OrthoPediatrics (NASDAQ:KIDS) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
OrthoPediatrics Corporation reported record revenue of $72.7 million for Q3 2026, a 19% increase from the previous year, driven by strong demand across implants, OPSB, trauma, deformity, and scoliosis.
The company raised full-year revenue guidance to $270-$273 million, reflecting growth of 14% to 16%, while maintaining adjusted EBITDA guidance at approximately $25 million.
Key growth drivers included the innovation Super Cycle, with new product launches like 3P hips, Traxio, and Vertiglide, alongside strong international performance and expansion in OPSB clinics.
The Trauma and Deformity segment delivered $52.6 million in revenue, up 19%, supported by new launches and existing product line growth.
The company continues to invest in innovation while maintaining expense discipline, achieving positive free cash flow for the quarter and projecting free cash flow breakeven or better for 2026.
International revenue increased 18% to $14.8 million, driven by robust performance in EMEA and new product launches following EU MDR approvals.
Management is optimistic about future growth opportunities, emphasizing the long-term potential of the Super Cycle and the expansion of the OPSB clinic network.
Full Transcript
OPERATOR
Good afternoon and welcome to OrthoPediatrics Corporation’s third quarter 2026 conference call. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. 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.
Trip Taylor (Investor Relations)
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 those 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 third 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 on this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, October 27, 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’d like to turn the call over to David Bailey, President and Chief Executive Officer.
Dave Bailey (President and CEO)
Thanks, Tripp. Good afternoon, everyone, and thank you for joining us today. This was an outstanding quarter for OrthoPediatrics, and I want to begin with the metric that matters most to us. During the quarter, we helped nearly 42,000 children, bringing our total impact to over 1.4 million. I’m proud of what our team and our clinical partners continue to accomplish. We are reaching more patients each day with our pediatric-focused products, increasing the quality of care and improving outcomes for kids around the world.
For the third quarter, we delivered record revenue of $72.7 million, up 19% over the prior year with substantial growth across all of our businesses. Ongoing share gains across our legacy product portfolio served as a key driver alongside robust implant demand, a rapidly growing OPSB franchise, and strong overall international results. Our existing portfolio continues to deliver while the Super Cycle is starting to contribute growth with additional product launches on the horizon.
The combination of top-line performance and improving profitability gives us a solid foundation as we enter our next chapter of growth. As a result, we are raising our full-year revenue guidance to $270 to $273 million, representing growth of 14% to 16%. Beyond the top line, we continue to make significant progress on margins and profitability with record adjusted EBITDA and positive free cash flow in the quarter. We are very pleased with our continued ability to grow the business while strengthening its financial profile and driving leverage.
At the same time, it’s clear we are investing in innovation while staying focused on expenses, working capital, and capital deployment. Now let’s talk briefly about our performance in the context of our innovation Super Cycle. We are extremely encouraged by the revenue contributions of our recent product launches such as 3P hips, Traxio, and Vertiglide to the third-quarter performance as utilization ramps. We are beginning to see the positive impact of these products both in clinical settings and in our P&L, which is proving the value of our work for the kids and clinicians who rely on our technology.
That said, many of the products within our Super Cycle are still in the very early stages of full market release with limited customer availability or in their limited launches. Those products in the limited launch phase are not yet meaningfully contributing to growth, but many of these products combined with our recent full launches set us up well for multiple years of growth. The bottom line here is that we are still early in the multi-year cycle, and we believe the largest opportunities for market expansion, deeper portfolio penetration, revenue impact, and leverage are still ahead of us.
We are being thoughtful with our set deployment strategy, bringing sets to market at a steady pace as we move multiple innovations from development into the hands of surgeons and clinicians while ensuring that we manage the free cash flow implications to ensure we remain free cash flow breakeven or better in 2026 and free cash flow positive in 2027 and beyond. Importantly, we are not just innovating new versions of products. These products address substantial clinical needs our surgeon partners experience every day, and our engineering and commercial teams are working with clinicians to turn those needs into pediatric-specific solutions that cannot be addressed by any other products or companies in orthopaedics. We continue to focus on platform and product family development, and each additional innovation creates another opportunity to serve patients with unique clinical conditions and deepens our role across pediatrics.
As the Super Cycle progresses, the opportunities we have with these differentiated pediatric-specific technologies are extending beyond revenue growth. Many of these systems are designed to support attractive product economics with higher ASP, ROI, and more efficient capital deployment. Additionally, they’re generating negotiating power in contracting while driving pull-through of legacy products. With our commercial infrastructure already in place, we can better serve the market with greater sales force efficiency and improve operating leverage.
Our OSSIO partnership, which continues to do well, highlights these efficiencies in action. OSSIO’s biointegrative technologies broaden our portfolio alongside our complementary Bioretec partnership while leveraging our existing commercial infrastructure. Overall, we see the Super Cycle as a multi-year growth, margin, and capital efficiency story. As we advance our pipeline, we continue bringing products to market in a measured fashion, balancing cash usage.
This plan positions the Super Cycle as a long-term sustainable growth driver and allows us to best support our customers along the way. Moving to our businesses. Trauma and Deformity delivered revenue of $52.6 million, up 19%. Continued share gains within our legacy implant portfolio and healthy demand for Super Cycle products together with OPSB’s growth drove this strong performance. Our established systems remain an important growth engine, and we are building on that position of strength as new pediatric-specific technologies expand the opportunities our teams can pursue. Our pediatric plating platform, also known as 3P, is off to an extremely promising start.
We continue to see success with the 3P Hip system, which has progressed from limited to a full commercial launch and is already contributing early revenue. Moving down the 3P pipeline, 3P Small and 3P Mini are currently in limited launch. We are pleased to see the 3P platform move beyond its initial offering toward a broader range of solutions designed for pediatric anatomy and procedure needs, with more to come as we develop the full platform to become the most comprehensive pediatric plating product platform in the history of pediatrics.
We continue to advance our Super Cycle with teams focused on careful rollout, surgeon support, and feedback as these systems progress. In addition to the progress with 3P, we also recently reached important milestones in our pediatric nailing platform. In September, we announced that we had surpassed 1,000 PNP tibial nail implantations. Elsewhere, following FDA clearance in late September, PNP Retrograde limited launched, and we had our first successful cases in October with very positive surgeon feedback. The system includes anatomic nails for trauma and straight nails for deformity, and builds on our ongoing success with PNP femur and PNP tibia, and leverages existing PNP instrumentation.
We’re planning full commercialization for PNP Retrograde while continuing the ongoing deployment of PNP Tibia in 2027. Taken together, 3P Hip, 3P Small, 3P Mini, PNP Tibia, and PNP Retrograde, in addition to our OSSIO partnership, show how much opportunity is in front of us in 2027 and beyond. While some of these products are not expected to contribute significant revenue in 2026, their release shows that the Super Cycle is progressing as planned, and we expect the bigger growth opportunity to come in 2027 and beyond as we move toward full launches and wider adoption.
Our focus is now on training, service, and clinical feedback to support those introductions. Turning to specialty bracing, OPSB once again delivered an outstanding quarter with growth above 20%, similar to the prior quarter. New products, same-store sales growth, and clinic expansion continue to drive this rapidly growing franchise, and we’re very pleased that our bracing offerings continue to broaden our reach outside the operating room. OPSB has become an increasingly key part of our pediatric orthopedic platform and our long-term growth strategy.
Within OPSB, the Super Cycle of new product launch and development is hitting a fever pitch with no end in sight. In September, we completed the full market release of the PD Hip Rigid Brace, also known as the Hippo. This product expands our hip care offering for children 3 years of age and younger, including developmental dysplasia of the hip and post-operative stabilization. It addresses a significant pediatric need within our growing hip care portfolio.
In October, we also announced the limited launch of the OPSB Knee Tractor Fix Contracture Management Orthosis. This knee product is designed to address pre-existing or developing contractures in children and young adults undergoing tibial external fixation. By connecting directly to Orthex and external fixation technologies, Knee Tractor Fix demonstrates the breadth of our portfolio across the continuum of care. These launches build on a portfolio that has been transformed over the last few years and now includes DF2, our modular hip braces, Mackie 4, and the recently launched Traxio Halo Gravity Traction System.
As a reminder, Traxio supports halo gravity traction therapy in pediatric spine care and illustrates the connection between OPSB and our surgical systems. Together, these offerings expand the range of solutions we can provide for our customers. For example of hospital interest in Traxio, we have already completely sold out of the initial limited units and are accelerating our 2027 build to meet the market demand as we move to full market release.
As our OPSB products continue to grow, we now have 34 OPSB systems, up from 31 at the start of the year, representing more than a third of our total product portfolio. Notably, our bracing product development is having a large impact on OPSB growth overall. We also extended our clinic footprint this quarter, and we’re pleased to report that we now have over 60 clinics, more than double our clinic total just a few years ago. These key metrics show solid progress across our three-pillar OPSB strategy, including sales rep growth, new product development, and clinic expansion.
We’re encouraged by the momentum we’re building in OPSB. We’re bringing new products to market while our clinic and commercial teams expand access to grow the business. Connections to our surgical portfolio create additional opportunities to serve our clinical partners and support long-term growth, and our consistent execution makes us highly confident in where the franchise is headed. In scoliosis, global revenue increased 18% to $19.2 million in the third quarter. Continued share gains with the Response Fusion system were an important driver of that growth. Our established fusion products continue to win business and drive our exceptional performance while newer systems enhance our ability to support pediatric spine surgeons’ additional needs. OrthoPediatrics is the only provider offering a full range of solutions to treat scoliosis across the entire continuum of care, including the most complex and severe pediatric spinal deformities both inside and outside of the operating room.
While we placed one 7D unit this quarter, compared with no units sold in the third quarter of 2025, it was not a major growth driver and the recurring utilization revenue was similar in both periods. With this in mind, our scoliosis results this quarter primarily reflect strong underlying implant demand. We’re also seeing growing surgeon adoption of Vertiglide, and we remain excited about its role in expanding treatment options for EOS patients with complex spinal pathologies.
That adoption is contributing to our scoliosis growth and broadening the range of solutions we can offer surgeons. Our deep scoliosis portfolio, including Vertiglide, ApiFix, Response Fusion, Traxio, Firefly, 7D, and our pediatric bracing products and services—not to mention the ongoing development and first in-patient procedure of our electromechanical growing implant ELLIE in early 2027 and the limited launch of our next-generation fusion system Veraxis—reinforces our ability to support patients across this continuum of care inside and outside of the operating room.
The setup for our scoliosis business over the next several years is very good, and we continue to develop and launch solutions that meet unmet needs for this very complicated condition. Moving to our international business, revenue increased 18% to $14.8 million in the third quarter. We saw very strong growth in EMEA across trauma and deformity, scoliosis, and bracing. LATAM also delivered solid underlying performance excluding the headwinds from lower set sales. Overall, our international teams are executing well, with meaningful portfolio demand supporting the quarter’s results. Product launches into EMEA enabled by recent EU MDR approvals are ongoing, and we’re still in the early stages of the rollout.
We are thrilled about the opportunity to bring these products to European clinicians, helping to close significant clinical gaps for kids in those regions, and the recent strength of our international business only adds to our confidence. In summary, we are proud of our third quarter results. Record revenue reflects continued share gains across our legacy portfolio, broad-based implant demand, strong momentum at OPSB, and solid international execution. Our results demonstrate the strength of the pediatric platform we’ve built, and we’re still early in our product development Super Cycle. The full impact of our recently limited launch products is still ahead of us as we move toward full commercial launches.
We believe we are strongly positioned to deliver growth at scale, and we look forward to building on this quarter with the goal of helping more children than ever before. With that, I’d like to turn the call over to Fred to provide more detail on our financial results.
Fred Hite (Chief Financial Officer)
Thanks, Dave. Taking a closer look at the P&L, our third quarter of 2026 record revenue of $72.7 million increased 19% compared to $61.2 million in the third quarter of 2025. The increase in revenue in the third quarter was driven by strong demand across implants and OPSB, growth in both trauma and deformity and scoliosis, solid international performance, and continued execution across the business. US revenue was $57.9 million, a 19% increase compared to $48.7 million in the third quarter of 2025, representing approximately 80% of total revenue. Growth in the quarter was driven by strength in trauma and deformity, scoliosis, and continued OPSB performance. Total international revenue was $14.8 million, representing growth of 18% compared to $12.5 million in the third quarter of 2025 and approximately 20% of total revenue. International growth was underscored by robust European sales, partially offset by set sales timing in LATAM.
In the third quarter of 2026, trauma and deformity global revenue of $52.6 million increased 19% compared to $44.1 million in the prior year period. Growth was primarily driven by strong growth across numerous product lines, specifically our cannulated screws, PMP, femur PD plates, the addition of three phip, as well as continued OPSB growth. In the third quarter of 2026, scoliosis global revenue was $19.2 million, representing growth of 18% compared to $16.3 million in the prior year period.
Scoliosis performance was primarily driven by increased revenue generated from Vertiglide as well as Response. Finally, sports medicine other revenue in the third quarter of 2026 was $0.9 million compared to $0.8 million in the prior year period. Looking at a few key metrics for the third quarter of 2026, gross profit margin was 74%, in line with the prior year period. Total operating expense was $58.2 million in the third quarter of 2026, up 6% compared to $54.7 million in the prior year period. The increase was mainly driven by increased sales commission expense as well as additional personnel supporting clinic expansion and small scale acquisitions. Sales and marketing expenses increased $4.4 million, or 24%, compared to the prior year period of $23.1 million, driven largely by increased sales commission expense and an overall increase in volume of units sold.
General and administrative expenses increased $2.9 million, or 10% year over year, to $32.0 million in the third quarter of 2026, primarily due to the additional personnel supporting clinic expansions and small scale acquisitions, as well as increases in non-cash stock compensation, depreciation, and amortization. Intangible asset impairment was $0.6 million in the third quarter of 2026 related to our annual impairment analysis, where we determined the fair value of two trademark assets were below their respective carrying values.
During the third quarter of 2026 there were no restructuring expenses as compared to $2.3 million of restructuring expenses in the third quarter of 2025. Research and development expenses were $2.5 million in the third quarter of 2026, up from $2.3 million in the prior year period. Total other expense was $1.8 million for the third quarter of 2026 compared to $2.5 million for the same period last year. The year-over-year change was primarily driven by a $0.8 million non-cash fair value adjustment of contingent consideration.
GAAP net loss per share for the period was $0.25 per basic and diluted share compared to $0.50 per basic and diluted share for the same period last year. Non-GAAP net loss per share for the period was $0.23 per basic and diluted share compared to $0.24 per basic and diluted share for the same period last year. Adjusted EBITDA was a record $6.9 million in the third quarter of 2026 compared to $6.2 million in the third quarter of 2025. This represents an adjusted EBITDA margin of approximately 10%, driven by revenue growth and operating leverage as we balance growth investment with expense discipline.
We ended the third quarter with $45 million in cash, short-term investments, and restricted cash, and we still have another $20 million of term loan available to us. Set deployment was $2.5 million in the third quarter of 2026 compared to $4.1 million in the third quarter of 2025. We continue to focus set deployment on higher return systems and remain disciplined in allocating capital to support growth. Free cash flow generated in the third quarter of 2026 was $1.6 million compared to $3.4 million used in the third quarter of 2025.
This $5 million improvement was driven by growing adjusted EBITDA, disciplined set deployment, and working capital improvements. Turning to guidance, we are raising our full year 2026 revenue guidance to be in the range of $270 to $273 million, representing growth of 14% to 16%. We’re also reiterating our adjusted EBITDA guidance of approximately $25 million. We continue to expect to deploy approximately $10 million in sets and to achieve free cash flow breakeven or better in 2026 and beyond. Overall, we are executing well against our strategy to translate strong revenue growth into robust financial performance through expense discipline and a deliberate focus on selective growth investments with high returns.
This quarter’s results support our strategy and further reinforce durable long-term value creation across our businesses. Operator, let’s open the call for Q&A.
OPERATOR
Thank you. If you’d like to ask a question, please press star 11. If your question has been answered and you’d like to remove yourself from the queue, press star 11. Again, our first question comes from Caitlin Roberts with Canaccord Genuity. Your line is open.
Caitlin Roberts (Analyst)
Hi, great. Thank you so much for taking the questions and congrats on the quarter. Maybe just starting off with the adjusted EBITDA and the free cash flow expectations for the rest of the year. Seems like with the set spend you have maybe a similar amount of set spend left for Q4. I mean, where’s the leverage in the business that you expect to come from to hit the guidance from an adjusted EBITDA and free cash flow perspective?
Fred Hite (Chief Financial Officer)
Yeah, absolutely. So in the third quarter we did have some higher sales and marketing expenses. So it’s 31.5% of sales as compared to 30.5% of sales last year. The good news is all six of our top partners, sales partners, distributors, achieved quota, and so their year-to-date kicker on the performance kicked in and generated higher commissions for us. We will claw back some of that in the fourth quarter. So some of this is timing, but that was one driver. The second driver is just, I think, continued investments in the startup clinics and rolling out the new products that we’ve been talking about and focusing on delivering future revenue. But if you look at the business, you know, year to date we’re at $16 million of EBITDA compared to $10 million at this time last year. So that’s a 60% improvement year over year and the revenue is up 16%. So, you know, we’re overall very, very pleased with how we perform and how we’re managing the balance of revenue growth, additional EBITDA, and then cash flow.
For the third quarter we did turn positive. So it’s the second quarter the business has been positive free cash flow, couple million bucks compared to using three last year. So a $5 million improvement. Year to date we’re at about $6 million of usage, so we need to generate $6 million of positive in the fourth quarter to get to the breakeven or better for the year. And in the fourth quarter of last year we generated $10 million. So very, very confident that free cash flow will absolutely get to breakeven or better for the year.
Caitlin Roberts (Analyst)
Wonderful. And just a question on the procedural environment and seasonality. I mean, what did you see in Q3 and what are you seeing headed into Q4?
Dave Bailey (President and CEO)
Yeah, we’ve had very healthy procedure volumes. I think the environment in children’s hospitals, at least for pediatric orthopedics, has been very, very strong. I know there’s been some mixed commentary out there from other companies, but at least so far, what we have seen, certainly throughout Q3 with the revenue growth that we posted, you can expect that we saw very, very nice volumes. We’ve seen great volumes in our clinics and I think we don’t see anything that would put that in jeopardy heading into Q4 and as we move into 2027.
So very positive outlook, I think, as we go forward.
Caitlin Roberts (Analyst)
Great. Thanks so much.
OPERATOR
Thank you. Thank you. Our next question comes from Rick Wise with Stifel. Your line is open.
Rick Wise (Analyst)
Good evening, gentlemen. Great to see another solid quarter across the board here. Maybe talk to us a little about the fourth quarter a little more. You raised, obviously, low end, high end by roughly in line with the beat but in the fourth quarter. And I appreciate the seasonal element here, but as you said, Dave, you’re gaining share. More of the products that are launched are picking up steam, more are launching, OPSB doing great. Why wouldn’t we imagine that just thinking about the midpoint of your range putting the fourth quarter something roughly like $69 million.
Why couldn’t that prove conservative given all those elements, or is that too optimistic?
Dave Bailey (President and CEO)
Well, I think that, you know, we are trying to make sure that we don’t get ahead of ourselves here as we do. You know, Fred holds us back in all of these things, so we’re going to try to keep our guide in check. I also would point out that in Q4 of last year we had set sales to Brazil, and it’s possible that that won’t happen here again in Q4. We also did have pretty substantial 7D unit sales in Q4. And so I think a measured approach with some conservatism built into Q4 and built into the guide here is called for.
And, you know, we could get a number of 7D units in Q4, we’ll see, but I don’t think we want to bank on those. And that’s why we have set the guide the way we have throughout the year and we’ll continue to keep the guide where it is for Q4.
Rick Wise (Analyst)
Yeah. And I’m going to stay for now focused on the guidance and help us think—I know if you were ready to give 2027 guidance you would do it. You haven’t, but still got to ask about it. Help us think through, though, just some of the puts and takes as we think about ’27. Again, you’re executing well, you’re saying, David, that demand is strong. But I’m particularly focused on the new products and the impact of these—you know, this super cycle moving into ever fuller launch with each passing quarter.
I mean, you started this year I think guiding us 11% to 13%. Now we’re up to 14% to 16% growth. Why wouldn’t the setup for next year be more in this kind of a mid-teens or better range as opposed to on the more conservative end? And maybe again talk about some of the puts and takes that we should be thinking about. Thank you.
Fred Hite (Chief Financial Officer)
Yeah, thanks, Rick. I think I would say we’ll probably be consistent in our methodology. You know, we did sell a couple units of 7D in 2026. We may sell a unit or two here in the fourth and we’re not going to count on that and put that in our guidance in future periods. We did sell some sets here in 2026, although lower than we did in 2025. Again, we’re not going to count on that and include those dollars in our guidance as we continue to try to manage the profitability of the business and improve the cash flow of the business.
Offsetting those, obviously, is the good news from the new product launches. And as Dave said, it’s still early. Those will be developing in 2027. They won’t be in full force, but we will definitely see a favorable impact from those in 2027, which will drive growth for the business.
Rick Wise (Analyst)
Thanks so much.
Fred Hite (Chief Financial Officer)
Thanks, Rick.
OPERATOR
Thank you. Our next question comes from Matthew O’Brien with Piper Sandler. Your line is open.
Ana (Analyst)
Hi, Dave. Hi, Fred. This is Ana here on for Matt today. Thanks for taking our questions. I wanted to ask again on the Super Cycle. Obviously, you’ve got a lot of new products coming down the pike over the next few years, which we’re all excited about, clearly. But I was wondering, beyond the benefit to the top line, how you expect the innovation pipeline to really contribute from a profitability standpoint and what those main drivers of any profitability improvements would be.
Whether it’s mix, pricing, more efficient use of instrument sets, scale, all of the above. Yeah, anything that would be helpful. And then I have a follow-up.
Dave Bailey (President and CEO)
Great. Well, I think you hit the nail on the head. It’s a little bit of all of the above. Each one of these products have a higher ASP. You can assume that the implant margin of the business is improving, and we continue to get leverage on the contracting with all of these products, which is pulling through our existing legacy products. So I think the impact of Super Cycle products certainly is contributing to top-line revenue, will contribute nicely in 2027 and beyond.
But the fact remains is these sets are more efficient. They’re far more capital efficient with higher ASPs, higher margin, and they return cash faster. And again, they have the benefit of pulling through. A number of the other products, in large part, are already deployed, sitting in children’s hospitals, and we get more usage of those products, which obviously has impact on free cash flow. So I think, again, Super Cycle having positive impacts across the business overall. I would also point to the fact that within OPSB, the Super Cycle products there are contributing really nicely. I mean, certainly the clinic expansion and same-store sales are driving top line, but I think we’re very, very pleased with the output that we’re getting from the R&D team.
On the OPSB side, products like DF2 are really, really growing. I think we have nearly half of all the children’s hospitals in the U.S. have already adopted DF2 here just over the last few years. And those are nice-margin products that don’t require any inventory deployment on our side. And so all of these products combined, I think, will benefit the P&L, certainly benefit free cash flow over the course of the next several years.
Ana (Analyst)
Got it. That’s helpful. And then I guess just on that second point there on the OPSB clinic expansion, I don’t know if you mentioned how many territories you’re in today. I know you said 60 clinics total and, you know, the long-term target has been 27 territories by the end of ’27. I was looking at my notes. It seems like you were in 13 territories the last you said anything. So just wondering how you’re planning on maybe roughly doubling your territory exposure over the next 15 months or so and what the main criteria guiding decisions about opening or acquiring these new clinics is, and your confidence in your ability to reach this target in a cash-effective manner.
Dave Bailey (President and CEO)
Thanks. Good question. What’s really exciting on the clinic expansion side is just the demand opportunity for us. I would say we are well ahead of our territory expansion, and at 60-plus clinics, we probably have more clinics now than we thought we would have at this time. So I’m very pleased with what the team has been able to uncover there in terms of both greenfield opportunities and a few of the acquihire opportunities. I think as we continue to open more clinics, it’s providing more opportunities. Surgeons are talking, hospitals are talking, talking about the positive experiences they have with our OPSB clinics because they’re focused exclusively on the pediatric bracing side, pediatric bracing care. And there just seems to be more and more demand, more and more opportunity for us to open clinics, and we want to continue that momentum. We’re probably maybe a little ahead of where we thought we would be, and we certainly don’t want to slow that back.
It does have a bit of an impact on the P&L because, you know, opportunities to grow clinics come, and there’s an expense associated with that. But we really don’t want to slow down. I think we want to extinguish as much of the demand as possible. And with 60 clinics and 300 children’s hospitals, there’s an enormous runway of growth opportunities for us. And when you combine that with surgeon access to all of these new products that are used—sometimes sold directly to the hospital, in other cases sold through our clinics—it’s just a really exciting setup for the next several years.
Ana (Analyst)
Awesome. Thanks.
Dave Bailey (President and CEO)
Thank you.
OPERATOR
Thank you. Our next question comes from Ryan Zimmerman with BTIG. Your line is open.
Izzy (Analyst)
Hi, this is Izzy on for Ryan. Thanks for taking the questions. I just wanted to go back to the Super Cycle, if we could, for a while. Dave, I know you talked about the number of products that are just beginning their limited market release, so I was hoping if you could provide some commentary on timing as to when we might see these move into full launches and what you like to see prior to fully launching a product.
Dave Bailey (President and CEO)
Yeah, good question. So at this stage, we’re in full market release of the 3P hip. So that is the only product within the 3P family right now that’s in full market release. We will be launching more and more sets of the 3P hip over the course of the next several quarters. So growth we will see in the trauma and deformity business from 3P hip will be very similar to kind of the long tail of growth you see with all of our products. I mean, at this stage, we’re still launching the PMP tibia, and it’s been out a few years, but still driving very, very strong growth.
So 3P hip, 3P tibia still in commercial release, but very early, at least for 3P hip in commercial release. The 3P small and mini, we have very few sets out there. We’re starting to do procedures at some of the KOL hospitals, the key opinion leader hospitals where we have designed the products. We’re getting very positive results and we like what we’ve seen so far. But I think the small and mini is probably a first half to middle first half of next year type of story when we move into full market release.
On the scoliosis side, Vertiglide is moving really from early adoption and just having a few sets to getting more and more sets of Vertiglide out there. I think we have now some 125 surgeons or so trained, you know, upwards of 40 hospitals that have been utilizing Vertiglide. So it is really moving into full commercial release. But again, long tail of growth opportunity for us there. And so I think Vertiglide will be a story for us in 2027 as well as the 3P small and mini. 3P hip on the PMP retrograde side, we haven’t talked as much about that with you all over the last six months or so. But I think we did point that we thought we were going to get first cases by the end of 2026. Very pleased that that went through FDA very rapidly. Our suppliers had product available to us. We put a few sets out and started doing first cases here in October. Those results look very good and are giving us confidence that we can get sets on order.
And that’s probably a full market release sometime mid next year. So we’ve got a really nice setup with the products that are just now in full release. We’ll start releasing products, more products in 2027. And again, you know how long these tail of growth these things have. We’re trying to be judicious with how many sets we deploy at one time, balancing the need for growth against positive free cash flow, and certainly projecting positive free cash flow in 2027. And so there is a bit of a tug of war sometimes with our business leaders as to how many sets we want to deploy.
But I think we’ll continue to be—I don’t want to say conservative, but not overly aggressive—in our use of cash. And I think we have a really nice setup here for so many of these Super Cycle products in 2027 that will not just benefit numbers in 2027, but for the next two, three years and in the future. And there’s more products that we’re not even talking about yet that are in product development that next year we’ll start to have beta launch. So the cycle is, again, just starting. And I like where this is heading over the next few years.
Izzy (Analyst)
That’s really helpful. Thank you. And with that context in mind, how should we think about contributions to the OUS business? I know we saw that strong 18% this quarter, which came ahead of our expectations. So will we continue to see a similar ramp in these international markets? How are the Super Cycle products contributing there? Thanks for taking the questions.
Dave Bailey (President and CEO)
At this stage, the Super Cycle products really aren’t contemplated for the international markets. We have so many products that we haven’t launched, particularly in Europe yet, that have been legacy products now in the U.S. that we just now have received EU MDR approval for. So I think the growth that you’re seeing, particularly in EMEA, is as a result of continued market demand for a lot of legacy products, some of the early green shoots of EU MDR products that are getting to market, and really seeing really nice scoliosis growth in Europe.
You may remember, but just a few years ago, we essentially didn’t have a scoliosis presence in Europe. And because of the work of our regulatory teams and getting several products on the scoliosis side approved through EU MDR, we now have the majority of the product portfolio, particularly the RESPONSE product portfolio, available in Europe. And that’s driving a lot of growth. I would point out, too, that a number of the products on the OPSB side are much easier to get approvals for outside of the United States.
And again, they don’t require us consigning inventory. So we are planning and starting to sell products, particularly like DF2, to international markets, although we’re probably just barely in the batter’s box in terms of our opportunities for some of those OPSB products outside of the United States. You know, I think you could expect us to see strong international growth throughout. Obviously, you’ve seen it throughout 2026. I think there’s, again, a nice setup for us outside of the United States as more and more of these products get there. Our bracing business continues to grow outside of the U.S., but it is slightly offset by, you know, the work that we’re doing in LATAM. Once again, in the quarter, we restricted set sales, particularly to Brazil.
Most of those set sales were on the scoliosis side, which actually makes our 18% scoliosis number look even more impressive. And we are going to be very smart and very conservative about how we move some of those products into the markets where we don’t want to have larger AR balances. I think we’re getting it right in Brazil. I think we’re getting it right in LATAM. But some of the growth that you’re seeing on the international business is being tempered by some of the performances we’re getting out of LATAM and particularly Brazil.
OPERATOR
Thank you. Our next question comes from Mike Matson with Needham & Company. Your line is open.
Mike Matson (Analyst at Needham & Company)
Yeah, thanks for taking my questions. I guess I wanted to start with one on contracting. You know, you made some comments there. I’m just curious about, you know, how many of your hospital customers are under contracts and, you know, how does that sort of affect your business in those facilities? You know, does it result in kind of, like, market share gains or anything like that? Thanks.
Dave Bailey (President and CEO)
Yeah, so the majority of our hospitals are on some form of contract. Obviously, most are on simple pricing contracts related to the products that they have been using over the course of the last several years. You know, our sales team, company overall commercial team, is trying to get more and more usage of the products that are in the hospital already. Just because they’re in the hospital doesn’t mean that every surgeon in the hospital is utilizing that.
So when we bring a product like 3Phip, admittedly there’s still limited volumes of sets, and, you know, we don’t want to use our cash as aggressively as maybe we would have in the past. And so there’s some scarcity for some of these products, particularly when we’ve seen some of the competitive products from other companies be pulled from the market. We have just, frankly, so many of one kind of no-threat-of-substitute products that it does allow us, Mike, to go into a hospital and build on the contracts, the pricing contracts that we have, and hopefully convert some of those pricing contracts into either single-vendor or, you know, maybe high dual-vendor contracts that get us 50, 60, 70, maybe even 80% market share. And what that does is not only allows those hospitals to access the new products in the super cycle, which is great for them, great for their patients, great for us, but also pulls through some of those legacy sets that are on the shelf oftentimes.
So it doesn’t require us deploying more capital. Those sets are on the shelf and then gets a higher compliance rate to some of the less differentiated technologies, like cannulated screws, like flexible nails. And we are seeing growth in those product lines right now. That’s why you hear me lead off every one of these calls with, obviously, still, the number one driver of growth for us is in gaining market share within the legacy products. And again, I think what we really like about that is it isn’t requiring a bunch of additional set deployment. And so as those sets become better utilized, that has a very positive impact on free cash flow for us.
Mike Matson (Analyst at Needham & Company)
Okay, got it. And then just looking at kind of the P and L for the first three quarters of the year, you know, from an operating expense perspective, it looks like R and D and G and A have been relatively flat year over year. But sales and marketing looks like it’s tracking more in line with your sales growth — about 15, 16% growth, if my math is correct. So not that that’s a bad thing, but I guess just wondering, is there any potential to generate leverage in sales and marketing, or just given the investments you’re having to make, is that going to kind of grow more in line with sales, you know, in future periods?
Fred Hite (Chief Financial Officer)
Yeah. So in the first couple of quarters, we did get a little bit of leverage. Obviously, sales in the second quarter were much higher than they were in the first quarter, which drove the sales and marketing dollars up second quarter as compared to the first quarter, but the percentage was still pretty good. I would say the third quarter was a bit of an anomaly where it was a little higher than last year, and we don’t expect that that’s going to repeat.
So there will be some leverage that we will gain in the fourth quarter and then some additional leverage that we’ll gain going into next year as well. So I would call third quarter a bit of an anomaly and probably not expected to see that type of an increase in the future.
Mike Matson (Analyst at Needham & Company)
Okay, understand. Thank you.
Fred Hite (Chief Financial Officer)
Thanks, Mike.
OPERATOR
Thank you. Our next question comes from Ben Hainer with Lake Street Capital Markets. Your line is open.
Ben Hainer (Analyst)
Good afternoon, gentlemen. Thanks for taking the questions. First off for me, just on OPSB, I mean, it really sounds like that’s going great guns. Just thinking back a couple years, if you started talking about this, it really seems like the economics and maybe even the mix between acqui-hire and de novo has kind of tracked to what you guys thought, I guess. Is that a fair statement? And with how fast you’ve rolled these things out there, should we think about this as kind of, you know, every opportunity that you get where, you know, either there’s an acqui-hire or a good location that you can get within a hospital, that you’ll kind of take it?
Just big picture — any thoughts there?
Dave Bailey (President and CEO)
Yeah, and I think you’re right in terms of this has gone extremely well. I think the unit economics or the location economics have worked as we thought they would work. Certainly, as we’ve said, greenfield locations take longer and there is more upfront expense before you drive revenue. So we are balancing how fast we want to greenfield more and more locations. We’re not necessarily turning down any options, but I do think that we’re trying to balance the best options that drive profitability most rapidly.
And obviously we’re balancing those with accounts where we have very, very solid relations. On the implant side, you’re hearing a lot of the OPSB new products. They also tie out in some cases to some of the implant systems we sell. So Traxio is, you know, the Halo gravity traction system — there’s a surgical procedure that has hardware associated with it. We currently don’t sell the hardware, but we will in the future, and that will be a new product for us. But that ties into usage of Vertiglide. It ties into usage of our fusion system.
And so you are seeing a nice synergy between those systems. Same thing with a knee Tractor Fix, where we’re seeing the tie of hospitals who are using Orthex and then utilizing those Orthex patients going to our clinics and getting the Tractor Fix system. I think that is a perfect synergy. And so, you know, we’re being fairly judicious about where we target new clinic opportunities. And a lot of those new clinic opportunities are in places where we have, again, very strong relationships already — good contracting, high usage of our implant systems. And in those places, you can imagine there’s an extremely high demand. We’re getting pulled into those conversations by hospitals and by physicians, which is fantastic. I mean, that’s what you would always hope for.
I just think that there is some limit just from a total personnel that we can’t do them all at once. And so that’s probably the limiting factor here, and just the fact that we don’t want to get ahead of ourselves on the expense side.
Ben Hainer (Analyst)
Got it. That makes sense. And then just thinking about the DF2 being in, you know, half of children’s hospitals now, are there, I guess, any commonalities between those hospitals or maybe the ones that it’s not in yet? And then, you know, with a 30-odd other kind of OPSB products, do you see sort of adoption curves that look like DF2 in any of them, or all of them for that matter?
Dave Bailey (President and CEO)
Well, a number of the 30 products that we started with came with the Boston OMP acquisition — the MDO acquisition. I would argue that particularly with our clubfoot bracing products, we have extremely high market share in the U.S. and really outside of the United States. So adoption is very, very high. Probably not a huge volume of growth there for some of those 30 products. But products like DF2 — I mean, I’ve been doing this a long time, nearly 20 years — I’m not certain I’ve seen a faster adoption of any product we’ve ever developed, and really a complete change to what now is the gold standard in terms of how you take care of these young children with femur fractures and a virtual elimination of spica casting.
I think some of the pathway to adoption is different in every account. I would say the first half of those places are places where we probably had maybe slightly better relationships on the implant side, and surgeons who heard about DF2 early and were very aggressively wanting their hospitals to stock. I would guess over the course of the next few years that DF2 will become ubiquitous in every children’s hospital in the United States and around the world.
And so it’s still got growth ahead of it. I also think that not every product on the OPSB side is going to be DF2, completely changing the gold standard. But I do think we have some products in the pipeline that will. And if you look at the economics of a product line like DF2, it is very, very good. This has relatively high ASPs — certainly not that of a scoliosis procedure or a PNP femur — but, relative to high ASPs, really nice margin and no set deployment required. And so, you know, the more products like DF2 that we can develop, we can get to market, and frankly, just the patient impact of a product like DF2 and some of these new products that the OPSB team is developing — it is really remarkable.
It’s why we do this. And if we can do this and do this well, impact patients in a very positive way and do it in a very economically friendly way for the business, then we want to do more of that. I think that’s what you hear in my excitement on the R and D side of OPSB. We just think we’ve got more DF2s out there, and it’s going to be very exciting in the future.
Ben Hainer (Analyst)
Excellent. Well, thank you very much for taking the questions and congrats on the quarter.
Dave Bailey (President and CEO)
Thanks, Ben.
OPERATOR
Thank you. Our next question comes from Matthew Blackman with TD Cowan. Your line is open.
Drew (Analyst at TD Cowen)
Hi, David. Fred, this is Drew on for Matt tonight. Dave, a couple product questions for you, and then Fred, I have a question on EBITDA. But Dave, you mentioned this earlier that you’re up to about 125 new surgeons trained on Vertiglide. I was wondering if you might be able to update that metric — I think that was the number from last quarter — and then curious where you’re kind of seeing that growth from or that user base coming from. Is that existing users or de novo users?
And any way to quantify the pull-through that you’re seeing today in the portfolio? And then for Ellie, maybe timing might have slipped a little bit from what you were saying for the last quarter, with first inpatient cases starting in ’27. Just maybe what has to happen for you to kind of get that across the finish line? What’s left to do? And you said last quarter too that this could be a bigger product than Vertiglide. Could that actually happen in 2027 or is it going to take time for this one to ramp up?
Dave Bailey (President and CEO)
Yeah, good questions, Drew. Lot to unpack there. So the 125 on the Vertiglide, I think, is the formal training that we have done. We did not have any very large-scale surgeons traveling to a specific location to be trained on Vertiglide in the quarter. We certainly are training surgeons every day at a local level. So I’m not sure the total volume of surgeons that we now have trained, but I can get you an updated number. I think what we have seen in terms of user base of Vertiglide continues to grow.
It’s a combination of users who are using it more frequently because they had a great experience combined with completely new users. We don’t have long-term data out, but I would say that we hope within the next year or so that we’re going to be getting patients to a few years out, which would be very impactful for the business. And we’re tracking all these patients. So, you know, Vertiglide is a complex procedure. There’s not been very many good solutions for EOs over the course of many years. And so I think we’re very pleased with the rate of adoption, the user base. And I will say that some of the accounts, some pretty substantial accounts for us right now on the scoliosis side, are as a result of the fact that surgeons had such a great user experience with Vertiglide.
It’s always been our strategy to deliver these very complex surgical solutions in places where other companies aren’t willing to invest and then obviously drive the revenue and the patient impact from those procedures, but also drive pull-through from response. And, you know, the underlying implant growth in the quarter was very strong. And I think that you could assume that’s not all Vertiglide. A lot of that is pull-through and new users of our, of our response fusion side.
With respect to Ellie, frankly, this is going to come down to an FDA decision. I think we’re doing the work that we need to do. We need to get our IDE approved. I can’t guarantee exactly when that timing is, but I think we’re close, and certainly we will notify the market when we get that approved. I do think we will be doing surgeries. You know, certainly doesn’t look like we’ll be doing surgeries by the end of this year, but it looks like into early 2027.
And we will continue to have an ongoing discussion with the FDA about how many of those procedures are required before we can move to full market release. Again, Ellie is a very complex device, as you know. And you are right in saying that we believe Ellie can be a substantially larger opportunity for us than Vertiglide. It will have some impact on 2027, but it will probably be in a limited release fashion. This is more a 2028, 2029 story. That said, when we get the device fully approved, we think this is going to have a very rapid surgeon uptick. When surgeons see this technology, when they see it in the lab, the feedback is extremely positive. We have a number of surgeons that are willing to travel to Warsaw for VIP visits and one of the things they all want to see is Ellie, because I think it is so compelling. So it’s a big opportunity when you partner Ellie with Vertiglide. And then next year we do the early release or the beta release of Viraxys, our new fusion system combined with Traxio and the surgical opportunity with Traxio as well.
That’s why I point that the next year, the next several years really on the scoliosis business look quite bright for us.
Drew (Analyst at TD Cowen)
Thanks, David. And Fred, just for you on EBITDA, is there any way that you might be able to—and I know there’s a few moving pieces in the third quarter to the fourth quarter with sales and marketing and the fair value adjustment here—but is there any way to parse out kind of what you’re spending or, maybe said differently, how profitable the clinics are and how that’s driving EBITDA? And then fourth quarter you’re going to have 60% drop-through kind of by my math—it’s probably not sustainable—but maybe how do we kind of think about a sustainable drop-through number as you’re still focusing on growth but also profitability?
Thanks for taking the questions.
Fred Hite (Chief Financial Officer)
Yeah, absolutely. So the growth in OPSB is kind of two-sided, right? So the ones that are up and running, have good volume going through there, look very, very good. The ones that are brand new are similar to our models, but they’re obviously costing money for the first six months as we get them established. We’ve got some models and some numbers we put in our investor deck for some time now, and I would say we’re tracking towards those very favorably.
But clearly when we’re opening new greenfield clinics in particular, there’s an investment up front. So it’s kind of a mixed bag—growing the ones that are there and established and then also investing for the future at the same time. So that’s on the OPSB side. You know, there’s probably, I don’t know, $700,000 maybe of timing that fell into the third quarter that’s not going to repeat in the fourth quarter. So we’ll get that advantage. And as I mentioned earlier, year-to-date, EBITDA is growing at 60% year over year compared to 16% revenue growth on a year-to-date basis. And we think those are pretty impressive results, and we would expect that level of performance to continue into the future.
OPERATOR
Thank you. Our next question comes from Ravi Misra with Truist Securities. Your line is open.
Ravi Misra (Analyst)
Hey, good evening. Thank you. Thanks for taking the question. So just a couple questions on OUS and then maybe one—I’ll start first with gross margin. Just trying to figure out—nice solid gross margin beat even with 70 sales. So can you maybe parse out the benefit from kind of mix versus pricing and volumes here and how we should be thinking about that in the fourth quarter? And then I’ll just ask the OUS questions up front. First, just Osio—are you thinking about any OUS distributions for that product? And second, just for OPSB, you mentioned it’s not on consignment. Just curious what the go-to-market model is to make this a more substantial portion of the revenue going forward. Thanks.
Fred Hite (Chief Financial Officer)
Yeah, absolutely. So very pleased with the gross margin—74% equal to last year. This year we did have 70 units; last year we had none of, and that obviously does drag it down a little bit. As we’ve mentioned in the past, the implant business has a stronger gross margin than OPSB, but the contribution margin from OPSB is equal to the implant business. So as the OPSB business is growing faster, that does put pressure on the gross margin. So we were able to offset that pressure with favorable performance.
Also, having domestic growing faster than the OUS helps the business, and the contribution of the new products that we talked about definitely helps that gross margin rate. I think 73% is probably the right number for the fourth quarter, which will put us in a very strong position for the full year.
Dave Bailey (President and CEO)
Yeah. On the international questions, Ravi, really haven’t contemplated Osio outside of the United States. Not saying that that isn’t possible at some point in time, but at this stage, you know, our focus is being rolling these products out in the US and we’re extremely early in that process and so haven’t gotten to how it could happen outside of the United States. But again, it’s a possibility at some point in time in the future. You know, when we talk about the OPSB products, we go to market with those products in a few different ways. Some of those products simply get ordered directly either through our sales team, through our implant sales team, or our OPSB teams. And we sell those directly to the hospital; we sell those directly to—whether it’s the emergency room or the hospital clinic. And so we literally manufacture them in one of our locations and ship them directly and get paid shortly thereafter.
And so there’s no stocking requirements from our perspective or on our side to consign that inventory. Then others of our OPSB products obviously get sold through our clinics, and so it’s less of a wholesale transaction. And we manufacture it for a patient that comes into one of our clinics. It gets fitted, applied—the brace gets applied in our clinics—and then we bill insurance directly for that clinic visit, which is, you can imagine, quite profitable for us in that instance.
Either way, we like the go-to-market strategy of both. It gives us opportunities to sell to hospitals that may not have a clinic or we may not even be contemplating clinics. And, you know, products like DF2 are placed oftentimes in the operating room or placed on a patient, some cases even in the doctor’s office or in the emergency room. And so they’re not as applicable for one of our OPSB clinics. Traxio is a product that is literally sold to the hospital.
It’s a small capital sale within the residuals of some of the reusables, and eventually Traxio will have an implant component to it, hopefully here in the next few quarters. And so that is an OPSB product that is sold directly to the hospital. It doesn’t touch any of our clinics. So it is a bit of a mixed bag in terms of how we go to market with those products. Each one of them has a unique sales strategy and go-to-market strategy. And in any event, we like the demand profile of these products, we like the margin of these products, and we like the fact that there’s no inventory requirements.
And so the more we do of those products, I think the better we’ll be.
OPERATOR
Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Dave for closing remarks.
Dave Bailey (President and CEO)
Great, thanks, operator. Well, once again, thank you all for joining us this evening. I think we’ll be at a number of conferences upcoming, and so Fred and I look forward to seeing you in the future. Thanks for your interest and have a great evening.
OPERATOR
Thank you for your participation. You may now disconnect.
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