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ORTHOPEDIATRICS CORP (KIDS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue was $61.25M (+12% YoY), with U.S. +14% and International +6%; gross margin expanded to 74% on lower 7D capital sales mix and reduced LATSAM stocking/set sales .
  • EPS: Non-GAAP diluted loss per share of $(0.24) vs S&P Global consensus of $(0.27) was a modest beat; revenue of $61.25M vs $62.03M consensus was a slight miss; adjusted EBITDA of $6.19M vs $6.50M consensus was a minor miss; gross margin of ~73.9% vs 72.8% consensus was a beat .
  • Guidance lowered on Oct 9: FY25 revenue to $233.5–$234.5M (from $237–$242M) while reiterating adjusted EBITDA $15–$17M, set deployment ~$15M, and gross margin 72–73%; management expects positive free cash flow in Q4 and FCF breakeven in 2026 .
  • Catalysts: FDA approval for 3P Small-Mini ahead of schedule and first procedures with VerteGlide; competitor exits in pediatric product lines could support share gains and margin mix (T&D platform launch cadence continues into 2026) .

What Went Well and What Went Wrong

What Went Well

  • Trauma & Deformity revenue +17% YoY to $44.14M, led by PNP Femur, PNP Tibia, DF2, cannulated screws, and strong OPSB growth; Scoliosis +4% YoY to $16.26M also aided by Response and ApiFix with FIREFLY contribution .
  • Gross margin expanded to 74% (vs 73% LY) driven by favorable mix from lower 7D capital sales and reduced LATSAM stocking/set sales; adjusted EBITDA +56% YoY to $6.19M and free cash flow usage improved to $(3.4)M (vs $(11.6)M LY) .
  • Strategic momentum: first VerteGlide cases completed; FDA approval for 3P Small-Mini ahead of schedule, with platform approach expected to improve asset utilization and gross margin leverage into 2026 .

Management quotes:

  • “We still delivered high gross margins and profitability in line with our expectations…we are confident in our forecast of generating positive free cash flow in Q4 and breakeven in 2026.” .
  • “On the 3P platform…we expect to launch new systems each year for the next several years, bolstering both trauma and limb deformity revenue.” .
  • “It’s called a platform for a reason…tremendous improved return on investment…you’ll probably see it show up more in improved gross margin.” .

What Went Wrong

  • 7D capital sales were zero units in Q3 (vs strongest Q3 LY), creating a revenue shortfall and lumpy timing; management adjusted outlook to minimize dependence on lumpy 7D unit sales .
  • LATSAM volatility persisted longer than expected; management is limiting new stocking/set sales in South America to improve cash metrics, which weighed on International growth .
  • Operating expenses rose 20% YoY to $54.7M on restructuring ($2.3M), intangible asset impairment ($2.3M), and higher non-cash stock comp; GAAP diluted EPS loss widened to $(0.50) (from $(0.34) LY) .

Financial Results

Headline Metrics – Actuals (oldest → newest)

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$54.57 $52.41 $61.08 $61.25
GAAP Diluted EPS ($)$(0.34) $(0.46) $(0.30) $(0.50)
Non-GAAP Diluted EPS ($)$(0.18) $(0.39) $(0.11) $(0.24)
Gross Margin (%)73% 73% 72% 74%
Adjusted EBITDA ($USD Millions)$3.98 $(0.38) $4.13 $6.19

Segment Breakdown – Revenue ($USD Millions)

SegmentQ3 2024Q2 2025Q3 2025
Trauma & Deformity$37.64 $41.66 $44.14
Scoliosis$15.64 $18.52 $16.26
Sports Medicine/Other$1.30 $0.91 $0.85

KPIs and Mix

KPIQ3 2024Q2 2025Q3 2025
U.S. Revenue ($USD Millions)$42.71 $48.15 $48.72
International Revenue ($USD Millions)$11.86 $12.94 $12.53
Free Cash Flow Usage ($USD Millions)——$(3.4)
Set Deployment ($USD Millions)——$4.1
Cash + ST Investments + Restricted Cash ($USD Millions)—$72.2 $59.8
Weighted Avg Shares (millions)23.17 23.46 23.57

Estimate Comparison – Q3 2025

MetricConsensusActualSurprise
Revenue ($USD)$62.03M*$61.25M Miss by $0.78M*
Primary EPS (Non-GAAP) ($)$(0.27)*$(0.24) Beat by $0.03*
Adjusted EBITDA ($USD)$6.50M*$6.19M Miss by $0.31M*
Gross Margin (%)72.82%*73.92% (~74%) Beat by ~1.10pp*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$237.0–$242.0M $233.5–$234.5M Lowered
Adjusted EBITDAFY 2025$15–$17M $15–$17M Maintained
Gross MarginFY 2025—72%–73% (reiterated) Maintained
Set DeploymentFY 2025~$15M ~$15M Maintained
Free Cash FlowQ4 2025—Positive in Q4; breakeven in 2026 New/affirmed outlook

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
OPSB clinic expansion and returnsAggressive expansion; first international clinic (Ireland); scaling OPSB; free cash flow positive targeted Q4 2025 >40 clinics; entry into NYC, CA, Ireland; realized ROIs 25% (acquisitions) / 40% (greenfield); deeper customer engagement Improving execution, accelerating footprint
7D Enabling Technologies timingStrong in Q2; drove lower gross margin mix Zero unit sales in Q3; timing variability; outlook adjusted to minimize impact Deteriorated near-term; managed to protect margin
LATSAM (Latin/South America) volatilitySet sales drove growth in Q2; ongoing distribution dynamics Persistent headwinds; limiting new stocking/set sales to improve cash metrics Near-term headwind; strategic de-risking
EU MDR approvals and EMEA/APAC expansionBuilding submissions; early EMEA scoliosis traction Expect approvals incl. small stature 4.5 system by YE; strong EMEA/APAC demand Positive regulatory momentum
Product pipeline (VerteGlide, 3P platform)VerteGlide launched Q1; 3P HIP first cases First VerteGlide cases progressing; 3P Small-Mini FDA approved ahead of schedule; multi-year launch cadence Strengthening platform-driven growth
Competitive landscape—Large OEMs exiting pediatric product lines (J&J, Smith & Nephew), aiding share capture Improving competitive position

Management Commentary

  • “We saw total third quarter global revenue growth, excluding 7D capital sales, of 17%…we still delivered high gross margins and profitability…we are confident in…positive free cash flow in Q4 and breakeven in 2026.” — David Bailey, CEO .
  • “Gross profit margin was 74%…driven by favorable product sales mix as a result of lower 7D unit sales and lower stocking and set sales to LATSAM.” — Fred Hite, COO/CFO .
  • “We have just announced…3P Small and Mini has been approved by the FDA…we expect to complete the first cases in the beginning of next year.” — David Bailey .
  • “You’ll probably see [3P] show up more in improved gross margin and better return on investment.” — Fred Hite .
  • “We see some of the big OEMs…pulling products…which is…good for us from a competitive standpoint.” — David Bailey .

Q&A Highlights

  • Competitor exits: Management cited J&J and Smith & Nephew reducing pediatric offerings, creating share capture opportunities, notably around hip deformity correction and 3P adoption .
  • OPSB returns: 25% ROIs on acquired clinics and 40% on greenfield; halo effects not quantified; focus remains on profitable expansion balanced with P&L goals .
  • 7D timing: Zero unit placements in Q3; delayed deals expected to close in future quarters; limited impact on long-term implant growth; outlook adjusted to reduce quarterly volatility .
  • EU MDR roadmap: Anticipated approvals (small stature scoliosis system) by YE; EMEA scoliosis scaling from near-zero supports diversification away from LATSAM dependence .
  • Cost actions: Restructuring benefits expected to be more visible in Q4 and 2026; reductions tied to TELOS/Israel footprint and EU MDR progress; driving durable margin/FCF improvement .

Estimates Context

  • Revenue: $61.25M actual vs $62.03M consensus — slight miss, driven by zero 7D unit sales and LATSAM stocking/set timing; mix still supported gross margin expansion .
  • EPS: Non-GAAP diluted $(0.24) vs $(0.27) consensus — beat, reflecting higher gross margin and cost actions despite restructuring/impairment charges .
  • Adjusted EBITDA: $6.19M vs $6.50M consensus — small miss; product mix (lower 7D capital, LATSAM constraints) and incremental OpEx items (restructuring/impairment) offset gains .
  • Gross Margin: ~73.9% vs 72.8% consensus — beat; mix shift away from lower-margin 7D capital and LATSAM stocking/set sales .

Consensus values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix shift is favorable: despite a modest revenue miss, gross margin expanded to 74% as management deemphasizes lower-margin/lumpy 7D capital and LATSAM stocking/set sales .
  • EPS beat and EBITDA near-consensus suggest underlying profitability is progressing even as top-line volatility persists; restructuring benefits should be more visible in Q4 and 2026 .
  • Guidance reset narrows FY25 revenue but retains margin/EBITDA and FCF targets; near-term trading may focus on execution of positive FCF in Q4 and confirmation of 72–73% GM trajectory .
  • Structural tailwinds: competitor exits, EU MDR approvals, and the 3P platform cadence support medium-term share gains and asset utilization-led margin improvement .
  • OPSB is scaling efficiently with strong same-store growth and ROI, providing a capital-efficient growth vector that enhances customer engagement and steadies cash generation .
  • Watch 7D unit timing: placements are lumpy but pipeline remains strong; implant pull-through should support core spine over time — quarterly revenue variability should be considered in positioning .
  • International de-risking: as EMEA/APAC agencies grow and MDR approvals arrive, LATSAM dependence and volatility should diminish, aiding margin and FCF quality .