OrthoPediatrics Corp. Q2 FY2026 earnings call

• Company Overview and Strategic Position

  • Helped nearly 46,000 children in Q2 2026, a new record, bringing cumulative patient impact to 1.4 million children.
  • Confirmed the company has reached an inflection point in its financial trajectory, with strong momentum from the legacy implant business, OPSB, and its multi-year product innovation super cycle.
  • Orthopediatrics is the only provider offering comprehensive solutions for the entire pediatric scoliosis continuum of care, both in and out of the operating room.

• Product Innovation and Super Cycle Updates

  • The innovation super cycle is in early stages, with deep pipeline spanning all segments, higher ASPs, higher gross margins, lower capital requirements, and limited direct competition. Impact will build over multiple years.
  • T&D segment: 3P HIP system delivered incremental Q2 growth with strong surgeon demand, with major contribution expected as set deployment ramps; 3P Small Mini completed a small beta launch with positive early clinical feedback, full launch planned for early 2027; new PMP retrograde and PNP Skeletal Dysplasia nailing systems are in development; exclusive distribution agreement for Osseo's biointegrative metal-free fixation expands the bioabsorbable implant portfolio, complementing the 3P Small Mini launch into foot and hand surgery.
  • OPSB (Specialty Bracing): Delivered over 20% Q2 growth, driven by same-store growth, volume gains, new products, and disciplined clinic expansion. DF2 is adopted by over 150 children's hospitals and exceeding expectations; Traxio Halo Gravity Traction System extends the company's position in pediatric spine care; MACU4, modular hip brace portfolio, and TractorFix are in late-stage development/launch. The business follows a three-pillar strategy of sales force growth, product innovation, and disciplined clinic expansion.
  • Scoliosis segment: VertiGlide has 124 trained surgeons and delivered incremental Q2 growth, with contribution expected to build in H2 2026; ELLI next-generation smart lengthening implant remains on track for first human procedures in late 2026; Varaxis next-generation fusion platform is on track for first cases in early 2027.

• International Operations

  • International revenue grew 22% YoY, led by a record performance in Europe, partially offset by lower set sales timing in Brazil.
  • EU MDR approvals for the T&D, scoliosis, and external fixation portfolios have been secured, with broad market access expected to drive H2 2026 and longer-term growth; many competitors have not completed MDR approval, creating limited competition for approved products.
  • Structural improvements in Brazil (including acquisition of the main local distributor) are progressing, with a focus on improving cash collections and normalizing ordering patterns before accelerating set shipments.

• Financial Performance Highlights

  • Gross margin expanded 200 basis points to 74% YoY, driven by favorable mix shift to higher-margin product lines.
  • Adjusted EBITDA reached a record $6.8 million (nearly 10% margin), up from $4.1 million YoY.
  • Free cash flow usage fell 78% YoY to $3.1 million, an $11 million improvement driven by higher EBITDA, disciplined capital deployment, and working capital improvements.

Total Q2 2026 revenue was $70.5 million, a 15% year-over-year increase. U.S. revenue was $54.8 million (78% of total revenue), growing 15% YoY; international revenue was $15.7 million (22% of total revenue), growing 22% YoY.

• Trauma and Deformity (T&D): Global revenue of $52.6 million, 26% YoY growth, representing 74.6% of total revenue. Growth was driven by strong procedure demand, share gains, early 3P HIP contributions, and strong OPSB performance.
• Scoliosis: Global revenue of $16.9 million, a 9% YoY decline, representing 24.0% of total revenue. The decline was due to zero 7D unit sales and lower set sales in Brazil; excluding these timing factors, underlying revenue grew mid-teens YoY, with strong core implant and VertiGlide growth.
• Sports Medicine and Other: Revenue of $1.0 million, up from $0.9 million YoY, representing 1.4% of total revenue.

• Full-year 2026 revenue guidance was raised by $2 million to a range of $265 to $269 million, representing 12% to 14% full-year YoY growth, up from the prior guidance range.
• Adjusted EBITDA guidance for full-year 2026 is maintained at approximately $25 million, with the first half of 2025 delivering $9 million of the full-year target.
• Full-year set deployment guidance is maintained at approximately $10 million, with roughly $5 million deployed through the first half, and the majority of the remaining deployment expected in Q3 2026.
• Management reaffirms its expectation of positive free cash flow in the second half of 2026, resulting in full-year 2026 free cash flow breakeven or better.
• Full-year gross margin guidance is maintained at 73%, as expected 7D unit sales in H2 will create mix headwinds that offset Q2's stronger margin result.

• Revenue from large capital equipment (7D units) and international set sales to stocking distributors is timing-dependent, which can create quarterly revenue volatility and impact headline growth rates.
• Foreign exchange rate fluctuations can create material non-cash unrealized translation impacts on total other expense, as seen in Q2 2026 where Euro depreciation led to $2.9 million in other expense versus $3.6 million in other income in Q2 2025.
• New product contribution depends on successful set deployment, surgeon training, and clinical adoption, which progresses gradually and may not deliver immediate revenue or margin impacts.
• International expansion, including market stabilization in Brazil and EU MDR product rollout, is in early stages and may take longer to deliver expected growth than projected.

Q: The company raised full-year revenue guidance but only to 12-14% growth, despite strong Q2 momentum and the early super cycle. Why maintain conservative guidance, and what could drive upside? / A: Management maintains conservative guidance due to inherent seasonality and timing uncertainty for large capital equipment and international distributor set sales. While the company has strong momentum and good visibility into the summer surgery schedule, it prefers to underpromise and overdeliver, with potential for future guidance increases as H2 execution progresses. The underlying business is performing very strongly, and timing of lumpy large sales is the primary source of the conservative guidance framing. / Q: What is the expected contribution ramp of the super cycle of new products? Will contribution be gradual or accelerate sharply? / A: Super cycle products delivered early incremental growth in late Q2, but major contribution will build gradually over the next several quarters and years, rather than hitting a single sharp inflection point. These products have higher ASPs, higher margins, and faster capital returns than legacy products, so as set deployment ramps through H2 2026, they will have growing impact in 2026, with much larger contribution expected in 2027 and 2028. The super cycle includes a continuous pipeline of new product launches over multiple years, creating durable long-term growth. / Q: Could you confirm the underlying health of the scoliosis business after the Q2 9% headline decline, and what does that mean for H2 2026 and 2027 growth? / A: The underlying scoliosis business is as strong as it has ever been, with mid-teens core implant growth excluding timing-related impacts from zero 7D unit sales and lower Brazil set shipments. VertiGlide adoption is progressing well, will contribute meaningfully in H2 2026, and the entire scoliosis product portfolio (VertiGlide, ELLI, Varaxis, and bracing) positions the segment for accelerating growth over the next several years. 7D unit sales are expected to resume in H2 2026, which will restore headline growth. / Q: OPSB has delivered sustained 20%+ growth from expanding clinic networks. Is growth still balanced between new clinic expansion and same-store sales, and is 20%+ growth durable? / A: Growth is broad-based, with strong contribution from both scaling new clinics (starting from a zero base) and strong same-store sales in existing clinics. A underappreciated driver of ongoing growth is the pipeline of new high-margin OPSB products from the super cycle, led by the rapidly growing DF2, with multiple additional products following DF2's successful adoption trajectory. New product development is proceeding better than expected, creating compounding synergies with the implant and clinic network that support durable long-term growth. / Q: What is the strategic rationale for the Osseo distribution agreement, and what impact do you expect? / A: Osseo's bioabsorbable fixation technology is highly complementary to the upcoming 3P Small Mini launch into foot and hand small bone procedures, where bioabsorbable implants are particularly valuable for pediatric patients (as most implants would otherwise require removal). The agreement gives Orthopediatrics exclusive rights to the technology for children's hospitals, expanding its portfolio and strengthening negotiating leverage for single-source contracts, creating a halo benefit for the full T&D product line beyond the standalone revenue from Osseo products.