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ORTHOPEDIATRICS CORP (KIDS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $52.7M, up 40% year over year (U.S. +52%, International +5%); adjusted EBITDA more than doubled to $3.0M, though GAAP diluted loss per share widened to $(0.69) due to restructuring and impairment charges .
  • Gross margin was 67.5% in Q4, impacted by a full-year ~$3.0M reclassification from G&A to cost of revenue related to Boston O&P; management restated forward gross margin guidance to 72–73% (from 74–75%) without changing profitability expectations .
  • 2025 guidance reiterated: revenue $235–$242M (+15–18% YoY), adjusted EBITDA $15–$17M, set deployment ~$$15M, with first positive quarterly free cash flow targeted for Q4 2025; free cash flow usage improved in Q4 2024 to ~$3.7M, down ~70% vs YTD average .
  • Stock reaction catalysts: strong top-line and adjusted EBITDA growth; OPSB and scoliosis momentum; clarity on gross margin accounting; EU MDR approvals anticipated mid-2025; and 7D placements driving multi-year scoliosis account conversions .

What Went Well and What Went Wrong

What Went Well

  • Domestic strength and scoliosis acceleration: Q4 U.S. revenue rose 52% to $42.9M; scoliosis grew 62% to $15.6M driven by RESPONSE, ApiFix, Boston O&P and 7D placements supporting conversion at large institutions .
  • OPSB momentum and product innovation: rapid growth in DF2 brace with expanded indications and international launches; new OPSB Sensor System and MOVE-D brace broaden non-operative pediatric offerings .
  • Adjusted EBITDA doubled: Q4 adjusted EBITDA of $3.0M vs $1.3M prior year; management emphasized a path to positive free cash flow in Q4 2025 and breakeven in 2026 .

Management quote: “We will help more children than ever, capture more share across the entire business as we continue to break revenue records, grow our adjusted EBITDA, and improve cash usage in 2025 and beyond” — David Bailey, CEO .

What Went Wrong

  • Gross margin compression and accounting reclassification: Q4 gross margin fell to 67.5% from 71.0% YoY due to ~$3.0M full-year reclassification tied to Boston O&P manufacturing; management restated future gross margin range to 72–73% .
  • Widened GAAP net loss: Q4 net loss widened to $(16.1)M with $(0.69) diluted loss per share, reflecting $3.7M restructuring (Israel office closure) and $1.8M tradename impairment plus higher other expense .
  • International softness tied to Brazil: company intentionally slowed shipments to South America (Brazil) to address AR amid FX volatility, limiting stocking orders; International revenue growth was 5% in Q4 .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$52.802 $54.573 $52.667
GAAP Diluted EPS ($)$(0.26) $(0.34) $(0.69)
Gross Profit Margin %77% 73% 67.5%
Adjusted EBITDA ($USD Millions)$2.627 $3.977 $3.023

Segment Revenue ($USD Millions)

SegmentQ2 2024Q3 2024Q4 2024
Trauma & Deformity$37.771 $37.642 $36.409
Scoliosis$13.682 $15.635 $15.632
Sports Medicine/Other$1.349 $1.296 $0.626

Geography Revenue ($USD Millions)

GeographyQ2 2024Q3 2024Q4 2024
U.S.$41.249 $42.714 $42.894
International$11.553 $11.859 $9.773

KPIs

KPIQ2 2024Q3 2024Q4 2024
Kids Helped (Approx.)32,000 33,000 34,000
Adjusted Loss per Share (Non-GAAP)$(0.23) $(0.18) $(0.29)
Instrument Set Deployment ($USD Millions)N/A$5.3 $3.7
Cash + ST Investments + Restricted Cash ($USD Millions)$30.890 $78.1 $70.8

Notes:

  • Q4 YoY revenue +40% versus $37.6M prior-year Q4 .
  • Q4 International revenue impacted by Brazil shipments; EMEA T&D growth strong .
  • Free cash flow usage in Q4 2024 was ~$3.7M, a 70% reduction vs YTD average .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2025N/A$235–$242 New
Adjusted EBITDA ($USD Millions)FY 2025N/A$15–$17 New
Gross Margin %Multi-year74–75 72–73 Lowered (accounting reclass)
Instrument Set Deployment ($USD Millions)FY 2025N/A~$15 New
Free Cash Flow PositivityFY 2025N/AFirst positive quarter expected Q4 2025 New
Revenue ($USD Millions)FY 2024$200–$203 (Q1) → $202–$204 (Q3) Actual $204.727 Raised during year; achieved high end

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
OPSB ExpansionDF2 strong start; OPSB viewed as >$100M opportunity; building salesforce Strategy: share growth in clinics, 4–5 new products/yr, aggressive territory expansion; Florida clinic acquisition DF2 demand “exploding”; OPSB Sensor & MOVE-D launched; clinic footprint expansion funnel large Accelerating
Scoliosis & 7DEOS portfolio progress; RESPONSE growth; eLLi Breakthrough Device Strong scoliosis rebound; multiple 7D placements; EU MDR path evolving (eLLi/VerteGlide) 7D driving account conversions; more RESPONSE users; possible U.S. 510(k) path for VerteGlide sooner than expected Improving
EU MDRAudit expected H2 2024 MDR completion expected mid-2025; major EU product launches to follow MDR audit expected mid-2025; significant EU spine growth anticipated post-approval Timing clarified
International StrategyStrong Canada/Germany; OUS Pega growth; South America improving International revenue +12%, strong OUS scoliosis; LatAm stocking comps tough Intentional shipment slowdown to Brazil; EMEA T&D strong; OUS scoliosis healthy Mixed (FX/AR headwinds)
R&D pipeline (T&D)3P plating platform progress; new eX-Fix devices P3 hip slated for 1H next year 3P hip beta launch anticipated; DF2 expanded indications/sizes On track
Enabling TechnologiesEarly digital health start Launched Enabling Technologies division Playbook software launched to sales; revenue impact expected from 2026 Building

Management Commentary

  • “2024 was yet another year that OrthoPediatrics delivered strong results… Trauma and Deformity, Scoliosis, and OPSB continue to capture market share” — David Bailey, CEO .
  • “We made a full year adjustment of approximately $3 million out of G&A and into cost of goods sold. This negatively impacted our fourth quarter gross margin, but properly reflects our full year 2024 gross margin” — Fred Hite, CFO/COO .
  • “We expect adjusted EBITDA of $15 million to $17 million [in 2025]… and our first quarter of positive free cash flow in the fourth quarter of 2025” — David Bailey, CEO .
  • “International growth was impacted by our decision to slow sales shipments to South America, specifically Brazil, in order to reduce AR balances negatively affected by rapid currency fluctuations” — David Bailey, CEO .
  • “DF2 demand is now far exceeding our expectations and is quickly setting a new gold standard for femoral fracture management in young children” — David Bailey, CEO .

Q&A Highlights

  • Guidance cadence and seasonality: Expect typical seasonality (Q1 step down from Q4; peak in Q2–Q3), with OPSB growth potentially smoothing seasonality; EU MDR could step up OUS in 2025, more in 2026–2027 .
  • OPSB pipeline and clinics: Licensing pipeline robust; target 4 new territories in 2025 with potential for more; DF2 growth exceeding expectations requiring additional manufacturing capacity and ~30+ countries approved .
  • Gross margin outlook: Restated to 72–73%; potential upside longer-term from consolidation, pricing, and COGS focus; adjusted EBITDA unchanged despite reclassification .
  • 7D placements: Now critical driver of account conversions; expect consistent quarterly placements in 2025 with multi-year revenue tail via RESPONSE fusion contracts (~3-year terms) .
  • Medicaid coverage risk: Monitoring; management expects limited impact due to hospital endowments and cost-of-care rationale in pediatrics .

Estimates Context

  • S&P Global Wall Street consensus for Q4 2024 (Revenue, EPS, # of estimates) was unavailable at time of request due to data access limits. As a result, explicit beat/miss vs consensus cannot be stated for Q4 2024.
  • Given strong YoY revenue growth (+40%) and adjusted EBITDA more than doubling, sell-side models may need to incorporate: restated gross margin baseline (72–73%), OPSB growth vectors (DF2, sensor tech, MOVE-D), Brazil AR/FX constraints on OUS shipments, and 2025 set deployment at ~$15M .

Key Takeaways for Investors

  • Top-line momentum remains robust across T&D and scoliosis, with OPSB as a differentiated, capital-efficient growth lever; watch continued DF2 scale, clinic expansion, and sensor-enabled bracing adoption .
  • Accounting-driven gross margin reset (72–73%) is non-economic; adjusted EBITDA and cash flow trajectory intact, with first positive quarter targeted for Q4 2025 and breakeven in 2026 — a potential re-rating catalyst if delivered .
  • International volatility (Brazil AR/FX) is transitory; underlying demand remains strong, with EU MDR approvals anticipated mid-2025 unlocking EU product launch waves and OUS spine growth .
  • 7D placements are strategically important, driving multi-year fusion revenue at converted accounts; monitor quarterly placement cadence as a forward indicator of scoliosis revenue .
  • Set deployment normalizing to ~$15M in 2025 should support free cash flow discipline while focusing capital on new product launches (PNP Tibia, EOS portfolio, P3 hip) .
  • OPSB pipeline expansion via licensing and distribution (MOVE-D) plus digital tools (Playbook, Sensor System) broaden TAM and likely sustain >20% OPSB growth for 2025 and beyond .
  • Risk monitor: regulatory timelines (EU MDR mid-2025), FX in South America, and execution on clinic expansion; upside: earlier-than-expected VerteGlide U.S. 510(k) clearance and accelerating RESPONSE adoption .