NuVasive, Inc.

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 New Basin's second 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 of 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 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 on the supplemental financial information, both of which are accessible on Nuvasiv's website. And now I'd like to introduce Chris Berry.

Thank you, Juliette, and good afternoon, everyone. Earlier today, we reported second quarter 2023 financial results. On today's call, I will review our performance for the quarter, share our differentiated product portfolios and continued commercial execution position as well for the pending combination with Globus Medical, and discuss where we are in the merger process and our current views of timing. After my remarks, Matt will share additional financial details on the quarter. The base has delivered second quarter 2023 net sales of $317.8 million, an increase of 2.4% on a reported basis or 3.1% on a constant currency basis compared to the prior year period. In combination with our first quarter performance, we delivered in line with our expectations for the first half of 2023. Despite a challenging Q2 2022 comparison and merger-related competitive noise, the NuVasive team delivered a solid quarter. Our U.S. business achieved approximately 6% growth in U.S. spinal hardware, led by more than 20% growth from cervical for the seventh straight quarter. In our international business, we achieved approximately 10% growth on a cost-to-currency basis compared to the prior year period. This performance was driven by core spine and led by double-digit growth in Europe, as well as solid contributions from Latin America and Asia Pacific. We remain focused on our commitment to delivering core growth, a pillar of our previously communicated growth strategy. We're executing with discipline through our global teams who are remaining resilient through the pending merger. Thank you to our teams for a job well done. Within CoreSpine, we continue to address the significant opportunities in key procedural segments with our 360 portfolios, X360, C360, P360, and Complex. Our innovation gives our commercial teams a strong, competitive position to take share across each spine segment. In Interior, we continue to celebrate 20 years of our flagship XLIF procedure and five years of our X360 procedure. Across the globe, XLIFT continues to demonstrate superior and more predictable outcomes than traditional spine fusion procedures. Adding to five years of clinical validation surrounding lateral single-position surgery and X360 SPS, a 2033 study published in the Spine Journal shows that lateral SPS and traditional fusions have similar outcomes two years postoperatively, while reducing perioperative complications and improving efficiency. Our know-how and experience in creating procedural solutions have only benefited our strategy in segments like cervical, posterior, and complex. In posterior, U.S. Interbody Sales delivered double-digit growth, driven by our P360 portfolio. Key products, including the commercial launch of the new invasive tube system and the introduction of our next-generation posterior expandable cage, ModXPL, have supported our renewed momentum in our T-lift business. Turning to US Cervical, our entire C360 portfolio continues to deliver above market growth, led by increased surge in adoption of the Simplify Cervical Disc and Reline Cervical. As anticipated, Simplify Cervical Disc is a door opener for our commercial teams, pulling through additional procedural opportunities and driving greater density in cervical accounts. In complex, we're making progress in the pediatric deformity subsegment with RELAN3D, which delivered double-digit growth. Our posterior fixation system for deformity correction unifies deformity techniques into one powerful and efficient procedure. In enabling technology, PULSE continues to make its impact across the globe. With commercial sales in several new European geographies and our first case completed in Singapore, we're seeing increased global surge in interest in PULSE. Following the platform's 2023 summer software release, surgeons have shared positive feedback on the enhancements to their operating rooms. New hardware enhancements were also released to further optimize our differentiated navigation patient array, allowing us to better support revision, pediatric, and complex deformity cases. These software and hardware introductions highlight our commitment to continuous innovation of the platform. In our invasive specialized orthopedics business, Recent achievements include the reentry of the precise system in the UK and the CE-MARC reinstatement of precise bone transport. This all internal solution extends our precise technology, treating segmental bone defects caused by tumors and trauma. The NSO business continues to be well positioned for long-term growth. Turning to our plan combination with Globus Medical, we remain excited and committed to creating an innovative global musculoskeletal company together As demonstrated by the overwhelming support for the merger by both company shareholders, the pending combination will accelerate our near and long-term strategy. Our commitment to the deal is steadfast, and our belief that this merger will benefit all stakeholders remains unchanged. As previously communicated, on May 3, we received a second request from the Federal Trade Commission in connection with the FTC's review of the merger with Globus. Over the past three months, we and Globus have gone to great lengths to prepare our respective responses to the second request, and I'm very proud of what our teams have accomplished in a short period of time. During the Q1 earnings call, we indicated that we expected to close the transaction in the third quarter. Based on our progress with the response to the second request, we are not backing off that timing, and we are doing everything we can to make that happen. Given the recent M&A headlines, I've heard a lot of commentary about the FTC's approach to deals generally, as well as speculation about what action the FTC will take in the new base of Globus merger. While there's a range of potential outcomes when the FTC is reviewing our transaction, we remain optimistic on a Q3 close. Now, I'll turn the call over to Matt.

Thank you, Chris, and good afternoon. I'm going to provide commentary on our second quarter results in full year 2023 net sales guidance which remains unchanged from what we provided on February 22nd. Our detailed financial results have been provided in today's press release and supplemental information. Today, I will discuss both GAAP and non-GAAP measures. Please see our press release for GAAP to non-GAAP reconciliations. And, unless otherwise noted, all comparisons are to the prior year period. Second quarter 2023 worldwide net sales were $317.8 million, which was a 2.4% increase as reported and a 3.1% increase on a constant currency basis. Foreign currency negatively impacted our net sales performance by $2.2 million during the quarter. International net sales for the second quarter were $78.6 million, an increase of 6.8% over the prior year period on an as-reported basis, and 9.8% on a constant currency basis. From a regional perspective, international growth was led by coarse-fine net sales in Europe and Latin America. Asia-Pacific growth, primarily in Australia, was offset by reimbursement pricing headwinds in Japan, as discussed previously. Overall, procedure volumes in Japan grew above market and our market position continues to be strong. Turning to U.S. net sales, let me provide key highlights by product line. U.S. final hardware net sales for the second quarter of 2023 were $174.1 million, representing a 5.5% increase year over year. U.S. cervical continued its proven and ongoing track record of achieving greater than 20% growth. led by the Simplify Cervical Disc and Reline Cervical. U.S. surgical support net sales were $65.1 million, a decrease of 9.3%, primarily driven by lower biologics attachment rates, as well as payer-mixed innovative clinical services, or NCFs. Moving to operating results, second quarter non-GAAP gross profit was $228.3 million, compared to $224.7 million last in the prior year period. Non-GAAP gross margin as a percentage of net sales for the second quarter of 2023 was 71.8%, a decrease of 60 basis points compared to 72.4% in the prior year period. Year-over-year decline was primarily driven by lower NCS net sales. Pricing pressure remained consistent with historical levels in the low single digits. Second quarter 2023 non-GAAP operating expenses increased 1% to $186.1 million compared to $184.2 million in the prior year period. Non-GAAP operating margin during the second quarter of 2023 was 13.3%, an increase of 30 basis points compared to 13% in the prior year period. Overall higher net sales and intentional expense control generated favorable operating leverage that more than offset the gross margin pressure. Non-GAAP other income and expense for the second quarter was $2.5 million of expense compared to $8.4 million in the prior year period. The year-over-year decrease was primarily driven by less impact from unrealized foreign currency gains in the current year period. Non-GAAP tax expense for the second quarter of 2023 was $9.9 million compared to $7.2 million in the prior year period. Our second quarter 2023 effective tax rate was 25% compared to 22.5% in the prior year period. The year-over-year increase was driven by higher tax reserves and valuation allowances. Currently, We expect our annual effective tax rate to be in the mid 20% range. For the second quarter of 2023, we reported gap net income $7.4 million for diluted earnings per share of 14 cents compared to gap net loss of slightly less than a million dollars or diluted loss per share of 2 cents in the prior year period. As a reminder, The prior year period included unfavorable impacts of foreign currency exchange fluctuations of approximately $25 million associated with the weakening of the Australian dollar against the U.S. dollar. This was principally related to our 2021 acquisition with Simplify Medical. The impact was approximately $2 million in the current year period, resulting largely in the overall improvement in GAAP net income. On a non-GAAP basis, We reported net income of $29.8 million or diluted earnings per share of 56 cents compared to non-GAAP net income of $24.8 million or diluted earnings per share of 47 cents in the prior year period. The year-over-year increase was driven by operating profit growth as well as the favorable impact of unrealized foreign currency gains. Turning now to the balance sheet, we had cash and cash equivalents of $80.7 million as of June 30, 2023. During the second quarter, we repaid in full the $450 million convertible notes due in early June, using $350 million from borrowings under our credit facility combined with cash on hand. Free cash flow during the second quarter was $3 million, compared to $26 million in the prior year period. The decrease was primarily due to lower operating cash flow offset by capital expenditures as compared to the prior year period. We continued our investments in capital expenditures to support our net sales growth as well as current and future product launches. As I mentioned at the beginning of my prepared remarks, our full year 2023 financial guidance remains unchanged from February 22nd. which was worldwide net sales growth of between 6% to 8% on both a reported and constant currency basis compared to the prior year. This is based on foreign currency exchange rates being neutral for the full year based on rates as of July 31, 2023. Lastly, I'd like to wrap up by reiterating what Chris said about our excitement with our continued progress towards finalizing the merger with Globus Medical. It's great to see the teams from both companies working closely together towards integration planning for a successful combined company, and we continue to expect the merger to close in the third quarter. And now, I'll ask the operator to please open the call for questions.