Operator: Good afternoon, and welcome to OrthoPediatrics Corporation's First Quarter 2026 Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Trip Taylor from the Gilmartin Group for a few introductory comments.
Philip Taylor: Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer; and Fred Hite, Chief Operating and Financial Officer. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K, which was filed with the SEC on March 4, 2026, and its subsequent quarterly reports on Form 10-Q. During the call today, management will also discuss certain non-GAAP financial measures, which are supplemental measures of performance. The company believes these measures provide useful information for investors in evaluating its operations period-over-period. For each non-GAAP financial measure referenced on this call, the company has included a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures in its first quarter earnings release. Please note that the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for OrthoPediatrics financial results prepared in accordance with GAAP. In addition, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, April 30, 2026. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call. With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer.
David Bailey: Thanks, Trip. Good afternoon, everyone, and thank you for joining us today. We are pleased to begin 2026 by highlighting our most meaningful metric, patient impact. In the first quarter, we supported the treatment of a record 45,000 children, extending our cumulative impact to nearly 1.4 million kids helped. Pediatric patients have long been underserved by solutions not tailored to their needs. We at OrthoPediatrics are dedicated to changing that through focused innovation and a continued commitment to this most important patient population. 2026 started strong with 13% first quarter revenue growth, further highlighted by significant improvements in adjusted EBITDA and free cash flow over prior year. As we look closer at the quarter, we saw a softer start to the first quarter due to weather-related shutdowns in many of our OPSB clinics in January and February, but trends rebounded in March. Since then, momentum remains strong as carrying into the second quarter. Growth remains solid across the business with particular strength internationally and continued 20% plus expansion in OPSB, driven by new products and clinic growth. Importantly, we're at the earliest stages of a multiyear innovation super cycle, consisting of what we believe is the most clinically significant and technologically advanced series of product launches in our history. During the quarter, we began to see small contributions from recent beta launches, including 3P Hip and VerteGlide. These products are generating strong demand, and we are confident that as we move into full market release and increase that deployments in the second quarter, we are positioned well for more meaningful impacts in each of the upcoming quarters. Early trends are reinforcing our expectations for higher ASPs, margin expansion and improved capital efficiency as each of these products continue to scale. As we expand our portfolio and reinforce our core orthopedic platform in this unassailable position, we see a clear opportunity for continued growth. Our consistent execution underpins our confidence in sustained revenue growth, expanding profitability and achieving free cash flow breakeven in 2026. We continue to gain share across each of our businesses with our legacy product portfolio and share gain will only continue to accelerate as we execute our super cycle and further expand OPSB. Our powerful competitive position is becoming increasingly dominant and will only grow stronger as we further execute our strategy and demonstrate both top and bottom line expansion in a way that is unique in our industry. We remain focused on enhancing shareholder value while advancing our cost of helping 1 million kids per year in the future. Accordingly, we are raising our 2026 revenue guidance to a range of $263 million to $267 million in revenue, representing 11% to 13% growth and reaffirming our expectations for approximately $25 million in adjusted EBITDA and full year free cash flow breakeven, driven by continued share gains, OPSB expansion and execution of our multiyear new product launch cycle. Turning to our T&D business. In the first quarter of 2026, the T&D business grew by 14%, driven by increased sales of our flagship trauma and deformity systems and early returns from the beta launch of new implant and OPSB systems. We continue to see success in case volume growth as we move deeper into the launch of PNP Tibia and will pick up additional share as we launch 3P Hip. We are also pleased to advance towards the beta launch of the next 3P system, 3P Small/Mini, which should kick off late in Q2. Beyond those products, we are advancing the next system within the 3P family as well as the next PNP system, PNP retrograde. Looking closer at 3P. Our 3P Hip system has exceeded early expectations with limited set availability in Q1. We will increase supply of the 3P Hip in Q2 and commence the beta launch of 3P Small/Mini. We expect a more meaningful impact on growth in the second half of the year. We will also continue advancing additional systems over the next several years. The 3P platform is building strong momentum, and we believe it will become the most advanced and comprehensive pediatric plating system in our field. Overall, T&D remains a key growth driver for the business, supported by consistent execution and a pipeline that is both highly clinically relevant and increasingly robust. We believe the depth and quality of our development efforts position us well to sustain innovation, drive future revenue growth and reinforce our leadership position in the market. Looking at our specialty bracing business. OPSB remains a key growth driver for the business and delivered over 20% growth in the quarter, contributing meaningfully to both the revenue expansion and profitability. Our clinic expansion strategy continues to progress ahead of plan, supported by both greenfield openings and selective Acqui-Hire. Same-store sales growth remains strong, reinforced by ongoing new product introductions and continued sales force expansion. Overall, we are on track to meet or exceed our goal of expanding to 27 territories by the end of 2027. Within OPSB, we are seeing the impact of our new product development engine. We recently advanced the modular hip brace portfolio into commercial release and initiated the beta launch of the TRAXIO Halo gravity traction system. Early feedback for TRAXIO has been strong with initial customer engagement, including multiple requests for quotes for this differentiated system. In addition, we remain on track to beta launch the OP contractor management brace, which is designed to integrate directly with our Orthex external fixation platform, further enhancing synergies across our surgical and nonsurgical offerings. OPSB is progressing as planned toward our goal of delivering 4 to 5 new product introductions annually, reinforcing a consistent cadence of innovation going forward. We continue to execute effectively across our three-pillar OPSB strategy, which includes sales force expansion, targeted product innovation and disciplined clinic growth. Overall, we are very pleased with the performance of the business and its increasingly important role within our broader growth strategy. In scoliosis, we experienced 13% growth in the first quarter of 2026, driven by increased sales of Response and VerteGlide systems and revenue generated from 7D technology. And once again, we were particularly pleased with our EOS products. During the quarter, we continued our push into the EOS space with RESPONSE Rhythm pelvic and the VerteGlide systems, which we believe provide a promising new growth-friendly treatment option for young scoliosis patients. Looking more closely at this progress, we continue to see strong demand for VerteGlide despite very limited set availability with approximately 80 surgeons now trained and additional training sessions scheduled. This success is triggering our move to full market release of this important system in the second quarter, supported by additional set deployment to meet the rising demand. This growing adoption, along with 70 placements is driving higher utilization of our RESPONSE Fusion system, all ahead of the anticipated limited release of our next-generation scoliosis fusion platform, Veraxis. Purposely built exclusively for the treatment of pediatric spinal deformity. Designed from the ground up for growing patients and the surgeons who treat them, Veraxis represents a step change in fusion technology by combining advanced implant design, streamlined instrumentation and integrated digital planning into a single cohesive platform with first surgeries by year-end. In addition, we remain on track for first inpatient procedures with eLLi, our third and most complex EOS product in the fourth quarter. As a reminder, eLLi is a next-generation smart electromechanical lengthening spinal implant designed to deliver consistent and reliable power through RF power transmission. We expect the first implantation of the eLLi device in late 2026. We are proud of how far our EOS products have come, and they further bolster our belief that our EOS strategy is working. We believe that OP is continuing to establish an unmatched portfolio of pediatric scoliosis technologies, enabling clinicians to treat even the most complex and severe pediatric spinal deformities with a comprehensive set of advanced solutions. Moving to our international business. OUS had a strong first quarter with growth in excess of 20%, highlighted by great sales in EMEA and a nice performance in Brazil under our new agency structure. Continued success in EMEA is being driven by increased sales of legacy T&D products in our agency markets and a small but rapidly growing scoliosis franchise. We're pleased to have received full EU MDR approval for our T&D portfolio, scoliosis products and most recently, our external fixation devices. We are now actively working to make these long-anticipated products available across our European markets, and we expect this expanded access to support improved EMEA growth in 2026. [ Flat Sand ] is building on our structural improvement in Brazil. While we're still cautious, we do believe an improvement is on track. And over the next several quarters, we expect to turn this headwind into a potential tailwind. The structural improvements we've made in Brazil through the purchase of one of our Brazilian distributors will improve our cash collection and over time, will normalize ordering patterns and allow for additional growth and market penetration. In addition, we were once again the largest sponsor of the European Pediatric Orthopedic Society Meeting in Seville, Spain. In early April, we showcased a broad range of new products that had previously not been available in Europe under prior regulatory constraints. These offerings were well received by both surgeons and distributors and are expected to contribute to revenue growth in the second half of the year. Lastly, looking beyond our traditional segments, we are building on the success of our 7D experience and are kicking off the launch of our digital preoperative, intraoperative workflow management platform playbook and expect deployment to beta launch sites in 2026. Beyond that, we've completed the deployment and the first cases with the IotoMotion robot for pediatric cochlear implant placement and expect additional deployments throughout 2026 and beyond. OrthoPediatrics is also making deliberate focused investments in artificial intelligence to drive meaningful clinical and operational impact. We are advancing multiple AI initiatives, including embedding intelligence into our playbook platform, leveraging AI-enabled tools to support presurgical planning and evaluating opportunities to enhance patient care and efficiency across our OPSB clinics. Earlier this year, we completed an internal AI flight school to build organizational readiness, and we have established a corporate objective to deploy 6 to 8 targeted AI agents to drive tangible efficiencies. After prioritizing data security and foundational controls last year, our focus in 2026 is firmly on execution, moving from experimentation to scaled implementation that delivers real value to surgeons, clinicians and our teams. In summary, we believe the company is entering its most compelling phase of expansion to date, supported by a multiyear product launch super cycle that will increasingly shape results over the coming years. These new technologies are meaningfully more advanced and clinically differentiated, addressing significant unmet needs, supporting higher ASPs, improved gross margins and stronger returns on invested capital. They also enhance our ability to bundle solutions across accounts, supporting broader contract opportunities in pediatric hospitals and reinforcing share gains across our legacy portfolio. At the same time, OPSB continues to scale through both new product introductions and disciplined clinic expansion via greenfield openings and Acqui-Hires, a trajectory we expect to sustain over the coming years. Collectively, these initiatives are expected to drive significant improvement in profitability and cash flow generation over the long term. More broadly, we believe our hospital and surgeon partners increasingly recognize the value of working with a dedicated self-sustaining pediatric platform focused exclusively on improving care for children. Together, we are advancing innovation in a historically underserved area of health care and building a stronger long-term outlook for patients and the business. With that, I'd like to turn the call over to Fred to provide more detail on our financial results. Fred?
Fred Hite: Thanks, Dave. Taking a closer look at the P&L, our first quarter of 2026 worldwide revenue of $59.4 million increased 13% compared to the first quarter of 2025. The increase in revenue in the quarter was driven primarily by strong performance across trauma and deformity, scoliosis and OPSB. U.S. revenue was $45.3 million, an 11% increase from the first quarter of 2025, representing 76% of total revenue. Growth in the quarter was primarily driven by trauma, deformity, scoliosis and OPSB. We generated total international revenue of $14.1 million, representing growth of 22% compared to the first quarter of 2025 or 24% of our total revenue. In the first quarter of 2026, Trauma and Deformity global revenue of $43.0 million increased 14% compared to the prior year period. Growth was primarily driven across numerous product lines, specifically our trauma products, ApiFix and OPSB. In the first quarter of 2026, scoliosis global revenue of $15.4 million increased 13% compared to the prior year period. Growth was primarily driven by increased sales of RESPONSE and VerteGlide systems and revenue generated from 7D technology. Finally, Sports Medicine other revenue in the first quarter of 2026 was $0.9 million, which stayed consistent year-over-year. Touching briefly on a few key metrics. For the first quarter of 2026, gross profit margin was 73%, which is consistent year-over-year. Total operating expense increased $2.5 million or 5% compared to the prior year period to $51.7 million in the first quarter of 2026. Sales and marketing expenses increased $1.9 million or 11% compared to the prior year period, driven primarily by increased sales commission expense and an overall increase in volume of units sold to $18.5 million in the first quarter of 2026. General and administrative expenses increased $0.7 million or 2% year-over-year to $31.0 million in the first quarter of 2026. The increase was due primarily to additional personnel supporting recent clinic expansions and other small-scale acquisitions, partially offset by savings being realized from prior restructuring actions. Research and development expenses decreased by $0.1 million or 5% in the first quarter of 2026 to $2.2 million. GAAP net loss per share for the period was $0.45 per basic and diluted share compared to $0.46 per basic and diluted share for the same period last year. Non-GAAP net loss per share for the period was $0.42 per basic and diluted share compared to $0.39 per basic and diluted share for the same period last year. Adjusted EBITDA was $2.2 million in the first quarter of 2026 compared to a loss of $0.4 million in the first quarter of 2025. We ended the first quarter with $50.9 million in cash, short-term investments and restricted cash. Set deployment was $2.3 million in the first quarter of 2026 compared to $3.6 million in the first quarter of 2025. As a reminder, although the amount of sets being deployed in 2026 is lower than historical years, these are primarily all new products being launched as part of our innovation super cycle and are generating a much higher level of revenue per deployed dollar than our previous legacy systems generate. Free cash flow used in the first quarter of 2026 was $5.0 million, a 40% improvement as compared to $8.4 million used in the first quarter of 2025. Increased adjusted EBITDA, lower sets deployed and improved working capital metrics all contributed to the year-over-year improvement. On March 31, we amended our existing credit agreement with Briadwell LP to add $20 million delayed draw term loan facility. This amendment enhances our financial flexibility by providing on-demand access to additional capital through June of 2027, while maintaining consistent economics and covenants within our existing term loan. Importantly, this structure allows us to preserve liquidity and avoid dilution as the facility is fully discretionary and interest-only through maturity in 2029. We view this as a prudent addition to our capital toolkit that further strengthens our balance sheet and positions us to opportunistically fund growth or strategic initiatives while maintaining disciplined capital deployment. Turning to guidance. As Dave mentioned, we raised our expectation for full year 2026 revenue to be in the range of $263 million to $267 million, representing year-over-year growth of 11% to 13%. We also continue to expect to generate approximately $25 million of adjusted EBITDA, deploy approximately $10 million in S and to achieve free cash flow breakeven in 2026. We would expect the EBITDA and free cash flow to exhibit similar quarterly seasonality patterns to 2025. It is important to note some periods of free cash flow will be negative and others positive, but still cumulatively tracking to our annual guidance metrics. Operator, let's open the call for Q&A.
Operator: And our first question comes from Matthew Blackman with TD Cowen.
Mathew Blackman: Can you hear me okay? I'm going to start with a question for Fred, and then I got one for you, Dave. I heard you talk about the impact of weather, January and February. Is there any way to quantify the impact on T&D from the OPSP weather-related headwinds? And is that revenue that you recapture? Or is it just lost? And then I've got a follow-up question for Dave.
Fred Hite: Yes. So that comment was specific to our clinics, which were shut down a week during January, week in February. And typically, those appointments get rescheduled. So as Dave mentioned, we saw a nice rebound across the entire business in the month of March, and that's continued into April. So I would say that the vast majority of those got cleared in the month of March and now here in April, and they're all -- it's all behind us by now.
Mathew Blackman: Okay. But you did -- some of it did sort of soot into the second quarter, lost in the first quarter, though. That's some of the takeaway, right?
Fred Hite: Yes.
Mathew Blackman: Okay. Fair enough. And then, Dave, on the 3P platform, I heard you loud and clear early days, but very encouraging. You're going to ramp from here. It sounds like in the second half of '26, you'll be in a more scaled launch with 3P, maybe gaining some 3P small mini momentum. Do you think that translates into a visible at least to us uptick in T&D second half growth? Or do we need more sets, more pieces of the platform beyond 3P and 3P Small/Mini to inflect U.S. T&D growth? And does that happen in 2027? Just trying to think about the moving parts here and when perhaps we see a visible perhaps inflection in that franchise?
David Bailey: Yes, Matt, good question. So yes, we have very few sets available on the 3P side at this stage. And in fact, I think we have some opportunities to sell sets that we are -- we haven't we haven't done yet just because we want to make them available to more and more users as we're kind of moving those around through our loaner pool. Additional sets hopefully coming here at the back half of Q2. And certainly, Q3 will -- Q4 will be impacted by additional sets. It's not a huge volume of sets. So I do think that it's going to have some meaningful impact on the implant side of our T&D business. But these rollouts take years. You've seen over the last several years, even products like PNP Tibia, which I think now have been out 2.5 years are still being rolled out and still impacting top line revenue growth. I think what we really like to see about the early days of 3P is very strong ASP in addition to extremely high demand. very strong margins. And consistent with what we've been telling the Street for a while, this new product and VerteGlide as well on the scoliosis side are dramatically more capital efficient. And so driving -- requiring less capital deployment to drive top line. So its impact is not just back half of the year in top line revenue, but profitability, cash usage, everything. And we'll see more of that from the small mini and more of that from PNP retro and the new systems on the scoliosis side. It's just very encouraging what we're seeing early on with 3P and these other systems and I think it will probably start to impact the growth of the implant side of our business here in the second half and really in 2027 and 2028.
Operator: Our next question comes from Rick Wise with Stifel.
Frederick Wise: Really is great to see that despite a challenging start to the quarter and weather and everything that you finished strong and that, that momentum is continuing. Now that I paid you a compliment, I was hoping to just at a high level, understand your -- despite the outperformance in the first quarter and everything we're hearing just on the execution front, just sounds so great. Each part of the business working well, some of the last year's challenges worked through, resolved, turning into potentially a tailwind. The new product launches clearly well set up for a strong second half. Why leave guidance -- top line guidance unchanged? Is it just -- is there any particular reason other than just being careful as you set up the year? Or is there anything that we should hear or understand about maybe some challenges ahead as you start the rollout here? Just help us think about the rest of your -- left the rest of year guidance unchanged basically?
Fred Hite: Yes. So obviously, increased the full year guidance by the $1 million that we did. Dave continues to talk about the super cycle, which is awesome, and we have more sets coming, which is great. Those sets will be here in the second half or really the end of the second quarter here to help the second half of the year. But as normal, we like to wait for those things to show up and to show up in the numbers before we get too far ahead of ourselves. So in traditional fashion, we'll continue to stay conservative and let the numbers speak for themselves when they show up, I think.
Frederick Wise: All right. Sounds good. And I'm sure it's a similar answer to the very strong performance on the adjusted EBITDA line. And I heard what you said, Fred, about the -- some quarters a little better or stronger given the demands of the business. But it seems like you're set up there well with higher-margin products and just coming on and volume and leveraging the fixed cost base. It just sounds like you're well positioned to do even better?
Fred Hite: Yes. We were very pleased with the leverage that showed up through the P&L here in the first quarter, 13% sales growth, G&A grew 2%. And that, to us, was very encouraging. Typically, first quarter is the lowest sales quarter that we'll see for the year. And so if you add on some incremental revenue here in the second and third quarter, in particular, which are typically our strongest, that should drop through very nicely to the bottom line.
Operator: Our next question comes from Ryan Zimmerman with BTIG.
Unknown Analyst: This is [ Izzy ] on for Ryan. So I just wanted to start with the international. saw that strong 22% growth for the quarter. And I was wondering if that's the right baseline to be at for the rest of the year or if we think it could potentially be a little bit stronger as you start to see more contributions from the new products, especially as that EU MDR comes online?
David Bailey: Yes. Good question, Izzy. I'm not sure we're going to get too far ahead of ourselves on 22% growth. Very pleased to see it. It was certainly an acceleration of growth over Q1 of 2025. I think we came in at 19% in Q1 of 2025. I think the headline here is that we are seeing very consistent performance and consistent growth in these agencies with a lot of the legacy products. And as Fred mentioned, we don't want to get ahead of ourselves in terms of set deployment. and how much revenue that set deployment of some of these new products generates. But it is safe to say that we have a really nice opportunity here in the second half of the year as we start to deploy some of the sets that are now approved in Europe through EU MDR. And so timing of those sets coming into our warehouse and then getting out to our customers is a bit of the rate limiter, certainly not demand. And so as we see some of those sets come in, I think we'll be able to give some updated guide as to what we think we can see in the second half of the year. So it's early, probably not going to get ahead of ourselves there yet, but it was certainly good to see that kind of acceleration in growth led by our agency markets. And I think of note, very limited set sales. We have been challenged over the last several years to balance margin and top line against some of the lower-margin set sales. Most of that revenue, I would say, in this quarter and hopefully, in future quarters is primarily just replenishment orders coming through our agencies and coming through our hospitals in Europe. And I think the acquisition of our Brazilian distributor we called out has certainly started to stabilize the markets in Brazil. And I think we hope over the course of the next several quarters, start to create a bit of a tailwind in a market where there's extremely high demand, but we needed to adjust our model to be able to extinguish some of that demand. So as we see that develop, it's possible that we could see growth accelerate. But hey, if 22% growth is very strong. I think we're very pleased with that. And if we could stay in that ballpark, I think it would be a great year. Yes. With that said, I would just say we do expect international to outgrow the domestic market for each quarter for the rest of the year. While it might not be 22%, we do think at this point that it will continue to grow very nicely and probably outperform the domestic growth for the rest of this year and starting into next year.
Unknown Analyst: Appreciate it. And then I saw the press release today and heard your comments about the launch of TRAXIO. So I was hoping you guys could talk a little bit more about your plans there for the rollout and what we can look forward to going forward?
David Bailey: Yes. So TRAXIO is as it's definitely name, a halo gravity traction product. It's primarily designed in these children to help children and patients and physicians who are taking care of very complex early onset scoliosis products. And so the initial launch is of a few sizes of the traction device. Those devices are sold as a capital purchase. And then there is a replenishment or repurchase of different components of that device inside the children's hospitals. Eventually, we'll be launching the surgical component of TRXIO, which will be the actual halo itself that attaches to the goal of these kids. I think what is exciting about it is, number one, there's very high demand. We've gotten a lot of hospitals that have called us for -- there's really nothing like it available in the market. Most of the hospitals that do traction are having to kind of [indiscernible] their way through that, building a lot of these devices in-house. And so you can imagine the demand that there is in hospitals, even from a pure risk management standpoint to have an FDA-approved device that can take care of that patient population. It's also really encouraging to see its connection to our EOS business and then ultimately the fusion business. And so we've talked about in the past, treating the entire disease state of scoliosis, not just the end state for fusion. And you can see TRXIO and how that fits in, where patients may be going from bracing to halo gravity traction to ultimately our suite of early onset scoliosis products and then to the potential non-fusion products like ApiFix and then ultimately, the final fusion if required. I think it creates a portfolio that is unlike any in the spine space. And I think it's a very strong adder in terms of our value proposition to these children's hospitals within scoliosis.
Operator: Our next question comes from Mike Matson with Needham & Company.
Michael Matson: This is Joseph on for Mike. Maybe just given the rapid growth that you guys have been calling out in OPSB, just being an increasing part of revenue for the whole company. I'm just wondering if maybe you can provide more color on SG&A expenses, I guess, just on a percentage of revenue basis from here. Should we expect maybe some small gross margin improvement moving forward with real margin expansion coming here on operating leverage moving forward?
Fred Hite: Yes, absolutely. I think just like we saw in the first quarter, that the true leverage down to the EBITDA line is coming from G&A. And this year, it's both on the cash and the noncash portion of G&A. I think the leverage we saw in the first quarter will be similar in the rest of the year in each of those quarters. A little bit on the sales and marketing, but that's really not our focus. It's all really on the G&A side of the business. The dollars may go up a little bit on G&A as the business grows in the second and third quarter pretty dramatically, but the leverage will come through very nicely.
Michael Matson: Okay. Yes, that's great. And then I guess maybe just pull-through for the scoliosis products. I know this may be early days, but you guys called out great beta launches, generating demand, RESPONSE growing really well. So I'm just wondering how that's compared to expectations prior. I could be wrong on this, but I believe you guys said the real pull-through driver for the scoliosis products maybe be driven by eLLi. So just wondering if that's still the case.
David Bailey: Yes. Certainly, eLLi is the most complex and probably the largest opportunity on the early onset scoliosis side. But what I can say is that we have seen remarkable interest in VerteGlide, maybe more interest in VerteGlide in that particular type of technique for the EOS indication than we had expected when we launched. I'm very pleased with the fact that we have nearly 80 surgeons already trained -- and at this point, we are having to have surgeons notify us well in advance when they schedule cases just to move inventory around. What I'm also really pleased by pointing to your pull-through commentary is that a number of surgeons and children's hospitals that aren't historically large users of our Fusion platform, Response are the main users of the EOS product, VerteGlide. And so I think what we called out in the script, this is exactly part of the strategy. Certainly, we want to grow into this kind of blue ocean growth opportunity we have in early onset scoliosis with VerteGlide and with iLLe and rib and pelvic. But I think it also brings about opportunities to show just how good we are on the scoliosis side. to some of these major institutions where they may use a lot of our trauma and deformity products but haven't had a ton of experience with Response and our Fusion system. And we are picking up pull-through already. You can imagine that's fairly small given the limited access to VerteGlide, but we are certainly involved with children's hospitals and physicians that historically weren't as exposed to our Fusion platform. And that is one of the nice drivers we're seeing with Response. I think what I was calling out in the script and what we'll continue to hopefully see here is that as the EAOS portfolio more fully launches, we get more sets available to surgeons on the VerteGlide side. We launched iLLe, which, as you know, we just said, is a little bit bigger opportunity. You follow that up with continued deployment of Response, but also the launch of our next-gen Fusion system Veraxis, that is a really -- just a really compelling set of technologies and value proposition for the hospital, not to mention the fact that you've got the bracing on top of that, that provides some halo and synergies as well as now the TRAXIO system on the EOS side. It's a really good setup for us in the coming several quarters and really several years as those products roll out.
Michael Matson: Okay. Yes. Great. That's all very helpful. Maybe just one quick one. Now that you guys are finished with the EU MDR approval in Europe, are there other geographies that you guys are targeting for further catalog expansion? Or maybe, I guess, is it time to be thinking about moving into China? Just wondering what you guys are thinking about there?
David Bailey: Yes, we haven't given specifics, but you could assume that we have a very, very small presence in Japan, essentially no presence in India and no presence in China. And while historically, we have spent our dollars focusing on EU MDR, I think there is a remarkable demand for our products in some of those markets. And you might expect that we're working towards how we go to market, particularly in a market like India, where we have strong surgeon connections, surgeons who have trained in the United States and Canada that are leading surgeons in India. And so while it's not a part of the guide, not a part of right now kind of our future revenue forecast, I think in time, it would be natural for us to extend into some of those bigger markets. And I think over the coming years, that could be a real great opportunity for us.
Michael Matson: Yes. Okay. Well, congratulations on the strong quarter.
Operator: Our next question comes from David Turkley with Citizens.
David Turkaly: I just wanted to follow up on that last one. Did you give a timing for that Veraxis system?
Fred Hite: So we expect first surgeries for both EE and Veraxis by the end of the year.
David Turkaly: And is that -- I imagine does that mean that domestically, like that's cleared? Or how -- what is your approval or process with that device? Is that a 510(k)?
Fred Hite: Yes. Yes. So it is a 510(k). And so we're working towards that at this point. It is not yet cleared, but we would expect it in the back half of the year. Certainly, that's a bit of a wildcard in terms of timing, but our success, particularly with these 510(k) products has been very strong. Generally, with all the testing, we get these things through pretty rapidly. Again, I don't expect Veraxis to have a huge impact on revenue in the second half of the year, certainly more of a 2027, 2028 rollout. But our goal is to get surgeons access to that product so we can start getting feedback at some point in time in the fourth quarter, and I think we're on track for that.
David Turkaly: Great. And I think you said OPS-B grew 20% in the quarter. And looking back at notes, I think you said six territories maybe this year. I was wondering if you could give any color if you done any of those? And maybe if you have or what you expect in terms of greenfield or Acqui-Hire specifically for '26?
Fred Hite: Yes. So far, the guide has been by 2027, we would be at '27 of these markets. I think we're at or maybe a little ahead of that. And I would expect that we would reach the necessary 6 markets in 2026 for sure. Continued demand here, opportunities for both greenfield as well as Acqui-Hire. And there is really even opportunities within some of the existing open territories to expand our clinic presence. Super to see same-store sales clinic locations where we've had now for a year. That has gone extremely well. We're seeing increased revenue there. And then there is opportunities to get clinics in those territories more fully penetrate the territories we're already in, while we balance that against opening new territories. Obviously, deeper penetration in our existing territories doesn't take as much expense base. And so when we've got opportunities to accelerate patient care and revenue in places where we're already at, we kind of have to weigh that against how far -- how much we would want to accelerate into new territories. But I think it's very safe to say that we are on track, if not ahead of track in 2026, and we'll meet or exceed our objectives for 2027.
Operator: Our next question comes from Caitlin Roberts with Canaccord Genuity.
Caitlin Cronin: In LatAm, you noted you purchased your largest distributor in Brazil. Just curious how much of the LatAm business this distributor encompasses? And would you look to apply the same formula and acquire more distributors down there to continue to drive more consistency in the region?
Fred Hite: So historically, we've had about 15 or 16 stocking distributors. This was one of the larger, but not the majority of the sales down there. So it's kind of 1/15 of our sales in Brazil. The good news is, though, we now have a legal entity. We have an operating entity down there, and all of our other sales into the country in Brazil are going through this legal entity, which dramatically enhances our ability to collect cash in Brazil to deliver them inventory on a more timely basis because we're now stocking inventory in Brazil and to better serve those other stocking distributors. So we do not, at this time, have big plans to buy additional distributors. It's all about the ability to collect cash more efficiently and to better serve our partners down there so we can continue to grow that entire region in more and more procedures.
Caitlin Cronin: Understood. And just on Veraxis, what are your thoughts on the competitive landscape in pediatric spinal deformity as you look to launch here in the future?
Fred Hite: Yes. I mean, certainly, the pediatric -- or the pediatric spinal fusion portion of our business is the most competitive. It always has been. Most companies on the adult side have good deformity correction systems that kind of dual function, so to speak, as pediatric deformities. I think where -- what we see with Veraxis is a system that's built ground up with pediatric spine surgeons, not a system that's designed for adults. And so I think when physicians see the development work there done by their colleagues for major pediatric or major children's hospitals, I think that the competitive position of that product in conjunction with products that we offer that aren't offered by really any of the other competitors, I think, is a value proposition that is really hard to beat. And so yes, we're excited. Again, it's early. We haven't done first case, but I'm pretty excited to see how that stacks up against any of the other competitors. And the fact remains is that Response, which has been in the market for a number of years, continues to take share. And so leapfrogging our own really best-in-class technology, hopefully will even accelerate further the share taking that we've experienced over the last several years.
Operator: Our next question comes from Ben Haynor with Lake Street Capital Markets.
Benjamin Haynor: First off, on the almost 80 VerteGlide surgeons trained. Can you talk maybe a little bit about the number of folks that are doing these sorts of procedures nationwide? Is there kind of an 80-20 where surgeons are doing 80% of procedures. What is the total market kind of look like in terms of guys doing these things?
David Bailey: Yes. Yes, great question. This is a tough one, Ben, because I think that the technology that surgeons have had access to do some of these procedures has been so limited that, that in and of itself, the technology is a bit of a limiting factor to who would actually use the product like guided growth for spinal deformity correction. But it's fair to say that every children's hospital that does spinal deformity correction, which is 300 procedures has at least one physician there, if not multiple, that would be willing to -- that takes care of these EOS products. Certainly, places like Children's of Philadelphia, Boston Children's, WashU, these accounts plus several others are doing higher volumes of those very complex procedures. But it's -- in total, we think between iLLe Veraxis, it's a sub-$100 million, maybe $80 million market opportunity with essentially very limited competition and a deep unmet need by our customers. And I think what we're seeing from our customers is a recognition that we're willing to take on these complex things that they care about, and that's what we're seeing from the pull-through already on RESPONSE.
Benjamin Haynor: Makes sense. And then on TRAXIO, just kind of obviously, hospitals, what are the -- obviously, it would improve the economics versus [indiscernible] these sorts of things. But what do the economics look like for the hospitals that do make these sorts of capital purchases? And then how did the relationship with [ Synthes ] Group come about?
David Bailey: Yes. So we got connected to Synthes through some other partnerships we have in Montreal. As you know, we have an operation up in Montreal after the acquisition of Pega. And so we were able to form a nice relationship with them as they have helped us with different products on the nonsurgical side through our specialty bracing business. I think as the economics go, this is one of those products that if you do this procedure, this is almost must-have for children's hospitals. And I would say that not all children's hospitals perform the procedure. It's got to have hospitals that are willing to have patients that can stay inpatient for several weeks. Oftentimes, these kids get halo and literally live in the Halo device for as long as 6 weeks or so before they ultimately have a surgical procedure. So you can imagine that the economics are probably pretty strong for the children's hospitals where they have these patients in the hospital and then are doing multiple surgical procedures thereafter. I would also argue that the TRAXIO, this is not a $1 million PO the hospital is required to issue. And so it's not such a large capital purchase that we're seeing resistance to that. There is, though, a further opportunity for us to partner TRAXIO with 7D, with VerteGlide Response, some of these very, very novel systems that, frankly, you just can't get from any other company to leverage opportunities to bundle our services and our products. And we are in more of those types of bundling discussions now at major children's hospitals than we have ever been in the history of the company, which I think as we develop that and as some of these more differentiated products launch like TRAXIO, our position to have those negotiations only strengthens and again, hopefully drives accelerating revenue in the next few years.
Benjamin Haynor: That's great. And then lastly for me, just thinking about the opportunities that you guys see outside of orthopedics within pediatrics, -- any kind of updates there? Any conversations that are happening? Anything that folks should expect the remainder of the year?
David Bailey: Yes, I don't think so. I mean, we have long walked alongside a number of technologies in other subspecialties in pediatric health care. We'd like to think our -- like to think of ourselves as a bit of a beacon for other entrepreneurs who could help us in meeting some of these unmet needs that we see in a number of conditions in pediatric health care. So I think when the time is right, as we signaled, time is right in the right company with the right culture where we could potentially help scale revenue globally, we would be quite opportunistic in that. But I don't think anything that we see right at the moment is pending. But you never know. We'll continue to do the work that we're doing to be good partners with people like iota Motion, which is a little bit outside of our call point and continue to help both companies commercialize. And when the time is right, we'll probably step into some of these other subspecialties.
Benjamin Haynor: Congrats on all the progress.
Operator: [Operator Instructions] Our next question comes from Ravi Misra with Truist Securities.
Ravi Misra: Just maybe a philosophical question here. Just maybe kind of -- I'd love to understand the thinking of the company around how you're balancing this 11% to 13% growth outlook amidst what appears to be a pretty significant product cycle. And you've talked in the past about competitors leading the space, giving you opportunities as a pure-play focus on pediatrics. But then again, at the same time, set deployment is around $10 million this year. So sometimes I think about, okay, why don't these guys or the management team really accelerate the set deployment to capture revenue. I'd love to hear your thoughts on maybe that push and pull there. And are we underestimating the leverage potential from sets out in the field? Or is it something you're being conservative about and measured about in terms of how you think about this?
David Bailey: That's a great question. There's certainly a healthy tension, I would say, within the organization as we think about how fast we would want to go to accelerate revenue versus generate positive free cash flow. And then when we inevitably generate positive free cash flow and that starts to become a bigger number, how much of that positive free cash flow we would want to use to accelerate growth. You're right in saying we have a very -- we have a great opportunity in front of us to launch these new products and to continue to scale even some of our legacy products, given the evacuation of the market of some of the quasi competitors in the space. I think we have been on a quest over the course of the last few years to deliver increasing EBITDA and to deliver on free cash flow breakeven. Our commitment is unwavering there, and I think nothing will knock us off that path to being able to deliver that here in 2026. Now as we think in 2027, 2028, let's say, through 2030 as the super cycle really starts to ramp, I'm not sure our strategy will be to maximize the capital that the business would ultimately generate. We would probably start utilizing some of the additional free cash flow the business would otherwise generate to be able to scale some of these products. I think that would only be the smart competitive thing when you have the opportunity that we have in front of us. But in the short term, delivering on our commitments, balancing top line revenue growth against our profitability expectations as well as the drive to free cash flow breakeven is what we have in front of us immediately. And then I think we will have some bigger decisions to make and good decisions, good opportunities to execute and maybe put out a little more inventory when we get more into even the first, second and third inning of the super cycle. At this stage, we're in the batter's box. And so not having to face that right now. But as we get into 2027 through 2030, I think it's likely that we would want to put more inventory on the street, particularly inventory that has the kind of margin that products like 3P and VerteGlide have and have a return on capital that is just so much better than our legacy systems.
Ravi Misra: Great. And then just one last one. On the kind of 80 surgeon base around VerteGlide, should we kind of be thinking of that as seeding the field a little bit for iLLe once that comes in? Or is that going to be a different subset of pediatric specialists? It's very astute. I think that's -- we talk about iLLe, at least in -- obviously, it's not approved, but we talk about it in theory and the potential features of iLLe with the surgeons when we go through training. Any surgeon who is training or interested in training on VerteGlide is most certainly a candidate for the use of iLLe as well as our RSPONSE rib and pelvic, which is great news. You'll also see increased sales of our small stature system on the RSPONSE side because, again, these are very young patients and surgeons who treat those patients. So again, astute question. The answer is absolutely yes, opportunity to talk about the pending iLLe launch. And I think it's important to note that iLLe is not a substitute for VerteGlide and VerteGlide is not a substitute for iLLe. There's different indications within this very complex patient population that require rib and pelvic that require VerteGlide and will require iLLe. And so without question, being able to capture mind share within that -- within the surgeons who treat that patient population is very good for our prospects in the future.
Operator: Thank you. I would now like to turn the call back over to David Bailey for any closing remarks.
David Bailey: Great. Thanks, operator. Well, we appreciate all of your time, and we'll be at a number of conferences over the course of the next several months, and we look forward to meeting with you all there. So thanks, and have a great evening.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.