OrthoPediatrics Corp. (KIDS) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call indicates strong financial performance with improved EBITDA and reduced free cash flow usage. The company is poised for growth with new product launches and international expansion, particularly in the pediatric space, benefiting from competitors exiting. Despite increased operating expenses, profitability improvements are sustainable, and revenue guidance has been raised. The Q&A section highlights management's confidence in growth and strategic initiatives, with some uncertainties in market share data and 7D placements. Overall, the positive outlook and strategic focus suggest a likely positive stock price movement.

Key Financial Performance

Global Revenue $61.2 million in Q3 2025, a 12% increase compared to Q3 2024. Growth driven by Trauma and Deformity, Scoliosis, and OPSB, offset by declines in 7D unit sales and LatAm stocking and set sales.

U.S. Revenue $48.7 million in Q3 2025, a 14% increase from Q3 2024. Growth driven by Trauma and Deformity, Scoliosis, and OPSB, offset by a decline in 7D unit sales.

International Revenue $12.5 million in Q3 2025, a 6% increase compared to Q3 2024. Growth led by increased procedure volumes, partially offset by lower stocking and set sales to LatAm.

Trauma and Deformity Global Revenue $44.1 million in Q3 2025, a 17% increase compared to Q3 2024. Growth driven by strong growth across multiple product lines, including cannulated screws, PNP Femur, PNP Tibia, DF2, and OPSB.

Scoliosis Global Revenue $16.3 million in Q3 2025, a 4% increase compared to Q3 2024. Growth driven by increased sales of RESPONSE 5560 and revenue from FIREFLY, offset by a decline in 7D unit sales.

Sports Medicine/Other Revenue $0.8 million in Q3 2025, compared to $1.3 million in Q3 2024, showing a decline.

Gross Profit Margin 74% in Q3 2025, compared to 73% in Q3 2024. Increase driven by favorable product sales mix due to lower 7D unit sales and lower stocking and set sales to LatAm.

Operating Expenses $54.7 million in Q3 2025, a 19% increase compared to Q3 2024. Increase driven by restructuring charges, impairment charges, increased noncash stock compensation, and OPSB clinic growth.

Sales and Marketing Expenses $18.7 million in Q3 2025, an 11% increase compared to Q3 2024. Increase driven by higher sales commission expenses and increased volume of units sold.

General and Administrative Expenses $29.2 million in Q3 2025, an 11% increase year-over-year. Increase driven by noncash stock compensation and OPSB clinic growth.

Adjusted EBITDA $6.2 million in Q3 2025, a 56% improvement compared to $4.0 million in Q3 2024. Improvement driven by strategic focus on profitability.

Free Cash Flow Usage $3.4 million in Q3 2025, compared to $11.7 million in Q3 2024, showing a significant improvement.

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Operating Highlights

3P Pediatric Plating Platform Hip system: Following FDA approval, the system has seen consistent case growth and is expected to ramp aggressively with a full launch in 2026.

3P Small and Mini system: Recently approved by the FDA ahead of schedule, with first cases expected in early 2026.

VerteGlide Spinal Growth Guidance System: Launched for skeletally immature patients, showing solid adoption through limited release, with a full market release planned soon.

OPSB clinic expansion: Expanded to over 40 clinics, entered 8 new territories, and opened the first international clinic in Ireland. Expanded into major markets like New York City and California.

International sales: Strong demand in EMEA and APAC regions, offset by challenges in LatAm due to stocking and set sales issues.

Adjusted EBITDA improvement: Improved by 56% to $6.2 million in Q3 2025.

Free cash flow usage: Decreased by $8.2 million in Q3 2025, with expectations of positive free cash flow in Q4 2025.

Restructuring plan: Ongoing global restructuring aimed at improving operational efficiency and reducing costs, with savings expected to increase in Q4 2025 and 2026.

Focus on core businesses: Prioritizing high-margin segments like trauma and deformity, scoliosis implants, and OPSB clinics to drive revenue growth and profitability.

LatAm strategy adjustment: Limiting new stocking and set sales in South America to focus on cash metrics, with plans to stabilize the region.

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Risk or Challenges

7D Capital Sales: Delayed 7D capital sales caused revenue shortfalls in Q3 2025. The timing of unit placements is unpredictable, leading to variability in quarterly sales and negative growth assumptions for this segment.

LatAm Stocking and Set Sales: Headwinds from stocking and set sales in Latin and South America have persisted longer than expected, negatively impacting growth, particularly in Brazil. The company has limited new sales in this region to focus on cash metrics, causing continued disruption.

Restructuring Charges: The company incurred $2.3 million in restructuring charges in Q3 2025 as part of a global restructuring plan aimed at improving operational efficiency and reducing costs. This reflects ongoing structural changes and staffing reductions.

Intangible Asset Impairment: A $2.3 million impairment charge was recorded in Q3 2025 due to the fair value of certain assets (ApiFix, Telos, Medtech trademarks, and Telos customer relationships) being below their carrying value.

Operating Expenses: Total operating expenses increased by 19% year-over-year in Q3 2025, driven by restructuring and impairment charges, increased stock compensation, and growth of OPSB clinics. This rise in expenses could pressure profitability.

Scoliosis Segment: Scoliosis growth was offset by a $2.3 million decline in 7D capital sales. LatAm disruptions also negatively affected this segment, and variability in sales timing is expected to continue.

International Sales: While EMEA and APAC showed strong demand, LatAm sales were negatively impacted by timing issues and reduced stocking and set sales, leading to unfavorable growth in the region.

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Guidance & Outlook

Full Year Revenue Expectation: Revenue is expected to range from $233.5 million to $234.5 million for the full year 2025, representing year-over-year growth of 14% to 15%.

Adjusted EBITDA: Adjusted EBITDA is expected to be between $15 million to $17 million for the full year 2025.

Free Cash Flow: The company anticipates generating positive free cash flow in Q4 2025 and achieving free cash flow break-even by 2026.

Set Deployment: Approximately $15 million of new sets are expected to be deployed in 2025.

3P Pediatric Plating Platform: The full launch of the 3P Pediatric Plating Platform Hip system is expected in 2026, with consistent case growth anticipated through the remainder of 2025.

3P Small and Mini System: The first cases for the 3P Small and Mini system are expected to be completed at the beginning of 2026, following FDA approval.

OPSB Clinics Expansion: The company plans to continue expanding its OPSB clinics, with a focus on high customer demand and a robust pipeline. Recent expansions include New York City, California, Denver, Ohio, and the first international clinic in Ireland.

Scoliosis Segment: The company expects continued growth in U.S. Scoliosis implant and OPSB sales, despite challenges in LatAm and variability in 7D unit sales.

EOS Product Portfolio: The VerteGlide Spinal Growth Guidance System is on target for a full market release in the coming months, following solid adoption during its limited release.

International Sales: Strong demand in EMEA and APAC is expected to continue, with multiple product approvals anticipated before the end of 2025, including the EU MDR approval of the 4.5 Scoliosis System.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What competitors are exiting the pediatric product space, and how does this impact the company?

A:Some large OEMs, such as J&J and Smith & Nephew, have notified customers that they are pulling products historically used in the pediatric patient population. This creates an opportunity for the company, especially as they are launching a new Hip system, to capture market share.

Q:Can the company accelerate the expansion or opening of OPSB clinics to exceed the 12% growth target?

A:The company acknowledges high demand for clinics and is gaining experience in accelerating clinic openings. They are balancing this with profitability goals but are open to expanding faster if opportunities arise.

Q:Does the 25%-40% realized return on OPSB include halo effects from other products?

A:No, the 25%-40% realized return does not include halo effects from other products.

Q:What drives the $1 million revenue range and $2 million EBITDA range difference?

A:The primary driver is product mix, which impacts the bottom line.

Q:What is the market share of competitors exiting the market?

A:The company does not have specific data on the market shares of competitors exiting the market but notes that their largest competitors historically have been legacy products from large OEMs.

Q:What gives the company confidence in the 12% baseline growth rate?

A:The company cites strong implant sales, adoption rates, growth in the Scoliosis business, and demand for OPSB clinics. They also anticipate future growth from R&D initiatives and new product launches.

Q:How is the company addressing international revenue volatility, particularly in Latin America?

A:The company is seeing growth in Asia Pacific and EMEA regions, which offsets volatility in Latin America. They are also exploring better structures with stocking distributors in Latin America to reduce revenue lumpiness.

Q:Why is the T&D franchise growth not as strong as expected, and what is the growth potential?

A:The T&D franchise grew 17%, but growth is influenced by set deployment decisions. The company sees significant growth potential, especially with new products like 3P Small-Mini and 3P Hip, and plans to balance growth with cash usage.

Q:How does the lowered outlook on 7D placements impact core spine business growth?

A:The delays in 7D placements are seen as timing issues and are not expected to impact the long-term growth rate of the core spine business.

Q:What drove the profitability improvements in OpEx, and are they sustainable?

A:Profitability improvements were driven by restructuring actions, including facility closures and cost reductions. These changes are expected to provide ongoing savings.

Q:What is the status of EU MDR approvals, and how will they impact the Scoliosis portfolio?

A:The company expects EU MDR approvals by year-end, which will provide a full complement of products for the RESPONSE platform in Europe, significantly enhancing their Scoliosis portfolio.

Q:What is the timeline for the next-gen spinal fusion system launch?

A:The next-gen spinal fusion system is expected to launch in 2026, with a full launch likely in 2027 or 2028. The company is focusing on ensuring the system is elite while leveraging the current growth of the RESPONSE platform.

Q:How does the 3P platform enhance market penetration and profitability?

A:The 3P platform allows deeper penetration into existing accounts by replacing commoditized products with advanced systems. It also improves asset utilization, gross margins, and return on investment.

Q:How is the company approaching growth and profitability in Latin America?

A:The company is focused on profitable revenue growth and improving free cash flow in Latin America, rather than maximizing revenue at all costs.

Q:Review of Unclear Management Responses

A:Management avoided providing specific market share data for competitors exiting the market and did not detail the exact timing of 7D placements or the specific impact of reduced staffing on operations.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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