STIFEL 2026 HEALTHCARE CONFERENCE - ORTHOPEDIATRICS CORP

Financial Performance:

• Reported third-quarter organic revenue growth of 19% driven by balanced performance across Trauma, Deformity, Scoliosis, and International segments.
• OPSB (Orthopedics, Bracing, Scoliosis) division grew >20% with the fastest growth rate among business lines.
• Achieved record Adjusted EBITDA and generated positive Free Cash Flow (FCF); Q3 results followed Q4 2024's $10M positive FCF generation.
• Projected Q4 revenue of approximately $69 million, representing a 5% sequential decline due to seasonality, while maintaining a commitment to reach $6M+ in FCF for Q4.
• Committed to FCF break-even status by 2026; currently on track to generate positive FCF with disciplined capital allocation.
• Reduced cash usage significantly year-over-year, shifting from capital-intensive growth to balanced growth with margin expansion.

Guidance and Future Outlook:

• No specific 2027 revenue guidance provided; management plans to maintain conservative forecasting methods consistent with recent historical performance.
• Long-term goal to treat 1 million children annually; current annual volume is ~175,000, indicating significant growth runway.
• Anticipate continued dominance in pediatric orthopedics with a "super cycle" of product launches driving growth through 2028 and beyond.
• Expect international growth to potentially match US growth rates as European markets (e.g., UK, Ireland) expand access to Scoliosis fusion products.
• Will prioritize "measured" growth over maximizing FCF at all costs; plans to deploy ~$10M in inventory investment in 2027-2028 to fuel the super cycle.

Business Segments and Product Lines:

• Trauma & Deformity: Strong performance driven by the "super cycle" of new systems; 3P Hip is ahead of budget with full market release; limited releases of 3P Small Mini and TractorFix rolling out.
• Scoliosis: High-mid teens underlying growth; VertiGlide (sliding rods) now in full market release with 40+ hospitals utilizing, driving pull-through of Response Fusion systems.
• OPSB: Rapid expansion from 3 clinics to 60+ in two years; focusing on 300 potential locations; growth fueled by both clinic expansion (greenfield/acquisitions) and new Class 1 brace product approvals.
• New Product Launches: ELE (Electromechanical Growing Implant) awaiting IDE approval with potential first cases in early 2027; Traxio (halo-gravity traction) and TractorFix entering market to capture broader patient cycles.
• Product Strategy: New products are largely additive (blue ocean opportunities) rather than replacements, expanding total addressable market by enabling procedures previously impossible in pediatrics.

Market and Competitive Landscape:

• Competitive environment described as increasingly benign with Orthopediatrics holding a dominant position and no immediate "nipping at heels" from competitors.
• Securing single-vendor and dual-vendor contracts at existing hospitals to deepen penetration; currently present in all children's hospitals in the US and Canada.
• International markets remain under-penetrated; facing headwinds in Brazil and LATAM due to distributor stocking terms and one-time set sales, though underlying replenishment usage remains strong.
• Leveraging strong implant relationships to upsell bracing (OPSB) and new complex systems like VertiGlide into hospitals with legacy relationships with competitors like Medtronic.

Risks and Challenges:

• Seasonality: Q4 traditionally weaker than Q3 due to summer scoliosis procedures and brace fittings; Q4 revenue expected to decelerate sequentially.
• International Headwinds: Currency fluctuations, payment term changes with distributors in Brazil/LATAM, and offsetting one-time large orders impacting growth rates.
• Capital Constraints: Balancing high-margin super cycle product launches (requiring inventory investment) with the goal of generating positive FCF and avoiding excessive balance sheet risk.
• Regulatory Timelines: Dependence on timely FDA IDE and approval for new Class 2 devices (e.g., ELE) to unlock new market opportunities.

Management Commentary and Tone:

• Tone is highly confident and optimistic, emphasizing a "balanced" and "methodical" approach to growth.
• Management views the current setup as a "staging point for 2027," highlighting the transition from post-IPO investment to a dominant, cash-generating franchise.
• Reiterated that growth is sustainable due to long product life cycles and a moat of 30-year hospital relationships being challenged by superior clinical products.
• Emphasized a shift from "growth at all costs" to sustainable growth with EBITDA leverage and FCF generation.

Analyst Questions and Answers:

• Q: Mix of US vs. International growth? A: US grew faster in Q4 due to super cycle uptake, but long-term potential remains stronger internationally due to under-penetration; EMDR approvals in Europe are a key catalyst.
• Q: Impact of 3P Hip on Q3? A: Contributed a few percentage points; primary driver remains pull-through of legacy products and OPSB growth; 3P Hip expected to be a major contributor in 2027-2028.
• Q: Why limited launches for new systems? A: To manage inventory, validate utilization rates, and build a "waterfall" launch sequence to avoid over-investing in inventory before demand is proven.
• Q: How does OPSB drive implant growth? A: Bracing clinics create a feedback loop; implants (e.g., X-Fix) are immediate candidates for bracing (TractorFix), allowing the company to capture the patient earlier in the treatment cycle.
• Q: VertiGlide traction? A: Driving account penetration in top 10 hospitals by exposing surgeons to scoliosis products; seeing high repeat utilization and pull-through to Response Fusion.
• Q: ELE timeline? A: IDE approval expected imminently (early next year); first cases to follow, with full approval timeline dependent on FDA follow-up requirements.

Other Key Points:

• "Super Cycle" concept explained as a multi-year wave of new products (3P Hip, 3P Small Mini, 3P Femur, ELE) creating sequential growth waves rather than a single product peak.
• OPSB product development benefits from lower regulatory burden (Class 1) and lower development costs compared to implant systems.
• Strategic focus on "one-stop shop" capability, where hospitals are encouraged to contract for both implants and bracing to simplify their supply chain.
• Strong sponsorship of medical education (e.g., ICEOS course in San Diego) to drive surgeon adoption of new technologies like VertiGlide.