Paragon 28, Inc. (FNA) Q3 2024 Earnings Summary

Executive Summary

Record Q3 revenue of $62.3M (+18.1% reported, +17.6% CC) with strong U.S. (+14.8%) and international growth (+35.7%), while gross margin declined to 74.1% (vs. 77.4% LY) and net loss widened modestly YoY to $12.3M .
First positive Adjusted EBITDA since IPO at $0.4M; OpEx leverage improved 969 bps YoY and 500 bps sequentially as restructuring benefits began to flow through .
FY24 net revenue guidance raised to $252–$256M (from $249–$255M in Q2; initially $249–$259M), citing sustained top-line momentum and operational efficiency progress; management reiterated targets for EBITDA positive in 2025 and FCF positive in 2026 .
Key near-term catalysts: Q4 is the first full quarter with restructuring savings; ramp of 2024 product launches (including SMART 28 modules and trauma/ankle additions) providing 2025 tailwind; ongoing inventory/work-capital optimization supporting cash trajectory .

What Went Well and What Went Wrong

What Went Well

Positive inflection in profitability: Adjusted EBITDA turned positive ($0.432M) for the first time since the 2021 IPO; management highlighted accelerated execution on cost optimization and operating leverage .
Commercial momentum: Q3 revenue $62.3M, U.S. $51.2M (+14.8%), International $11.2M (+35.7% reported, +32.8% CC); active U.S. surgeon customers +9% YoY to 2,244; producing reps +10.5% YoY to 284; rep productivity +4% .
Guidance raised and liquidity preserved: FY24 revenue range increased to $252–$256M; total liquidity at quarter-end $89.1M (cash $39.1M + $50M revolver); FCF use improved to $(6.3)M (vs. $(20.7)M LY; $(13.7)M in Q2) .

Management quotes:

“We are pacing ahead of schedule compared to our expectations… confident in our ability to continue to execute on the cost optimization actions needed to drive further leverage in the P&L.” – CFO .
“Our efficiency plan is progressing better than expected and resulted in substantial improvement to operating expense and free cash flow.” – CEO .
“We remain fully committed to delivering on these priorities to position the company for sustainable profitable growth.” – CFO .

What Went Wrong

Margin pressure: Gross margin fell to 74.1% (from 77.4% LY) and was down 90 bps sequentially (vs. 75.0% in Q2), with mix and higher supplier/non-cash inventory charges cited; management now frames ~75% as the floor near-term .
Continued GAAP losses: Net loss widened YoY to $12.3M in Q3 (vs. $11.2M LY), reflecting interest expense and other items; YTD net loss at $(43.5)M .
Control environment and restatement overhang from Q2 persists: Company previously disclosed material weaknesses related to inventory accounting and filed restated 10-K/A and 10-Q/A; remediation is underway and professional services costs elevated SG&A .

Financial Results

Headline P&L and Profitability (USD Millions except EPS)

Metric	Q1 2024	Q2 2024	Q3 2024
Revenue	$61.1	$61.0	$62.3
Gross Margin %	80.0%	75.0%	74.1%
Operating Expenses	$61.8	— (R&D $7.1; SG&A $49.4)	$54.6
Net Income (Loss)	$(15.2)	—	$(12.3)
Diluted EPS ($)	—	—	$(0.15)
Adjusted EBITDA	$(5.5)	$(3.0)	$0.4

Notes: Q2 total OpEx not explicitly disclosed; components shown. EPS not disclosed in Q1/Q2 sources reviewed.

Revenue by Geography (USD Millions)

Metric	Q1 2024	Q2 2024	Q3 2024
U.S. Revenue	$51.1	$49.7	$51.2
International Revenue	$10.0	$11.3	$11.2

Cash, Liquidity and Free Cash Flow

Metric	Q1 2024	Q2 2024	Q3 2024
Cash and Equivalents	$58.2	$47.0	$39.1
Total Liquidity	$108.0 (Cash $58.2 + $50 RCF)	$97.0 (Cash $47 + $50 RCF)	$89.1 (Cash $39.1 + $50 RCF)
Free Cash Flow	—	$(13.7)	$(6.293)

Operating KPIs

KPI	Q1 2024	Q2 2024	Q3 2024
Active U.S. Surgeon Customers	2,275	2,271	2,244
U.S. Producing Sales Reps	261	277	284
Rep Productivity (YoY)	+8%	+7%	+4%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Revenue	FY 2024	$249–$255M (Q2 narrowed)	$252–$256M	Raised
Net Revenue	FY 2024	$249–$259M (Q1 reaffirmed)	$252–$256M	Raised/narrowed
Gross Margin	FY 2024	Stabilize ~75%	Approx. 75% for FY24	Maintained
Operating Expense Savings	Run-rate	~$8M annualized savings from RIF (phasing Q4–2025)	Same	Maintained
Profitability Targets	Multi-year	Adj. EBITDA positive in 2025; FCF positive in 2026	Reiterated	Maintained

Assumptions: Guidance assumes FX translation rates remain consistent with current rates .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1, Q2)	Current Period (Q3)	Trend
Operational efficiency/cost optimization	Q2: Announced plan; $8M annualized RIF; inventory burn-down; leverage OpEx	OpEx as % revenue improved 969 bps YoY and 500 bps seq; Q4 first full quarter of savings	Improving execution
Gross margin trajectory	Q2: GM 75.0%; stabilize ~75% near-term	74.1% GM; management frames ~75% “floor,” actions underway (supplier pricing, freight, inventory)	Stabilizing with gradual improvement expected
Product innovation/SMART 28	Q1/Q2: 12+ launches YTD; SMART 28 module launched; AI-enabled planning	13 launches YTD; early traction; October launches (Fibula Nail, short stem tibia) augment ankle	Building 2025 tailwind
Market environment	Q2: “Choppiness” across weeks; not segment-specific	Choppiness abated late Q3; steady demand into Q4	Stabilizing
Working capital/inventory	Q2: Plan to reduce inventory days; liquidity $97M	DSO 52 days (vs. 58 LY); DPO 118 (vs. 210 LY); DIO 545 (vs. 683 LY); liquidity $89.1M	Improving but inventory still high
Controls/restatement	Q2: Material weaknesses disclosed; restated filings completed	Professional services elevated SG&A; remediation ongoing	Remediation in progress

Management Commentary

“Global revenue for the third quarter of '24 was a record $62.3 million… We had strong growth across our portfolio at over twice the rate of the broader foot and ankle market.” – CEO .
“Third quarter total operating expense… represents a 969 basis point improvement YoY and a 500 basis point sequential improvement… fourth quarter will be our first full quarter where we expect to see the full effect of our restructuring program.” – CFO .
“Adjusted EBITDA… marks the first full quarter of positive adjusted EBITDA since the company IPO in October of 2021.” – CFO .
“We are increasing our net revenue guidance… $252 million to $256 million… and expect… improved earnings and free cash flow sequentially in the fourth quarter.” – CFO .
On SMART 28: “Once you see what you see with that, it's hard to go back… a massive advancement… with AI-enabled algorithms and statistical models.” – CEO .

Q&A Highlights

Outlook and market choppiness: Management characterized prior softness as week-to-week “choppiness,” which largely abated by end of Q3; tone constructive into Q4 .
Cost savings cadence: ~$8M annualized OpEx savings from RIF, most phasing in Q4 with remainder into 2025; ongoing zero-based budgeting and cost optimization beyond RIF .
Profitability path: Expect sequential improvement in Q4; reiterated Adjusted EBITDA positive in 2025 with seasonality considerations; confident no need for dilutive capital to achieve goals .
Gross margin framing: Moving away from 80% long-term target; near-term “floor” around ~75% with supplier pricing, freight stabilization, inventory actions to drive gradual improvement .
Working capital: Material progress on DSO/DPO/DIO; continued focus to reduce inventory over time given trauma profile requires more field inventory .

Estimates Context

Wall Street consensus (S&P Global Capital IQ) for Q3’24 EPS/revenue/EBITDA was unavailable due to missing ticker mapping (GetEstimates error). As a result, beats/misses vs consensus could not be determined. Values would normally be retrieved from S&P Global; in this case, estimate comparisons are unavailable from S&P Global for FNA at this time.

Key Takeaways for Investors

Positive operating inflection: First positive Adjusted EBITDA since IPO, with Q4 set to capture full restructuring benefits; OpEx leverage is now visible and improving .
Growth durability: Double-digit top-line growth across geographies with raised FY24 revenue guidance, supported by an unusually rich 2024 launch slate that should amplify in 2025 .
Margin baseline reset: Management now frames ~75% GM as the operating floor; upside dependent on supplier negotiations, mix, and inventory normalization—model gradual recovery rather than a near-term snapback .
Cash path improving: FCF use narrowed meaningfully; liquidity remains adequate ($89.1M), and working capital metrics are moving in the right direction; watch inventory progress and capex discipline .
Overhangs to monitor: Internal control remediation and restatement after-effects (professional services costs) and elevated interest expense continue to weigh on GAAP results near-term .
Trading setup: Near-term catalysts include Q4 sequential earnings/FCF improvement and early SMART 28 traction updates; medium-term thesis centers on product-led share gains, operating leverage, and achieving 2025 EBITDA and 2026 FCF targets .

Appendix: Additional Q3 Detail (from 8-K Press Release)

Q3 gross margin 74.1% (vs. 77.4% LY); OpEx $54.6M (+6.3% YoY); net loss $(12.3)M; cash $39.1M; total liquidity $89.1M .
Adjusted EBITDA reconciliation: $0.432M in Q3; components include add-backs for D&A, SBC, severance, and fair value changes .
Free cash flow reconciliation: Q3 FCF $(6.293)M (operating cash flow $(2.665)M less $3.628M capex) .
Geographic growth: International +35.7% reported (+32.8% CC); constant-currency reconciliations provided .