Q3 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Paragon 28 is experiencing strong growth from successful new product launches, with 13 new products launched in 2024 , exceeding expectations and driving momentum into 2025. The recent launches, such as the Fibula Nail and short stem tibia component, are already off to an incredible start beyond expectations , contributing to an increased sales rep productivity by 4%.
- The company has achieved positive adjusted EBITDA in Q3 2024 ahead of schedule, marking an inflection point and demonstrating significant improvement. Paragon 28 is exceeding operational goals and is on track to be EBITDA positive in 2025 and free cash flow positive in 2026, without the need for additional dilutive capital.
- Paragon 28's diversified product portfolio across all sub-segments of the foot and ankle market allows it to grow through market softness and outperform competitors. Despite competitors reporting market softness, Paragon 28 has grown at 2x to 3x the market rate , attributed to its focus on innovative technology and addressing high complication rates.
- Paragon 28 has lowered its gross margin expectations, moving away from the previous target of 80% to stabilizing around 75%. The CFO stated they are "moving away from the 80%" and that improvements will "take time" due to factors like supplier negotiations and inventory optimization. This suggests challenges in returning to higher gross margin levels.
- The company has high inventory levels, with 545 days of net inventory outstanding, significantly above orthopedic industry norms. The CFO acknowledged that reducing inventory will "take time" because they "need more inventory in the field" due to the unpredictable nature of trauma cases. High inventory levels tie up capital and may impact cash flow.
- Seasonality and higher expenses in the first half of the year may hinder consistent EBITDA positivity in 2025. The CFO mentioned they "tend to have a lot of our expenses happening in the first half of the year," indicating potential challenges in achieving steady profitability throughout the year, which could impact investor confidence.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Revenue | FY 2024 | $249M – $255M (15.1% – 17.8%) | $252M – $256M (16.5% – 18.3%) | raised |
Gross Margin | FY 2024 | no prior guidance | ~75% | no prior guidance |
Adjusted EBITDA | FY 2025 | EBITDA positivity in 2025 | Adjusted EBITDA positivity in 2025 | no change |
Free Cash Flow | FY 2026 | Cash flow positivity in 2026 | Free cash flow positivity in 2026 | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2024 | FY 2024 revenue growth was guided at 15.1% to 17.8% | $62.336M(which is an ~18% YoY increase vs. $52.8M in Q3 2023) | Beat |
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EBITDA Positivity and Cost Savings
Q: Will you achieve EBITDA positivity in 2025 and provide details?
A: The company confirmed it is on track to achieve EBITDA positivity in 2025, having already reached it in Q3 2024. They implemented a restructuring program targeting $8 million in annualized operating expense savings , with most benefits realized in Q4 2024 and some continuing into 2025. -
Market Growth Outlook
Q: What are expectations for foot and ankle market growth in 2025?
A: Management expects the foot and ankle market to return to normalized growth of around 7% in 2025. Paragon aims to grow at 2-3 times the market rate, supported by a strong pipeline of product launches. -
Impact of 2024 Product Launches
Q: How will 2024 product launches affect growth in 2025?
A: New products launched in 2024 are expected to significantly boost growth in 2025, especially those introduced in the second half. These products typically have a 6-12 month ramp-up period, and early performance has exceeded expectations. -
Gross Margin Improvement
Q: How will gross margins improve toward 80%?
A: The company is focused on improving gross margins from a floor of around 75% , aiming for incremental improvements in 2025. Initiatives include negotiating lower supplier costs, reducing freight expenses, and minimizing inventory adjustments. Returning to 80% margins will take time. -
Inventory Reduction and Free Cash Flow
Q: How are you reducing high inventory levels?
A: Management is laser-focused on reducing inventory levels over time , recognizing inventory days are still high. Efforts include optimizing capital deployment and improving efficiency , aiming to enhance free cash flow and achieve cash flow positivity by 2026. -
Segment Performance Amid Market Pressures
Q: Are you seeing pressure in any foot and ankle segments?
A: The company has not observed significant pressure in any particular segment. Their diversified portfolio across all foot and ankle sub-segments has enabled growth through market fluctuations , with new product launches driving strong performance. -
Sales Rep Productivity Increase
Q: What is driving the increase in rep productivity?
A: A 4% increase in rep productivity was driven by adding new producing sales reps and the successful timing of product launches. This enhanced penetration in existing accounts and overall sales effectiveness. -
Progress of SMART 28 Launch
Q: How is the SMART 28 launch progressing?
A: The SMART 28 system has been well received, with surgeons considering it transformative for forefoot procedures. It offers detailed deformity analysis and patient-specific solutions, making it hard for surgeons to revert to previous methods. -
Short Stem Tibia Market Potential
Q: What is the market potential for the short stem tibia?
A: The short stem tibia component targets patients with complex deformities in total ankle procedures. While specific market percentages weren't provided, it's a critical addition to the total ankle franchise, enhancing patient care and complementing existing options.