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spk21: Good day, ladies and gentlemen, and welcome to the Newvasive first quarter 2023 earnings conference call. I would now like to introduce your host for today's call, Ms. Juliette Cunningham, Vice President of Investor Relations at Newvasive. Please go ahead, Ms. Cunningham.
spk16: Thank you. Good afternoon, everyone. With me today are Chris Berry, Chief Executive Officer, and Matt Harbaugh, Chief Financial Officer. Chris will provide an overview of NuVasive's first quarter 2023 business results and trends, as well as innovation highlights. Matt will review our detailed financial results and full year 2023 outlook, and then we'll host a question and answer session. The earnings release, which we issued earlier this afternoon, is posted on the IR section of our website and has been filed on Form 8K with the SEC. We have also posted supplemental financial information. As a reminder, this call is being recorded and an archive will be available on our IR website later today. Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements, which are based on current expectations and involve risks and uncertainties, assumptions and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The factors that could cause actual results to differ materially are described in new bases and news releases and periodic filings with the SEC. Except as required by law, we assume no obligation to update any forward-looking statements or information which speak as of their respective date. In addition, this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings release and the supplemental financial information, both of which are accessible on Nuvasiv's website. And with that, I'd like to introduce Chris Berry.
spk13: Thank you, Juliette, and good afternoon, everyone. Earlier today, we reported first quarter 2023 financial results. On today's call, I'll review our performance for the quarter share how our continued growth positions us well for the proposed merger, and discuss the next steps in our pending combination with Globus Medical. After my remarks, Matt will share additional financial details on the quarter. NuVasive delivered first quarter 2023 net sales of $307.7 million, an increase of 5.8% on a reported basis or 7.7% on a constant currency basis compared to the prior year period. Our company's performance reflects increased procedure volumes and continued surge of demand for our innovative portfolio. In particular, our U.S. business had a strong quarter, including approximately 9% growth in U.S. spinal hardware, led by Thor Columbar, and more than 20% growth from Cervical for the sixth straight quarter. In our international business, we achieved 8.3% growth on a constant currency basis compared to the prior year period. This performance was driven by core spine, resulting in double-digit growth in Europe and solid growth in Asia Pacific, offset by reimbursement pricing headwinds in Japan. We remain focused on the three fundamentals of our growth strategy, core growth, intelligent surgery, and market opportunities, while improving our financial profile over time. Starting with core growth. we have significant opportunities in key procedural segments that we continue to target with our 360 portfolios, X360, C360, P360, and Complex. Our innovation gives us a strong competitive position to extend our leadership in Interior and take share in segments where we historically have been underrepresented. In Interior, we continue to celebrate 20 years of our flagship XLIP procedure and five years of our X360 procedure. As the leader in lateral, with more than 500 peer-reviewed publications and more than 60 products launched, XLIFT continues to demonstrate superior and more predictable outcomes than traditional spinal fusion procedures. Just as we proceduralize XLIFT, we're also taking our know-how and experience and applying it to additional opportunistic segments, including cervical, posterior, and complex. In cervical, our C360 portfolio continues to deliver well above market growth. Not only has the simplified cervical disc consistently performed, but we saw impressive year-over-year growth in the entire C360 portfolio. The launch of Reliant Cervical is driving double-digit growth within the posterior cervical fusion subsegment. The additional occipital system enhancement has been receiving positive feedback since its launch in the fourth quarter of 2022. Following a targeted commercial launch in Japan with the Canberra Laminoplasty System, we recently introduced Canberra in the U.S., and are receiving positive feedback in the beta launch. This is a prime example of our globalization strategy, providing prioritized regional markets with the differentiated solutions they need to compete locally and identifying how to scale those unique solutions to additional markets. We continue to see definitive procedural pull-through in hospitals that have adopted PULSE. While our surgeons can use PULSE in 100% of spine procedures, We're committed to innovating the platform to provide more intelligent surgery and improve clinical, operational, and financial outcomes to better support our customers and patients. The next system-level software release for Pulse has received positive feedback from our initial sites, giving surgeons and their OR teams enhanced line of sight for navigation, new instrument compatibility, improved remote support and services, and a further streamlined OR team experience. The commercial rollout will begin this summer. In our invasive specialized orthopedic business, recent achievements include the Precise System received pediatric clearance in the U.S., and the Precise Bone Transport System was commercially launched in several countries in Europe. These are key milestones for NSO, and with the support of more than 100 peer-reviewed studies, the business is well-positioned for long-term growth. Turning to our planned combination with Globus Medical, we are pleased that both Nuvasim and Globus Medical shareholders approved our proposed merger to create an innovative global musculoskeletal company. As demonstrated by the overwhelming support of the merger by both company shareholders, the pending combination greatly accelerates our near and long-term strategy. With a presence in more than 50 countries and supported by more than 5,000 employees, the new organization will advance patient care around the globe and deliver on our commitment of prioritizing compelling market opportunities. As it relates to the antitrust approval, we recently received a second request from the U.S. Federal Trade Commission regarding our HSR filing. As a result, the expected close of the merger has shifted from mid-2023 to the third quarter of 2023. While the timing may have changed slightly, our commitment to the deal is steadfast, and our belief that this merger will benefit our stakeholders remains unchanged. As a reminder, this complementary combination expands our reach to surgeons and patients around the world with limited commercial overlap in key markets, creates a comprehensive portfolio of innovative spine and orthopedic technologies, furthers our commitment to meaningful innovation, expands our operational capabilities, and creates a strong financial profile and value creation opportunity for our shareholders. We remain confident in the future vision of our combined company. and the opportunity provides superior service to our surgeon and hospital partners to advance patient care. Now, I'll turn the call over to Matt.
spk02: Thank you, Chris, and good afternoon. I'm going to cover our first quarter highlights and provide color on our latest thinking around the full year 2023 Netsales guidance range, which is unchanged from our guidance provided on February 22nd. Our detailed financial results have been provided in today's press release and supplemental information. During my remarks, I will be discussing both GAAP and non-GAAP measures. Please see our press release for GAAP to non-GAAP reconciliations. Unless otherwise noted, all comparisons are to the prior year period. We had a strong start to the year, delivering worldwide net sales of $307.7 million in the first quarter, a 5.8% increase as reported, and a 7.7% increase on a constant currency basis. foreign currency negatively impacted our net sales performance by $5.6 million during the quarter. International net sales for the first quarter were $71.9 million, which was relatively flat to the prior year period on an as-reported basis, and an increase of 8.3% on a constant currency basis. From a regional perspective, international growth was led by coarse-fine net sales in Europe and solid growth in Asia-Pacific. Growth in Asia Pacific was primarily driven by Australia and New Zealand, which was partially offset by reimbursement pricing headwinds in Japan. Latin America grew modestly, with Brazil and Colombia leading the way. Turning to U.S. net sales, let me provide key highlights by product line. U.S. final hardware net sales for the first quarter of 2023 were $170.1 million, representing a 9.3% increase. Our cervical business achieved net sales growth of greater than 20% for the sixth consecutive quarter, led by the C360 portfolio, specifically the Simplify Cervical Disc. U.S. surgical support net sales were $65.7 million, an increase of 3.3%. The base of clinical services grew nicely, primarily driven by higher case volumes. Biologics net sales declined slightly year over year due to case mix. Moving to operating results, first quarter non-GAAP gross profit was $221.3 million compared to $212.2 million in the prior year period. Non-GAAP gross margin as a percentage of net sales for the first quarter of 2023 was 71.9%, a decrease of 110 basis points compared to 73% in the prior year period. The year-over-year decline was primarily driven by an increase in excess and obsolete inventory-related reserves. Pricing pressure remained consistent with historical levels in the low single-digit percent range. First quarter 2023 non-GAAP operating expenses increased 4.7% to $186.6 million compared to $178.2 million in the prior year period. The increase was mainly driven by variable expenses associated with net sales growth, and higher depreciation costs from significant investments made in surgical instrument sets last year to deliver on our long-range targets. Non-GAAP operating margin during the first quarter of 2023 was 11.3 percent, a decrease of 40 basis points compared to 11.7 percent in the prior year period. The year-over-year decrease was primarily driven by the decrease in gross margin as discussed earlier. Non-GAAP other income and expense for the first quarter was $2.1 million of expense compared to $2.6 million of income in the prior year period. The year-over-year change was primarily due to unrealized foreign currency losses in the first quarter compared to the favorable impact of unrealized foreign currency gains in the prior year period. Non-GAAP tax expense for the first quarter of 2023 was $7.9 million compared to $8.4 million in the prior year period. Our first quarter 2023 effective tax rate was 24.1% compared to 23% in the prior year period. For the first quarter of 2023, we reported GAAP net loss of $1 million or diluted loss per share of 2 cents compared to GAAP net income of $19.2 million or diluted earnings per share of 35 cents in the prior year period. Included in our GAAP results were net unrealized losses from foreign currency exchange fluctuations and incremental merger related expenses. On a non-GAAP basis, we reported first quarter net income of $24.8 million or diluted earnings per share of 47 cents compared to non-GAAP net income of $28.2 million. or diluted earnings per share of 54 cents in the prior year period. The year over year change was largely driven by unrealized foreign currency gains in the prior year period, which contributed 10 cents to diluted earnings per share in Q1 of 2022. Turning now to the balance sheet, we had cash and cash equivalents of $181.2 million as of March 31, 2023. During the first quarter, we made our first net sales milestone payment of $56.5 million related to the acquisition of Simplify Medical. Free cash flow during the first quarter was negative $33.2 million compared to negative $26.7 million in the prior year period. As a reminder, the first quarter is historically the lowest free cash flow quarter of the year and typically negative. A portion of our contingent consideration payments, which includes the net sales milestone payment for the simplified medical acquisition, is presented within cash from operations. Absent that portion, free cash flow would have been negative $7.7 million for the quarter, representing a $19 million improvement over the prior year period, principally due to stronger collections in the United States. As you know, our $450 million 2023 convertible notes mature on June 1st, 2023. We plan to use a combination of cash on hand and our currently undrawn $550 million credit facility to satisfy that commitment. Turning to the full year, following the announcement of our pending merger with Globus Medical, we provided net sales guidance for 2023 when we reported our full year 2022 results in late February. At this time, we continue to expect full year standalone worldwide net sales growth of between 6% to 8% on both a reported and constant currency basis compared to the prior year. As we sit here today, we expect the impact of foreign currency exchange to be relatively neutral on a full year basis, with greater impact in the first half of the year. This expectation is based on foreign currency exchange rates as of April 30, 2023, and is consistent with our full year net sales guidance. We are excited to progress toward our plan merger with Globus Medical, which is expected to close in the third quarter of 2023. We remain focused on maintaining business continuity and advancing integration planning to ensure a successful combined company. Operator, we are now ready to open the call for questions.
spk21: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2.
spk17: And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Matt Mixick with Barclays. Please go ahead.
spk06: Hey, good evening, and thanks for taking our questions. And thanks, again, thanks for putting up such a strong quarter here. Looks like you're going out on a high note if everything kind of comes together. So I guess on that subject, most folks, I think, heading into results were expecting that there would be some amount of distraction, maybe even some attrition. because of the announcement. So I'd love to get your thoughts on what you've seen so far and if there were those kinds of effects, how they may have impacted the results for the quarter, which ended up being quite strong anyway. And then I have one follow-up, if I could.
spk13: Yeah, Matt, thanks for the question. Yeah, we're very proud of how the organization handled what has been a Anytime you have a change that we've been talking about, you're going to have some level of distraction. But I would say, you know, based on the results, I think the team's doing a really nice job fighting through the distraction and really staying focused on things that we can control. As far as attrition goes, it's been fairly normal. We were actually net positive on the competitive hiring front. And from an overall attrition perspective, we're in line with what we've been in previous quarters. So all things considered, I think the organization is focused I think they see the value in the combined entity. Clearly, there's going to be questions. I think we're taking a lot of time communicating, being as transparent as humanly possible. Obviously, we're in a pre-integration phase. So for us, in many cases, in many situations, it's business as usual. We're going to go out and continue to execute our plan, deliver the strategies that I articulated, and in the background, plan for this combination that we're excited about.
spk02: Yeah, Matt, I also interpreted in your question you were asking about the P&L a little bit. So what I would say is there wasn't material savings in there from attrition that would be an outlier as a result of the announcement. It would have been in line with what we've seen historically in previous years in the first quarter. So no savings there. I know we had a beat in op income and EPS. I'd say the primary driver of that was the strength on the top line, to your point earlier.
spk06: Got it. Yep. No, that's, uh, that's the way it came in relative to our, our estimates. Um, and I guess just geographically, if you could talk a little bit about, um, you know, the strengths and weaknesses, obviously very strong, most of the strength, at least to our estimates was in the U S, um, you know, maybe any, any lingering dynamics or, or, uh, ebbs and flows in some of your overseas geographies that are worth, worth commenting on.
spk13: Yeah, that's a good question. I'm glad you asked it. Um, You know, we continue to see strong growth in our global business. The one thing that may not have come out is we obviously had strength in Europe, good growth in LATAM. In Japan, we've had reimbursement-related challenges. So if you actually look at our volume growth in Japan and you sort of factor that in, normalize that, our international business is still growing double digits. We're excited about the results we continue to see, and we think that's a durable growth engine for us over time. We'll have to annualize some of the reimbursement challenges in Japan. It's not specific to us. It's their governmental pricing or reimbursement strategy that they apply, and that's hitting our pedicle screw business over the course of the last couple quarters into the next couple quarters. We'll annualize out over the course of the year. So that'll have a little bit of drag. on that international business, as you know, because that's our second largest market. But the underlying strength of Japan is still there for us. We'll just have to get through the next couple of quarters.
spk06: That's helpful. Thanks very much, and congrats again. Thanks, Matt.
spk21: The next question will come from Vic Chopra with Wells Fargo. Please go ahead.
spk07: Hey, good afternoon, and thanks for taking the questions, and congrats to a strong start to the year. So just two for me, you know, the second request from the FTC that you received, I guess, can you provide an update, and what can you share on what the FTC is looking for specifically, and then I had a follow-up. Thank you.
spk13: Thanks for the question, Vic. We did receive a second request. I will just say this, that it's It's not overly surprising and not necessarily unexpected. Obviously, we were hopeful that we would be able to complete the HSR work without a second request, but we will complete the work. Both companies are very committed, and we're collaborating closely to ensure that we fully comply with the FTC and their second request. It's broad. There's nothing overly specific about it. It's a broad request for additional information that we'll be putting together in the next several weeks. So nothing out of the ordinary, nothing overly specific, nothing overly surprising, but obviously some work to be done here, so we need to rally and make sure we comply and we plan to do so.
spk07: Great. And then just on my follow-up, I think you had mentioned that there was a strong start to procedure volumes. Obviously, that sort of parlayed into the Q1 strength. How are we thinking about Q2 after such a strong start to the year? Thank you.
spk13: Yeah, I mean, it's a little, you know, the good news is it feels like, and I've talked about this before, coming out of last year, we saw, we didn't see the high spike in December that we normally see, and we Correspondingly didn't see the valley that we normally see in January. So we had strength in January So I guess the thing that we're looking for is the seasonality and what that reflects in the numbers as we look at this year And we'll see any seasonality, you know the volumes I think are better than last year clearly and I think that will continue to stabilize I don't know if they'll increase but I think is the bigger question is are we seeing a trend of of increasing volume, or are we just seeing a return to pre-COVID volumes? And so far, I'll just say we've seen return to pre-COVID volumes. We'll have to wait and see what kind of transpires here over the next several weeks in the quarter. But generally speaking, I would say the market, at least in the spine, I feel like the volumes have strengthened over the course of the last few quarters. We'll have to see how that turns out over the next couple.
spk17: The next question will come from Alan Gong with JP Morgan.
spk21: Please go ahead.
spk20: Hi, thanks for the question. Just a quick follow up on that. You know, we've definitely seen other areas of orthopedics also posting really strong first quarters. There's been some discussion on, you know, backlog recovery. I know this is something that's really, really hard to quantify at all, but Are you seeing any signs that there's maybe been a little bit of a pickup in backlog recovery now that staffing is a little bit under control? Any comments you have on that? And then I'll just throw in my follow-up here as well. When we think about what you're seeing in terms of the capital environment, you're definitely a lot less exposed than some of your peers, but it sounds like Pulse is still seeing very good demand. Glad to see there's that expansion coming up as well. Just anything you're hearing on capital demand, demand for Pulse. Thank you.
spk13: Yeah, thanks for the questions, Alan. So, you know, this is probably an opinionated answer to your question on volume recovery or pinup demand. I mean, generally speaking, or maybe I should say just theoretically, I believe there is some pinup demand. There's some level of patients out there that have foregone treatment for whatever reason over the last, let's just say, over the last several quarters. You could even say the last couple of years. The ability for the market to rebound I still think is challenged. I've had a conversation with one of our board members that has participated on the healthcare side, and he was just commenting on the fact that hospitals are still challenged. They've gotten much better, but they're still challenged. I think they are trying to push through profitable procedures. Their ability to accelerate above and beyond a normal throughput is probably still challenged in many cases. I think you are seeing some underlying strength in the market from a volume perspective, from some level of pent-up demand. I also would say that I don't think that you'll see a bolus of pent-up demand come through in a given period of time. I think, if anything, I look for there to be stable strength in volume over the next several quarters to potentially alleviate or diminish some of that pent-up demand that may be out there. As far as your capital question, it's an interesting time. We had a lot going on in our business. We had the announcement of Globus and us coming together. When you have those top-down announcements, obviously your customers that are going to buy Pulse may hit a pause button to just double-check with us. But the good news is, as you said, we still have a strong pipeline. I think the value proposition is resonating. For those reasons, it's hard for me to comment on the capital market in general. I've heard and read things, as you likely have, of some level of capital deceleration or capital spending deceleration at the hospital level. I can't really point a finger to that from our business. I just don't think we have a big enough capital business today. But for Pulse, demand is still good. Pipeline is still strong. We're working through with our customers to make sure they're confident in the long-term strategy and how that fits in with the merger in specifics to Pulse, but we'll continue to work through it.
spk02: Yeah, Alan, I totally agree with what Chris just said. The only thing I would add to it, a broad brush against the business, is I highlighted in the prepared remarks just how strong our cash collections were, and we get asked the question a fair bit around, You know, are you getting paid? Are you worried about your DSOs? Things like that. And our cash flow in the first quarter was really strong, which is coming in right on time, if you will, because we've got the $450 million convert coming up. But I was really happy to see the cash collection so strong, despite the fact that some of these hospitals are really struggling to get through right now.
spk21: The next question will come from Joshua Jennings with TD Cowan. Please go ahead.
spk19: Good afternoon. Thanks a lot for taking the questions. I wanted to ask two just on the merger. I think we've talked about this, Chris and Matt, over the last couple of months, but just with you, in the face of having 40% share in the lateral segment, there's been some concerns that there would be some regulatory scrutiny there. I think you've described plates, interbody cages, pedicle screws, instruments are used in many spine procedures outside of lumbar interbody fusion, lateral lumbar interbody fusion. But just wanted to get your sense of whether there's a risk there, just with that shared position invasive has. I don't think Glovacis goes to their lateral shared position.
spk13: Yeah, I mean, clearly, you know, we're proud of our focus in XLIF, and we've pioneered that procedure, and we've just celebrated 20 years of XLIF and five years of X360. We'll continue to drive that procedure. I talked about it in my prepared remarks throughout the clinical evidence surrounding that procedure, but when you really back up, lateral is a subsection of anterior, which I've talked about, which is a subsection of thoracolumbar, which includes posterior. When you start adding all these things together, we think that we relatively have a smaller share of the broader thoracolumbar spinal fusion market. I think it's contextual. We've pioneered lateral, but surgeons still do T-lifts, and that's a good procedure as well. So for those reasons, we feel confident that the data will show that this is not anti-competitive in any way. It's a very competitive market that, quite frankly, lacks a lot of standardization. So we'll continue to drive and lead in lateral. But it's a big market with a lot of different approaches, a lot of different products. And for those reasons, we feel like we'll be successful in showcasing our position to the FTC.
spk19: Great. Thanks for welcoming me through that. And then just wanted to get your views on the combined company, Globus Innovative, cash flow generation potential, balance sheet strength, and then potential to be opportunistic on the M&A front. once all everything's said and done and this merger's closed. Thanks for taking the questions, guys.
spk13: Yeah, listen, it's one of the key areas that I'm excited about. If you recall, at our investor day in October, we talked about core growth, we talked about intelligence surgery, we talked about market opportunities. But in talking about market opportunities, I was somewhat constrained on what I could do individually. And so when you put these two companies together, I mean, you're talking a $2-plus billion entity generating the profit margins that Globus has done a really great job at delivering. And once you get through the first couple of years of this, then you start looking at the free cash flow generation and the ability with their balance sheet, which I'll remind you is debt-free, generating a lot of cash allows a lot of flexibility and really removes those restrictions or constraints. And that's why I think it's important and exciting to talk about this as, hey, we're going to continue to lead in spine collectively, but the ability to be a global musculoskeletal company becomes within reach for the new entity. So for those reasons, I think it makes a lot of sense why these two companies come together and obviously potentially change the competitive dynamics of where we can play today. We'll continue to participate and lead in spine, but the opportunity to treat more patients, I think, is a byproduct of the merger.
spk21: Thanks, Ken. The next question will come from with RBC. Please go ahead.
spk01: Great. Thank you for taking the question, one on guidance and one on just integration planning here. You know, I was hoping you could put a finer point on guidance. You've maintained it. It implies a step down. for the balance of the year. You know, prior to today's call, a consensus was modeling about 327 million in sales and 56 cents in EPS. You know, is that a reasonable place to be or should we be higher given Q1 results or, you know, how should we think about the backlog? It sounds like, you know, there could be kind of a drop-off in volumes post-Q1 as the backlog is realized. And I do believe that spine tends to have less of a backlog given that it's a high pain burden. So could you just... you know, help us with the puts and takes there.
spk02: Yeah, Shagan, thanks for the question. What I would say is, look, we were really pleased with the results in the first quarter. The strength on the top line was impressive, and I want to do a shout-out to the team and thank them for all their efforts with some noise and distraction, as Chris talked about earlier. What I would say is, as I look at the consensus here, On a full year basis, I think the analysts are pretty close to pretty close as far as top line. I think the second quarter probably is just a tad hot, but we definitely plan on doing better than what we did in the first quarter.
spk01: I got it. And just as a follow-up, I know there's a big focus on the FTC process right now. But I was just wondering if there are any steps being taken at the moment in integration planning to minimize potential dis-synergies down the road. Just anything to touch on. Thank you for taking the question.
spk13: I would just say that what we can reasonably do without obviously gun jumping or anything of that nature, we're working through. We've got a fully staffed integration management office from both companies that are working closely together Clearly, we still are operating the companies completely independently, but we've got an eye on how to bring the companies together and maximize our success out of the gate. So to the extent that we can make those decisions, we will. We clearly have the work to do with the HSR process, which will be our focus, but to be sure, a lot of people are working really hard to ensure that we hit the ground running as we do come to a close and ultimately create this new company we're talking about.
spk00: Thank you.
spk21: The next question will come from David Saxon with Needham. Please go ahead.
spk09: Hi, Chris. Hi, Matt. Congrats on the quarter, and thanks for taking my questions. Maybe to start in surgical support, you called out NCS growth. So can you just remind us the size of that business and the margin profile and how how you envision it fitting into kind of a longer-term story?
spk02: Yeah, so for NCS, you know, you should think in that $100 million range, plus or minus. And what I would say is we did have a good first quarter there. We did have some benefit, I'd say some tailwinds, because we did have some modest COVID impact last year that we didn't see this year. But all in all, we were pleased with the results out of the business, and the team performed well.
spk13: As far as longer term, you know, listen, it's been a part of our strategy. As we bring the two companies together over time, we'll have to look across the entirety of the enterprise and let the company really look at where it fits in. But for now, it's been a strong performer for us for the last couple quarters, and we look forward to that over the next few as well.
spk09: Okay, got it. And then Matt, I think, or maybe it was Chris, I forget, in the script you noted pull through in hospitals that have adopted Pulse. So I guess first, any way to quantify that? And then number two, just generally speaking, how's that launch going? Is it still in kind of the friends and family stage? Or have you kind of rolled that out more broadly? Thanks so much.
spk13: Yeah, I would just look at a premium on top of our growth. So, you know, where you see pulse units installed, we're seeing, you know, in certain situations, the trend is getting closer to the double-digit range of growth, in some cases exceeding that, depending upon, you know, the mix going in. I would say that we're moving past the friends and family. The current pipeline reflects a broader swath of customers and and potentially some newer folks to Nuvasiv. So we're excited. It's clearly something that we continue to focus on. It is a build strategy, meaning we're going, and I've said this all along, we're going at a very deliberate pace because we want to make sure that we not only sell the product, but install the product effectively, service the product as needed, support the product as needed. And for those reasons, we'll continue to be diligent in our efforts. But all things considered, the value proposition seems to resonate. We're getting good feedback from our customers. We're on track, as I said before, with software releases that continue to enhance the system. And we're seeing good pull-through, as I talked about as well. So all those things are going in the right direction. We'll continue to update as we move forward.
spk08: Great. Thanks, and congrats again.
spk21: The next question will come from Matt Taylor with Jefferies. Please go ahead.
spk05: Hey, thank you for taking the question, and congrats on a good quarter. I was just wondering if you could maybe speak a little bit more about what you can do in terms of integration preparation, and I'd love to hear more about the specific kinds of communications that you're giving to stakeholders in the sales force to help them understand why this is such a good proposition to combine the two companies.
spk13: Yeah, you know, we, I mean, there's a lot of things that we we can plan, we in many cases can't execute those things as we talk about. But to be clear, even when somebody brings up the HSR work, there's still a lot of integration planning to happen. Whether we were to close tomorrow or close six months from now, the work still has to be done. So there's got to be a lot of work that we do in order to truly integrate the two companies As far as the field and our channel, you know, the thing that seems to resonate with everyone is two things, really, that we did our homework and we don't see a lot of overlap at the customer level. That's one thing, and I think that was very positive. And the messaging that you heard from both sides is we want to keep all of our channel. We want to keep all of our commercial folks. There's work to be done for everyone. The second thing is just the compelling portfolio. You know, you look at the two companies' complementary portfolios, it just creates, I think, a game-changing portfolio that just creates a lot of value, allows our channel to continue to create value for the customers, and ultimately our customers continue to treat and better treat more patients. So those two things, a little geographical overlap and a compelling portfolio opportunity.
spk04: Great. Thank you for the call, Eric.
spk21: The next question will come from Matthew Blackman with Stifel. Please go ahead.
spk15: Good afternoon. Thank you for taking my question. Matt, I think on biologics, I heard you mention case mix headwinds. So just a couple of quick ones there. Are you seeing that same case mix headwind in the hardware business? And then number two, beyond case mix, are you seeing any shift in hospital purchasing patterns in biologics in general, maybe shifting away from higher ASP products? Thanks.
spk13: Yeah, we're still trying to get our complete understanding of what we're seeing with our biological business, but clearly we are seeing the shift from higher-priced products down to lower-priced products, so there is going to be some continued pressure there. The mix on the biologics was really a reflection of what we talked about in the past, which was some of the complex cases use a lot of biologics. I think that's sort of annualizing out, so there's still a little bit of a drag in that business that we need to continue to track. So something we're working on. It was a little bit softer quarter than I would have expected in biologics compared to what we did with the rest of the portfolio. So we've got some work to do there.
spk02: Yeah, I would just highlight, too, hardware was really strong, as Chris said in the prepared remarks in one of the questions earlier. So we're really pleased with the performance in the U.S. market specifically.
spk12: Got it. Thank you.
spk21: This concludes our question and answer session. I would like to turn the conference back over to Mr. Chris Berry, Chief Executive Officer, for any closing remarks. Please go ahead, sir.
spk13: Thanks, Chuck, and thank you all for joining us on our Q1 earnings call today. As we mentioned earlier, we're making great progress on the plan combination and are working with Globus toward an expected close in the third quarter of 2023. We believe that this merger will create a leading global musculoskeletal company that is well positioned for growth and success in the years ahead. I look forward to speaking with you all next quarter. Thank you.
spk21: The conference is now concluded.
spk17: Thank you for your participation. You may now disconnect. Thank you. Thank you. Music Playing Thank you. Thank you. Thank you.
spk21: Good day, ladies and gentlemen, and welcome to the Newvasive first quarter 2023 earnings conference call. I would now like to introduce your host for today's call, Ms. Juliette Cunningham, Vice President of Investor Relations at Newvasive. Please go ahead, Ms. Cunningham.
spk16: Thank you. Good afternoon, everyone. With me today are Chris Berry, Chief Executive Officer, and Matt Harbaugh, Chief Financial Officer. Chris will provide an overview of NuVasive's first quarter 2023 business results and trends, as well as innovation highlights. Matt will review our detailed financial results and full year 2023 outlook, and then we'll host a question and answer session. The earnings release, which we issued earlier this afternoon, is posted on the IR section of our website and has been filed on Form 8K with the SEC. We have also posted supplemental financial information. As a reminder, this call is being recorded and an archive will be available on our IR website later today. Before we get started, I'd like to remind you that our comments during this call will include forward-looking statements, which are based on current expectations and involve risks and uncertainties, assumptions and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The factors that could cause actual results to differ materially are described in new bases and news releases and periodic filings with the SEC. Except as required by law, we assume no obligation to update any forward-looking statements or information which speak as of their respective date. In addition, this call will include certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings release and the supplemental financial information, both of which are accessible on Nuvasiv's website. And with that, I'd like to introduce Chris Berry.
spk13: Thank you, Juliette, and good afternoon, everyone. Earlier today, we reported first quarter 2023 financial results. On today's call, I'll review our performance for the quarter share how our continued growth positions us well for the proposed merger, and discuss the next steps in our pending combination with Globus Medical. After my remarks, Matt will share additional financial details on the quarter. NuVasive delivered first quarter 2023 net sales of $307.7 million, an increase of 5.8% on a reported basis or 7.7% on a constant currency basis compared to the prior year period. Our company's performance reflects increased procedure volumes and continued surge of demand for our innovative portfolio. In particular, our U.S. business had a strong quarter, including approximately 9% growth in U.S. spinal hardware, led by Thor Columbar, and more than 20% growth from Cervical for the sixth straight quarter. In our international business, we achieved 8.3% growth on a constant currency basis compared to the prior year period. This performance was driven by core spine, resulting in double-digit growth in Europe and solid growth in Asia Pacific, offset by reimbursement pricing headwinds in Japan. We remain focused on the three fundamentals of our growth strategy, core growth, intelligent surgery, and market opportunities, while improving our financial profile over time. Starting with core growth. we have significant opportunities in key procedural segments that we continue to target with our 360 portfolios, X360, C360, P360, and Complex. Our innovation gives us a strong competitive position to extend our leadership in Interior and take share in segments where we historically have been underrepresented. In Interior, we continue to celebrate 20 years of our flagship XLIP procedure and five years of our X360 procedure. As the leader in lateral, with more than 500 peer-reviewed publications and more than 60 products launched, XLIFT continues to demonstrate superior and more predictable outcomes than traditional spinal fusion procedures. Just as we proceduralize XLIFT, we're also taking our know-how and experience and applying it to additional opportunistic segments, including cervical, posterior, and complex. In cervical, our C360 portfolio continues to deliver well above market growth. Not only has the simplified cervical disc consistently performed, but we saw impressive year-over-year growth in the entire C360 portfolio. The launch of Reliant Cervical is driving double-digit growth within the posterior cervical fusion subsegment. The additional occipital system enhancement has been receiving positive feedback since its launch in the fourth quarter of 2022. Following a targeted commercial launch in Japan with the Canberra Laminoplasty System, we recently introduced Canberra in the U.S., and are receiving positive feedback in the beta launch. This is a prime example of our globalization strategy, providing prioritized regional markets with the differentiated solutions they need to compete locally and identifying how to scale those unique solutions to additional markets. We continue to see definitive procedural pull-through in hospitals that have adopted PULSE. While our surgeons can use PULSE in 100% of spine procedures, We're committed to innovating the platform to provide more intelligent surgery and improve clinical, operational, and financial outcomes to better support our customers and patients. The next system-level software release for Pulse has received positive feedback from our initial sites, giving surgeons and their OR teams enhanced line of sight for navigation, new instrument compatibility, improved remote support and services, and a further streamlined OR team experience. The commercial rollout will begin this summer. In our invasive specialized orthopedic business, recent achievements include the Precise System received pediatric clearance in the U.S., and the Precise Bone Transport System was commercially launched in several countries in Europe. These are key milestones for NSO, and with the support of more than 100 peer-reviewed studies, the business is well-positioned for long-term growth. Turning to our planned combination with Globus Medical, we are pleased that both Nuvasim and Globus Medical shareholders approved our proposed merger to create an innovative global musculoskeletal company. As demonstrated by the overwhelming support of the merger by both company shareholders, the pending combination greatly accelerates our near and long-term strategy. With a presence in more than 50 countries and supported by more than 5,000 employees, the new organization will advance patient care around the globe and deliver on our commitment of prioritizing compelling market opportunities. As it relates to the antitrust approval, we recently received a second request from the U.S. Federal Trade Commission regarding our HSR filing. As a result, the expected close of the merger has shifted from mid-2023 to the third quarter of 2023. While the timing may have changed slightly, our commitment to the deal is steadfast, and our belief that this merger will benefit our stakeholders remains unchanged. As a reminder, this complementary combination expands our reach to surgeons and patients around the world with limited commercial overlap in key markets, creates a comprehensive portfolio of innovative spine and orthopedic technologies, furthers our commitment to meaningful innovation, expands our operational capabilities, and creates a strong financial profile and value creation opportunity for our shareholders. We remain confident in the future vision of our combined company. and the opportunity provides superior service to our surgeon and hospital partners to advance patient care. Now, I'll turn the call over to Matt.
spk02: Thank you, Chris, and good afternoon. I'm going to cover our first quarter highlights and provide color on our latest thinking around the full year 2023 Net Sales Guidance Range, which is unchanged from our guidance provided on February 22nd. Our detailed financial results have been provided in today's press release and supplemental information. During my remarks, I will be discussing both GAAP and non-GAAP measures. Please see our press release for GAAP to non-GAAP reconciliations. Unless otherwise noted, all comparisons are to the prior year period. We had a strong start to the year, delivering worldwide net sales of $307.7 million in the first quarter, a 5.8% increase as reported, and a 7.7% increase on a constant currency basis. foreign currency negatively impacted our net sales performance by $5.6 million during the quarter. International net sales for the first quarter were $71.9 million, which was relatively flat to the prior year period on an as-reported basis, and an increase of 8.3% on a constant currency basis. From a regional perspective, international growth was led by coarse-fine net sales in Europe and solid growth in Asia-Pacific. Growth in Asia Pacific was primarily driven by Australia and New Zealand, which was partially offset by reimbursement pricing headwinds in Japan. Latin America grew modestly, with Brazil and Colombia leading the way. Turning to U.S. net sales, let me provide key highlights by product line. U.S. final hardware net sales for the first quarter of 2023 were $170.1 million, representing a 9.3% increase. Our cervical business achieved net sales growth of greater than 20% for the sixth consecutive quarter, led by the C360 portfolio, specifically the Simplify Cervical Disc. U.S. surgical support net sales were $65.7 million, an increase of 3.3%. The base of clinical services grew nicely, primarily driven by higher case volumes. Biologics net sales declined slightly year over year due to case mix. Moving to operating results, first quarter non-GAAP gross profit was $221.3 million compared to $212.2 million in the prior year period. Non-GAAP gross margin as a percentage of net sales for the first quarter of 2023 was 71.9%, a decrease of 110 basis points compared to 73% in the prior year period. The year-over-year decline was primarily driven by an increase in excess and obsolete inventory-related reserves. Pricing pressure remained consistent with historical levels in the low single-digit percent range. First quarter 2023 non-GAAP operating expenses increased 4.7% to $186.6 million compared to $178.2 million in the prior year period. The increase was mainly driven by variable expenses associated with net sales growth, and higher depreciation costs from significant investments made in surgical instrument sets last year to deliver on our long-range targets. Non-GAAP operating margin during the first quarter of 2023 was 11.3 percent, a decrease of 40 basis points compared to 11.7 percent in the prior year period. The year-over-year decrease was primarily driven by the decrease in gross margin as discussed earlier. Non-GAAP other income and expense for the first quarter was $2.1 million of expense compared to $2.6 million of income in the prior year period. The year-over-year change was primarily due to unrealized foreign currency losses in the first quarter compared to the favorable impact of unrealized foreign currency gains in the prior year period. Non-GAAP tax expense for the first quarter of 2023 was $7.9 million compared to $8.4 million in the prior year period. Our first quarter 2023 effective tax rate was 24.1% compared to 23% in the prior year period. For the first quarter of 2023, we reported GAAP net loss of $1 million or diluted loss per share of 2 cents compared to GAAP net income of $19.2 million or diluted earnings per share of 35 cents in the prior year period. Included in our GAAP results were net unrealized losses from foreign currency exchange fluctuations and incremental merger related expenses. On a non-GAAP basis, we reported first quarter net income of $24.8 million or diluted earnings per share of 47 cents compared to non-GAAP net income of $28.2 million. or diluted earnings per share of 54 cents in the prior year period. The year over year change was largely driven by unrealized foreign currency gains in the prior year period, which contributed 10 cents to diluted earnings per share in Q1 of 2022. Turning now to the balance sheet, we had cash and cash equivalents of $181.2 million as of March 31, 2023. During the first quarter, we made our first net sales milestone payment of $56.5 million related to the acquisition of Simplify Medical. Free cash flow during the first quarter was negative $33.2 million compared to negative $26.7 million in the prior year period. As a reminder, the first quarter is historically the lowest free cash flow quarter of the year and typically negative. A portion of our contingent consideration payments, which includes the net sales milestone payment for the simplified medical acquisition, is presented within cash from operations. Absent that portion, free cash flow would have been negative $7.7 million for the quarter, representing a $19 million improvement over the prior year period, principally due to stronger collections in the United States. As you know, our $450 million 2023 convertible notes mature on June 1st, 2023. We plan to use a combination of cash on hand and our currently undrawn $550 million credit facility to satisfy that commitment. Turning to the full year, following the announcement of our pending merger with Globus Medical, we provided net sales guidance for 2023 when we reported our full year 2022 results in late February. At this time, we continue to expect full year standalone worldwide net sales growth of between 6% to 8% on both a reported and constant currency basis compared to the prior year. As we sit here today, we expect the impact of foreign currency exchange to be relatively neutral on a full year basis, with greater impact in the first half of the year. This expectation is based on foreign currency exchange rates as of April 30, 2023, and is consistent with our full year net sales guidance. We are excited to progress toward our plan merger with Globus Medical, which is expected to close in the third quarter of 2023. We remain focused on maintaining business continuity and advancing integration planning to ensure a successful combined company. Operator, we are now ready to open the call for questions.
spk21: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster.
spk17: And the first question will come from Matt Mixick with Barclays. Please go ahead.
spk06: Hey, good evening, and thanks for taking our questions. And thanks, again, thanks for putting up such a strong quarter here. Looks like you're going out on a high note if everything kind of comes together. So I guess on that subject, most folks, I think, heading into results were expecting that there would be some amount of distraction, maybe even some attrition. because of the announcement. So I'd love to get your thoughts on what you've seen so far and if there were those kinds of effects, how they may have impacted the results for the quarter, which ended up being quite strong anyway. And then I have one follow-up, if I could.
spk13: Yeah, Matt, thanks for the question. Yeah, we're very proud of how the organization handled what has been a anytime you have a change that we've been talking about, you're going to have some level of distraction. But I would say, you know, based on the results, I think the team's doing a really nice job fighting through the distraction and really staying focused on things that we can control. As far as attrition goes, it's been fairly normal. We were actually net positive on the competitive hiring front. And from an overall attrition perspective, we're in line with what we've been in previous quarters. So, All things considered, I think the organization is focused. I think they see the value in the combined entity. Clearly, there's going to be questions. I think we're taking a lot of time communicating, being as transparent as humanly possible. Obviously, we're in a pre-integration phase. So for us, in many cases, in many situations, it's business as usual. We're going to go out and continue to execute our plan, deliver the strategies that I articulated, and in the background plan for this combination that we're excited about.
spk02: Yeah, Matt, I also interpreted in your question you're asking about the P&L a little bit. So what I would say is there wasn't material savings in there from attrition that would be an outlier as a result of the announcement. It would have been in line with what we've seen historically in previous years in the first quarter. So no savings there. I know we had a beat in op income and EPS. I'd say the primary driver of that was the strength on the top line, to your point earlier.
spk06: Got it. Yeah, no, that's the way it came in relative to our estimates. And I guess just geographically, if you could talk a little bit about, you know, the strengths and weaknesses, obviously very strong. Most of the strength, at least to our estimates, was in the U.S. You know, maybe any lingering dynamics or ebbs and flows in some of your overseas geographies that are worth worth commenting on?
spk13: Yeah, that's a good question. I'm glad you asked it. You know, we continue to see strong growth in our global business. The one thing that may not have come out is we obviously had strength in Europe, good growth in LATAM. In Japan, we've had reimbursement-related challenges. So if you actually look at our volume growth in Japan and you sort of factor that in, normalize that, Our international business is still growing double digits. So we're excited about the results we continue to see, and we think that's a durable growth engine for us over time. We'll have to annualize some of the reimbursement challenges in Japan. It's not specific to us. It's their governmental pricing or reimbursement strategy that they apply, and that's hitting our pedicle screw business over the course of the last couple quarters into the next couple quarters. will annualize out over the course of the year. So that will have a little bit of drag on that international business, as you know, because that's our second largest market. But the underlying strength of Japan is still there for us. We'll just have to get through the next couple of quarters.
spk06: That's helpful. Thanks very much, and congrats again. Thanks, Matt.
spk21: The next question will come from Vic Chopra with Wells Fargo. Please go ahead.
spk07: Hey, good afternoon, and thanks for taking the questions, and congrats to a strong start to the year. So just two for me, you know, the second request from the FTC that you received, I guess, can you provide an update, and what can you share on what the FTC is looking for specifically, and then I had a follow-up. Thank you.
spk13: Thanks for the question, Vic. We did receive a second request. I will just say this, that it's It's not overly surprising and not necessarily unexpected. Obviously, we were hopeful that we would be able to complete the HSR work without a second request, but we will complete the work. Both companies are very committed, and we're collaborating closely to ensure that we fully comply with the FTC and their second request. It's broad. There's nothing overly specific about it. It's a broad request for additional information that we'll be putting together in the next several weeks. So nothing out of the ordinary, nothing overly specific, nothing overly surprising, but obviously some work to be done here, so we need to rally and make sure we comply and we plan to do so.
spk07: Great. And then just on my follow up, I think you had mentioned that there was a strong start to procedure volumes. Obviously that sort of parlayed into the Q1 strength. How are we thinking about Q2 after such a strong start to the year? Thank you.
spk13: Yeah. I mean, it's, it's a little, you know, the good news is it feels like, and I've talked about this before, coming out of last year, we saw, we didn't see the high spike in December that we normally see. And we, Correspondingly didn't see the valley that we normally see in January. So we had strength in January So I guess the thing that we're looking for is the seasonality and what that reflects in the numbers as we look at this year And we'll see any seasonality, you know the volumes I think are better than last year clearly and I think that will continue to stabilize. I don't know if they'll increase but I think is the bigger question is are we seeing a trend of of increasing volume, or are we just seeing a return to pre-COVID volumes? And so far, I'll just say we've seen return to pre-COVID volumes. We'll have to wait and see what kind of transpires here over the next several weeks in the quarter. But generally speaking, I would say the market, at least in spine, I feel like the volumes have strengthened over the course of the last few quarters. We'll have to see how that turns out over the next couple.
spk17: The next question will come from Alan Gong with JP Morgan. Please go ahead.
spk20: Hi, thanks for the question. Just a quick follow up on that. You know, we've definitely seen other areas of orthopedics also posting really strong first quarters. There's been some discussion on, you know, backlog recovery. I know this is something that's really, really hard to quantify at all, but Are you seeing any signs that there's maybe been a little bit of a pickup in backlog recovery now that staffing is a little bit under control? Any comments you have on that? And then I'll just throw in my follow-up here as well. When we think about what you're seeing in terms of the capital environment, you're definitely a lot less exposed than some of your peers, but it sounds like Pulse is still seeing very good demand. Glad to see there's that expansion coming up as well. Just anything you're hearing on capital demand, demand for Pulse. Thank you.
spk13: Yeah, thanks for the questions, Alan. So, you know, this is probably an opinionated answer to your question on volume recovery or pinup demand. I mean, generally speaking, or maybe I should say just theoretically, I believe there is some pinup demand. There's some level of patients out there that have foregone treatment for whatever reason over the last, let's just say, over the last several quarters. You could even say the last couple of years. The ability for the market to rebound, I still think is challenged. I've had a conversation with one of our board members that has participated on the healthcare side, and he was just commenting on the fact that hospitals are still challenged. They've gotten much better, but they're still challenged. I think they are trying to push through profitable procedures. Their ability to accelerate above and beyond a normal throughput is probably still challenged in many cases. I think you are seeing some underlying strength in the market from a volume perspective, from some level of pent-up demand. I also would say that I don't think that you'll see a bolus of pent-up demand come through in a given period of time. I think, if anything, I look for there to be stable strength in volume over the next several quarters to potentially alleviate or diminish some of that pent-up demand that may be out there. As far as your capital question, it's an interesting time. We had a lot going on in our business. We had the announcement of Globus and us coming together. When you have those type of announcements, obviously your customers that are going to buy Pulse may hit a pause button to just double check with us. But the good news is, as you said, we still have a strong pipeline. I think the value proposition is resonating. For those reasons, it's hard for me to comment on the capital market in general. I've heard and read things, as you likely have, of some level of capital deceleration or capital spending deceleration at the hospital level. I can't really point a finger to that from our business. I just don't think we have a big enough capital business today. But for Pulse, demand is still good. Pipeline is still strong. We're working through with our customers to make sure they're confident in the long-term strategy and how that fits in with the merger in specifics to Pulse, but we'll continue to work through it.
spk02: Yeah, Alan, I totally agree with what Chris just said. The only thing I would add to it, a broad brush against the business, is I highlighted in the prepared remarks just how strong our cash collections were. And, you know, we get asked the question a fair bit around, You know, are you getting paid? Are you worried about your DSOs? Things like that. And our cash flow in the first quarter was really strong, which is coming in right on time, if you will, because we've got the $450 million convert coming up. But I was really happy to see the cash collection so strong, despite the fact that some of these hospitals are really struggling to get through right now.
spk17: The next question will come from Joshua Jennings with TD Cowan.
spk21: Please go ahead.
spk19: Good afternoon. Thanks a lot for taking the questions. I wanted to ask two just on the merger. I think we've talked about this, Chris and Matt, over the last couple months, but just with you, in the face of having 40% share in the lateral segment, there's been some concerns that there would be some regulatory scrutiny there. I think you've described plates, interbody cages, pedicle screws, instruments are used in many spine procedures outside of lumbar interbody fusion, lateral lumbar interbody fusion. But just wanted to get your sense of whether there's a risk there just with that shared position invasive has. I don't think GloVis has disclosed their lateral shared position.
spk13: Yeah, I mean, clearly, you know, we're proud of our focus in XLIF, and we've pioneered that procedure, and we've just celebrated 20 years of XLIF and five years of X360. We'll continue to drive that procedure. I talked about it in my prepared remarks throughout the clinical evidence surrounding that procedure, but when you really back up, lateral is a subsection of anterior, which I've talked about, which is a subsection of thoracolumbar, which includes posterior. When you start adding all these things together, we think that we relatively have a smaller share of the broader thoracolumbar spinal fusion market. I think it's contextual. We've pioneered lateral, but surgeons still do T-lifts, and that's a good procedure as well. So for those reasons, we feel confident that the data will show that this is not anti-competitive in any way. It's a very competitive market that, quite frankly, lacks a lot of standardization. So we'll continue to drive and lead in lateral. But it's a big market with a lot of different approaches, a lot of different products. And for those reasons, we feel like we'll be successful in showcasing our position to the FTC.
spk19: Great. Thanks for welcoming me through that. And then just wanted to get your views on the combined company, Globus Innovative, cash flow generation potential, balance sheet strength, and then potential to be opportunistic on the M&A front. once all everything's said and done and this merger's closed. Thanks for taking the questions, guys.
spk13: Yeah, listen, it's one of the key areas that I'm excited about. If you recall, at our investor day in October, we talked about core growth, we talked about intelligence surgery, we talked about market opportunities. But in talking about market opportunities, I was somewhat constrained on what I could do individually. And so when you put these two companies together, I mean, you're talking a $2-plus billion entity, generating the profit margins that Globus has done a really great job at delivering. And once you get through the first couple of years of this, then you start looking at the free cash flow generation and the ability with their balance sheet, which I'll remind you is debt-free, generating a lot of cash allows a lot of flexibility and really removes those restrictions or constraints. And that's why... I think it's important and exciting to talk about this as, hey, we're going to continue to lead in spine collectively, but the ability to be a global musculoskeletal company becomes within reach for the new entity. For those reasons, I think it makes a lot of sense why these two companies come together and obviously potentially change the competitive dynamics of where we can play today. We'll continue to participate and lead in spine, but the opportunity to treat more patients, I think, is a byproduct of the merger.
spk21: Thanks, Ken. The next question will come from with RBC. Please go ahead.
spk01: Great. Thank you for taking the question, one on guidance and one on just integration planning here. You know, I was hoping you could put a finer point on guidance. You've maintained it. It implies a step down. for the balance of the year. You know, prior to today's call, a consensus was modeling about 327 million in sales and 56 cents in EPS. You know, is that a reasonable place to be or should we be higher given Q1 results or, you know, how should we think about the backlog? It sounds like, you know, there could be kind of a drop-off in volumes post-Q1 as the backlog is realized. And I do believe that spine tends to have less of a backlog given that it's a high pain burden. So could you just... you know, help us with the puts and takes there.
spk02: Yeah, Shagan, thanks for the question. What I would say is, look, we were really pleased with the results in the first quarter. The strength on the top line was impressive, and I want to do a shout-out to the team and thank them for all their efforts with some noise and distraction, as Chris talked about earlier. What I would say is, as I look at the consensus here, On a full year basis, I think the analysts are pretty close to pretty close as far as top line. I think the second quarter probably is just a tad hot, but we definitely plan on doing better than what we did in the first quarter.
spk01: I got it. And just as a follow-up, I know there's a big focus on the FTC process right now. But I was just wondering if there are any steps being taken at the moment in integration planning to minimize potential dis-synergies down the road. Just anything to touch on. Thank you for taking the question.
spk13: I would just say that what we can reasonably do without obviously gun jumping or anything of that nature, we're working through. We've got a fully staffed integration management office from both companies that are working closely together Clearly, we still are operating the companies completely independently, but we've got an eye on how to bring the companies together and maximize our success out of the gate. So to the extent that we can make those decisions, we will. We clearly have the work to do with the HSR process, which will be our focus, but to be sure, a lot of people are working really hard to ensure that we hit the ground running as we do come to a close and ultimately create this new company we're talking about.
spk00: Thank you.
spk21: The next question will come from David Saxon with Needham. Please go ahead.
spk09: Hi, Chris. Hi, Matt. Congrats on the quarter, and thanks for taking my questions. Maybe to start in surgical support, you called out NCS growth. So can you just remind us the size of that business and the margin profile how you envision it fitting into kind of a longer-term story?
spk02: Yeah, so for NCS, you know, you should think in that $100 million range, plus or minus. And what I would say is we did have a good first quarter there. We did have some benefit, I'd say some tailwinds, because we did have some modest COVID impact last year that we didn't see this year. But all in all, we were pleased with the results out of the business, and the team performed well.
spk13: As far as longer term, you know, listen, it's been a part of our strategy. As we bring the two companies together over time, we'll have to look across the entirety of the enterprise and let the company really look at where it fits in. But for now, it's been a strong performer for us for the last couple quarters, and we look forward to that over the next few as well.
spk09: Okay, got it. And then Matt, I think, or maybe it was Chris, I forget. In the script, you noted pull through in hospitals that have adopted Pulse. So I guess first, any way to quantify that? And then number two, just generally speaking, how's that launch going? Is it still in kind of the friends and family stage? Or have you kind of rolled that out more broadly? Thanks so much.
spk13: Yeah, I would just look at a premium on top of our growth. So, you know, where you see pulse units installed, we're seeing, you know, in certain situations, the trend is getting closer to the double-digit range of growth, in some cases exceeding that, depending upon, you know, the mix going in. I would say that we're moving past the friends and family. The current pipeline reflects a broader swath of customers and customers and potentially some newer folks to Nuvasiv. So we're excited. It's clearly something that we continue to focus on. It is a build strategy, meaning we're going, and I've said this all along, we're going at a very deliberate pace because we want to make sure that we not only sell the product, but install the product effectively, service the product as needed, support the product as needed. And for those reasons, we'll continue to be diligent in our efforts. But all things considered, the value proposition seems to resonate We're getting good feedback from our customers. We're on track, as I said before, with software releases that continue to enhance the system. And we're seeing good pull-through, as I talked about as well. So all those things are going in the right direction. We'll continue to update as we move forward.
spk08: Great. Thanks, and congrats again.
spk21: The next question will come from Matt Taylor with Jefferies. Please go ahead.
spk05: Hey, thank you for taking the question and congrats on a good quarter. I was just wondering if you could maybe speak a little bit more about what you can do in terms of integration preparation and love to hear more about the specific kinds of communications that you're giving to stakeholders in the sales force to help them understand why this is such a good proposition to combine the two companies.
spk13: Yeah, you know, we mean there's a lot of things that we we can plan, we in many cases can't execute those things as we talk about. But to be clear, even when somebody brings up the HSR work, there's still a lot of integration planning to happen. Whether we were to close tomorrow or close six months from now, the work still has to be done. So there's got to be a lot of work that we do in order to truly integrate the two companies As far as the field and our channel, you know, the thing that seems to resonate with everyone is two things, really, that we did our homework and we don't see a lot of overlap at the customer level. That's one thing, and I think that was very positive. And the messaging that you've heard from both sides is we want to keep all of our channel. We want to keep all of our commercial folks. There's work to be done for everyone. The second thing is just the compelling portfolio. You know, you look at the two companies' complementary portfolios, it just creates, I think, a game-changing portfolio that just creates a lot of value, allows our channel to continue to create value for the customers, and ultimately our customers continue to treat and better treat more patients. So those two things, a little geographical overlap and a compelling portfolio opportunity.
spk04: Great. Thank you for the call, Eric.
spk21: The next question will come from Matthew Blackman with Stifel. Please go ahead.
spk15: Good afternoon. Thank you for taking my question. Matt, I think on biologics, I heard you mention case mix headwinds. So just a couple of quick ones there. Are you seeing that same case mix headwind in the hardware business? And then number two, beyond case mix, are you seeing any shift in hospital purchasing patterns in biologics in general, maybe shifting away from higher ASP products? Thanks.
spk13: We're still trying to get our complete understanding of what we're seeing with our biological business, but clearly we are seeing the shift from higher-priced products down to lower-priced products, so there is going to be some continued pressure there. The mix on the biologics was really a reflection of what we talked about in the past, which was some of the complex cases use a lot of biologics. I think that's sort of annualizing out, so there's still a little bit of a drag in that business that we need to continue to track. So something we're working on. It was a little bit softer quarter than I would have expected in biologics compared to what we did with the rest of the portfolio.
spk02: So we've got some work to do there. Yeah, I would just highlight, too, hardware was really strong, as Chris said in the prepared remarks in one of the questions earlier. So we're really pleased with the performance in the U.S. market specifically.
spk12: Got it. Thank you.
spk21: This concludes our question and answer session. I would like to turn the conference back over to Mr. Chris Berry, Chief Executive Officer, for any closing remarks. Please go ahead, sir.
spk13: Thanks, Chuck, and thank you all for joining us on our Q1 earnings call today. As we mentioned earlier, we're making great progress on the plan combination and are working with Globus toward an expected close in the third quarter of 2023. We believe that this merger will create a leading global musculoskeletal company that is well positioned for growth and success in the years ahead. I look forward to speaking with you all next quarter. Thank you.
spk21: The conference is now concluded. Thank you for your participation. You may now disconnect.
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