Good morning, and welcome to the OrthoPediatrics Corporation's Second Quarter 2021 Conference Call. At this time all participants are in a listen-only mode. We will be facilitating the question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for reply purposes.

I would now like to turn the call over to Matt Bacso from the Gilmartin Group for a few introductory remarks..

Thank you for joining today's call. With me from the company are David Bailey, President and Chief Executive Officer; and Fred Hite, Chief Operating and Financial Officer.

Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to numerous risks and uncertainties, and the company's actual results may differ materially.

For a discussion of risk factors, including among others, the risks related to COVID-19, the impacts this pandemic may have on the demand of the company's products and the company's ability to respond to the related challenges, I encourage you to review the company's most recent quarterly report on Form 10-Q, which will be filed with the SEC soon.

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 measures 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 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 OrthoPediatric's 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, August 5, 2021. Except as required by law, the company undertakes no obligation to revise or update any statements to reflect events or circumstances taking place after the date of this call.

With that, I would like to turn the call over to David Bailey, President and Chief Executive Officer..

number one, focusing on high-volume children's hospitals and academic centers around the world that treat the majority of pediatric patients; number two, surrounding pediatric orthopedic surgeons with a broad product portfolio uniquely designed to treat children; number three, deploying instrument sets and sales personnel to meet the strong market demand; number four, expanding the addressable market and meeting unmet needs through aggressive investment in R&D and select M&A opportunities; and finally, number five, expanding our already robust clinical education program to train and support the next-generation of pediatric orthopedic surgeons.

Our strategy is simple and proven, and it will allow us to continue to execute in a disciplined manner. Going forward, we see no reason to deviate from the formula that has produced consistent annual growth in excess of 20% since our founding.

With respect to our continued product portfolio expansion, in May, we announced the launch of the RESPONSE Neuromuscular or RESPONSE NM Scoliosis system. This represents the 36th surgical system OrthoPediatrics has launched since its inception and is the latest addition to the RESPONSE Scoliosis platform.

This new system is dedicated to the treatment of neuromuscular scoliosis and was developed in conjunction with pediatric orthopedic surgeons to address the unique challenges treating this challenging patient population.

Building on the base of the RESPONSE Spine System, RESPONSE Neuromuscular features a complete set of implants and instruments that help simplify these extremely complex spinal procedures. RESPONSE Neuromuscular provides specific options to address extreme hyperlordosis and sacropelvic fixation.

The product was also designed with specific instrumentation to improve the speed of these procedures, provide greater deformity correction and stability and thus optimize outcomes. While still early in its commercial launch, the reception from our key customers has been very positive.

Additionally, in mid-June, we announced the full commercial release of our SCFE Cannulated Screw System. This system was designed in collaboration with pediatric orthopedic surgeons as a solution for treating traumatic slipped capital femoral epiphysis.

Specifically, this system offers flexibility to treat SCFE injuries with fully threaded and partially threaded screws.

Unlike other systems on the market, our fully threaded SCFE screws are available in 2-millimeter increments, providing the surgeon with more options to properly treat a wide range of pediatric patients instead of simply making do with what's available. The screws also incorporate unique features that help surgeons remove the implant more effectively.

We now offer cannulated screws ranging from sizes 2.5 millimeters to 7.3 millimeters with various thread lengths to service virtually all the needs of a pediatric orthopedic surgeon.

Within our Trauma and Deformity business, we continue to roll out our Orthex external fixation systems in the EMEA region, leading to our first cases in the major markets of Germany and the U.K. We continue to expect that the Orthex EMEA launch to have a positive impact on 2021, similar to what we've seen in Canada, Australia and Brazil.

Additionally, Orthex was recognized in its first clinical publication from British Columbia Children's Hospital in Vancouver, Canada. This paper highlighted the ability of Orthex to significantly reduce infection rates, leading to improved patient outcomes at a lower cost.

Lastly, we finalized the settlement agreement with K2M Stryker, which has been an issue outstanding for the past four years. This settlement saves us from incurring considerable legal expenses and being exposed to risk in the future. Transitioning to our game-changing ApiFix technology.

In the second quarter, we continue to initiate clinical sites participating in the post approval study, or PAS registry and subsequently added new ApiFix users. We now have 17 U.S. clinical locations with both required IRB approvals, enabling those locations to enroll patients in the registry.

We expect the remaining three registry sites to receive their final approvals in the next few months, putting us at full strength. To date, 75 of the target 200 registry cases have been completed with an additional 20 cases approved or scheduled for surgery.

While it is still early days, the clinical sites are delighted by the outcomes we've seen so far, with our first U.S. patient past their 1-year follow-up this past June, and more than 25 patients at least six months past their surgery dates. We have had zero reported device-related complications and no reoperations or revisions.

It's important to note that we have continued to experience COVID-related delays to IRB approvals at our 20 sites, which have impacted the pace of scheduling. Furthermore, as one might expect with a game-changing technology, many of the registry sites have also taken a very conservative approach to patient selection and scheduling.

Given these two dynamics, we expect to meet our 200 registration target early next year. Due to ApiFix's early clinical success as well as patient, family and surgeon demand a parallel commercial release of the ApiFix system is being initiated prior to the actual completion of the first 200 plan cases for the PAS registry.

We intend to start onboarding the next 10 to 20 commercial sites in the second half of 2021, of which six already have the single IRB approval required by the Humanitarian Device Exemption and are in the process of training, patient selection and scheduling of cases.

These new commercial sites will not have to contend with the second IRB approval and the burden of the PAS registry requirements. Now turning to set deployment and sales force development. In the second quarter, we continued to execute our strategy of set deployment.

Specifically, $4 million of sets were consigned in Q2 of 2021 compared to $5.8 million in the second quarter of 2020. Year-to-date, 2021, we have deployed $9.4 million compared to $9.1 million in the first half of 2020.

We anticipate $13 million to $15 million of set deployments in 2021, a somewhat lower number from recent years because of the significant lower cost and greater return on investment of ApiFix and Orthex instrumentation sets.

In the second quarter, we grew our domestic sales organization head count to 182 sales reps compared to 164 in the second quarter of 2020, with five new reps hired during the second quarter of 2021. Further recruitment efforts are now underway by many of our domestic sales partners, underscoring their confidence in the recovery of our business.

As the U.S. market continues to normalize, we expect an increased number of sales associates will be added over the coming year. Outside of the United States, we are selling our products in 45 countries through 42 stocking distributors in 33 countries and in 14 agencies in 13 countries.

After the major conversion of Germany, Austria and Switzerland announced earlier this year, we continue to work on several smaller agency conversions, which may be announced before the end of the year.

On the M&A front, we also continue to work on several interesting projects, but we are very pleased to announce recently the important extension of our distribution agreement with Mighty Oak Medical, which secures our FIREFLY, patient-specific 3D printed pedicle screw guide franchise in the future, while also enabling us to evaluate navigation technologies from other sources.

Lastly, turning to clinical education and sales initiatives. We remain focused on investing resources to train and support our surgeon partners. In May, we attended the Pediatric Orthopedic Society of North America or POSNA meeting, annual meeting in Dallas.

As a double Diamond Sponsor, we provided ongoing support of a Subspecialty Day Symposia, and awarded eight scholarships for residents and fellows to attend the meeting. We are proud of our ongoing partnership with POSNA and supporting pediatric orthopedic surgical societies.

Another highlight in the quarter was our return to live clinical education events, hosting and an external fixation education seminar this past June in Dallas. Our expert surgeon faculty hosted attendees from around the United States in lectures, discussions and hands-on sessions highlighting external fixation and the Orthex system.

Feedback from the surgeon attendees was overwhelmingly positive, and 100% of survey respondents stated that they were likely or very likely to recommend this course to their colleagues.

Additionally, in the second quarter, our field sales force conducted more than 75 clinical and product education sessions with residents, fellows, attendings and hospital staff members. These sessions are critical for the efficient and effective use of OrthoPediatrics products in the operating room.

As a market leader, we believe it is integral to our mission to partner with pediatric orthopedic surgeons in advancing the entire field of pediatric orthopedics, not just selling more of our product. Our commitment to clinical education initiatives fosters collaboration and stronger partnerships with surgeons, thus furthering this mutual objective.

As we look ahead, I am proud of how much our team has achieved since I joined OrthoPediatrics. We have built a strong business that delivers growth from innovative, differentiated products that improve children's lives. We are pleased with our track record of sustained double-digit revenue growth.

But we are still in the very early innings of penetrating this large underserved market. As we continue to execute our proven growth strategy, we remain confident in our ability to deliver and, in fact, accelerate growth and help the lives of more kids worldwide.

With that, I'll turn the call over to Fred to provide more detail on our financial results.

Fred?.

Thanks, Dave. Our second quarter 2021 worldwide revenue of $26.7 million increased 96% when compared to the second quarter of 2020. On a sequential basis, we experienced growth of 24% in our worldwide revenue from the first quarter of 2021.

The sequential increase is driven by strength across our business in the U.S., improving trends internationally and growing sales from ApiFix and Orthex. As a reminder, we acquired ApiFix in April of 2020 and Orthex in June of 2019. In the second quarter of 2021, U.S. revenue was $21.7 million, a 79% increase from the second quarter of 2020.

Due to the improvement in underlying procedure volumes, we realized double-digit revenue growth in each of our U.S. businesses. On a sequential basis, domestic revenue increased 29% compared to the first quarter of 2021. International revenue was $5 million and increased 243% as compared to the second quarter of 2020.

On a sequential basis, international revenues increased 7% compared to the first quarter of 2021. In the second quarter of 2021, Trauma and Deformity revenues of $17.9 million increased 95% compared to the prior year period and 23% compared to the first quarter of 2021.

Growth in the quarter was driven by strong sales of PNP, cannulated screws and Orthex, although virtually all of our product lines grew dramatically. In the second quarter of 2021, Scoliosis revenue of $7.7 million increased 100% compared to the prior year period, and 29% compared to the first quarter of 2021.

Quarterly performance reflected increased patient volume and growth in RESPONSE and FIREFLY procedures as well as an initial contribution from ApiFix. As we emerge from the pandemic, we believe clinical and orthopedic surgery volumes in the U.S.

have largely normalized to pre-COVID levels and surgeons appear to have worked through much of their backlog. Thus, we believe second quarter performance was primarily driven by organic growth and market share gains, and less by recapturing backlog procedures. Finally, in the U.S.

Sports Medicine/Other revenue in the second quarter of 2021 was $1.1 million representing a 106% growth over $0.5 million in the same period last year.Growth in the quarter was driven by Telos Partners consulting contracts and repeat advisory business. As a reminder, we acquired Telos in March of 2020.

Touching briefly on a few key metrics for the second quarter of 2021. Gross profit margin was 76.6% compared to 74.0% in the same quarter of 2020. This improvement was driven by higher percentage of domestic and international agency sales.

Total operating expenses increased $6.2 million or 36% from $17.1 million in the second quarter of 2020 to $23.3 million in the second quarter of 2021. The change resulted mainly from increased commission expense and increased depreciation and amortization costs.

We reported adjusted EBITDA of positive $1.2 million compared to an adjusted EBITDA loss of $2.3 million for the second quarter of 2020. While operating expenses increased year-over-year, the improvement to the bottom line results show revenue growth outpaced our investments. We ended the second quarter with $67.2 million of cash and restricted cash.

And finally, turning to our outlook for 2021. We are increasing our full year revenue guidance from $97 million to $101 million, up from $94 million to $98 million previously and representing new growth of 36% to 42%. As Dave mentioned, we saw strong momentum in the U.S. during the second quarter.

However, we continue to take a measured approach forecasting the return to normal seasonality trends and potential headwinds resulting from the Delta COVID-19. Turning to international.

While we are encouraged by the improved growth rate, we do expect regional variability to persist as hospitals continue to work through backlogs and countries face challenges with the COVID surges. At this point, I'll now turn the call back to Dave for closing comments..

Thank you, Fred. I'd like to close by recognizing health care workers throughout the world for their selfless dedication helping us all through the COVID-19 pandemic. I'd also like to thank our surgeon customers, my colleagues at OrthoPediatrics and our sales associates around the world for their commitment to our cause.

I am proud and grateful to be working alongside you, improving the lives of kids. With that, I'd like to turn the call back over to the operator to open the line for any questions..

[Operator Instructions] Our first question comes from Matt O'Brien with Piper Sandler..

This is actually Drew on for Matt. And congrats on a nice quarter here. I just want to start off a little bit on guidance here. I know you guys are typically fairly conservative, but it looks like you're carrying through most of the beats and numbers for the second half are staying mostly the same.

And other med tech companies have discussed some atypical summer seasonality this year.

So just wondering what you're seeing so far looking into Q3 here, and just any reason to expect anything different and what's typically one of your stronger quarters in Q3 here?.

Yes. I'll let Fred speak to the guidance, but I think we saw really strong momentum, and I think we said this end of the -- in our last call that we saw momentum heading into Q2. We saw that momentum really build throughout Q2, and we closed the quarter very strong in June.

There is no question that I think a lot of the med tech as well as OrthoPediatrics are seeing some slightly different trends maybe related to vacation, maybe related to surgeon time off or family time off, but we think this is pretty short-lived. Those cases are going to happen, most likely within this quarter, certainly within this year.

And I think this is all really baked into our guidance and baked into our rate.

I don't know, Fred, do you have other comments?.

Yes. That's a great summary. I mean we effectively took the full year guidance up by the beat in the second quarter, which is $2.5 million, and then added an additional $0.5 million to the second half of the year versus our previous guidance. And clearly, that reflects what we saw in July and what we anticipate seeing in the second half of the year.

And I think you're correct that we still remain very confident in the guidance that we provide..

Very helpful. And then on ApiFix, appreciate the update on how far you're along with the registry.

Maybe you could just expand a little bit more on what the primary gating factor is? Whether that be COVID or something else? And then just wondering if the slight push changes how you're thinking about the contribution from that product next year? Or is the new proactive site onboarding that you spoke about likely to make up that difference?.

Yes. Great question. So I think we are extremely pleased with the kind of results we've seen with ApiFix. I mean this is a new technology to the U.S. market. A year ago, no one had done this surgery. So -- 75 cases under our belt, and have no adverse events whatsoever, no reported complications.

If you'd have told us that a year ago, I think we would have taken it and been extremely pleased. So it is very early, but with 25 patients out six months and seeing the results we're getting, we're very, very enthused. I think we probably underestimated COVID's impact in the IRB process. The first IRB is relatively easy to get.

The second one related to the registry has taken us some additional time. And so we're a little behind in terms of having all 20 of our sites onboarded. Additionally, these are very prestigious locations, and we have asked that they'd be very conservative in terms of their patient selection.

And so we're pretty pleased with where we are in terms of the 75 patients in the registry and nearly half of the way through that process.

And very excited that the patient demand, surgeon demand and FDA have allowed us to really kick off this first round of 10 to 20 clinical sites, which I think really helps us stay in line with our expectations for revenue from this product in 2022..

Our next question comes from Rick Wise with Stifel..

And it's great to see such a superb quarter. Just again, reflecting in the second half, I appreciate the understandable seems like Board is cautioned, but just sort of tempered approach given COVID. But maybe help us think through more specifically two aspects of that. International, I'm struck by the comment about backlog.

On the one hand, I feel like that's wind at your back as we head in the second half and into next year. But maybe talk about international trends. What you're assuming in the second half? We imagine that dollars can continue to grow third over second, fourth over third. Help us think through the international part of things..

Yes. Rick, it's a great question, and we've spent a lot of time on our side discussing that coming into this call. There are some variables that are at play. Australia, for example, it really had been open for a year related to COVID. And we were seeing tremendous results. As you know, Sydney had shut down for a couple of weeks.

Other cities in Australia are shutting down for a short amount of time. And that's very unusual. So there are these pockets of select shutdown, which do give us a little bit of pause for the second half of the year, not knowing what that is going to do. But we think we have that adequately reflected in the guidance that we provided.

And obviously, Australia is just one example. It's happening in many, many countries, just like in the U.S. So we feel like we've evaluated those situations, and we've properly included that risk in our guidance that we've provided, and we still are very confident with the numbers that we put out..

Sure. And maybe Dave, turning to the RESPONSE system launch. Just remind us again the potential opportunity and the impact -- potential impact on kids here.

Just a remind us are you replacing something that exists in your product line? Or is this an incremental opportunity and the growth could be incremental? Just frank, if you [technical difficulty] the opportunity for you..

Yes. Great question, Rick. So this is, I think, an expansion of the product portfolio, not necessarily expansion of the total available market. The patients who have neuromuscular scoliosis are generally fusion patients. They're just extremely complicated complex fusion patients.

And historically, no company has provided a really good system dedicated to that particular procedure. So we do some neuromuscular scoliosis now with the RESPONSE system, but I think the opportunity to do substantially more neuromuscular scoliosis fusion procedures is -- will be felt by adding the RESPONSE Neuromuscular System.

What we also see with this is that because no one else has some of the implants that are very specific to RESPONSE Neuromuscular, it's open some of the doors up from a contracting side. So we have a few accounts already.

Again, while this was just launched in May, we have a few accounts already that are allowing our full Scoliosis portfolio in the door for the first time as a result of the fact that the technology for RESPONSE Neuromuscular is so unique.

And that's already started to see -- we've already started to see pull-through with our fusion business simply as a result of this launch that, again, happened only 45 days ago..

Yes. No, I appreciate that. And just last for me. Maybe back to gross margins, Fred. Talk about, if you would, how we think about gross margin trends in the second half? Obviously, you've had a very strong first quarter and even better second quarter.

Can we -- given what I'll hope is conservative guidance, and I appreciate the reasons why, but given that my numbers may not change on the revenue line, can gross margins continue to stay at or improve from these levels as we think about the second half?.

Yes. Absolutely, Rick. The main drivers, as you know, is the domestic mix, so higher domestic mix and higher agency sales outside of the U.S. drive that as well as the overall revenue number. And so historically, the third quarter is our largest sales quarter. So with increased sales, should come increased margins.

And while the fourth quarter revenue typically comes down a bit, strong revenue in that quarter will enable us to have strong margins as well. The real question is how much set sales do we have internationally in the second half of the year as we've had very little of that to date really in the last 18 months. And we see that may pick up a little bit.

But we don't think it's going to have a tremendously lowering impact on the gross margin rate..

Our next question comes from Ryan Zimmerman with BTIG..

Dave, congrats on the role and congrats on the results..

Thanks, Ryan..

So if I could follow-up just on the guidance for a second. We've been watching this -- the flu cases, particularly in the pediatric patients, go up a bit. And certainly, as the masks came down, summer camp picked up. There's been this increased incidence of flu in kids.

And so is that something that we need to be mindful of in the third quarter combined along with higher instance of COVID in pediatrics at all? And how are you guys watching that or thinking about that right now? It sounds like it's not really a headwind as you contemplate guidance, but I'd love to get your thoughts on that..

Yes. It's a great question, and we've spent a lot of time discussing that as well preparing for this call. We've spent a lot of time reaching out to the field and having conversations with them. And while we do read the same articles you do, in some of these children's hospitals, which are unfortunate that they're getting busy with this.

Knock on wood, so far, it is not impacted, we don't believe the elective procedures in those locations. And what we're being told is that it's not anticipated to impact elective surgery. So we're watching it very closely. But again, we think that within our guidance, we have some of that risk built in.

And if it were to get worse from here, which it may, we still think we'll be okay within our current guidance published..

That's appreciated, Fred. And then on the sales force, continues to get better the productivity metrics, if you look at it on an annualized basis, year-over-year, continue to get better. So you're hitting, I think, 182 in these independent but dedicated sales agents and then the associated field force.

Where can that go over time in your mind, Dave? And how big can you take this force?.

Yes. I think it will continue to grow, no question. It's a question, Ryan, of is it grows at the pace of revenue growth. When you add high ASP procedures like Orthex and ApiFix, I would think that the sales force will continue to grow, but probably not be able to keep up pace, frankly, with the growth that we'll likely see from some of those products.

You think about ApiFix as a high ASP from a coverage standpoint. This is -- it's a 2-hour surgical procedure as opposed to a much longer fusion procedures. So we're just driving a lot of efficiencies from the sales force. I guess what Fred and I were most excited about is to see that our domestic sales organization really start adding again.

And I think that's a signal of the bullishness of how we're coming out of this pandemic in the United States. I think we're going to see a fair amount more of that in Q3..

Our next question comes from Mike Matson with Needham..

Yes. So I know there was a prior question on ApiFix and this delay in reaching the 200 number, but I wanted to understand a little bit more about the parallel launch that you mentioned.

So is there a potential for that to offset some of the shortfall that you were expecting on the actual registry part of the volume? And then is this something where it's going to contribute this year? Or is that really more meaningful next year?.

Yes. I think the setup here is really for 2022. The shortfalls on this first 200 patients in 2021, I think, would have a very little -- it was going to have very little impact overall. I think primarily because of the pull-through we're seeing in our other products frankly with RESPONSE.

But I think the way to think about this is really an aggressive preparation to come out of the gate strong in 2022 with 10 to 20 sites that will already have the required IRB, which to remind you that's only one IRB required for any sites beyond the 20.

So I think this is really preparation to get ready to have a really strong 2022 as we roll the product out in a commercial way. It could have a small impact in fourth quarter of this year, but I think we're thinking about more and more as a 2022 story..

Okay. I understand.

But just to be clear, are you allowed to sell ApiFix for use outside of the registry before the registry is completed?.

Yes. That's a good clarifying question, and the answer is yes. Yes. So we are now -- we already have six sites that are onboarded through the first IRB approval, and we are allowed to move to start selling the ApiFix product outside of the 20 IRB sites.

Does that make sense?.

Yes. Yes. It does. And then I wanted to ask about some of the distributor conversions. So I guess, first, starting with the large one that you did at the end of last year. It's been I guess six months plus now since you did that. I just want to get an update. And then you mentioned that you might do some more smaller ones.

So I know with the large one that I just mentioned, there was sort of this revenue reversal that occurred because you had to kind of repurchased some of the inventory that they had.

So is there any risk that we could see something like that with any of these additional conversions that you'll do -- that you're planning to do in the future?.

Yes. So the first part of that is we're very pleased with the success we've had in Germany, Austria and Switzerland for the first six months.

I would say it has met/exceeded our expectations and very excited about the future in those areas as we are now starting to deliver more sets into the area to enable additional locations and more sales in that location. Regarding the potential for a couple before year-end, they're very small.

And I would say it would be a very, very small impact on revenue and is absolutely included in any guidance that we would have provided..

And we have a question from Sam Brodovsky with Truist..

Just to start off, it sounds like the firm might be a little bit more aggressive and the M&A is a bit more of a normal part of business going forward.

Is that the right way to think about it? And if so, kind of can you dig into areas, in particular, where are you thinking about M&A at this point?.

Yes. Good question, Sam. I think we've always been fairly aggressive, at least in terms of our thinking of acquisition of technologies. Generally speaking, the acquisitions we've done have been of technologies, not necessarily full operating companies.

And so we continue to search the marketplace for opportunities where we think we can acquire some technology. And some knowhow that we could leverage the world's only global selling organization in pediatric orthopedics, leverage our strong brand and all the other products we have.

So we continue to look at technologies, certainly that would fit within our trauma and limb deformity portfolio, the ApiFix portfolio. We also have some interest. And I think we've shared that we had acquired a very unique nonsurgical technology a few years ago. And we've been working internally from an R&D standpoint on that technology.

And so we continue to look at others that might help bolster that when we're ready to launch it. And then we're always interested in kind of smart and growing implants and growing technologies. And so those are areas where we continuously look. I don't know that we have anything here on the horizon that's big.

But yes, I think the company is going to be aggressive in terms of the technologies that fit within the portfolio and allow us to leverage what we've built over the last several years..

Yes. I agree with that, Dave. And I would just add, we're very excited about this extension with Mighty Oak Medical. The FIREFLY technology that we've been selling for many years now is a 3D patient-specific guide that really improves the outcome of these severe scoliosis surgeries. And that contract was going to expire here in the end of 2022.

And we are very excited about extending that contract through August of 2027 to enable our sales force to have confidence that, that product will be available to us and the exclusivity in the children's hospitals in the U.S. would continue on until that 2027 time frame. So we, I think, are very aggressive.

We'll continue to be very aggressive on the internal R&D front. On the acquisition front, where the opportunities arise in technologies, and where necessary striking distribution agreements that enable us to have access to technologies that are applicable in our channel..

Great. That's helpful. And then I'll give you one more on ApiFix.

As it regards to patient selection and in particular, how that's going to apply to the parallel launch and then how we should think about that potentially being a gating factor into '22, if at all?.

Yes. So we intend to hold the same rigorous standards with respect to adherence to the indications, the 35 to 60 degree curves that are flexible. And certainly, our intent would be through the first wave of commercial launch to ensure that the patients that were doing ApiFix procedures on our customers or using ApiFix on adhere to the indication.

So I don't necessarily know that that's a gating factor. We want to get great outcomes here. And we know we can get great outcomes if our surgeons follow the indications.

We're spending a lot of time, both within our current -- the 17 facilities that are utilizing the product as well as training the next 10 to 20 about how to best -- how to best select those patients as well as how to have a discussion with the family. This is a very new technology. Again, 75 cases done in the U.S.

to date.And so you can imagine the discussions that it's requiring pediatric orthopedic surgeons to have with their patients to ensure that patients feel comfortable. And I think that's where we've invested our energy here on surgeon training and then ensuring that we stay very rigorous with respect to the indication.

But I don't think that going forward, that will be a major gating factor. I just think it's doing the right thing to ensure that we get the outcomes we want..

Our next question comes from David Turkaly with JMP Securities..

This is actually Danny on for Dave. I just have one quick one for you. So following up on the distributor conversions, international had another quarter of solid growth.

But what really has been driving the ramp in these new conversions in the first half here? Are there any product lines that have particularly stood out to you during the first two quarters? And you're still early days in the EMEA launch, but how much have Orthex conversion has been a contributor here?.

Yes. I think that one of the biggest drivers here is being able to just get these agencies new sets. As Fred mentioned earlier, we've finally gotten a number of sets to the DACH region, Germany, Austria and Switzerland. And that has had a substantial impact here in really the first two quarters where it's been an agency.

So we're seeing growth across the entire portfolio in markets where we have converted to agencies. That said, we are launching the Orthex products in EMEA. It was great to see first cases in the U.K. and in Germany. We do expect that, that will impact us positively in the second half and certainly be a really nice tailwind in 2022.

We've also seen, in this country, really strong growth with our PNP Femur system. If you remember, that's a system that we launched in the United States and really United States only a few years ago, and it's fastly becoming the largest product within our Trauma and Deformity portfolio.

And so we've started to do some procedures outside of the United States, both in Germany and the U.K., and we would expect that as we launch that product, really through the back half of this year as well as in 2022, that, that will perform well.

I think the thought here is that these markets are having -- there's regional fluctuations without question that COVID is impacting those markets.

But once we get into this cadence of making up some backlog outside of the United States, whenever that occurs, and you combine that with some of the new product launches, particularly Orthex, and I think we'll set up for some nice tailwinds, most likely in the early part of 2022..

And there's no further questions in the queue. I'd like to turn the call back to David Bailey for any closing remarks..

Well, great. Thank you. I'd like to conclude our call -- second quarter earnings call by thanking everyone for their interest in OrthoPediatrics and for your support of our cause of helping children throughout the world. We very much look forward to updating you on our future progress and meeting many of you at upcoming investor conferences.

Have a great day. Thank you..

This concludes today's conference call. Thank you for participating. You may now disconnect..