Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Paragon 28 Inc (NYSE:FNA) reported a record global revenue of $62.3 million for Q3 2024, representing 18.1% reported growth.
• The company launched 13 new products in 2024, demonstrating a strong commitment to innovation and market expansion.
• Paragon 28 Inc (NYSE:FNA) achieved positive adjusted EBITDA for the first full quarter since its IPO in October 2021.
• The company increased its U.S. producing sales rep roster by 10.5% and saw a 4% increase in productivity across its rep base.
• International revenue grew by 35.7% reported and 32.8% constant currency growth, driven by focused investments in key markets.

Negative Points

• Gross margin for the quarter decreased by 90 basis points sequentially to 74.1%, with expectations to stabilize around 75% for the full year.
• The company experienced choppiness in sales trends entering the third quarter, although it abated later in the quarter.
• Inventory levels remain high compared to industry standards, with a focus on reducing inventory over time.
• Operating expenses were $54.6 million, representing 87.6% of net revenue, although there was a sequential improvement.
• The company is still working towards achieving EBITDA positivity in 2025 and cash flow positivity in 2026, indicating ongoing financial challenges.

Q & A Highlights

Q: How did the foot and ankle market perform in Q3, and what are the expectations for Q4? A: Albert De Costa, CEO, explained that while some companies described the market as soft, Paragon 28 experienced more choppiness, with fluctuations not confined to any specific product or region. This choppiness mostly abated by the end of Q3, and the company is optimistic about Q4.

Q: What are the expectations for the foot and ankle market in 2025, and can Paragon 28 continue to grow at 2-3 times the market rate? A: Albert De Costa, CEO, expressed optimism about the foot and ankle market's growth potential, citing high complication rates and Paragon 28's innovative technology. He believes 2025 will be exciting, especially following a significant year of product launches in 2024.

Q: Can you provide more details on the cost savings from the restructuring program and the expected $8 million in annualized OpEx savings? A: Shai Shaheen, CFO, stated that the restructuring program aimed to right-size the organization and streamline processes, with most savings expected in Q4 and some in 2025. Additionally, ongoing cost optimization efforts are being driven to ensure investments are in the right areas.

Q: How should we think about the impact of 2024 product launches on 2025? A: Albert De Costa, CEO, noted that product launches typically have a 6-12 month ramp-up period. The 2024 launches have exceeded expectations, and the company anticipates a boost in momentum for 2025, particularly from products launched in the second half of 2024.

Q: What steps are being taken to reduce inventory levels, and what is the target for inventory days? A: Shai Shaheen, CFO, acknowledged the progress made in reducing inventory levels and emphasized the focus on efficient capital deployment. While orthopedic companies typically aim for around 365 days, Paragon 28's focus on trauma requires more inventory. The goal is to continue improving inventory levels over time.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.