Paragon 28, Inc. (FNA) Q2 2024 Earnings Summary

Executive Summary

Q2 2024 net revenue was $61.0M, up 19.6% reported and 19.7% constant currency YoY; gross margin was 75.0% with adjusted EBITDA loss improving to $3.0M from $5.4M in Q2 2023 .
The company narrowed FY 2024 net revenue guidance to $249–$255M (from $249–$259M), citing macro “choppiness” and a balanced view of product launch momentum and operational efficiency initiatives; upper end lowered by $4M .
Management implemented an operational efficiency plan (7% workforce reduction, inventory burn-down, cost controls) targeting EBITDA positive in 2025 and cash flow positive in 2026; expected annualized savings up to ~$8M with ~$1M severance .
Restatement filed (10-K/A and 10-Q/A) corrected excess/obsolete inventory accounting; prior period gross margins revised downward (e.g., Q4 2023 gross margin restated to 69.9%); controls deemed ineffective and remediation underway .
Stock-relevant catalysts: appointment of CFO/EVP Supply Chain Operations (ex-Zimmer Biomet), launch of Smart 28 AI-enabled pre-op planning platform (SMART Bun‑Yo‑Matic), and visible cost discipline and guidance narrowing .

What Went Well and What Went Wrong

What Went Well

Strong top-line growth: Q2 revenue $61.0M (+19.6% reported; +19.7% CC), with U.S. +17.6% and International +29.4%; producing reps up 13% YoY to 277 and surgeon customers at 2,271 (+11%) .
Operating expense discipline: management cited an “840 bps improvement” in operating expense as a percent of revenue YoY for Q2; adjusted EBITDA loss improved to $3.0M from $5.4M in Q2 2023 .
Product and technology momentum: multiple new launches and the Smart 28 pre-op planning ecosystem initiated; “We are setting a new pace of foot and ankle innovation” (CEO) .

What Went Wrong

Gross margin compression: Q2 gross margin 75.0% vs 77.3% in Q2 2023, impacted by higher supplier pricing, higher non-cash E&O, and mix; management says baseline ~75% near term .
Restatement and controls weakness: prior financials restated due to inventory accounting errors; disclosure controls and ICFR deemed not effective; remediation plan initiated .
Macro “choppiness” and guidance narrowing: management cited week-to-week variability in volumes and narrowed full-year revenue guidance to $249–$255M to reflect caution despite launch momentum .

Financial Results

Metric	Q4 2023	Q1 2024	Q2 2024
Revenue ($USD Millions)	$60.561	$61.082	$61.016
Gross Margin (%)	69.9% (restated)	77.3% (restated)	75.0%
Operating Expenses ($USD Millions)	$56.351	$61.799	$56.522
Net Loss ($USD Millions)	$(19.559)	$(15.234)	$(13.782)
Adjusted EBITDA ($USD Millions)	$(4.423)	$(5.481)	$(2.995)
Diluted EPS ($USD)	N/A	N/A	$(0.17)

Segment Revenue

Segment	Q4 2023	Q1 2024	Q2 2024
U.S. Net Revenue ($USD Millions)	$51.7	$51.1	$49.7
International Net Revenue ($USD Millions)	$8.9	$10.0	$11.3

KPIs

KPI	Q1 2024	Q2 2024
U.S. Producing Sales Representatives (#)	261	277
U.S. Surgeon Customers (#)	2,275	2,271
Sales Rep Productivity (YoY)	Not disclosed	+7%

Adjusted EBITDA reconciliation details provided in company exhibits; see press release tables for components .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Revenue	FY 2024	$249–$259M	$249–$255M	Narrowed; upper end lowered by $4M

Additional strategic targets (not formal 2024 guidance): “EBITDA positivity in 2025” and “cash flow positivity in 2026” (management priorities) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2023, Q1 2024)	Current Period (Q2 2024)	Trend
AI/Technology initiatives	Smart28 module planned; pipeline cadence outlined	Smart 28 portal live; SMART Bun‑Yo‑Matic pilot launched; FDA-cleared for CT and x‑ray; business model akin to MAVEN with service/guide fees	Accelerating
Supply chain/inventory	Inventory stockpiling and Q4 write-downs; normalization expected	Inventory burn-down plan; reduced days inventory on hand; sell-down and order-less approach to preserve cash	Improving discipline
Tariffs/macro	Not highlighted	Week-to-week “choppiness” observed; monitoring macro; seasonality (vacations) noted	Cautious
Product performance	Multiple launches in forefoot/minimally invasive; growing across segments	Continued launches (R3FLEX, BONOBO, Right Angle Drill) and Smart 28; strong adoption vs expectations, forefoot momentum	Strengthening
Regional trends	International growth strong; U.K., Australia highlighted	International +29% YoY; growth from U.K., Australia, South Africa, Spain	Broadening
Regulatory/legal	N/A	Restatement (inventory accounting errors); ICFR and disclosure controls ineffective; remediation actions underway	Remediating
R&D execution	Sustained cadence across segments	“R&D engine firing on all cylinders” with pipeline and medical education support	Sustained

Management Commentary

“We are setting a new pace of foot and ankle innovation…12 launches through the first 7 months of the year…” (CEO) .
“Elements of our operational efficiency plan include a reduction of current and planned workforce…inventory burn-down…durable savings…” (CEO) .
“My absolute top priority…is simple, to achieve EBITDA positivity in 2025 and to achieve cash flow positivity in ’26.” (CEO) .
“Productivity…we saw a 7% increase across our rep base.” (CEO) .
“Our baseline of gross margin today…around 75%…we expect a tailwind over time as we sell through the high-cost inventory purchased in 2023.” (CEO/CFO) .
“I’m incredibly excited to join Paragon 28…focused on executing strategic initiatives to drive sustainable growth, improve profitability, and deliver shareholder value.” (CFO) .

Q&A Highlights

Guidance rationale: Range narrowed to balance launch momentum with observed “choppiness”; confidence in $249–$255M with macro monitoring .
Profitability/cash flow: Operational efficiency expected to support EBITDA-positive in 2025 and cash flow-positive in 2026; annualized savings ~$8M vs ~$1M severance .
SG&A trajectory and cost levers: Focus on travel, IT, professional services, freight; medical education and product investments maintained to avoid growth compromise .
Seasonality/macro: No Q2 billing-day impact; one extra day in Q3 vs prior year; variability driven more by seasonality (vacations) than elective vs trauma mix .
Smart 28: Training designed for ease (“less than 10 minutes” planning); platform is open to broad surgeon use; expected more meaningful revenue pull-through in 2025; fee-based service and guides; pull-through to Lapidus fixation portfolio .

Estimates Context

Wall Street consensus estimates via S&P Global were unavailable due to a CIQ mapping issue (GetEstimates error: missing mapping for FNA). As a result, beat/miss vs Street cannot be assessed and is not included. Future comparisons will be provided once mapping is available.

Key Takeaways for Investors

Revenue momentum remains robust and broad-based; international outperformance offsets U.S. mix variability; continued launch cadence and salesforce productivity support H2 growth within narrowed guide .
Cost discipline is tangible (840 bps OpEx improvement); operational efficiency initiatives and inventory burn-down should accelerate EBITDA trajectory toward 2025 target; monitor gross margin stabilization at ~75% near term .
Restatement/controls remediation is a near-term overhang but largely non-cash; follow remediation progress and any incremental governance updates across Q3/Q4 .
Smart 28 and SMART Bun‑Yo‑Matic represent differentiated, AI-enabled planning that can drive ecosystem pull-through; expect more meaningful revenue contribution in 2025+ .
Guidance narrowing signals prudent risk management amid macro variability; watch Q3 cadence (one extra billing day) and uptake from Q1/Q2 launches .
Near-term trading implications: potential relief on restatement clarity post 10-K/A and 10-Q/A; confidence from CFO appointment and cost actions; sensitivity to gross margin and cash flow narratives .
Medium-term thesis: durable category growth in foot/ankle, strong innovation pipeline, commercial channel expansion, and targeted cost structure improvements position the company to transition to profitability and cash generation by 2025–2026 .