STIFEL 2026 HEALTHCARE CONFERENCE - ORTHOPEDIATRICS CORP

Explicit Guidance:

• No formal numerical guidance provided for full-year 2027 revenue or earnings; management states they will "hew to what's worked" and avoid "getting in front of ourselves."
• Q4 Revenue: Management expects approximately $69 million in Q4 revenue, representing a 5% sequential deceleration compared to Q3.
• Free Cash Flow (FCF): Committed to FCF break-even by 2026. Generated $10 million in positive FCF in Q4 of the prior year; aiming for at least $6 million in Q4 of the current year.
• Inventory Investment: Plans to deploy $10 million in inventory investment in the current year, with additional EBITDA likely to be reinvested into inventory growth during 2027 and 2028.

Business-Segment Outlook:

• OPSB (Orthotics, Prosthetics, Bracing): Growing >20% organically; viewed as the fastest-growing division with significant runway.
• Trauma & Deformity: Performing well; 3P Hip system moving from "first inning" to "third/fourth inning" by 2028, expected to be a "huge part of growth story." TractorFix moving to full market release next year; Traxio (halo-gravity traction system) launching early next year.
• Scoliosis: "Very strong" underlying growth in Europe (mid-teens growth, offset by one-time set sales in Brazil). VertiGlide (sliding rods) launched full market release in Q3; ELE (electromechanical growing implant) targeted for IDE approval "at any moment," with first cases expected in early 2027 and full launch likely in 2028.
• Geography: International business (specifically Europe) in "early innings" with rapid growth in scoliosis; Brazil and LATAM facing headwinds from pricing/stocking distributor terms and high-comparisons from one-time set sales.
• Penetration: Aspiration to help 1 million children annually (vs. ~175,000 this year); currently at 60 clinics with ~300 potential target locations globally, implying massive expansion capacity.

Market and Competitive Outlook:

• Competitive Landscape: Described as "increasingly benign" with no significant competitors "nipping at heels"; dominant market position expected to endure for "next several years."
• Pricing & Terms: Facing headwinds from stocking distributors in OUS who are demanding terms no longer offered; offsetting one-time set sales in Brazil/LATAM to focus on profitable replenishment usage.
• Product Mix: Shift toward higher ASP, higher-margin "super cycle" products (e.g., 3P Hip, VertiGlide, ELE) driving revenue; these products offer "blue ocean" opportunities rather than simple replacement of legacy items.
• Supply Chain: Managing a "waterfall" launch strategy to optimize inventory utilization rates before full market releases to ensure capital efficiency.

Macro / Industry Outlook:

• Seasonality: Q4 is historically weaker than Q2/Q3 due to school schedules (summer procedures/bracing); management expects seasonality to follow historical patterns despite OPSB growth offsetting some volatility.
• Regulatory: Expecting IDE approval for ELE "any moment"; regulatory burden for Class 1 bracing products is lower and more predictable than Class 2 implants, accelerating product development.
• Market Dynamics: Long product life cycles (15+ years) allow sustained revenue growth without perpetual re-engineering; industry trend toward "one-stop shop" single/dual vendor contracts increasing leverage for the company.

Strategic Initiatives:

• Product Launches: Full market release of VertiGlide (Q3); 3P Hip ramp-up in Q4 and 2027; Traxio and TractorFix full releases next year; 3P Femur and new systems in late 2027/2028.
• Clinic Expansion: Expanding OPSB clinics via "Greenfield" builds or "Acqui-hires" (e.g., Screenfield, Aquahire); focus on metros with multiple children's hospitals.
• Cash Deployment: Deliberate reinvestment of EBITDA into inventory growth in 2027–2028 rather than maximizing FCF; avoiding "growth at all costs" in favor of sustainable leverage.
• Acquisitions: Willingness to acquire clinics to bypass insurance approval delays and accelerate market entry.

Risks and Headwinds to Outlook:

• International Headwinds: Pricing pressure and stocking distributor terms in Brazil and LATAM; one-time sales compounding effects from previous set sales.
• Seasonality: Q4 revenue dip is expected due to school year dynamics, though OPSB growth provides partial offset.
• Regulatory Timing: Final approval timeline for ELE remains uncertain pending FDA follow-up duration requirements after initial cases.
• Competitive Risk: Low risk identified, though legacy competitors in scoliosis (e.g., Medtronic) have entrenched 10–30-year hospital relationships.

Management Tone on the Future:

• Confidence: High confidence in long-term runway ("early growth phases" despite 9 years public); describes current setup as "fantastic" and "methodical."
• Strategy: Shifted from pure top-line growth to a balanced approach prioritizing EBITDA leverage, positive FCF, and rational capital deployment.
• Outlook: Management views the business as entering a "waterfall" phase where multiple product cycles (3P Hip, Small Mini, 3P Themer, ELE) will drive sustained growth through 2027–2028.

Miscellaneous:

• Q3 Performance: 19% organic growth, record EBITDA, and balanced performance across all business lines (Trauma, Deformity, Scoliosis, OPSB).
• Legacy Products: Continuing strong pull-through from legacy items (e.g., Response Fusion) driven by "super cycle" products like VertiGlide.
• Operational Focus: Limiting set sales in Latin America to prioritize AR balance and FCF generation over top-line volume.