OrthoPediatrics outlines path to 12% baseline growth and free cash flow breakeven by 2026 amid clinic expansion and strong T&D momentum

Earnings Call Insights: OrthoPediatrics Corp. (KIDS) Q3 2025

MANAGEMENT VIEW

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David Bailey, President and CEO, reported that "in the third quarter, we supported the treatment of more than 37,100 children, increasing our total impact to approximately 1.3 million kids' health." He highlighted strength across all core business areas, excluding 7D capital sales and Latin American (LatAm) stocking and set sales, with global revenue growth excluding 7D capital sales of 17% and domestic revenue growth of 19%. OPSB (Orthotic and Prosthetic Specialty Bracing) growth continued robustly, exceeding 20%.

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Bailey indicated two isolated factors impacted revenue: "7D capital sales that were expected in the quarter did not close prior to the quarter end; and headwinds from stocking and set sales in Latin and South America have continued longer than expected." He noted these are lower-margin segments, and profitability and gross margins remained in line with expectations.

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Bailey stated that "adjusted EBITDA" improved by 56% to $6.2 million, and there was a significant reduction in free cash flow usage, which decreased $8.2 million year-over-year.

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Bailey announced, "for the full year, we now expect revenue to range from $233.5 million to $234.5 million," with adjusted EBITDA expected to be $15 million to $17 million and a forecast for positive free cash flow in Q4, maintaining the company's profitability outlook despite revised top-line expectations.

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Bailey highlighted continued market share gains in Trauma & Deformity (T&D), particularly with rapid adoption of products like PNP Femur, PNP Tibia, ORTHEX, and Bioretec ActivaScrew. The 3P Pediatric Plating Platform Hip system and 3P Small and Mini received FDA approval, with a full launch expected in 2026.

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The OPSB segment saw expansion to more than 40 clinics, including entry into New York City, California, and internationally into Ireland. Bailey said, "Our preliminary expectations for new clinic return on investments of 25% for new clinic acquisitions and 40% for new greenfield clinics are being realized."

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CFO Fred Hite stated, "Our third quarter of 2025 worldwide revenue of $61.2 million increased 12% compared to the third quarter of 2024." Hite noted gross profit margin was 74%, operating expenses increased by $9.0 million, and adjusted EBITDA reached $6.2 million. He reported free cash flow usage at $3.4 million for the quarter, a significant improvement from the prior year.

OUTLOOK

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OrthoPediatrics projects full-year 2025 revenue to be between $233.5 million and $234.5 million and adjusted EBITDA of $15 million to $17 million. The company reiterated guidance for a full-year gross margin of 72% to 73% and expects to deploy $15 million in new sets for 2025.

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Management maintains the goal of achieving positive free cash flow in Q4 2025 and break-even in 2026, despite reducing revenue guidance from the prior quarter’s range.

FINANCIAL RESULTS

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Third quarter worldwide revenue was $61.2 million, with U.S. revenue at $48.7 million and international revenue at $12.5 million. T&D global revenue increased 17% to $44.1 million, while Scoliosis global revenue rose 4% to $16.3 million. Sports Medicine/Other revenue was $0.8 million.

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Gross profit margin reached 74%. Operating expenses rose to $54.7 million, driven by $2.3 million in restructuring charges and $2.3 million in impairment charges, as well as ongoing OPSB clinic growth. Non-GAAP net loss per share was $0.24, and adjusted EBITDA improved to $6.2 million.

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Free cash flow usage was $3.4 million, down from $11.7 million the prior year, and set deployment was $4.1 million. The company ended the quarter with $59.8 million in cash, short-term investments, and restricted cash.

Q&A

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David Turkaly, Citizens JMP Securities: Asked about competitor exits and potential for accelerated clinic expansion. Bailey responded, "We see some of the big OEMs...pulling products that historically have been used in pediatric patient population...certainly good for us from a competitive standpoint," and affirmed high demand for clinics, noting expansion could accelerate if opportunities arise.

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Benjamin Haynor, Lake Street Capital: Inquired about OPSB return metrics and revenue/EBITDA range drivers. Hite clarified, "No, it does not" include halo effects in return calculations, and the EBITDA range is primarily driven by product mix.

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Izzy (BTIG): Asked about confidence in a 12% baseline growth rate. Bailey explained that stripping out uncertainties from LatAm and 7D gives confidence in "a 12% kind of baseline...a good one for us," and emphasized the potential for acceleration as OPSB clinics and R&D efforts expand.

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Anna (Piper Sandler): Sought clarity on T&D growth runway and 7D impact on core spine business. Bailey described significant growth opportunities remain, with flexibility in set deployment affecting growth rates. Delays in 7D placements are considered a timing issue, unlikely to impact long-term implant business growth.

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Joseph (Needham & Company): Asked about EU MDR approvals and staffing reductions. Bailey confirmed upcoming approvals will complete the Fusion platform for Europe. Staffing reductions followed facility closures and efficiency improvements.

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Ravi Misra, Truist Securities: Questioned 3P platform leverage and LatAm strategy. Hite indicated the 3P platform is designed for asset leverage, improving gross margin and cash returns. Strategy in LatAm will prioritize profitable, cash-generative revenue over volume.

SENTIMENT ANALYSIS

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Analysts expressed a neutral to slightly positive tone, probing about growth sustainability, competitive positioning, and the pace of clinic expansion. Several questions focused on the durability of profitability improvements and international risk mitigation.

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Management maintained a confident and measured tone in prepared remarks, with Bailey stating, “We are confident in our forecast of generating positive free cash flow in Q4 and breakeven in 2026.” In Q&A, responses were detailed, occasionally emphasizing caution, particularly regarding LatAm and 7D timing, but overall conveyed steady confidence.

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Compared to the previous quarter, both management and analyst sentiment shifted slightly more cautious due to revised revenue guidance and persistent LatAm headwinds, though confidence in core business and profitability remained strong.

QUARTER-OVER-QUARTER COMPARISON

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The current quarter saw a downward revision in full-year revenue guidance to $233.5-$234.5 million from the previous quarter’s $237-$242 million, reflecting delays in 7D sales and ongoing LatAm challenges.

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Adjusted EBITDA guidance and margin expectations remained unchanged, while management continued to target positive free cash flow in Q4 and break-even for 2026.

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Analyst focus shifted more toward the sustainability of clinic growth, profitability improvements, and international revenue volatility, while management emphasized operational execution, cost controls, and competitive positioning.

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Compared to Q2, management’s tone remained confident but acknowledged specific headwinds. Analysts displayed slightly more caution, probing for greater color on risk mitigation and growth durability.

RISKS AND CONCERNS

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Management cited delays in 7D capital sales and prolonged LatAm stocking/set sales headwinds as primary challenges. Bailey noted, “we experienced continued disruption in sales, largely related to timing of large stocking and set orders.”

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To mitigate LatAm volatility, Bailey and Hite plan to explore new structures with stocking distributors and highlighted the growing contribution from EMEA and APAC agencies as a buffer.

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Analysts raised concerns about international revenue volatility, competitive exits affecting market share dynamics, and the timing of new product launches and approvals.

FINAL TAKEAWAY

OrthoPediatrics delivered strong core business growth, improved profitability, and significant cash flow gains in Q3 2025, despite isolated headwinds in 7D and LatAm segments. Management reiterated guidance for positive free cash flow in Q4 and break-even in 2026, backed by robust clinic expansion, continued innovation, and asset leverage strategies. The company’s strategic focus on high-margin core segments, operational execution, and risk mitigation positions it well for sustained growth and market leadership in pediatric orthopedics.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/kids/earnings/transcripts]

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* OrthoPediatrics Corp. (KIDS) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4834393-orthopediatrics-corp-kids-q3-2025-earnings-call-transcript]
* OrthoPediatrics Corp. (KIDS) Q3 2025 Sales Call Transcript [https://seekingalpha.com/article/4828993-orthopediatrics-corp-kids-q3-2025-sales-call-transcript]
* OrthoPediatrics Corp. (KIDS) Q2 2025 Earnings Call Transcript [https://seekingalpha.com/article/4809264-orthopediatrics-corp-kids-q2-2025-earnings-call-transcript]
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* OrthoPediatrics raises 2025 revenue outlook to $237M-$242M amid accelerated OPSB clinic expansion and strong Scoliosis growth [https://seekingalpha.com/news/4479430-orthopediatrics-raises-2025-revenue-outlook-to-237m-242m-amid-accelerated-opsb-clinic]