Paragon 28 Inc

NYSE:FNA

Earnings Call Analysis

Paragon 28 Reports Strong Revenue Growth

Paragon 28 showcased a robust performance with global revenue hitting $155.8 million in the first 9 months of 2023, marking a striking 20% reported growth and 21% in constant currency. The third quarter specifically saw a 15% surge in revenue to $52.8 million compared to the same period last year. Despite the challenging environment, gross profit margin remained high at 80.3%, though slightly lower by 1 percentage point from the previous year due to increased inventory reserves. Adjusted EBITDA improved significantly by 54.1% to a loss of $1.2 million. The company is optimistic about achieving operating expense leverage, aiming for continued profitability improvements, with a positive adjusted EBITDA expected annually starting in 2024.

Substantial Revenue Growth and Product Expansion Amid Market Opportunity

In the third quarter of 2023, global revenue reached $52.8 million, marking a robust 15% growth in both reported and constant currency terms compared to the same period last year. The U.S. sector witnessed a significant enhancement with the salesforce roster growing by nearly 20%, while the surgeon customer base expanded by 9%. With 6 new product launches, including innovative systems and soft tissue products, and over 20 projects in the pipeline, the company has positioned itself to tap into the rapidly growing $4.9 billion foot and ankle market, projected to experience a 7% annual growth rate.

Striking Balance Between U.S. Steadiness and International Momentum

The U.S. revenue contributed $44.6 million with an 11.5% year-on-year increase, complemented by a solid $2.5 million sequential rise from the previous quarter. International revenue excelled with a significant 36.2% reported and 34.7% constant currency growth, totalling $8.2 million. These numbers reflect the company's adeptness in navigating supply chain challenges and its potential to thrive in diverse markets.

Gross Profit Margin and Operating Leverage Signal Efficiency Despite Headwinds

The gross profit margin was recorded at a strong 80.3%, although it saw a slight dip of approximately 1 percentage point from the previous year, mainly due to increased inventory reserves. The disciplined control over operating expenses, consistent at roughly $51 million throughout the year, hints at strategic investments in R&D and marketing paying dividends, thus hinting at sustainable profitability improvements.

Positive Adjusted EBITDA Expected in 2024 with Improved Cash Flow Trajectory

The company is on an upward trajectory with improved adjusted EBITDA, decreasing by 54.1% to a loss of $1.2 million this quarter and year-to-date improved by 42.4% to a $5.2 million loss. Expectations are set for operating leverage and profitability to gain further momentum in the final quarter of 2023 and onwards, aiming for positive adjusted EBITDA annually starting 2024. Despite operational cash use totaling approximately $100 million for 2022 and 2023 combined, the company anticipates these figures will reverse, moving towards breakeven levels, buoyed by cash flow tailwinds starting in 2024.

Reaffirmed Revenue Guidance Amidst Market Confidence and Macroeconomic Prudence

The leadership is confident in the company's growth trajectory, reasserting its net revenue guidance for 2023 at $214 million to $218 million. This estimate aims for a remarkable 19% reported and 20% constant currency year-over-year growth, embodying both the company's strong market position and its cautious consideration of ongoing macroeconomic uncertainties.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and welcome to Paragon 28's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

And I would now like to hand the conference over to your host today, Mr. Matthew Brinkman, Senior Vice President of Strategy and Investor Relations. Mr. Brinkman, please go ahead.

[Matt Brinckman, executive]

Good afternoon, and thank you for joining Paragon 28's Third Quarter 2023 Financial Results and Earnings Call. Presenting on today's call are Albert DaCosta, Chairman and Chief Executive Officer; and Steve Deitsch, Chief Financial Officer.

Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements made as to the company's or management's intentions, hopes, beliefs, expectations or predictions of future events, results or performance. These forward-looking statements are subject to a number of risks, uncertainties, estimates and assumptions that may cause actual results to differ materially from those forward-looking statements.

All forward-looking statements are based upon current available information, and Paragon 28 assumes no obligation, except as required by law, to update these statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company's SEC filings and in the press release that was issued earlier today.

During this presentation, we will refer to the non-GAAP financial measures of adjusted EBITDA and constant currency net revenue growth. A reconciliation to the most comparable GAAP financial measure, net income and reported net revenue growth is contained in our press release issued earlier today.

And with that, I will now turn the call over to Albert.

[Albert DaCosta, executive]

Thanks, Matt. Good afternoon, and thank you for joining us for our third quarter 2023 earnings call. I will start things off with a review of our recent performance, followed by highlights from the quarter. Then, I'll pass it over to Steve to provide further details on our financial results, an overview of our new and improved credit facility, which we also announced today and an update on our 2023 financial guidance.

To kick things off, global revenue was $155.8 million for the first 9 months of 2023, representing 20% reported growth and 21% constant currency growth, respectively. Our balanced business model continues to drive our revenue growth well above the estimated market growth rate of 7% with meaningful growth contributions from each of the 5 foot and ankle subsegments.

Third quarter 2023 global revenue was $52.8 million, representing 15% reported and constant currency growth compared to the third quarter of 2022. I am very pleased with this performance given the tough 30% prior year constant currency growth comparison and the short-term supply chain disruption. We continue to execute on our U.S. strategies that have and will continue to drive strong and sustainable growth. During the third quarter of 2023, we increased our U.S. producing sales roster by almost 20% to 257 compared to the third quarter of 2022, while increasing our surgeon customer base by 9% to a record 2,061 customers.

We also continue to see nice levels of year-over-year revenue gains from both legacy producing sales representatives and surgeon customers, driven by new product launches combined with solid sales force execution and leading medical education. Further, we have several important and exciting product launches happening in the coming months in tandem with recent launches, which will provide additional growth opportunities in the U.S.

Our international business continued to perform exceptionally during the third quarter of 2023, and we continue to be excited by the opportunity we have in both our most established markets as well as other increasingly important markets. Our growth is ultimately driven by our ability to bring innovative and relevant new technologies to market, which help our surgeon customers improve foot and ankle patient outcomes. As a reminder, we typically launch 5 to 10 products each year, and this year will be no different.

This year, we've launched 6 products to date, including our second Metatarsal Shortening System, the Gorilla Supramalleolar Osteotome Plating and Web System, the Jaws GreatWhite Nightmastaple system, the Beast Corticofiber Bone Graft and 2 soft tissue products with the Reinforce Extraosseous Repair System and Bridgeline Adaptive Tape. I also continue to be thrilled about the depth and quality of our product pipeline with over 20 active projects in development, including several substantial launches planned in the next few quarters and beyond.

Finally, we are closely following GLP-1 developments and potential foot and ankle market implications. At the same time, we are focused first and foremost on executing our business strategy to improve foot and ankle patient outcomes. I'll start by saying the market that we are exclusively focused on, foot and ankle, it's truly a gem. Today, the global foot and ankle market is estimated to be more than $4.9 billion, growing rapidly at about 7%, with potential for growth acceleration driven by new technologies such as Smart 28 that we believe have the potential to reduce current levels of foot and ankle complications.

We are positioned very well in this great market. and we expect share gains to be the primary driver of our growth in the years to come. Of course, it is impossible to speculate what impact, if any, GLP-1s will have on the future foot and ankle market, but our view is that anything leading to a more active lifestyle could ultimately benefit the foot and ankle market, which is our singular passion and focus. Our experience generally indicates that foot and ankle patients are typically younger and more active than in other orthopedic and med tech markets and less of these patients also tend to be better surgery candidates. So we have quite a few reasons to be bullish on our market and our business.

Our third quarter earnings supplement on our Investor Relations website includes additional details regarding GLP-1s and the foot and ankle market, as well as a few other topics we are discussing today.

With that, I will now turn it over to Steve.

[Stephen Deitsch, executive]

Thank you, Albert. Paragon 28's third quarter 2023 revenue was $52.8 million, representing 14.7% and 14.5% reported in constant currency year-over-year growth, respectively. Our U.S. revenue was $44.6 million, representing 11.5% growth over the prior year quarter and a nice sequential increase of $2.5 million from the second quarter of 2023.

Our international revenue was $8.2 million, representing 36.2% and 34.7% reported in constant currency year-over-year growth, respectively. Supply chain headwinds continued into the third quarter of 2023 as expected, but to a lesser extent than those experienced in the second quarter. We continue to expect supply chain headwind to diminish further during the fourth quarter of 2023.

Adjusted EBITDA for the third quarter of 2023 improved by 54.1% to a $1.2 million loss. On a year-to-date basis, our adjusted EBITDA improved by 42.4% to a $5.2 million loss with gross profit margin at 81.9%. Gross profit margin for the quarter was 80.3%. It was approximately 1 percentage point less than the third quarter last year due to increased inventory reserves. Despite making continued growth investments in R&D and selling and marketing throughout 2023, quarterly operating expenses have remained consistent at approximately $51 million throughout 2023, resulting in continued operating expense leverage and profitability improvements.

We expect operating leverage and profitability to continue to improve in the fourth quarter of 2023 and beyond, which we believe will drive positive adjusted EBITDA on an annual basis beginning in 2024.

Now turning to cash flow. Our operating cash use for 2022 and 2023 year-to-date combined totaled approximately $100 million compared to approximately breakeven operating cash flow in both 2020 and 2021. There are 3 primary drivers of the change in operating cash use. First, inventory purchases have been $41 million above our normal operating levels due to supply chain disruptions resulting in temporary stockpiling of inventory.

Second, we made $27 million of nonrecurring legal settlement payments, which were paid in full earlier this year. Third, we made important targeted growth investments in our business, resulting in temporal negative adjusted EBITDA equaling a $16 million loss since the start of 2022. These 3 items together account for $84 million of the nearly $100 million of operating cash used since the start of 2022. Each of these items created cash flow headwinds in 2022 and 2023, but importantly, we believe these 3 items will become cash flow tailwinds beginning in 2024, and here's why.

With supply chain disruptions continuing to abate, over time, we expect to return our inventory balances to 2020 and 2021 levels of operating efficiency. Our enhanced operations function has great new leadership and team members, material resource planning tools and committed vendor partners, and execution plans are underway to drive significant improvements in inventory efficiency as we close 2023 and enter 2024.

Finally, as previously mentioned, we expect positive annual adjusted EBITDA in 2024 and beyond, building on the earnings momentum over the last several quarters, leveraging past investments and continuing to make important growth investments to grow our business at multiples of the market growth rate.

Now I'd like to share some information on our new and improved senior credit facility. As you know, we previously had a $90 million senior credit facility with $30 million drawn. The new $150 million senior credit facility with Ares announced today, expands our available borrowings by $60 million. And importantly, it is non-dilutive with no equity sweeteners such as warrants. Further, it's competitively and similarly priced to our previous facility. With this transaction, we drew $100 million at close today bringing the company's total pro forma liquidity to just under $150 million, including approximately $100 million of pro forma cash as of September 30, 2023.

We believe this level of liquidity reinforces P28's pathway to cash flow breakeven, given our expected continued improvements in earnings and cash flow into 2024 and beyond.

Finally, on this topic, we are thrilled to partner with a high-quality lender, such as Ares, as we continue to rapidly grow our business.

Now turning to our 2023 revenue guidance. The foot and ankle market is strong, our business fundamentals and leading indicators are positive and we have great confidence in our growth prospects. Our updated 2023 revenue guidance accounts for these factors including the improving supply chain environment, but also factors in the continued uncertain macroeconomic environment. For the full year of 2023, we are reaffirming our previous net revenue guidance range of $214 million to $218 million. And at midpoint, this guidance range implies 19% reported and 20% constant currency year-over-year growth. Our net revenue guidance also assumes foreign currency translation rates remain consistent with current translation rates.

That is the end of our prepared remarks.

[Operator]

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

[Matthew O'Brien, analyst]

I guess for starters, maybe I don't know if Albert or Steve, but the Q3 result of such a tough comp is really impressive to see especially the sequential bump, and we're not getting that from a lot of ortho companies this quarter. So can you just talk about some of the improvements that you saw from a productivity supply chain perspective that got you there? And I guess, just kind of wrapping into that question, how come you didn't take maybe the low end of the guidance range up a little bit, just given what we saw here in Q3.

[Albert DaCosta, executive]

Yes. Maybe I'll take a start on that one, Matt, and great to hear from yes. I got to tell you, we were pretty pleased with our team's performance in Q3. I think it's a couple of things that you saw there that led to a sequential increase there. One is some of the product launches in last year and in the beginning of this year, I think, started to influence us there a bit. We did start to see some improvements in the supply chain that we had discussed in the Q2 call, and I think that's -- we're expecting that to continue to improve through the rest of this year. And then just executing. Our medical education plan has been going really well. We launched a second mobile lab in Q3. And I think you're starting to see some of those things paying off and allowing us to execute nicely.

[Stephen Deitsch, executive]

Yes. Matt, it's Steve. And on the second part of the question, we really just took a look at the full year taking into account our business being very strong, fundamentals, leading indicators, et cetera, including the record number of producing sales reps that we had in the third quarter and a record number of customers again, but also balancing that with the fact that we're not completely through the challenge with the supply chain, it is getting better. It got better in the third quarter. We expected to get forth -- continue to get better in the fourth quarter, but we've taken that into account in the low range.

And also just the overall general macroeconomic environment and uncertainty. So that is the -- when you think about the low range, think about supply chain potential impacts and also any kind of worsening in the macroeconomic environment.

[Matthew O'Brien, analyst]

Got it. That's helpful. And then second question, Steve, is probably for you. Just specifically on the Ares facility, I mean, that's a big step-up from what you had before. Just talk maybe a little bit about the breathing room. I don't know what the right analogy is to use here, but the breathing room that, that provides to get you to cash flow breakeven or positive in kind of the timeframe for that specifically after getting to adjusted EBITDA positive next year.

[Stephen Deitsch, executive]

Yes. We're really excited to put that in place. It's a competitively priced agreement. It's a step up from what we had before. We went from $90 million to $150 million of available credit and we did that for a couple of reasons. One, it provides just a reinforcement of our pathway to cash flow breakeven. We have spent more in cash over the last 2 years than we've historically spent, particularly on things like inventory and also we finalized our legal settlement, and we also invested in the business, and we ran actually EBITDA losses over the last 2 years. And as we look forward, we expect those to reverse and really improve our cash flow. But this agreement gives us a backstop, a cushion per se. And we hope it gives investors just visibility that there is an absolutely clear path runway to breakeven. And we felt that before, but we feel with this augmenting it, I think it's even more of a reason to believe for people that aren't potentially as close to the business as Albert and I.

[Operator]

Our next question comes from Craig Bijou with Bank of America.

[Craig Bijou, analyst]

Congrats on a strong quarter on a very tough comp. So good to see. I wanted to start with the international business. I know it's only 15% -- maybe a little bit less of your total business, but you've been putting up some pretty strong growth there. So Albert, maybe talk about the markets, your opportunity there? Is it expanding foot and ankle procedures in certain markets? Are you taking share? Just maybe a little bit more color on the international strategy. And maybe how sustainable this level of growth is for the next couple of years.

[Albert DaCosta, executive]

Yes. Great to hear from you, Craig, and maybe I'll take a stab at this and anything I'd miss, Steve can shed some color on it as well. But generally speaking, I'll tell you, when we first entered the international market, we were paying special attention to any variances and preferences and just the style and structure of our kits. Being so specifically designed for the U.S. was something that we were vetting, and the response of that was really, really strong.

And so the very first countries we entered like South Africa have shown us that the set up of Paragon 28 is going to be very influential in the international market. It gave us a lot of confidence about that moving forward. On the other side of that equation, I'll tell you, our goal here is to do something powerful in the foot and ankle space and we can't do that as a U.S.-only company. And it means that we need to bring in the styles and preferences from all over the world. And that's what we're doing every day. We made some pretty significant investments in the infrastructure, the organization moving forward.

We also take every single country as a separate entity, and we determine what the best structure is going to be for that environment and who the key opinion leaders are, and we start kind of feeling our way into each country. So we don't go into anything with a preconceived notion on how we should be structured. And I think that's paying off. And so generally speaking, I'll tell you, one, we're thrilled that this is taking us in the right direction towards fulfilling our mission to improve outcomes for foot and ankle and doing it from a global perspective.

Two, it's another piece of diversity for us, both geographically and and even from a style and a preference standpoint. So we're thrilled about that piece as well. And then third, it's just building a stronger business for us from a revenue perspective, and we continue to see a lot of opportunity there to continue to expand that. And I think the runway is still really long and strong for us there.

[Stephen Deitsch, executive]

Yes. And I would just add, Craig, that the -- when you look at our overall market share, we're at about 4% global market share in the $5 billion foot and ankle market. And we're even less than that internationally. So we have an extensive runway and the investments that we've made are going to continue to yield. Our businesses in the U.K. and in Australia and South Africa, where we have larger businesses or just killing it right now, honestly. And thanks to those teams for the great work on the ground.

But it's also in new markets as well that we're really just getting our teams going in. So a lot of runway in existing markets, new markets, markets where we've been before, but haven't had that big of a beachhead and just a very large vibrant market for us as we move forward.

[Craig Bijou, analyst]

Very helpful. And maybe shifting to the U.S. market. A number of competitors have been talking about launching new products. So Albert, maybe I would love to get your kind of view of the competitive landscape. Obviously, it's always been competitive. But has it gotten more competitive in the U.S. or, I guess, globally? And maybe just some of your thoughts on how you guys are positioned versus some of the new -- maybe not new entrants, but new products that are coming out into the market?

[Albert DaCosta, executive]

Sure. Well, for starters, I'll tell you, we love competition. I think you might hear the same thing from some of our competitors about us. But our goal here is to improve outcomes for foot and ankle surgery. And I think the more competition we have, the more we kind of challenge each other to think about things in a different way. And I think that makes it exciting, and I think that's just, generally speaking, it's good for the entire market.

From our perspective, we feel -- and I could speak on our behalf, but we feel like we care so much about foot and ankle. This is all we care about, right? And so when we go to bed at night, when we wake up in the morning and when we have dinner, I mean, these are the thoughts that we're going through is how can we improve these procedures? What are we not thinking about yet? How can we support our surgeons better? How can we enhance our own offering? How can we continue to proliferate our offering in this space.

I know for us, that's what drives us every day. It's what keeps us motivated. And so I think that piece creates better product. It has a sincerity to it that is pretty unique to Paragon. There's a look and feel to our development strategy and our commitment to research and our communications with surgeons that is pretty unique. And I think that positions us really well to compete in this space, and will continue to benefit us moving forward.

One last thing I'll add there, just -- yes, I was just going to add one more piece to that. And it's just -- every competitor kind of has a key area that that they're most excited about. I think Paragon is one of the companies that's really kind of consistently excited about the entire footage market. And so from a competition standpoint, maybe to address that part of your question is there's just different pockets of competition depending on which subsegment of the foot and ankle market we look at.

[Operator]

Our next question comes from Neil Chatterji Chatterji with B. Riley.

[Unknown Analyst]

This is Anderson on for Neil. First, could you just update us on sales force productivity in the third quarter? And any plans for continued sales force expansion into 24?

[Stephen Deitsch, executive]

Yes, happy to, and thanks for the question. This is Steve. The -- we -- to start with, we increased our producing sales reps by almost 20% during the quarter compared to last year. And when you look at the productivity of our underlying reps, our legacy reps, legacy producing reps continued to show nice gains. And overall, the actual revenue per producing rep actually came down just a touch from last year, because we've added so many new reps and that's just the nature of adding additional reps into the algebra here.

But continuing to drive productivity across legacy reps. We're continuing to see new reps that are relatively new additions to Paragon 28, scale up their businesses in nice ways. So really excited about the KPIs when we think about number of reps, producing reps and opportunities for continued gains as we go forward.

[Unknown Analyst]

Okay. Great. And then how is surgeon training progressing? And how many were trained in the third quarter? And what was the split between U.S. and OUS?

[Albert DaCosta, executive]

Yes, we continue to roll along literally. We've got another mobile lab that we just launched, that's going across the country. So 2 labs now in place, and we continue to train in excess of 500 surgeons per quarter. So strong. We -- and one of the key things about our surgeon training, and we've said this in the past, is it's not just new surgeons that come to see us here in Denver and also on the road, it's our legacy customers that have opportunities to see all of our new products and have opportunities to see products that they may not be currently using as much as they'd like to, that they want to see it and try it again. So we're seeing new customers, we're seeing existing customers and we're also getting a lot of our new reps, the opportunity to be trained on our products at the same time, which drives some efficiency for us from a cost perspective.

[Operator]

Our next question comes from William Plovanic with Canaccord.

[Unknown Analyst]

This is [ Kevin Kern ] on for Bill. Just on the supply issues, can you provide some more color on what's improving? And are you really expecting these challenges to bleed into 2024 as well? I think you talked last quarter that mainly the issues were with sterile package, which is a lot of your new products or new products should continue to launch also kind of experiencing those supply challenges?

[Stephen Deitsch, executive]

Yes, Caitlin, thanks for the question. It's Steve. I would tell you that we -- as expected, we saw continued improvements in the availability of all of the products that we had less availability in the second quarter, including sterile packaged products. The sterile packaged products continue to be the area of our supply chain that is still slower than we would like it to be, but it's consistent with what we had planned. So we're -- while we still have some "headwinds" with sterile packed products, they're not inconsistent with what we had expected 3 or 4 months ago. And we do expect those to really yield and not be a headwind for us as we get into the first part of 2024.

[Operator]

The next question comes from George Sellers with Stephens, Inc.

[George Sellers, analyst]

Maybe to shift your pipeline a little bit, clearly, some exciting things. Clearly, some exciting things coming by the end of the year and then also next year. I'm just curious if you could give us some additional color on where some of those devices are in terms of the subsegments, maybe if those devices are extensions for things that are already in your portfolio or entering new indications. And then also any detail on maybe the cadence of some of those launches? I know I put a lot on that one question. Hopefully, I can repeat anything if I need to.

[Albert DaCosta, executive]

George, this is Albert. And I'll maybe take a stab at it. You know this is my sweet spot, and I love you trying to get as much information you can about future launches, which is always hard for me not to divulge. But look, we are as excited as we've ever been about some of the products that we're expecting to launch next year. And the short answer to most of your questions is yes, yes and yes, right? We do have a few line extensions that we expect to introduce next year. We are expecting to cover every aspect of foot and ankle surgery. So all the subsegments, we've got some introductions going into next year.

I wouldn't say that any of my children are more special than the other children, but there are a couple of products that we think have a pretty significant opportunity, at least we're anticipating they could be pretty significant in terms of improving outcomes for patients, which is a pickle point for us. So yes, we've got a couple of really exciting things launching next year, including our first module of Smart 28, which we've been kind of letting the world know. We expect to launch that early next year or at least the first half of next year.

We might see some limited launches a little bit earlier than that based on some regulatory approvals, but that is something that we've got a lot of excitement around. Not to underplay some of the product launches we've launched this year, and we still have somewhere between 2 and 4 products that we might be launching at the tail end of this year. So a lot of exciting stuff in terms of product development.

And our goal is to influence everything that could possibly afflict a lower extremity patient. And every time we launch one of these products, I think we get closer and closer to that goal. So we've got a lot of exciting things coming, and I love that question. So product development is what really tickles me every day that I get to come to work and see what we're doing there.

[George Sellers, analyst]

Okay. That's really helpful, and we're looking forward to hearing some more details about those in the future. Maybe to shift back a little bit to the performance in the quarter. Could you give us some additional color maybe on how some of the subsegments trended on a monthly basis and specifically relative to your expectations?

[Stephen Deitsch, executive]

Yes. Maybe I'll start, and then Albert can come back in, George. And thanks looking forward to seeing you next week. Look, every one of our segments performed well in the third quarter and also on a year-to-date basis, that's kind of the benefit of our business having such a strong presence in each of these segments. And that's going to continue to be that way as we go forward.

And Albert says he doesn't have favorite children. But other than a few things like Paragon 28 is one of his top children. So look, everything is performing well. And singling out things, we typically don't do. So we don't want to break stride with that. So each subsegment is important to us and grew for us.

[Operator]

Our next question comes from Brandon Vazquez with William Blair.

[Brandon Vazquez, analyst]

Congrats on a nice quarter. I want to ask one on the guidance. It implies a nice rebound in Q4, but I'm kind of curious if you use kind of the low end versus the high end for what's implied in Q4? It's a relatively wide range, at least for Q4, specifically. If I'm doing my math right, something like low teens growth to over 20% growth for Q4. So maybe you can talk about what gets you to the low end of the high -- or the high end of that guidance as you go into Q4.

[Stephen Deitsch, executive]

Yes. Yes. Happy to do that. And thanks for the question, and it's nice to have you on the calls and picking up coverage. So I would say that we intentionally left the range of $2.14 to $2.18 just to account for some potential uncertainties on the downside at the low end of the range related to supply chain and just uncertainties in the macroeconomic environment. There's certainly nothing that's going off plan right now and what we're experiencing with the supply chain is consistent with our previous expectations, but the low end accounts for potentially some additional headwind there.

And also just the potential, which we're not experiencing now, to be clear, but the potential for headwinds from a macroeconomic perspective. In the high end we'd assume the opposite, just continued improvements in supply chain and just a really robust foot and ankle elective and nonelective procedural environment.

[Brandon Vazquez, analyst]

Okay. Great. And then switching gears a little bit to the pipeline. I'll take a shot too and try to get see if I can get any other details out of you, but maybe on Smart 28, if you can give any updates on where you guys are for that product, even if you just -- like are you guys in a point where you have a commercial product? Are you in the regulatory filings? Anything like that would be helpful to understand, kind of timing of and expectations for that first module in Smart 28.

[Albert DaCosta, executive]

Got it. And I appreciate the attempt and I'll do my best to answer as much as I can. I will tell you, we are in a regulatory submission point right now, and we're in good conversations with the FDA there. And so we're excited about the opportunity, but we're being cautious there. We do have a product that, to be honest with you, is internally, it's been exceeding our expectations, and we're really excited about that introduction.

I'm also really excited because I know it's been a little bit difficult for the investment community to really understand why we're so excited about Smart 28. And I think when we launched that first module, people are going to start to understand, okay, that's what this means, and this is what it looks like, and this is how it could influence and support surgeons in a meaningful way.

And so that launch, we're expecting to be in the first half of next year for more of a broad scale introduction. But we're expecting sort of a beta launch later this year, just predicated on that regulatory filing. So just making sure that the approvals come in as we would anticipate. And if they do, then we'll expect to go to a small-scale launch. And at that point in time, we might be able to start communicating a little bit more freely what we've got in the pipeline there. So I appreciate the question, and it's hard for me. I'm a salesperson at heart. It's really hard for me not to give you all the details that I would love to give you right now, but stay tuned soon. Yes, stay tuned.

[Operator]

Our next question comes from Mike Matson with Needham.

[Michael Matson, analyst]

The -- in the context of the comp you're up against, I think, the growth was obviously good, but on a year-over-year basis, it did slow down a little from the prior quarter and first half of the year. I was just wondering if you could maybe quantify the impact of the supply chain issues in the third quarter, how much that took off your growth rate. And then also, I was wondering, some of the other orthopedic companies have called out having fewer selling days in the quarter. Was that -- did that impact your growth at all?

[Stephen Deitsch, executive]

Mike, it's Steve. Maybe I'll start with the second part of the question because that's an easier one for us. And actually, we have, for the first time, an earnings supplement that's out there filed with our earnings release 8-K today. So you can see some of the details that we're talking about here on our third quarter performance, some of our commentary around our new credit facility, some of our comments around the U.S. performance, international performance.

But including the impact of selling days. So we certainly did have an impact to selling days. We mentioned that last quarter when we were giving an update for the balance of 2023, we had approximately 2 less billing days and our estimates pegged that impact somewhere between 200 and 300 basis points. And so it's not insignificant. And we also do have 1 less billing day next quarter or this quarter we're in compared to last year. So it had an impact for 3Q that was 200 to 300 basis points.

And then with respect to the supply chain, we haven't quantified that other than to say -- and I know this is a specificity that you'd like or other folks, it's been pretty significant for us. It's -- we've not been able to supply the product at the right place at the right time for all of the potential demand that we have. And so we're really looking forward to getting out of that and getting into next year when we expect that to all be behind us.

And then finally, you mentioned the strong comp. I mean last year, we did grow 30%. So all of those things combined, we're really pleased with 15% growth and 20% year-to-date.

[Michael Matson, analyst]

Yes. Okay. Understandable. And then just given the new credit facility and the draws that you're taking there, just in terms of modeling interest expense, can you help us out there in terms of kind of what quarterly interest we should be modeling?

[Stephen Deitsch, executive]

Yes. So we have 100 drawn.

[Michael Matson, analyst]

Interest related, I guess.

[Stephen Deitsch, executive]

Yes. Yes. So it's $650 is the spread on -- or excuse me, $675 is the spread on the term loan and $400 million is the spread on the revolver, and we have $75 million out on the term loan and $25 million out on the revolver. And so it's probably a cash interest of $8 million to $9 million a year. On a net basis. Because we do have $100 million of cash on our balance sheet that's yielding a nice level of interest income.

[Michael Matson, analyst]

Yes, exactly. So that offsets some of it.

[Operator]

Our next question comes from Dave Turkaly with JMP Securities.

[David Turkaly, analyst]

Maybe one for Steve. I'm looking at the slides. Thanks. There's a lot of good info in there. In the inventory component, it looks like you're kind of saying that you think you'll get it back down to, I don't know, I guess, something closer to a year's worth of days, it says 817 to 463. Are we talking about inventory should we be thinking about that day number going specifically to that level?

[Stephen Deitsch, executive]

Yes. Look, and that's how we came up that, it kind of really demonstrate like the last 2 years have been atypical for us from a historic P28 use of capital. And a lot of it's been driven by the supply chain disruptions in inventory. And we've done some stockpiling of inventory. And unfortunately, we have -- like we've been talking about certain inventories, we don't have enough of.

But absolutely, where we're at today from an efficiency perspective on our balance sheet is not where we're going to be 3 years from now and -- or even next year or even this quarter, we improved from last quarter and the fourth quarter is going to improve compared to the third quarter. So that's going to become a significant area of cash flow tailwind for us into next year and beyond. And then we also don't have the -- any more legal settlement payments. And we're also going to be EBITDA positive beginning next year is our expectation compared to we've run EBITDA negative the last 2 years as we've made some really targeted investments that build a nice investment base. So help us as we go forward.

So we're really happy about the progress we're making in our supply chain, this new credit facility and the visibility that we have to being EBITDA positive in '24 and beyond and also improving our operating cash flow.

[David Turkaly, analyst]

One quick one. Just, I guess, CapEx plans or what should we be expecting there moving forward? Is that going to be at a consistent level? I'm not sure if you have other investments to make, but where you stand on that front?

[Stephen Deitsch, executive]

Yes. So we've also -- if you look at our investing cash flows in the last couple of years, we've had in there a couple of unusual items. We bought our building for $18 million. We purchased Disior in 2022 for $19 million. And an underlying in there, we've had about probably, call it, $30 million of instrument purchases or about $15 million per year. That's sort of the high end of the range for us for instruments. So I would think about instruments -- if you want to use that in your model, that's what it's been, but I think we can do better than that on an annual basis.

And then other PP&E has been somewhere between $15 million and $16 million over the last 2 years. That's going to come down. We launched SAP, which a lot of that was capitalized over the last 1.5 years. So we expect not only operating cash improvements compared to the last couple of years, but also the investing cash line we'll get -- we look a lot more interesting next year to and beyond.

[Operator]

We have no further questions. So I'll turn the call back to the management team for any closing comments.

[Matt Brinckman, executive]

Thank you for joining the call. And in all of your questions and answer, we look forward to speaking to you all again in the future. Thank you. .

[Albert DaCosta, executive]

Thank you.

[Operator]

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.