OrthoPediatrics CFO Calls Third-Quarter Selling Costs 'A Bit Of Anomaly' As Analysts Press On Guidance
Fred Hite said sales commissions ran high after all six top distributors hit quota, while Stifel pushed on why the fourth-quarter outlook isn't higher.
OrthoPediatrics Chief Operating and Financial Officer Fred Hite said on the company's Tuesday earnings call that a rise in third-quarter selling costs should not repeat, as analysts questioned why the raised $270 million to $273 million revenue outlook isn't higher.
Commissions and clinics lift costs
OrthoPediatrics, which designs and sells implants, instruments and braces for children with orthopedic conditions, reported record third-quarter revenue of $72.7 million, up 19%. Hite said sales and marketing expense ran 31.5% of sales, against 30.5% a year earlier.
He gave two reasons. All six of the company's top distributors hit quota, which triggered year-to-date performance bonuses and higher commissions, some of which the company will claw back in the fourth quarter. The second was continued spending on start-up clinics and new product rollouts.
Asked by a Needham analyst about leverage, Hite said "I would call third quarter a bit of anomaly," and he expects leverage in the fourth quarter and into next year. Separately, answering a TD Cowen analyst on EBITDA, he said perhaps $700,000 of timing fell into the third quarter that will not repeat in the fourth. He did not tie that figure to a specific expense line.
Why the guide isn't higher
A Stifel analyst said the midpoint of the raised range implies roughly $69 million of fourth-quarter revenue, and asked why that couldn't prove conservative.
CEO David Bailey said "Fred holds us back in all of these things," and pointed to last fourth quarter's set sales to Brazil, which may not recur, and substantial 7D unit sales he does not want to bank on. Hite added that 2027 guidance would follow the same methodology, leaving out 7D units and set sales, while new product launches should help growth next year.
The company reiterated adjusted EBITDA guidance of about $25 million and expects to deploy about $10 million in sets.
The $6 million cash hurdle
Third-quarter adjusted EBITDA was a record $6.9 million, and free cash flow was $1.6 million, against $3.4 million used a year earlier. Year to date, Hite said, the company is using about $6 million of cash, so it needs about $6 million positive in the fourth quarter to reach breakeven for 2026. It generated $10 million in the fourth quarter of last year.
Hite also guided to a fourth-quarter gross margin of about 73%, after 74% in the third quarter.
Hite said he is "very, very confident" free cash flow will reach breakeven or better for the year.
Sources
- OrthoPediatrics Gets FDA Clearance for PNP Nail System — MarketWatch
- OrthoPediatrics Non-GAAP EPS of -$0.23 misses by $0.02, revenue of $72.7M beats by $4.2M (NASDAQ:KIDS) | Seeking Alpha — seekingalpha.com
- OrthoPediatrics Corp. Reports Third Quarter 2026 Financial — globenewswire.com
- OrthoPediatrics Announces FDA 510(k) Clearance of PNP | — globenewswire.com
