Thanks for coming today. Next up, we have OrthoPediatrics CFO, Fred Hite. We're just chatting a bit, and it's almost been a decade that we've been covering you. I guess to kick off the chat, yeah, I've never really heard you guys talk about sort of a new product cycle, a new product Super Cycle. Obviously, you've always had iterations of products and some new things, but that last call was kind of the main takeaway in our view. I'd love to get any thoughts. Maybe we can just rattle down, tick them off, but maybe some comments on some of these new products and how you think that may change, you know, your financial trajectory next year and you know, and beyond.
Absolutely. Now, first of all, thank you for the last 10 years and the support, and thank you for having us to the conference. It's always good to get out and meet with new names. So yeah, at the last earnings call, Dave introduced this new topic for us called the Super Cycle, which is a series of a ton of new products that are going to be either being launched now or going to be launched into the future. As we look back, several years ago, a lot of our engineers had to spend time on redoing a bunch of paperwork for EU MDR.
Yep
preparing for EU MDR, and we didn't probably realize it at the time, but it did create a little bit of a void. We were still introducing products, but maybe not as many as we had done in the past. We went public in 2017, so we've been public just under 10 years, and at the time, we had 17 systems that we offered into the marketplace, specifically for the pediatric orthopedic surgeons. Today, we have 87 different systems.
Does that include bracing options?
So-
Is that just surgical?
That includes both surgical as well as bracing options. The vast majority of those are on the implant side.
Yep.
Here in the last two years has been added to it with the bracing business that we purchased, and then new products that we've already introduced within that business segment. If you look at the T&D, trauma and deformity side of our business, which is about 70% of our sales, we started a couple years ago with a pediatric nailing platform. It's a whole platform that came out a couple years ago. The first was the femur product, which was launched and doing very, very well. That was followed by the tibia, which was launched last year and is continuing to be ramped here this year. The one we're working on hasn't been launched yet. It is the PNP retrograde.
That whole family within itself, the Nailing Platform, is a nice area for us that continues to grow.
Maybe I can just stop you there.
Yeah
...for a second, because I think a lot of people, when they think of, you know, OrthoPediatrics over the years even, they say, "Oh, you know, the bigger guys have products, they have nails.
Yeah.
You guys have, you know, designed them specifically for, you know, for this population. I guess at first glance, people may not appreciate why these need to be designed.
Great point.
You know, specifically. I mean, just before you go any further-
Yeah
to hit that because it's important for people to realize that, you know, there is a robust market for products that are designed specifically for kids.
Absolutely. Yeah, the first thing is just the size, right? The smallest size is one aspect of it. Pediatric bones are 30% more curved than adult bones. You can't just make a smaller size, you have to make it specific for that aspect of it. You also have to design the implant as well as the instrumentation to avoid the growth plates. That's probably the single biggest aspect of it, the procedure is different for a pediatric patient as opposed to an adult because the pediatric patient has to continue to grow, obviously.
Right
...into the future. We spend a tremendous amount of time on the instrumentation and trying to make the procedure as efficient, as accurate as possible, and that comes with new and improved instrumentation to help the surgeon perform.
Okay. Sorry, I interrupted you, but.
Yeah
you're doing the
It's a great example though, of who we are and what we do.
Right
...and why it is different. That's PNP nailing platform. The next segment is the 3P, so it's the pediatric plating platform. Again, a whole new series. We launched the 3P Hip in 2025, so that is ramping here in 2026. And then we got the 3P Small and Mini plating system approved by the FDA. We have initial launches here in the spring, and then that will be ramping up throughout 2026 and then 2027 and 2028 as we continue to deploy more and more sets. We have several other 3P systems that will be launched in 2027 and then in 2028. It's a whole series of launches that'll be continuing. That's on the T&D side of the business.
On scoliosis, a couple years ago, we launched our first EOS, early onset scoliosis product with a rib and hook system. Very excited to be now launching a system called VertiGlide, which is attaches at the lower and the bottom and then slides as the patient grows.
That like, this, it essentially prevents you from having to go in and reoperate or like move the rods and screws again surgically, correct?
That is correct. The EOS, very early patients, very severe curves, and you can't just fuse these patients.
Right
Because they're very young. You have to find some way to allow them to continue to grow, but at the same time trying to correct the curvature in the short term, often to avoid other issues that they have, whether it's pressure on their lungs or their heart, that if you don't do something can be very detrimental. Very excited to have VertiGlide out there on the market. We're having tremendous feedback from our surgeons and the amazing results that we're getting with it to fix these very complex surgical issues that are out there for these patients. That's a big deal for us. That is just now launching in 2026. We'll continue to ramp that this year, and then we will really accelerate it in 2027 and 2028 with more and more sets. That's exciting. ELLi.
ELLi is our growing rod. This is our first product in this space, which is a growing spine rod, that is attached, and then, mechanically it is, you know, expanded over time to allow the patient to grow. Instead of the VertiGlide, which allows them to grow, but it doesn't have any distraction, this will actually provide distraction as you mechanically expand the rods with an electrical motor that's embedded inside of this. Our first in human will happen this fall, and then, that launch will continue into 2027 and 2028 and beyond. Another product in the fusion space,
As I look at those two.
Yeah
We'd almost say like these are non-fusion fusion, right? Like they're
They are non-fusion.
...alternatives to-
Sorry, they're for scoliosis, but they are alternatives to the fusion space. You're exactly right.
Which is a huge thing if you had a child with scoliosis. You know, you would prefer.
Years ago, we only had the fusion product, and then we headed down this path to kind of try to figure out how to serve the entire spectrum. Now that includes bracing on the very earliest age to try to avoid any type of procedure or OR time. We have ApiFix, which is the internal implant device. We have VertiGlide now, which again, is prior to fusion, and then eLLi will be for these EOS patients that will enable them to continue to grow and also have straightening at the same time. Then at the very end is ultimately fusion, if necessary.
Our current system has been in the market for about 10 years, and we're working on the next gen fusion system, which will be launching in the fall of 2026 and then expanding and being a larger rollout in 2027.
I know I've heard you guys talk about competition, you know, recently and that, you know, maybe there's been some disruption there, but none of the other ortho players have these non-fusion alternatives, correct? Like you said-
There's one other non-fusion product on the marketplace for the spine that
Is it indicated for children as well?
It is.
Okay.
It is.
That Zimmer?
No, it's not.
Okay
Zimmer Biomet product. We are pretty confident that our product will have several advantages to that product that's out there today.
Okay.
That's the scoliosis side. On the enabling tech side, we have a new product called Playbook, which is launching, which is a device that goes in the OR to help with efficiencies. We're working on developing pre-surgical planning software that will be launching on that system later this year. Additional enhancements will continue to roll out as it's got a software component of the piece of equipment that's being sold. We also have a product, a small robot in the space for cochlear implants. It's called iotaMotion, and we sold the first unit in the fall of last year. We distribute that product, but very excited about that product that helps very slowly and precisely put the lead into the canal for a cochlear implant. Excited about that.
The last but not least is OPSB, our specialty bracing product. In that space, we have launched several products in fall of 2025, but we've got new products coming again in 2026, the Halo-gravity traction device and modular hip braces, following some sensors that we launched last year and a bunch of other products. That was maybe more than you wanted to hear.
Very thorough.
It's not a short list, but I also think it's indicative of our company. We're not a one-hit wonder, one product drives all the growth. Our growth comes from having multiple drivers of growth from all these different products, just like we've done in the past 10 years as we've been growing the business.
Well, as a father, as a daughter with one of the braces, yeah, they're, you know, they help and it could prevent future surgery, so it's a great area to be in. Right. Moving beyond the products, I'm gonna hit you with some of the financial questions now because we have here.
Sure.
Cash flow, you know, you expect free cash flow, you know, to be positive this year. I guess, you know, talk to us about what you've done to kind of control the spending and then what other drivers are getting you to that point. You know, you do have a solid revenue base where companies kind of can get to that, you know, break-even level. You know, it's nice that you're kind of on the cusp of that. Maybe talk about some of the puts and takes that that are allowing you to get there this year.
Yeah, absolutely. We're very, you know, very proud of the progress we've made in the last 24-36 months on the cash flow side. You know, there are three drivers effectively increased EBITDA. In 2025 delivered just under $15 million. In 2026, it'll be $25 million. There's $10 million dollar improvement there that helps the free cash flow metric. The second is deploying more efficient sets. In 2025, we deployed $17 million. In 2026, we'll be deploying $10 million, so using cash, obviously. But they are all of these new platforms, new systems I just described that have been designed for more efficiency, number one. Number two, we're getting very, very nice selling prices on these new innovative products. So it generates revenue for us on less expenditures.
That's the second area. The third area is just focusing on working capital. Accounts receivable days improvements, inventory days improvements, et cetera. All three of those areas contributed a dramatic improvement in 2025. We expect that we'll have a continued improvement here in 2026 to get to cash flow free cash flow break even, and then we'll build on that in 2027 and beyond.
When we look at the acquisition of OPSB, I think their cost structure is a lot different than sort of your surgical side. How do we, like, consider the puts and takes in terms of what that delivers to either gross margin and then the bottom line versus, let's say, your legacy businesses?
Yeah. We got into the bracing business several years ago, three or four years ago, because we like the capital efficiency ability of that business to grow the revenue to add to profitability, and to reduce the amount of working capital required to do those things. It does not have consigned inventory, so you're just selling the inventory and/or providing the services. Clubfoot bracing products, boots and bars, as we call it, is a big piece of that business. Scoliosis braces, 3D custom-built bracing for each of our patients is a big piece of that business. Trauma and deformity bracings, a big portion of it. The last is our services business. When we bought that business, it had about 25 clinics.
We're up to over 45 clinics now and looking to continue to expand. There's 300 primary children's hospitals in the United States, and we're only servicing probably 20 or 25 of those today. It's kind of first inning of that growth pattern, if you will, of just continuing to bring in new products and to provide more services to hospitals across the U.S. and beyond. We have a clinic in Ireland already.
When you mentioned the 300 children's hospitals, I mean, they're all candidates, I assume, over time. How long, you know, you've given some guidance in terms of, "Hey, we plan to open, you know, maybe a handful this year," or buy or, you know, buy or build out yourself. Yeah, I guess that should give you know, a launch, like a trajectory for years to come if you can continue to just kind of layer on more centers, more clinics.
That's right. The OPSB Specialty Bracing business, we expect to grow greater than 20% this year and for the next several years. Those locations, we try to open them inside of the children's hospitals, so as near the clinicians and the clinics that we can. Go see the surgeon or go see the doctor at the clinic. You need a brace, you just go right downstairs, and we're there to provide that service for the hospital, for the surgeons, and obviously for the patients. As you can imagine, finding space in hospitals sometimes can take time and is a little challenging.
We've got a long list of hospitals and surgeons that want us to have a clinic near them, and we're working through the process of finding the location, whether it be in the hospital or near the hospital, hiring our own clinicians, and getting space, and then starting operations. It doesn't happen overnight, but we've got a nice long path, I think, over the next really 5-10 years that'll drive growth into the business for us.
I think one of the sort of newer products that I know you kind of took out of your guidance given sort of the lumpiness of it, but 7D.
Mm.
I was wondering if you might take a minute just to kind of talk through, you know, that offering. I, again, don't think any of your competitors have something like that for the pediatric setting, but I'd love to hear your thoughts on that product and sort of where it fits and if it is that differentiated.
Yeah, absolutely. 7D is a navigation device that is used in the operating room for scoliosis procedures. Very, very innovative in that, it uses camera and then a three-pronged device to register where the instruments are at inside of the spine. Combining that with an MRI, it can navigate the spine with zero radiation. That compares to a competing device, I guess, if you will, that does spin and provides lots of radiation to the patient every time that spin happens. It's the only device that can do zero radiation in the OR and provide accurate navigation for spine surgery. As you're putting the pedicle screws in, obviously you've got to avoid some areas down there, and this provides navigation that no other device can do with zero radiation. Wildly popular.
All the surgeons who test it love it. It's similar to what I mentioned with finding spots inside of hospitals. It's now a matter of working through the different hospital administration areas to actually get the devices placed. We typically will either sell the hospital the device, we will consign the device, or we will lease it to them as well through a third-party leasing agency. We have different options that we can offer to the hospital, but the surgeons love it. It's amazing for the patients because it reduces the radiation, and we're getting tremendous procedural results out of it as well, so it's a big deal. It's great. The not so great part is it's difficult to predict.
Right
... because the hospitals, you know, work at their own pace.
Sure.
These sell for between $500,000 and $600,000, and if you sell a couple of these in a quarter, it can have a meaningful impact for our business. If you don't, it can also have an impact for our business. For us, it's getting the device in there, having the surgeon utilize the device. It's a distributed product, so the margin's not great, but it's the right thing to do for the patient. It's goodwill. It gives us incremental implant sales possibility into the future. But it's lumpy. As you said, we did take it out of our guidance in the third quarter of 2025. And if it happens, great. If it doesn't happen, it's not going to cause us to miss our earnings or our forecasted revenue.
Well, it makes a lot of sense. Maybe just switching to the sales force. You know, we didn't speak today about some of the disruption in the competitive landscape with some of the M&A and transactions that are happening. I imagine you have opportunities, you know, possibly to pick up talent, given what some of the larger folks are doing, you know, J&J with DePuy Synthes and the like. I guess comment on how easy is it to attract new sales folks to your platform, and is that a part of the drivers for your revenue growth ahead?
We can find talent. Had dinner here in town last night with somebody that came from a company-
Who's that?
that you just mentioned. We can find that talent. There's not a lot of pediatric salespeople-
Right
You know, to hire, so it's hiring them from other specialties that we can then bring them in and train. Hiring salespeople has not been a problem for us. They come to the culture, they come to the cause, and they come to, you know, work with pediatric patients. That's not been an issue. I don't know that we're having an advantage from the sales force standpoint. We do see some of those companies you mentioned pulling products off of the marketplace.
Why do you think that is? Is like, is it just not feasible for them to service this area? Or, you know, is it harder to service than what they currently do in sort of the bigger hospital settings?
I actually think it's a result of what we talked about at the very beginning of this conversation, which is EU MDR. EU MDR is brand-new regulation that is required for medical devices to sell your product into Europe, and it requires you to redo all the paperwork to provide additional testing, and it requires ongoing reporting to support these products. When some big company looks at the limited amount of sales that they have on these products, it just doesn't make sense. They're pulling the products off of the shelf worldwide, and it just on the trauma and deformity side in particular, it just makes it even easier for us because there's less and less competition.
Even though it's only like the
It's on the shelf.
Europe that started the, I guess, the move, they're pulling it in here as well, like at domestic.
Absolutely.
Huh.
Absolutely. Because if they're not gonna sell it worldwide, then they don't wanna even support it in the US, and it's been an ongoing trend here for many years. One of those companies you just mentioned pulled off a big product here this summer, and the surgeons are, you know, they don't have access to it in the future.
Do you have a solution for that?
Oh, absolutely. No, we have not only a solution, we have new and improved solutions that we're launching at this time. The timing for our new products couldn't be better.
I think sort of to wrap here, you mentioned culture, and we talked about, you know, a little bit about, you know, attracting new people. I always have people ask me, because we've had so many companies acquired over the years, like, "Hey, is this a takeout candidate?" You know, given the size, you know, you could argue that it could be. But, you know, with Dave and Mark and you over the years, I kind of think the culture thing might. It certainly doesn't ever seem to me like that's what the way you wanna go to be part of a bigger ortho company, but.
Yeah, that's right. I mean, if you think about it, we have trauma and deformity, we have scoliosis, we have bracing, you know, we're now getting into enabling tech. We are a little bit of a unique animal in that we're trying to serve all of these segments. We may go into other things beyond ortho. That may or may not fit into potential candidates in the future.
Great.
Awesome.
Thank you.
Thank you.
Thanks for coming. Good to see you.
Appreciate you having us.
Thanks for having me.