly going to feel it. And that's what we have here in Q3. Units are somewhere between $0.5 million and $1 million. So again, I think you can see that if you have a couple of units that fall out, it has a pretty material impact on top line revenue.

And we have a follow-up question coming from the line of Matthew O'Brien with Piper Sandler.

Actually, I have 2 of them. How big is LATSAM at this point? And why is this going to continue to be kind of a source of pressure for '26, '27? Or can you start to kind of move through it? And then again, I do have a follow-up.

Yes. I mean our business in LATSAM and particularly in Brazil is a large business. There is a good business down there. There are a lot of procedures that take place, and we have a lot of partners that is servicing the market. We're a big -- we are the single pediatric supporter of the industry down there, and we have a tremendous team that's driving the business down there.

Size-wise, it's not huge, but it does have big variability in it when destocking/set sales either happen or don't happen. And as we've talked in the past, just as a reminder, the insurance environment down there, the government environment down there has changed a bit. And so we're often battling the delay of payments or the request for extended payment terms on some of these set sales because it takes a long time to get them in country, it takes a long time to get them placed. And our customers are requesting sometimes up to 12-month payment terms on these things. And so when we refocus the business, not only on just driving top line revenue growth, but more importantly, driving profitable revenue growth and improving the cash flow, it makes us sometimes make different decisions today than we would have 2 years ago.

Okay. And then, Fred, we're doing everything on the fly here. You're talking about this 12% growth going forward, but you still said breakeven next year on the free cash flow side. Is that right?

Yes.

Okay. So when I do the math on that, it's like something like $15 million of lost revenue roughly. How do you make that up to get to that free cash flow profitability without cutting into other areas that are performing well?

Yes. That's a great question. And the answer is improved working capital utilization. So lower days outstanding on the receivable, improved inventory days outstanding is where the improvement is going to come from.

And that concludes today's Q&A session. I would like to turn the call over to Dave for closing remarks. Please go ahead.

Well, thank you for your time. Great questions. And obviously, we're always available for additional questions and look forward to talking to you soon. Thank you.

Thank you for joining today's conference call. This concludes today's meeting. You may now disconnect.