Orthopediatrics at Needham Conference: Growth and Innovation in Focus

On Tuesday, 08 April 2025, Orthopediatrics (NASDAQ: KIDS) presented at the 24th Annual Needham Virtual Healthcare Conference. The company outlined a robust growth strategy for 2025, driven by product innovation and market expansion. While the company anticipates strong revenue growth, it also faces challenges such as maintaining high gross margins amid expanding operations.

Key Takeaways

• Orthopediatrics is forecasting 15-18% revenue growth in 2025, with projections between $235 million and $242 million.
• The Orthopedic Specialty Bracing (OPSB) business is a major growth driver, targeting a $500 million total addressable market in the US.
• New product launches, including the DF2 fracture brace and Vertiglyde for scoliosis, are expected to boost market share.
• The company anticipates gross margins of 72-73% over the next three years.
• Enabling technologies like the Playbook digital tool and 7D systems are contributing to growth.

Financial Results

• Revenue guidance for 2025 is set at $235 to $242 million, representing a 15-18% increase.
• Organic growth in the previous year was around 21%.
• Gross margins are expected to remain steady at 72-73% through 2024, despite one-off factors impacting Q4 margins.

Operational Updates

• The OPSB business, enhanced by the acquisition of Boston OMP, is expanding, with plans to add four new territories and increase clinic locations beyond the current 34.
• The DF2 fracture brace is quickly replacing traditional Spica casts, and the PMP Tibia system launch is 40% complete.
• Vertiglyde, a scoliosis product, recently received FDA approval, marking a significant milestone.

Future Outlook

• Orthopediatrics aims to broaden its OPSB clinic network and product offerings, aspiring to become the preferred partner for pediatric bracing innovations.
• A series of 3P product launches is planned over the next five years, with the 3P hip system expected in the summer/early fall.
• The Playbook digital tool is in beta testing and projected to generate revenue by 2026-2027.

Q&A Highlights

• February's respiratory infection season was less severe than two years ago, with hospitals better prepared.
• The pediatric bracing market is fragmented, with numerous independent clinics.
• With 95% of products manufactured in the US, the company is largely shielded from tariff impacts.

Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - 24th Annual Needham Virtual Healthcare Conference:

Mike Matson, Analyst, Needham: Good morning. Thanks for joining us again at the twenty fourth Annual Needham Healthcare Conference. I'm Mike Matson, and I lead the med tech and diagnostics equity research team at Needham. Please introduce worth of pediatrics. With me today, I have president and CEO, David Bailey, and CFO and COO, Fred Hite.

Instead of a standard presentation, we're gonna do a q and a session or fireside chat. If you do have any questions you'd like to ask, you can submit them electronically through the Needham conference website, or you can email them to me at mmadson@Needhamco.com, and I'll do my best to fit them in. So David and Fred, thanks for joining us. I'm gonna go straight into the questions here. So I guess I'd like to start out, you know, just asking about, you know, kind of every year we have the the respiratory infection season and, you know, things with, flu, RSV, COVID.

Seemed like, you know, the the flu was particularly bad this year, particularly among children. So I just wanted to ask what, you know, what you saw in the first quarter. You know, was it kind of better or worse than you had expected kind of heading in?

Fred Hite, CFO and COO, Worth of pediatrics: Yeah. First of all, Mike, thanks for having us. Appreciate the opportunity to present and participate in the Needham conference. RSV and flu, as you know, typically spikes in the December, January, February time frame. This year, February, was a little higher than it was last year, but not nearly as high as it was two years ago.

And so, I think the thing for us that we really noticed is that the pediatric hospitals were caught off guard, about three years ago with this when it first spiked, but they've really been, able to deal with, any increases much, much better as we've gone, through the last couple of years. So, yes, February was higher than it was last year, but the hospital seemed to have been able to deal with it better than they have historically. And so I think less and less of an impact on our business as it continues to move forward.

Mike Matson, Analyst, Needham: Okay. Got it. And then, you know, just wanna ask one on on the guidance before we move on. You know, I'm not looking for you to reiterate or anything here, but just, you know, you're guiding to 235 to 242,000,000, which is implies 15 to 18% growth for this year. By our math, I mean, you guys don't really give us organic growth, but we're kind of ballparking organic growth last year around 21%.

So that's, you know, decent slowdown from what you did last year. You know, just wondering if there's any reason to expect a slowdown, or is it just, you know, sort of you're being conservative in terms of the guidance you're setting out there heading into the year?

Fred Hite, CFO and COO, Worth of pediatrics: Yeah. I would say, pretty consistent with how we operate historically. So number one, it's still very early in the year. And so, you know, we wanna set expectations that are very, very achievable to take into consideration any variables, in the marketplace. But, you know, we see three main factors that are really driving the outperformance of that type of guidance that we've delivered.

Number one is execution and scaling of the OPSB business, which I'm sure we'll talk about, continuing to take share across the business and leveraging our prior set deployments that we've put out there over the last several years, and then really the ongoing success of our innovative product launches, both historically in the past couple of years, but more importantly, probably is the recent launches that are gonna take place here in 2025. So we feel very good about where the business is, where we stand within the guidance that we've provided, and and look forward to continuing to execute very strong growth across all business segments segments here in 2025.

Mike Matson, Analyst, Needham: Okay. Got it. And, yes, I I do wanna ask some on OPSB. So I guess starting with your acquisition of Boston OMP, it's been over a year now. Maybe you could just start out from a high level, give us an overview of OPSB and kind of how Boston OMP fits in

David Bailey, President and CEO, Worth of pediatrics: with that strategy. Yeah. Good question, Mike. So, yeah, you're right. It's been just a little over a year now since the acquisition of Boston OMP.

And I think when you think about Boston OMP and then the acquisition of, MD Orthopedics a few years ago, those two acquisitions combined with product development, with products like DF2, have really put us on the mat in on the specialty bracing business. I'm really pleased to see how just in a few years we've built a a big opportunity, a nice sized business on the specialty bracing side, that I think is gonna be able to produce outsized growth, in a pretty big TAM over the course of the next several years. You know, we talk about our customer base and about 80% of the time our customers, spend is outside of the operating room, taking care of kids, from a bracing perspective. And we think that's a little different than the adult landscape where orthopedic surgeons on the adult side are primarily focused on surgery. Whereas I think our customer base is really trying to avoid surgery.

And so I think our thesis on partnering with pediatric orthopedic surgeons before care, or before surgery, and then ultimately if it requires surgery, being there in the Operating Room with them, to provide the products they would use there. And then ultimately when the kid comes out of the Operating Room having bracing products that support their recovery, I think that strategy, that thesis is playing out very well now that we're a part of the specialty bracing business. And I think just anecdotally, the feedback from our customers related to the Boston acquisition and our incursion kind of into the pediatric specialty bracing space, it has been as positive, if not more positive, than anything we've done over the course of the eighteen years at our company.

Mike Matson, Analyst, Needham: Okay, great. And then just the OPSB products that you're currently offering, know, was wondering how many of those are I know a lot of them are custom, but maybe you can talk about kind of the mix between, you know, a truly custom fitted kind of brace versus something that's more off the shelf that, you know, maybe supposed to be adjusted or something. But yeah. Yeah. So the you're right.

The majority of what

David Bailey, President and CEO, Worth of pediatrics: we do is is custom. Obviously produces a higher ASP, a higher price point, and that gets customized either at the Boston facility or in one of our 34 clinic locations. And, and so I don't know the exact percentage, but you're accurate in saying the majority there is custom. Even devices that are a bit off the shelf, so the MDO Clubfoot products, you know obviously we manufacture and sell to our own clinics as well as sell around the world and sell to clinics that we don't own, there still does involve some customization sometimes with the patient to ensure that the product, fits appropriately. And then obviously, Mike, you can imagine, you know, these patients, these kids are getting their first brace while they're very, very young and oftentimes throughout their childhood they're having multiple custom braces made or multiple fittings of those braces as they grow and additional braces as they grow.

And so the whole process is, fairly customized. That's why it, drives, you know, pretty substantial reimbursements for us, pretty strong price points, particularly when we own the manufacturing revenue side and the manufacturing margin side, as well as in our clinics where we're doing the customization and ultimately the application of those devices.

Mike Matson, Analyst, Needham: Okay. And then can you just remind us of the targets that you set for opening the new OPSB markets and kind of what what you're targeting in terms of the number of clinics per market and whether you know I know you laid some of these targets out at the Investor Day last year to what degree you're still on track to hit those numbers?

David Bailey, President and CEO, Worth of pediatrics: Yeah, Yeah. So we see at the high level within The US at least a $500,000,000 TAM within children's hospitals broadly. And I think that's probably a low number, frankly. I mean, the more and more we get involved, the more we see kind of endless opportunities here for expansion. Whether that's, you know, motion preservation devices, motion assist devices, you saw us move, us, partner with the company MoveD for that product.

So these are, you know, there's big TAM expansion opportunities even within that 500,000,000. And you could assume that over the very long term, Mike, our aspiration would be to be very similar to what we do on the implant side, and that we cover every children's hospital. Every children's hospital in North America is a customer of OP. And so again, not overnight, but certainly over the course of history here, would expect to be serving every children's hospital, with the specialty bracing, product and hopefully a clinic or multiple clinics in every jurisdiction where we sell implants. I think over the time horizon that we talked about at the Analyst Day, we talked about adding four clinics or four clinics, four territories this year.

And, I think we're already on our way there in terms of having three of those territories that started. And so you could assume we're on our way to having a successful year in 2025, accomplishing four. Three year time horizon, we've said we want to have 27 territories of the 80 that we define. And I think it's pretty safe to say that we, we have plenty of opportunity here. It's not an exaggeration to say we're bombarded at this stage with opportunities for clinics.

It's more about how do we do this in a financially rational way that preserves capital, but we don't get too far ahead of ourselves. Again, we think we have this flywheel that's moving. It's small right now, moving very, very fast, but as we get momentum here, things get a bit easier and and and we see that certainly playing out over the course of the next several years.

Mike Matson, Analyst, Needham: Okay. Thanks. And then, you know, one question I've gotten from investors about this part of your company is just the competitive landscape. So I think it's sort of more fragmented and a lot of kind of mom and pops running the clinics and then but also just, you know, maybe talk about that and then from a clinic perspective, but as well from a, you know, kind of a bracing manufacturing perspective, you know, how many companies out there are, you know, making some of these braces if it's, you know, something that's not, you know, completely custom made within the clinic itself? Yeah.

David Bailey, President and CEO, Worth of pediatrics: This is wildly fragmented. I mean, I I it would be hard to claim who the specific market leader is in the space. And if there is a market leader that's so fragmented, they they probably don't know they're the market leader, because there's just you know, these patients are going to a lot of different clinics that are not focused exclusively in pediatrics. There are some clinics that have a high focus on peds. They're generally, as you suggest, kind of a mom and pop or a one or two person clinic.

And those are the kinds of clinics that we're keenly interested in in terms of our AQUAhire strategy. Gets us a footprint for expansion in new jurisdictions that, it just accelerates things. But I think that the majority of these patients outside of Boston and outside of Philadelphia and places where we have a strong presence, get a script for a brace. Oftentimes our customers say they don't really know where that patient goes. They're going to a person that, spends the majority of their time fitting adult braces and not necessarily super familiar with the pathologies that the pediatric orthopedic surgeon is trying to treat.

And so I think that, you know, there's that's a company focused exclusively there just like we do on the implant side. You can see the competitive advantage and why our customer would be really interested in us continuing. I think on the actual product side, you know, a lot of local made products, kind of a lot of one off product. Obviously, we see opportunities, and you've seen us on the distribution side come up with distribution opportunities with, Aura Medical for example or the acquisition of Rhino for their hip bracing products. Mean small similarly like mom and pop types of shops that are supplying clinics around The United States some cases around the world.

And so we see opportunity with those types of products as well as our own R and D initiatives to, to scale this globally. And as we get more clinics, get more powerful in that circumstance. And you know, we would aspire that if you ultimately want to bring a great product to market for, you know, pediatric bracing, that we would be the place that inventors and small companies would want to go, particularly when eventually we'll own the majority of the clinics and be powerful in each jurisdiction where there's a children's hospital.

Mike Matson, Analyst, Needham: Okay, that's helpful. And then, know, just how are you so as you plan to, you know, these the markets and the territories, how are you determining kinda where to go first? Maybe just talk about that. And then, you know, how many clinics per per market are you typically planning? Yeah.

David Bailey, President and CEO, Worth of pediatrics: So I think the first part of our strategy here was to scale the volume in some of the existing clinics, Right? And so Boston started when we made the acquisition. There was 26 clinics. I think now we're up to 34. And, one of the things that we focused on that really costs no money is to ultimately use our selling organization to ensure that there's just awareness that in areas outside of the immediate Boston or Philadelphia area, do have clinics, and to make sure that those clinicians are well partnered with the children's hospitals.

And so we've seen success there. Then obviously next phase of expansion from a clinic's perspectives are more jurisdictions where there was a fairly easy to enter. So we had had a clinic in Ohio, for example, so we were licensed and had reimbursements in Ohio, so that's why you saw us step into our first real big expansion at Nationwide Children's, one of the highest volume children's hospitals in The United States, and we're positioned inside the hospital. Then Ohio has a reciprocity with the state of Indiana, and so now we have opened up our Riley Children's Hospital, our Indianapolis facility in the North Part of Riley. And so some of it is ease of entry, and ultimately, we have really strong demand.

We're getting hit up from surgeons to, hey, can you put a clinic here? Can you put a clinic here? And while that's great, we are trying to determine how easy it is to enter the market, what do the reimbursements in those marketplaces look like, and frankly, can we get space inside the Children's Hospital versus having to create a number of facilities in the satellite locations. But I think to answer your second question about the number of locations, I think we expect that's probably one to four in each one of the children's hospital locations. Certainly that depends on, the number of just the population and the population density.

In Boston, I think we have six clinics, and Boston is a tough town to navigate with just a few clinics. And so we make it easy for patients and our physicians to get to a clinic. But in Indianapolis, it's unlikely that we would need six locations. There's a few major children's hospitals, our one or two clinics will be centrally located. Same thing with Nationwide Children's.

I mean, we're in Nationwide, and that's where the majority of the patients are seen, and so it doesn't require as many clinics.

Mike Matson, Analyst, Needham: Okay. Got it. And then, you know, one of one of the bracing products I think has done really well is this DF2 brace. So you maybe just talk about, applications there where it's used and, you know, why it's been so successful?

David Bailey, President and CEO, Worth of pediatrics: Yeah. So the DF2 brace is, first indicated for for fracture fixation or fracture management of, patients with patients under the age of eight. And that has historically been done, nonsurgically with a device called a SpicaCast. So I'm sure, you know, people on this call probably have nightmares about that happening to them or their own kids, but this is essentially a nipple line body cast that goes down over your leg that holds traction on the leg. Becomes very difficult for patients and families to move a kid who's in a cast like that for four to eight weeks.

And so the DF2 is actually a fractured brace where you can put this device on, and frankly, you can put it on in clinic, not even having to take the kid to the operating room. But, light sedation could be put on clinic, could be put on in the emergency room, or patient taken to the OR. But it eliminates the need, to take a kid and put them under anesthesia and have essentially a non operative procedure that requires anesthesia done on a patient. And then it's much easier to remove the device when you need to bathe or, you know, mom and dad need to transport, the child. So it is quickly replacing spiky cast, faster, I think, than we had, estimated, and that's that's good.

We also then got expanded indications from the FDA FDA more recently for postoperative management. So oftentimes when we do hip osteotomies or certain deformity correction procedures, our surgeons postoperatively, put on a SpicaCast, to immobilize a child for a particular period of time and let the surgical site heal and the bone heal. And so, we're starting to see applications for the device in post operative management, which we think frankly could be even a larger indication than we originally set out for.

Mike Matson, Analyst, Needham: Okay. And then, you know, finally, I just want to ask about the, you know, I think part of the appeal of OPSB is the financial profile of the business. You know, I think it's, you know, the margins are good, but they it's much less capital intensive than the implant side of things. So I don't know if you can maybe elaborate on that, Fred or David.

Fred Hite, CFO and COO, Worth of pediatrics: Yeah. Absolutely. I I think it's important to understand this is almost a combination of two businesses. So we get the manufacturing margin when we're making these custom braces, and then we also get the retail and the service revenue and margin when we're applying the braces. And so overall, the OPSB business has slightly lower gen gross margins than our overall business, but higher contribution margins than our overall business because there's a very low sales and marketing component of this business, which is really attractive to us.

To your point, it also does not require consigned implant sets into the hospitals. So there is really no consigned inventory at all in this business, and so the ROI on it is very, very attractive. So we'll continue to make investments in this April in this area, but it does enable us to increase, an EBITDA for the business and to increase the cash flow of the overall business as well, which is very attractive to us right now.

Mike Matson, Analyst, Needham: Okay. Great. So I wanted to touch briefly on your enabling technologies business. I think investors are probably familiar with kind of 7D and Firefly at this point, but there were a couple of newer things that were talked about at the Investor Day last fall. So that's Playbook and this cochlear implant robotic system.

So maybe just give us an update on kind of those two things and you know I'm not sure that either has been launched yet, but when do you expect to launch them and you know how can that kind of impact the business either from a revenue perspective or margin perspective? Yeah.

David Bailey, President and CEO, Worth of pediatrics: So definitely, what Firefly 7D both doing really well. And the enabling technology team, we got a small sales team now, three people that are helping with the 7D side in particular. I think that's why we are starting to see more and more, deployments of 7D and why you're seeing some of the increasing growth on the fusion side of our scoliosis business. So I think enabling technology as a whole really doing a nice job of driving some of the capital sale side of our business, an area that we didn't have experience in otherwise. I think the next step here is some of our own kinda homegrown products here in terms of, getting Playbook available.

So we launched Playbook, which is really a digital, workflow management tool, data collection tool intraoperatively for surgeons. It has a preoperative component that ultimately a surgeon can take that preoperative planning component and bring it with them intraoperatively and manage workflows for all of the surgical procedures, not just ortho, but all procedures done in children's hospital and then gives hospital leadership analytical data to support how long these procedures take, what types of steps that we can use to drive efficiency. And this is something that we see pretty commonly used in the adult side of orthopedics, but has really never been launched on the pediatric side. And so we have things that long term there's really great opportunity for the Playbook technology. We launched it to the Salesforce really in a kind of a beta form here, at our sales meeting in February, and we are now starting to work towards implementations of this, in a few beta sites, in The US.

You can imagine, again, this is not a big revenue driver for us in 2025, but when we start to get to 2026, '20 '20 '7, again, capital friendly, super high margin opportunity, and very sticky, right? It's very, very sticky. And again, you see the trend here. We're surrounding the surgeons, surrounding the children's hospital with bracing and digital tools and implants, because we aspire obviously to be quite sticky. On the Iota Motion side, you're right, it isn't fully launched.

And so this is a partnership that we have with company Iota Motion. It's a robot that actually places the lead for cochlear implant. So we're not in the cochlear implant business, but certainly, these are procedures that are done in adjacent ORs in the children's hospital where our reps are. And so their current situation with Iota is they're pending or waiting for the pediatric indications for the robot. So they have indications down to 12 and are seeking indications down to six months.

And so we haven't really fully launched Iota, but when we do we think this is a really great opportunity both on the capital equipment sales side as well as there's a disposable. And, again, there's no inventory, so it's a very cash friendly business for us as well.

Mike Matson, Analyst, Needham: Okay. Got it. And Playbook, just to be clear, so is there a fee to your customers to use that?

David Bailey, President and CEO, Worth of pediatrics: There is. Yeah. So it's both a small capital, upfront capital, although this isn't a large machine, but it is a small machine that ultimately goes into the operating room. And then it's a web based, application, that anybody within the Playbook ecosystem could could access and then ultimately would be sold as a, you know, software as a service model going forward.

Mike Matson, Analyst, Needham: Okay. Got it. Alright. So I wanna move on to the to the implants part of the business. So you're starting with teeth trauma and deformity.

Maybe you could talk about the P3 plating system. I think this is a pretty big platform that's going to kind of be a multi year launch. So maybe just provide an overview. You know, is it replacing I assume it's replacing an older plating system that you had. And then you just kinda the the talk about, like, the the different components and when you plan to launch them.

David Bailey, President and CEO, Worth of pediatrics: Yep. So three p, I think, is probably the biggest product endeavor that we've taken on on the trauma limb deformity side in our company history. So, yeah, it is a, I would say, a big deal. We currently have the first iteration of the product, the hip system, in front of FDA and are expecting FDA approval kind of imminently. And then we would expect to launch in a bit of a beta form, you know, not blowing it out in terms of total sets in this first year, but we're hoping to launch that here summer or early fall, being able to get some procedures and get some feedback.

And you're right, Mike, it is really a succession of launches that we expect will take probably over the next five years. So we'll start with the 3P hip, then we'll move to the small frag, mini frag, and then really taking different kinds of anatomical portions of the body like the knee and like the tibia, ankle, upper extremity, and just continue to work through that. It does in part replace our PD frag system. PD frag system has kind of been our bread and butter playing system, but I would say, there's a number of indications that PD frag doesn't accurately treat. And so surgeons are required to who want to use PD frag are required to keep around maybe some Synthes product or some methanephi product or some competitive product.

And the idea here would be ultimately to have the kind of landmark pediatric specific plating system that covered all of the, you know, both commoditized types of indications as well as the very, very specialized indications and have a system that is extremely modern. So we are extremely excited. It's a big growth driver for us over the course of the next five years.

Mike Matson, Analyst, Needham: Okay. Got it. Any other products, new product launches in trauma deformity that you'd like to highlight?

David Bailey, President and CEO, Worth of pediatrics: Yeah. I think it's just important to note that on the PMP tibia side, I know we've talked about that now for over a year, but we're we're probably 40% through the launch. So it has become a big product for us. But the majority of the trauma deformity sets that are going out this year are focused on that product system. And so, it's extremely well received.

We like everything about what PMP Tibia is doing, and it's still kind of the highlight in terms of the launching of new products that are going to drive our growth for 2025. DF2, as you talked about, that falls within that T and D category. So those two are big product drivers that are, you know, starting to scale a little bit, will have an impact in this year and probably for the next several years.

Mike Matson, Analyst, Needham: Okay. Got it. And then just moving on to the to the spine side or scoliosis part of the business. So, you know, you've had response the response system for a while. It's done well.

Maybe you can give us an update there. And then I think you've got a next generation fusion platform coming. So maybe just talk about, you know, what sort of improvements that's going

David Bailey, President and CEO, Worth of pediatrics: to offer over response. Yeah. So this is kind of an odd one. I mean, we're moving from good to good here with this product launch because, I mean, our response system is growing extremely rapidly. I think part of that is because of the increasing adoption of Apapix, which is exposing more pediatric spine surgeons to our product line, as well as the adoption of 7D on these contracts, which is going extremely well.

And so we're seeing response you know, do really well. But this is, I think, it's eleventh scoliosis season that we're adding into. And so, you know, in The US, there's an opportunity, I guess, to modernize some of the instrumentation. And so, we're working on NextGen. It's probably a year or so out.

And, we think that NextGen will be, we think, gonna be the premier system in pediatric spine surgery. I mean, it's developed exclusively with pediatric orthopedic surgeons. I think we're going have very unique rod reduction instrumentation and derotation instrumentation, and the opportunity for surgeons to customize what they need in the Operating Room such that they drive efficiency. There's right now a response. There's a lot of inventory.

Fred knows that all too well when we have to order those sets. And, we like to bring only what is required by a specific surgeon. So the customization effort here to make this maybe from nine sets in the Operating Room to three or four sets in the Operating Room has a pretty big impact on physician, hospital, and efficiencies. And particularly when you partner this with Playbook, for example, and preoperative planning tools that essentially tell the surgeon what implants they're going to need or the surgeon knows what implants they're going to need before they walk into the OR, the opportunity to streamline with very elegant instrumentation and implants, is something that we struggle with with response that I think is definitely going to happen with the next gen system.

Mike Matson, Analyst, Needham: Okay. All right. And then you did just mention Apafix. So I want to ask for an update there. I think it's maybe been a little slower than investors were hoping over the last few years, but, you know, it sounds like it's kind of continues to chug along and build momentum.

So maybe just give us your latest view of the product and how it's doing.

David Bailey, President and CEO, Worth of pediatrics: Yeah. So Apapix, I think what we've seen with Apapix, obviously, you acquire Apapix in the middle of a global pandemic was not, didn't help us in terms of getting our first few hundred surgeries in the registry and get moving. But now that we've done that and we're starting to see, you know, one year, two year, and now even three year results, I think that it is giving surgeons confidence that they can tell a patient what they could expect from the Apafix experience. And in certain patients, you can expect that young patients who are flexible, you may need two Apafix cases because you're gonna grow off the device. It's gonna get you're gonna grow tall and it grows long, and sooner or later you have to put a new one in to allow that growth.

That's a win. But before, surgeons really struggle with being able to tell patients what exactly to expect. And so I think what we're seeing is that we've got enough data that surgeons are able to determine for themselves what patient population makes the most sense in their practices. And we're moving from maybe a thought that some surgeons are going to be wildly high volume to surgeons, basically every pediatric orthopedic surgeon having Apafix as a tool in their toolkit. And so we're seeing, I mean, quarter to quarter to quarter, new customers on online, new customers, using Apafix for the first time.

And I think we're able to give them much, much more clear data as to what to expect from the patient experience and the surgical experience with ApoVix. And that's why it's driving growth. And I think that growth is ultimately driving, you know, this scoliosis fusion the scoliosis business as a whole because ApoFix growth is outpacing some of the growth that we see from other drugs.

Mike Matson, Analyst, Needham: Yeah. Okay. And then, you know, one final thing I wanted to touch on in the scoliosis business is the EOS or early onset scoliosis products that you're developing. I think you have kind of three different things here, Vertigo Eye, Elli, and the Ribbon Pelvic System. I know you probably spent the whole forty minutes we have just talking about these things, but just can you give us a quick overview of the three products and kind of the timing on them and the market opportunity?

David Bailey, President and CEO, Worth of pediatrics: Yeah. So early onset scoliosis is a segment of pediatric spine surgery. Very complicated. These are very, very complicated patients, that require care. It generally requires care because their scoliosis is so severe and it's so early in their life that it's compromising their cardiothoracic output.

So their heart and lung aren't able to produce, the way that they would normally and then ultimately develop normally. And so this is an area that our surgeons really struggle with. There's very, very limited solutions here. A lot of things have been tried. We launched the Response Ribbon Pelvic System, which is, as you can imagine, attaches to the pelvis and the ribs and allows for chest wall expansion.

That product has launched and is still launching this year. Really good, responses from customers. And again, opening us up to doing procedures with surgeons that we haven't done procedures with historically on the scoliosis side. Hot off the presses today, sorry to catch you off guard, Mike, but we just, launched a press release this morning that we did in fact receive, FDA approval for Vertiglyde here, very recently. And so we, we expected Vertiglyde was gonna take some time, with the FDA.

And fortunately, after a number of debates with the FDA, it seems like we've come out with a win here. And so, maybe a bit of a tailwind for us in the second half of the year to start doing Vertaglyde cases. But Vertaglyde is a technology we licensed from Medtronic, several years ago, and it is another way that from a posterior perspective, surgeons can allow the patient's growth to direct the early onset scoliosis procedure and ultimately open up the chest wall as well. And then the last product, is called Elly, and that's the device that we have breakthrough device designation from the FDA. It's still probably a year or more out in terms of, getting it through the agency and ultimately into patients, but we are very excited.

And I think, again, this is a new TAM for us. Essentially opens up a new segment of the surgery that we haven't done. And I will say I think it's driving our fusion business already. This is an area that is incredibly underserved. The highest end pediatric orthopedic surgeons doing the highest volume are doing these procedures, and they're not well served oftentimes by the larger orthopedic companies.

And we come in and do this. I think it goes well noticed by our customer base.

Mike Matson, Analyst, Needham: Okay. Got it. We have a few minutes left, and so I want to make sure I touch on some of the financial questions. So, you know, I have to ask one on on tariffs. It seems like, you know, the orthopedics industry, you know, it seems to me like it should generally be more protected because there's a lot of US manufacturing, and you're not you know, to the degree you're buying some raw materials.

You're not using as many, you know, semiconductors and stuff coming out of Asia necessarily. But maybe, Fred, you can just talk about kind of, you know, where the exposure is. You know, I don't know if I imagine some of the the the metals and things like that are coming from outside The US. So, you know, is this something that can have a material impact on the business?

Fred Hite, CFO and COO, Worth of pediatrics: Yeah. Obviously, we continue to monitor this very, very dynamic situation to say the least. But I think most of our metals are are coming from The US. They're specialty metals that are coming from The US. And so as we do the analysis, about 95% of our products within our cost of goods sold are coming from The US, so there's no impact at all.

On the the small 5% that is coming from outside of The US, we're obviously looking at those to see what is the impact and and what we can do to minimize those going forward. But very, I think, fortunate in that our whole business model is structured around domestic, primarily domestic supply base.

Mike Matson, Analyst, Needham: Okay. And is there any risk that your, you know, products you're selling into Europe or other places could have tariffs on them?

Fred Hite, CFO and COO, Worth of pediatrics: Yeah. At this point, we don't see that. We're continuing to monitor things as it changes daily, but that that is something that we're looking at right now. We don't see or haven't quantified that impact, so we don't think so, but, it's too early to determine.

Mike Matson, Analyst, Needham: Okay. Alright. And we're almost out of time, but I just wanna ask one on, I guess, on gross margin. So, you know, what's the outlook for gross margin? There's, you know, some moving pieces here in terms of the product mix between the the different businesses we already talked about.

And then, you know, I know your gross margin was a little lower in the fourth quarter, but I think there were some kind of one off factors there that drove that. So you could comment on that.

Fred Hite, CFO and COO, Worth of pediatrics: Yeah. Absolutely. I think it's important to look at the full year of 2024. The gross margin is in that 72, 70 three percent range, and that is consistent with our forecast for the future. For the next three years, we would anticipate our full year gross margin to be at 72 to 73% just like it was in 2024.

It's also important to focus on the contribution margin of the OPS business, which is higher than the legacy business.

Mike Matson, Analyst, Needham: Okay. Got it. I think we're gonna have to wrap up there, but thanks, guys. Appreciate it. Hope you have some good meetings at the conference.

Fred Hite, CFO and COO, Worth of pediatrics: Thank you. Thank you, Mike. Appreciate it.

David Bailey, President and CEO, Worth of pediatrics: Great day planned. Thank you.

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