Q4 2023 OrthoPediatrics Corp Earnings Call
Participants
David Bailey; President, CEO & Director; OrthoPediatrics Corp.
Fred Hite; CFO & COO; OrthoPediatrics Corp.
Tripp Taylor; Analyst; Gilmartin Group LLC
Matthew O'Brien; Analyst; Piper Sandler & Co.
Rick Wise; Analyst; Stifel, Nicolaus & Company, Incorporated
Ryan Zimmerman; Analyst; BTIG, LLC
Dave Turkaly; Analyst; Citizen's JMP.
Sam Brodovsky; Analyst; Truist Securities, Inc.
Presentation
Operator
Good morning, and welcome to OrthoPediatrics Corporation's Fourth Quarter and Full Year 2023 earnings 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 Chip Taylor from the Gilmartin Group for a few enter 3Com's.
Tripp 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 the federal securities laws, including the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. And 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 will be filed with the SEC in the near future.
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. 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 earnings.
Please note that these 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, March seventh, 2024. 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.
David Bailey
Thanks Tripp. Good morning, everyone, and thank you for joining us on our fourth quarter and full year 2023 conference call. As we start our earnings call, I'd like to begin by highlighting that we helped over 82,000 kids in 2023 a new record for OrthoPediatrics. Since inception, we've helped over 710,000 kids and including Boston O&P, our combined organizations have helped more than 1 million kids. This continues to be the most important metric of success for OrthoPediatrics and each year, we strive to increase our impact and benefit markets.
In line with our pre-announcement from early January for the fourth quarter of 2023, we generated quarterly revenue of $37.6 million, representing growth of 21% compared to the fourth quarter of 2022 for the full year of 2023, we generated record revenue of $148.7 million, representing growth of 22% compared to the full year of 2022, driven by favorable leverage in the cash portion of G&A, disciplined expense management, strong margins and healthy revenue growth. We are excited to report that we outperformed our original adjusted EBITDA expectations, producing a record adjusted EBITDA of $5 million in 2023. In addition, we are thrilled to see our prior acquisitions fully integrated and performing well with robust top line revenue contributions and profitability.
Looking closer at the quarter, revenue and surgery scheduling was strong throughout except during the final two weeks of December when we started to experience lighter surgical volumes due to an uptick in RSV. After RSV rates rose rapidly at the end of December and extended into early January, volumes quickly returned to more normalized levels hospitals appear to be managing their spikes of the respiratory season better and mitigating the impact on case schedules. Altogether, volumes and staffing continued to improve month over month.
And while still not running full tilt, we are encouraged. Recovery in the environment is tracking our expectations for modest sequential improvement. Overall, we feel this headwind is lessening and we will remain cautious until we see further normalization. The diverse nature of our business continued to benefit OrthoPediatrics in the quarter. Global trauma and deformity domestic scoliosis and OPSB. business were very strong offset by lower growth in international scoliosis.
Fourth quarter global T&E was very strong at 23%, with growth led by sales of Pega products. Pnp Femur, early sales of PNP tibia and growth within the LPSB. franchise. US Scoliosis revenue bounced back aggressively in the fourth quarter with 35% growth despite a very slow few weeks at the end of December, new scoliosis users continued to increase significantly across the response and EpiFix product lines. Overall, global scoliosis growth was slightly muted by a continuation of slower than expected ordering in our Latin and South American business, resulting in a 31% reduction in OUS scoliosis sales and negatively impacting overall growth.
We expect O-US scoliosis to rebound in 2024 and to act as a tailwind for the full year, beginning as early as Q1 with multiple opportunities, including continuing legacy product growth. Several key new organic product launches, Pega sales mix mentioned normalization of international markets positive longer term as fixed data publications, a newly formed and rapidly expanding specialty bracing business, OPSB. and at an early start in digital health care, we are confident in our growth prospects for 2024 and beyond. Importantly, we remain in an extremely secure financial position and are confident that our current balance sheet enables us to execute our long-term strategy without additional equity capital.
Therefore, we are reiterating our revenue guidance for the full year 2024 of $197 million to $200 million, including Boston LMP historical revenue of $25 million, representing overall growth of 32% to 34%. We are also issuing our full year EBITDA guidance of $8 million to $9 million and our expectation for SET deployments of less than $20 million as we continue to focus on improving profitability and reducing cash usage.
We closed 2023 on an extremely high note, we achieved a record number of children helped, record revenue and generated record adjusted EBITDA. We continue to balance top line revenue growth with improved profitability on our way to cash flow breakeven sooner, the trend we expect to carry into 2024.
Moving to our revenue segments in the fourth quarter of 2023, we generated total trauma and deformity revenue of $27.1 million, representing growth of 23% compared to the prior year period. Strong performances from Pega products, trauma, XE6 and OPSB. led revenue growth in the quarter, we saw continued record Pega product performance with substantial growth of 59% in the US and 32% outside of the US sales are going to continue to be better than we ever expected. And as we more deeply penetrate our U.S. accounts with the full Pega product portfolio and ran international sales. We believe Pega growth will continue to be very strong globally in 2024 and beyond.
Elsewhere in T&D, we continue to take share across our entire T&D portfolio, a trend we expect to maintain for several years. We enjoy a leading share position and then T and D franchise within the U.S. children's hospitals and we plan to continue to execute our market. Dominant strategy was set deployment, new product development and superior service. On the R&D side, we received FDA approval and beta launched the PNP tibia system in Q three and performed more cases than we expected in Q4. Initial surgeries have gone extremely well so far. The surgeon usage rate has been higher than we forecasted which bodes well for our full market launch of the PNP tibia scheduled to start in the first half of 2024.
We expect PMP to be that to be an important growth driver in 2024 and for the next several years and expect the full release of the new packet Gyro product to make a positive impact as well, driven by continued execution of our key account conversion strategy. We have seen an increase in the number of customers and the quantity of product use now with more high-technology products coming to the market and a robust pipeline that was strengthened by the Pega acquisition.
Our T&D business is positioned to deliver sustainable growth over the next several years as we execute our long-term strategy to capture greater than 50% market share. We also have several prominent R&D projects in process within the surgical side of the T&B business. We're making great progress on the development of our entirely new pediatric plating platform for P3 project, which we expect will be world-class and spawn further share-taking opportunities for us within our plating franchise.
We're also making solid strides on new external fixation devices that will continue the growth trajectory of our export franchise. Further, we expect numerous new EU MDR approved products that we'll be launching in the EU market in the coming year to be impactful. Our OrthoPediatrics nonsurgical specialty bracing business, our OPSB continues to perform extremely well. And I'd like to spend a little more time today outlining this significant opportunity that we have here, we recently announced the official OrthoPediatrics specialty bracing brand, or LPSB, featuring a new website that incorporates the full MDL club foot and Rhino product portfolio, along with several new products as well as the acquisition of Boston O&P.
We believe the OPSV franchise represents a large new source of capital friendly revenue growth. It's estimated that 80% of the pediatric orthopedic care happens before and after surgery. And we're extremely excited to now be better positioned to address this important segment, we estimate the US non-surgical specialty bracing market is at minimum $775 million in total and conservatively $500 million of opportunity in the top 300 children's hospitals. Importantly, these customers at prices do not require the upfront capital investment in consigned inventory or instrument sets. It has always been our aspiration to surround the pediatric orthopedic surgeon with all the products they need to treat children.
And we're thrilled about this opportunity to provide our surgeon customers with more of the products they use to treat their patients every day. Boston orthotics and prosthetics is the only sizable company with an exclusive focus on pediatric orthotics management offering leading custom Bryson orthotics and prosthetics technology for the nonoperative treatment of children whose lives have been impacted by scoliosis play geo supply and various neuromuscular disorders, their portfolio of some of the most advanced individualized braces available to treat pediatric orthopedic conditions includes custom pediatric specific, often bracing for scoliosis, lower limb or ptosis and dynamic movement orthos as DMO as well as the Boston band for play geo separately, partnering with world-class medical facilities, including Boston Children's Hospital, Children's Hospital of Philadelphia and Nationwide Children's Hospital on Columbus, Ohio and Phoenix Children's Hospital, just to name a few.
Boston O&P maintains 26 patient care clinics, primarily concentrated in the Northeast Boston OMP's annual historical revenue is approximately $25 million. As we mentioned on our previous calls, we continue to successfully execute a build aggressively strategy in OPSB. and anticipate it to grow very rapidly in the coming several years. We see many of the same characteristics in the OPSB. opportunity that we witnessed when we started OP 17 years ago. These include a large $775 million US TAM, $500 million of which is in the top 300 U.S. children's hospitals, very limited competition, a general lack of ongoing innovation and the opportunity to provide elite level of customer service and support clinical education and training.
We also see an opportunity for strong margins, healthy profits and the potential to build a large business in a very capital friendly manner. Beyond all of that, non-surgical specialty bracing fits with our goal of providing our customers with all of the products they need to treat children with orthopedic conditions and building further brand loyalty across our entire surgical and nonsurgical portfolio. We do not plan to just scratched the surface of this segment of the pediatric orthopedic market. And we believe the Boston O&P acquisition makes that it's very clear.
This is another market dominance play where we plan to be very aggressive and to scale this business rapidly until we are the clear-cut market leader. This has been a historically fragmented market and we are able to leverage our current channel to increase access and most importantly, provide service required to achieve optimal patient outcomes in a way that allows us to increase the partnership with all of our customers. While the integration of Boston OMB will happen throughout 2024, we expect the rest of LPSB. franchise to organically grow aggressively this year once integrated, our strategy to aggressively grow.
Boston will produce many years of future growth. Our strategy for the OPSB. business is rooted in three core initiatives that we believe will enable OrthoPediatrics to deliver outsized growth. These include sales force expansion to drive adoption and scale usage, product development to build a competitive and comprehensive portfolio and the addition of new clinics to enhance profitability or we're in the early innings of this growth journey. We believe we are well on our way to growing this business to be in excess of $100 million in the coming years.
Turning to the first initiative of sales force expansion in anticipation of the Boston O&P acquisition and to support the OPSB. business as a whole we have been preemptively recruiting OPSB. specific sales representatives that will be integrated into our existing agency sales network. We continue to actively recruit and train new associates and so far, we are pleased with the types of people we're attracting with our pre-existing customer relationships. We expect to see rapid organic revenue ramp in each territory where our new OPSB. reps are partnering with our existing surgical sales team.
Regarding the second initiative, product development within the MDO. team in Iowa, the OPSB. team in Warsaw and now the Boston L and P team at our OPSB. headquarters in Boston, we are now staffed to deliver our aspiration to launch four to five new products every year, beginning in 2024. This cadence, along with the launch of several products in 2023, such as the MP. Light & P plus the move bar DS. two, the Rhino Cruiser and the oral medical levity device set us up nicely for strong growth. Beyond these product launches and partnerships, there will be several more in the coming months and quarters supporting our thesis that we can build a scaled business in this space in the coming years.
Looking at the third initiative over the last several years, we have completed multiple acquisitions and partnerships, all of which we have successfully grown and will continue to grow, but never have. We seen such a favorable response for our customers as when we announced our partnership with Boston O&P in early January. This is a true testament to the legacy of amazing service products and patient care that Boston O&P has provided our customers through their 26 clinics, largely in the upper upper New England.
Our customers' feedback makes clear their desire to have a true partner in the nonsurgical treatment of their patients and validates the large unmet need in the nonsurgical support of their patients. In addition, it signifies our customer support of our growth strategy to scale Boston O&P to the rest of our 300 children's hospitals around the U.S. and in certain international markets. It will take us a little time, but we feel this is an important first step that will open a larger opportunity for our company.
Importantly, the operating economics for each of our existing clinics and future clinics is favorable for OrthoPediatrics. Generally speaking, we expect modest setup costs with limited initial capital outlay, consisting mainly of leased office space, Limited, build out and staffing orthodontists growing with the scale of the opportunity consistent with Boston LPs historical revenue, we expect each new clinic while the capacity to generate between $1 million and $3 million in revenue and produce a profit rapidly once fully operational. Again, it will take us some time for us to integrate Boston OMP and ramp the strategy, but we are already working to build a large funnel of opportunity and expect this to have a material contribution to revenue growth as early as 2025.
Moving to the scoliosis business, in the fourth quarter of 2023, we generated revenue of $9.7 million, representing global growth of 20% compared to the prior year. This global growth was led by an extremely strong domestic performance of 35% growth and muted by a few slower weeks in the back of December due to RSV rates and a slower quarter internationally, fourth quarter international sales declined by 31% and were lighter due to continued shopping ordering patterns from a few large international stocking distributors in Latin and South America. Despite this, we started to see a rebound across the international scoliosis business, and we expect improved international scoliosis in 2024. As we lap these difficult comparables, Latin and South America and ordering improves and new revenue growth opportunities materialize as we launch scoliosis in Europe. We're very proud of the way this business has rebound and have a clear line of sight into continued improvement for the coming year.
A highlight in the quarter is the success of our US scoliosis business, which outpaced a rebounding international business. The fourth quarter saw strong U.S. growth of 35%, driven from more users of response and Apotex and the successful execution of new launches this year. In addition, we're pleased to report that the surgeons from the three largest sites to transition to new practice locations are now settled in and have ramped up to speed starting to perform more cases and returning to more normalized levels. This significant growth in U.S. scoliosis is representative of both the strength of this business and the opportunity we have for the future. We are bullish on 2024 scoliosis growth as we exit 2023 with 25% more total users of response and EpiFix, several new products that were launched in 2023, such as response, cannulated screws and response power, strengthening EpiFix data, a robust pipeline of 70 placements and an improving international outlook.
Further, the 2024 of R&D pipeline is rich with extremely novel technologies that solve major unmet needs for our customers, specifically for patients with early onset scoliosis, an area historically, we've never had products. We recently announced the FDA approval and beta launch of our first U.S. product response Ribbon pelvic and expect to have the new verticalized growing Spine System FDA approved in 2024. Beyond that, we'll launch our new rod reduction instrumentation and 24 and 2024 that will support both the Rosemont Spine System and our new Fusion system currently in development.
Lastly, we continue progress on the development of our electromechanical growing rod, although its launch will be a few more years. Notably, U.S. surgery scheduling trends strengthened late in Q3 and continued into Q4, but for a few weeks at the end of the year. We expect this strength to continue into 2024 as the elective market normalizes.
Moving on to international in the fourth quarter of 2023, we generated international revenue of $9.3 million, delivering 13% growth on top of 67% growth in the fourth quarter of 2022. Fourth quarter 2023 growth was led by extremely solid performance with our T&E products, offset by slow scoliosis sales to stocking distributors in South America. We're pleased to see a continuation of the rebound in our international business in the fourth quarter and expect it to continue throughout 2024.
International Agency market sales continue to be particularly strong, both in trauma and deformity and scoliosis. Progress in our German direct sales model continues to track favorably and should produce good growth in 2024. We have onboarded several new users and we look forward to increasing penetration in the German market. We expect strong tech and product sales to continue into 2024 and likely 2025 as we deploy inventory and train our sales team despite the scoliosis softness we experienced from Latin and South America. We're making great progress launching scoliosis in Europe. We're performing first surgeries in new markets and with new surgeon customers.
Additionally, we're making good headway in growing Australia and entering New Zealand as we have had added cases and leadership in support of our long-standing agency partner and we are starting cases in Canada following recent approvals and launch. Overall, we've got a really nice setup for our international business, and we believe that 2024 will show great improvement beginning as early as Q1. That brings us to surgeon training and education.
In Q4, we hosted 98 unique training experiences for over 2,600 health care professionals among these events, our premier sponsorship of the Accurin resident review course, and the annual international Pediatric Orthopedic Society meeting I posed, which takes place in Orlando every December and 2023, we unveiled a new sponsorship level for a Pediatric Orthopedic Society of North America apartments. And I see those as the first ever Emerald level sponsor, our presence in IPOs, this year was marked by multiple hands-on workshops featuring five sessions, including one for our new specialty braking business and the DF. to brace for kids with femur fractures.
Full year 2023 saw record numbers of educational moments for pediatric orthopedic surgeons and other allied health professionals globally, we advanced our partnership with multiple surgical societies, including the European Pediatric Orthopedic Society as well as special spot scoliosis meetings in the UK and Germany, each posting several hundred European surgeons. We conducted a total of 391 learning experiences for our surgeon customers, thus advancing our ongoing commitment to training the next-generation of pediatric orthopedic surgeons and leading innovation in our subspecialty around the world.
Lastly, continued focus on our people is a critical part of our competitive advantage, which is why it's so important that we recently announced for the eighth time OrthoPediatrics was named as one of the best places to work in the state of Indiana, and we are committed to fostering a culture that is positive, engaging and allows our associates to do their best work. This important culture allows us to further our mission and successfully help more kids all over the world.
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, our fourth quarter 2023 worldwide revenue of $37.6 million increased 21% compared to the fourth quarter of 2022. Growth in the quarter was driven primarily by the strong performance across global trauma and deformity domestic scoliosis and the OPSB. US revenue of $28.3 million a 24% increase from the fourth quarter of 2022. Growth in the quarter was primarily driven by our Trauma and Deformity product lines, scoliosis and OPSB.
We generated total international revenue of $9.3 million, representing growth of 13% compared to the fourth quarter of 2022, which grew by 67%. Growth in the quarter was primarily driven by trauma and deformity, offset by lower scoliosis sales to stocking distributors in South America. In the fourth quarter of 2023, trauma and deformity global revenue of $27.1 million increased 23% compared to the prior year period. Growth in the quarter was driven primarily by share gain across our entire portfolio with strong contributions from Pega products, trauma experts and OPSB.
In the fourth quarter of 2023, Scoliosis revenue of $9.7 million increased 20% compared to the prior year period. Growth was primarily driven by increased US growth of 35%, partially offset by canceled cases in late December from RSV and lower than expected orders in Latin and South America.
Finally, sports medicine other revenue in the fourth quarter of 2023 was $0.9 million compared to $0.9 million in the prior year period.
Turning to set deployment, $5.9 million of sets were consigned in the fourth quarter of 2023 compared to $6.3 million in the fourth quarter of 2022. For the full year of 2023, we deployed $22.0 million compared to $20.1 million in 2022. The increase was driven by significant new product development deployments, SIGNIFICANT Pega deployments as well as multiple consigned 70 units.
Touching briefly on a few key metrics for the fourth quarter of 2023 gross profit margin was 71.0% compared to 68.5% for the fourth quarter of 2022. The slight increase in gross profit margin was driven primarily by lower set sales to international stocking distributors.
Total operating expenses increased $5.2 million or 18% to $34.8 million in the fourth quarter of 2023. The increase was mainly driven by increased volume related commissions as well as incremental personnel required to support the growth in the Company. Sales and marketing expenses increased $1.5 million or 14% to $12.4 million in the fourth quarter of 2023. The increase was primarily driven by increased sales, commission expenses.
General and administrative expenses increased $3.0 million or 18% to $19.6 million in the fourth quarter of 2023. The increase was driven primarily by the addition of personnel and resources to support the continued expansion of the business and an increase in depreciation and amortization expense.
Research and development expenses increased $0.7 million or 35% to $2.7 million in the fourth quarter of 2023, driven by additional resources as well as increased payments to third party providers. Total other income was $1.2 million for the fourth quarter of 2023 compared to $0.4 million for the same period last year. Adjusted EBITDA was $1.3 million in the fourth quarter of 2023. This compares to a loss of $2.2 million in the fourth quarter of 2022. This increase was driven by incremental revenue combined with cost controls across the organization.
Net loss for the full year of 2023 was $21.0 million compared to a net income of $1.3 million last year. Fair value adjustment of contingent consideration for the total year 2023 was a favorable $3 million compared to a favorable $26 million in 2022. Adjusted EBITDA for the full year of 2023 was $5.0 million compared to $0.2 million for the full year of 2022.
We ended the fourth quarter with $82.3 million in cash, short-term investments and restricted cash. As of December 31, 2023, $10.0 million had been drawn on our new term loan with MidCap post-closing, the Boston O&P acquisition in January of 2024, our cash and restricted cash balance was approximately $60 million.
With our current cash position as well as our new debt facility. We are well capitalized to continue to execute on our strategy. Given our strong balance sheet, positive adjusted EBITDA, our line of sight to cash flow breakeven and our recent acquisitions, we are in a position of tremendous strength.
Turning to guidance, we are reiterating our expectation for full year 2020 for revenue to be in the range of $197 million to $200 million, representing year-over-year growth of 32% to 34%. Additionally, we now expect to generate between $8.0 million to $9.0 million of adjusted EBITDA in 2024. We expect less than $20 million of new set deployed in 2024, representing our continued focus on driving the business to cash flow breakeven sooner rather than later.
Lastly, our S-3 shelf registration filed in 2020 was fully sold in 2022 and keeping up with good corporate housekeeping, we will likely establish another universal shelf in 2024. As discussed previously, we have no need or plans to raise capital in the near term, but we believe maintaining shelf is consistent with good corporate practices.
I'll now turn the call back over to Dave for closing remarks.
David Bailey
Things, Fred, as we look back on 2023, we're proud of all that we've achieved and are confident that we have the right growth drivers in place for continued success in 2024, we expect positive trends in the business to continue, including robust top line revenue growth and continued profitability growth as we move toward cash flow breakeven earlier than anticipated.
In addition, in 2023, we launched eight new cross including RESPONSE power scoliosis, the Gyro growth modulation system, Pediatric Nailing Platform, tibial system, the DF. to brace mutual funds, 30 plus bar and the levity device. We continue to expect strong performance from our legacy products as a result of our heavy investment in S.E.T. deployments in 2022 and 2023.
However, our recent acquisitions, along with Apotex and Orthex and our most recent organic product launches such as PNP Femur, tibia, drive rail and DEF to require less capital deployment to drive growth due to a faster return on invested capital. This combined with the launch and the growth of the OPSB. franchise, ensure we can maintain our high rate of growth are using less cash for inventory deployment thus ensuring we drive to cash flow breakeven much sooner than earlier anticipated.
All of our long-term plans, including profitability growth, are supported by our robust balance sheet, strong cash position and access to debt. I've been with OP for nearly 17 years now, and I'm not sure I've ever been more excited. We are in an extremely strong position with all the tools in place to help more children than ever before. And I think our customers feel the same way together our OP associates, our customers and our shareholders are building something special and that is having a profound impact on the lives of children. The future is bright for OrthoPediatrics, and we are just getting started.
In closing, I'd like to thank our search partners my o associates, our investors and all the innovators in pediatric health care for standing together to help kids.
Operator, let's open the call for Q&A.
Question and Answer Session
Operator
Matthew O'Brien, Piper Sandler.
Matthew O'Brien
Morning. Can you hear me?
Yes, excellent. So just maybe starting obviously with the Boston O&P commentary, first of all, and so it's going to be a multipart. Is that going to split out separately spread? You're saying this morning clearly, you know, you're not going to need additional capital because you have plenty of funding for that and to build out these facilities, I don't think they're that expensive.
And then how do we model this growth going forward off of this base that you have today as you're adding new clinics across the US?
David Bailey
Yes. So good questions. Boston is approximately 30% scoliosis bracing, custom braces and the other 70% is deformity correction. And so that's how the sales will show up in those two segments going forward.
The business has a different seasonality than our typical business they don't have the big summer selling season. The way we do it in our scoliosis in the formative Correction business and their fourth quarter is a few points a few percentage points higher than the other quarters. And typically their first quarter is a few percentage points lower. The middle quarters are roughly 25% of the year.
The growth of this business. Obviously, we're still working on that for 2025, but we would expect this to grow faster than the overall business. And as the sales force becomes effective as new products are introduced and we are looking to open new clinics starting next year. That does take some time to get the hospital to approve it to find the facility to get the OBVIOUSLY specialists trained in the pediatric space. But overall, I would say that this segment is going to grow much faster than the overall business for the next several years.
Fred Hite
Yeah. Matt. And I think what we're trying to signal here is the clinic side kind of as I walk through the three-point strategy, we expect no question as we add sales reps and we've already done that. We expect the sales of the OPSB. franchise, which is still inclusive, obviously of MD, orthopedics and Rhino and Aura and the organic products that we launched last year, DF2 and the new stuff we're going to launch this year. We would expect that business to continue to grow well in excess of 20%. That's kind of what we've what it's done ever since we acquired MDO. and then started adding products to that. I think what we're saying here is it's going to take a little bit of time on the clinic side, obviously to get that side of the Boston business ramp. But we're definitely expecting growth in the rest of the business again as we've seen for the last couple of years.
Matthew O'Brien
Okay. And just on the on the upfront cost side, can you just comment a little bit there? And then I'll just ask my second question here. Just expectations for EpiFix this year and is that going to start to be a bigger contributor? Or is it more still the kind of 25 Yes.
David Bailey
I think our view our view on Apple fixes, the data continues to get stronger. There's no question. And as the data gets stronger, we expect this to continue to go up and to the right. I think we we've kind of come off this position that there's going to be some quarter or some specific moment where it's this watershed a moment where every surgeon agrees that this is the right treatment. But there's no question that the entire on non-fusion segment of pediatric spine is super interesting. It's still embryonic. It's still generally growing a lot of questions. We think we're answering those questions with the data, and that would generally we expect EpiFix to continue to outpace the growth of our fusion business and that's kind of how we're modeling it for 2024 and specifically on the cost.
So today, Boston, at 26 clinics, they're all leased facilities. So really the cost, if we were to open a new facility is minimal upfront. It's just building out of the space, hiring and training on the actual clinicians and then hiring more clinicians as the volume ramp. So I don't know million dollars, I would say Max to open one of these, maybe less. And then the revenue starts coming in pretty quick because we're not going to open one unless we have commitments from the surgeons at the hospitals that obviously they're going to be used in the clinic.
Matthew O'Brien
Got it. Very helpful. Thank you so much.
David Bailey
Thanks, Matt.
Operator
Rick Wise, Stifel.
Rick Wise
I'm sorry, there was a glitch here on the mine.
Thank you. The start of a big picture question, if I'm hearing you correctly, it sounds like a lot of the headwinds that you've experienced over the last year or so. Our either going away or gone away are sort of resolved on the staffing front on the RFP front on a variety of things. And so I mean, that sounds very encouraging.
David Bailey
But I think that we are yet another quarter into this improvement, and I think we're seeing that improvement here in Q1 as well. And so yes, I think what we have said for a while here is we think that this is probably something that's behind us, let's say, by midyear we're a little cautious just because we recognize the June, July, August. These are obviously are big months on the surgical side. So until we see that and June, July and August I don't know that we're going to declare victory, but it's certainly encouraging that we're seeing this come through. It's also encouraging that as the business further diversifies on the specialty bracing side that a lot of the headwinds that we saw in the in the OR setting, we don't see on the specialty bracing side. And so as that big business becomes bigger It enables us to kind of mitigate some of the risks associated with the environmental, the environmental risks that we saw over the last few years. And I think that's also encouraging us that overall, the business should be less affected by those types of environmental abnormalities that we've experienced over the last few years.
Rick Wise
Got you. And Fred, did you help us think through the quarterly setup for the year, it went by quickly. I wasn't sure if you I thought at one point maybe was relative to a product and not overall, I think you were talking about maybe sequentially better first quarter revenues overall, but help us level set the right place to start thinking about the first quarter and especially given the Boston O&P mix in there now. And thank you for the specific guidance that you gave about it in terms of their quarters. But how should we think about the flow of quote the new on the pediatrics quarterly flow overall for the '24 year? Thank you.
Fred Hite
Yes, absolutely. So traditionally, the pre COVID, in particular, because the last several years have been so unusual the first quarter is typically around five or 6% lower than the fourth quarter. And so if you think about the of the legacy business and those factors, the first quarter revenue would come down. However, with the addition of Boston that is going to generate a first quarter revenue number that are actually higher that then the fourth quarter and I would bet or I would assume that it's probably in that $41.5 million to $42 million range.
So definitely a nice increase over the third quarter -- over the fourth quarter, [37.6]
Rick Wise
Growth and some of the past have you broken the overall Company quarters by as a percentage of sales. So you're guiding us to that $197 million to $200 million range. How would you frame the as a percentage of sales in rough terms the flow of the quarters as you contemplate 2024?
Fred Hite
Yes, I mean Boston is still right, $25 million out of $200 million. So it's not going to have a dramatic 1st year impact on changing the overall metrics of the third quarter, we still would anticipate is by far the largest and followed by the second quarter and then the fourth quarter and the first quarter obviously be the smallest number. So I think it's going to be pretty similar, honestly, to historical with a slight change with Boston, but not not much.
Rick Wise
I'm going to squeeze in one more if you don't mind, I know you don't guide to gross margins, but if I'm hearing you correctly, Boston is going to be above average. Also, you've got new products launching. You've got on recovery. A variety of other things. Help us understand a little more clearly, the again, the cadence and how we should be thinking about gross margin in '24 and put that in perspective relative to the as always, seasonally slow of fourth quarter performance, given the mix of business typically? Thank you.
Fred Hite
Yes, absolutely. So on the fourth quarter of 2023 gross margin at 71%, obviously lower than the third quarter, which is always our highest revenue and highest gross margin quarter. And the 71% was an improvement year over year versus the 68.5 we saw in the fourth quarter previously. And so the gross margin in 2024, I would expect to continue to follow the sales. So it's going to be highest in the third quarter, a little lower in the second quarter, come down again in the fourth quarter and a little softer in the first quarter. I think overall, the business was under 75% in 2023, and we would expect to see a similar type of result between 74.5%, 75% for 2024.
The Boston business, gross margin, it's good. If you think about it, it's really two businesses in one cell manufacturing business. And so we get the manufacturing margin from their products they manufacture and it's a retail business in the clinics. So we're getting the retail pricing and the margins associated with that. And so overall, very strong US similar gross margins to our overall business. But historically, they've had very little sales commissions, if you will. So the contribution margin from that business is very strong, better than our legacy business and even adding some sales force into that to grow higher revenue, the contribution margin is still very strong in that business, which is very attractive, obviously, to the bottom line for us.
Rick Wise
That's wonderful perspective. Thanks for all the color.
Thank you.
David Bailey
Thanks, Rick.
Operator
Ryan Zimmerman, BTIG.
Ryan Zimmerman
Good morning. Thanks for taking the questions. I wanted to follow up a couple of questions for me. A lot of a lot already been asked in the past known piece just first of Dave, the last few weeks to the summer. Any any quantification there to think about and that impact on the flows and potentially the first quarter as it was?
David Bailey
Okay, yes, good question. So I guess what I would say is that we were we were really really doing well throughout the entirety of the quarter, and we saw that kind of a screeching halt in the last two weeks. Last two weeks are traditionally two of the largest weeks for us. These are weeks when kids are out of school. And so it was a pretty steep drop off and kind of and all of a sudden and it did extend into the early part of January. And so, you know, maybe, Ryan, it's a couple of points, probably of total top line revenue growth for us. And it was a bit bit unfortunate, but not a lot we can do about it. What we did see though in the quarter. So is this quarter now is that obviously after with the hospital systems were hit, seems like handling that much better, particularly on the elective surgical side and seen a really nice rebound in Q1. It seems like cases that were scheduled are starting to get put back on and get done. And so I think that's why you hear fairly bullish commentary about the way the hospitals are handling the situation, how rapidly it went up, affected us and came back down here in the first quarter and things seems to be really normal going forward.
Ryan Zimmerman
Okay. That's helpful. And then just you're going to build out like more of OPSB. sales force. We already started doing that when I think about kind of all the head NFTs that are dedicated to Ortho. I'm just kind of wondering if you could kind of size and scale what that is relative to the existing sales force as your distributors and dedicated sales agents kind of ramp up?
David Bailey
Sure. Good question. So we've already factored some of those heads and obviously, we started some of the hiring here in Q4 and early in Q1. So just to be clear, the expense associated with that is captured in our guide of the $8 million to $9 million in EBITDA and I think orders of magnitude you might expect over the year for us to add or have or have maybe 20 people or so in the US that are focusing more heavily or exclusively on the OPSB. side of the business.
And obviously, that's up from zero this time last year. So we that's why we're pretty bullish about it, that sales force has capacity to help us drive revenue with the MO. products and Rhino and our and all the of VF to all the things that we've come out with in the last year. But if you remember that these people aren't spending time standing in the operating room, right? And so it doesn't take as many people to cover the geographies that we want to cover. We also have obviously, really strong relationships with our surgeons in the operating room.
And when you partner these OPSB. salesforce with our existing sales force and our existing sales force so far has been really great about receiving these people in and working as a team. We just think the combination of of the great people we have in the field already in the 200 plus strong OR based sales reps that we have combined with 20 or so of these more clinical-based sales reps is a real tonic for us us to grow. And Ryan, over the course of the next several years, we'll see maybe that sales force grows out of larger, but we're not committing that at this point.
Ryan Zimmerman
Okay. Just real quick one quick modeling question for Fred. You already gave the split between Kali and deformity correction on the Boston on PBS and it's all U.S. based though.
Fred, I mean, is there any international revenue there is just from a modeling, make sure.
Fred Hite
Yes, a great question. We haven't clarified that. It is 100% domestic as of today, but that in '25, '26, '27 Up may be an opportunity for us to enhance the growth of that business as well.
Ryan Zimmerman
Okay. Thank you, guys. That's it for me of it.
Fred Hite
Thanks.
Operator
Mike Matson, Needham & Co.
Hey, guys. This is Joseph on for Mike. It just so you guys have a lot of growth prospects moving for international expansion, Pega X6, ramping new product launches. But I guess the comments today if you know, it seems like OrthoPediatrics has shifted its strategy to favoring maybe growth and profitability or profitability over growth. So I guess maybe could you just give you a little bit more color a little bit more of your thoughts on maybe the shift in the strategy and why that good moving forward?
David Bailey
Yeah, Joe. So I don't think I would characterize our strategy as a focus of profit over growth. We are we're heads down focusing on growth and but also recognizing that balancing growth with profitability with the aspiration to get to cash flow breakeven is probably a more prudent or rational course, particularly in the current financial environment. And so this is not a new I guess I don't view this as a new thing for us this over the last three years has been our aspiration to continue to focus more heavily on top line revenue growth.
And I think that was one of the reasons why we were we're excited about the OPSV. side and all the product launches going on on the legacy side and all the assets that we've deployed over the last two years. And we think all of those are going to generate really nice growth for the business for the next several years. But we also think that the growth is going to come be more profitable growth and the cash usage associated with that is going to be lower, which is kind of what we've been trying to get to over the course of the last three years, and I think we're well positioned to do it. So we still see this as a young, aggressive top-line growth strategy.
There's no question about that. We just think that it's a bit unique in that this is like an aggressive top-line growth strategy that's also going to be profitable and it generate its own cash and I think that's pretty unique right now in the marketplace.
Okay. Yes, that's super helpful. Maybe just touch on that a little bit more. We estimate your organic growth to be mid 10s or so for the last two years. But do you think you can maybe get back to the 20%, what's number or do you think mid 10s is more of a real expert realistic expectation for organic growth moving forward?
David Bailey
Yes. So obviously, the guide implies mid 10s. And I think, you know, we everything we're doing here internally and the setup, particularly on the LPSB. and the legacy product launch is pointing us towards driving top-line revenue growth in excess of mid 10s. But yes, I think as we model as we guide, we're not going to get ahead of ourselves here. And so that's what you see in the guide. But you can rest assured that our team is aligned around a growth rate that's in excess of 20%. Now obviously, with the acquisition, it's in excess of 30 for 2024.
So we're putting the drivers in place and I think, again, one IOPSB. side or PoC, trying to put a driver in place that we have really low share, really good competitive opportunities here and a really big TAM for us. And we see that as a catalyst to hopefully get to where we're at. We're achieving higher in the upper 10s or maybe bridging back over the 20s. And yes, that's a real feat when you're a business that's much larger now and in the future than we have been when we were consistently grow in 2022%. It's our aspiration to continue to do that or we're just not going to guide to that at this stage.
Okay. Makes sense. Thanks very much for taking the questions.
David Bailey
Thanks.
Operator
Dave Turkaly, Citizen's JMP.
Dave Turkaly
Hey, good morning, guys. How liquid You announced the BOP deal, the $22 million upfront. I was just curious if you might comment on any on milestones or sales-related targets. Is that the all in price or is there additional payments?
Fred Hite
Yes, that is the all in right, there are no contingent additional pain fabric and frequency of use and the sales base debit.
Dave Turkaly
So again, thanks for all the detail on the business to follow up on I think it was Ryan's question about the scope of the business, the RSV., the impact maybe be in a couple of points. And when you look at the lower sales to stocking distributors in South America and maybe the lower than expected orders in Latin and South America. I mean, is that another point? Or I guess I'm trying to quantify that you grew 20% in squalene. You had kind of three things you called out. I don't know. Maybe it's even more than a couple of points.
David Bailey
Yes, certainly the situation that we've had in the last few quarters in Latin America, a fairly unexpected ocean, and it had a pretty a pretty big impact. It was a pretty big headwind on the scope of growth overall and on the Company's growth overall, and it's disappointing to see. But I think at this stage, we feel good about that being behind us and them and being able to diversify our scoliosis business now that we're in markets like Canada and the rest of Europe, again, that's small segment right now, but it's going to grow and it's going to be all peer growth for us in 2024 because it essentially gross up a zero base. And so yes, I think that's behind us. I don't know if we call it a couple of points on we were yes, we haven't really quantified it, but we don't expect it to continue. And I have pretty good line of sight into that as we head into this now, as we're in 2024, we expect that to be a tailwind for our business, not a headwind.
Dave Turkaly
And just one last one if I could, the OB. and P., you mentioned gross margin. I think you said the profile's pretty similar, but it operating margin wise. I'm just curious if that's higher than sort of where you stand today. And I know the EBITDA guide of eight to nine was higher than the Street seven, I think. And some of that's coming from that acquisition but any comments sort of on the bottom line contribution? Is that scale? Thanks.
David Bailey
Yes, absolutely. So very similar to MDO when we bought it, this business of Boston is profitable. It's positive adjusted EBITDA and positive net income, positive cash flow. And however, however, historically hadn't been growing tremendously fast. And so we will be investing a little bit of money into that business, obviously the sales force. But yes, you are correct in assuming that that business is more profitable than others, then our overall business was in 2023. That is correct. And we would expect that to continue going forward.
Dave Turkaly
Great. Thank you.
Fred Hite
Thank you.
Operator
Sam Brodovsky, Truist Securities.
Sam Brodovsky
Hey, good morning, guys. Thanks for taking my question. One more on Boston to start off, I think you'd mentioned a $1 million to $3 million revenue number per clinic and 26 clinics implies a pretty nice opportunity to ramp revenue there or going to or without adding new clinics as well, something we should think about being able to achieve quickly sort of after the integration is completed? Or is that going to be a steady ramp over time as new product?
David Bailey
Yes, that's a good question. So it definitely is an opportunity for us to drive the efficiency of the existing clinics and that kind of flow of patients through the existing clinics as well as the products used at the existing clinics with the added sales channel. It's not something we've modeled aggressively yet because it's so new. But I do think you're right, it's probably probably an opportunity there. And part of the reason that that is such is that these clinics are primarily surrounded around Boston around Philadelphia, kind of upper Northeast, which are major major population centers as well as major hospitals that are using Boston's products.
And so it takes a few maybe more clinics in those areas where patients are coming from longer distance because of their catchment. And so maybe some of those clients are doing a little less than they would if there were fewer, it is our intent to consolidate, but it is our intent to drive more volume through the existing. So that is a possibility. But I also think you've got this right though, when you think about our capacity over the course of the next several years, and our intent is to scale this to every major Children's Hospital jurisdiction in the United States and then some internationally.
And when you start thinking about those 26 clinics, we think they're serving, give or take 15 children's hospitals right now. I mean, think about the math there is a really big opportunity for us to too, to scale this into the other 285 children's hospitals that aren't active users or don't have active Boston clinics in their area. So yes, that's obviously why we're one of the reasons why we think we should be pretty excited about the opportunity here.
Sam Brodovsky
Great, thanks. And then just switching to guidance, can you just remind us what's factored in in terms of sort of respiratory illness season? As I know I think coming into 23 infected in a pretty worst case scenario. Is that how we should be thinking about it this year? And then just philosophically, it's a pretty pretty tight range, especially given the given the acquisition coming into revenue, just how do you settle out of the range and we think about that?
David Bailey
Yes. So similar to last year, 2024 guidance assumes that we will see a similar RSV. environment in the fourth quarter of 2024 that we saw in 2023. So we're not assuming that it goes away. We're not assuming it's worse. And as far as the guidance goes, it's a tight range and we have a pretty good line of sight on the core business as well as Boston coming into this, and it is kind of what it is, I guess. So I don't have any philosophy of why it's as tight as this, but we're pretty confident in in those numbers.
Sam Brodovsky
Thanks for taking my questions.
David Bailey
Thanks.
Operator
And thank you.
There are no further questions. I'd like to turn the call back over to David Bailey or any closing remarks.
David Bailey
Thanks, operated. Well, I appreciate you all joining us today on the call today's call a little bit longer, just wanting to make sure that we can fully explain the Boston acquisition and the opportunity we have on OPSB. combined with everything else that's going on. So thanks for your time today and look forward to seeing you all at meetings in the next several months. Have a great day.
Operator
Thank you for your participation. This does conclude the program. You may now disconnect. Good day.
