Globus Medical, Inc. Class A

Thank you for standing by. Welcome to the Globus Medical first quarter 2024 earnings call. At this time, all lines will be on mute and a question and answer session will be held after the prepared remarks. To ask a question, you will simply need to press star 11 on your telephone and then wait for the automated message to advise that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now turn the call over to Brian Kearns, Senior Vice President of Business Development and Investor Relations. Mr. Kearns, please go ahead.

Thank you, Crystal, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Dan Scavilla, President and Chief Executive Officer, and Keith Fowle, Chief Operating Officer and Chief Financial Officer. This review is being made available via webcast, accessible through the Investor Relations section of the Globus Medical website at www.globusmedical.com. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements. Our Form 10-K for the 2023 fiscal year and our subsequent filings with the Securities and Exchange Commission identify certain factors that could cause our actual results to differ materially from those projected in any forward-looking statements made today. Our SEC filings, including the 10-K, are available on our website. We do not undertake to update any forward-looking statements as a result of new information or future events or developments. Our discussion today will also include certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We believe these non-GAAP financial measures provide additional information pertinent to our business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with the most directly comparable GAAP financial measures. Reconciliations to the most directly comparable gap measures are available in the schedules accompanying the press release and on the investor relations section of the Globus Medical website. With that, I'll now turn the call over to Dan Scavilla, our president and CEO.

Thanks, Brian, and good afternoon, everyone. Globus delivered a tremendous Q1 as we push into 2024, with sales of $607 million, growing 119% were $330 million. Non-GAAP EPS was 72 cents, increasing 36% versus prior year, even with the 32% increase in outstanding shares driven by the merger. Adjusted EBITDA was 28%, and free cash flow was $24 million for the quarter. Q1 is the first quarter where we integrated the Globus and Nuvesa field organizations into one formidable team, rolling out new reporting structures globally, combining product portfolios to create best-in-class offerings to our surgeons, reorganizing support organizations, implementing common systems, and beginning to unlock synergies to drive future growth. Through all of this change, Globus launched five new products in Q1 and has set the stage for a record number of launches in the coming months. These results are a testament to our incredible team working tirelessly around the clock to drive integration, overcome challenges, and create scalable solutions so that we can reach steady state quickly and shape the markets in which we compete. We will increase our focus on earnings per share and free cash flow over adjusted EBITDA in this and future earnings calls. While we remain committed to achieving a strong mid-30s adjusted EBITDA, as we've been able to consistently accomplish for over 20 years, we feel that delivering sustained Profitable growth combined with strong and consistent free cash flow is the real measure of potential and shareholder value, especially for companies that have been in operation for several years. Moving into the performance of our business areas, U.S. Spine grew 100% in Q1, with notable gains across our product portfolio in expandables, biologics, MIS screws, 3D printed implants, and cervical offerings. This above-market growth is driven by the strength of our combined product offering, competitive rep recruiting from prior quarters, and increased implant usage through robotic pull-through. Competitive rep recruiting has significantly increased in Q124. Now, more than any point in our history, the most successful and tenured competitive professional reps are seeking to join our team. Competitive reps with over 10 years of tenure, once a rarity to recruit, are seeing the power and future we can offer them as a destination of choice for innovation and growth. 2024 has the potential to be a record recruiting year and is off to a great start. On the product development front, we continue to execute and introduce new products from our prolific R&D pipeline, launching five products this quarter. The combined GMED Nuva product development team is beginning to hit its stride with meaningful collaboration in developing and launching new products, and we expect product launches to continue at an accelerated pace going forward due to improved internal development processes. I want to share these recent meaningful launches with you. The first products are DuraPro and Vizera power tool systems for hard and soft tissue preparation that represent our initial entries into the power tools market. Beyond entering a new market, these two systems greatly complement our enabling best-in-class robotic navigation, innovative musculoskeletal implant solutions, comprehensive biomaterial offerings, and interoperative imaging tools. as we seek to proceduralize spine, orthopedic, and cranial surgery. The DuraPro oscillating drill system is a game changer for our surgeons, allowing them to perform safe bone and disc removal around neurovascular anatomy through an open or MIS approach with optional robotic navigation using Excelsis GPS. The system uses oscillating drill technology that cuts bone easily while being harmless to soft tissue structures. The disc removal tips enable fast and easy disc and cartilage removal while providing a tactile sensation upon reaching subchondrial bone. The first cases have gone extremely well, and surgeons who have seen our technology are eager to start using it. We look forward to a full rollout in the coming weeks. For Sarah, high-speed drills are used for controlled drilling, burying, and removal of heart tissues at speeds up to 80,000 RPMs. The foot-controlled power drills offer robotic navigation using Excelsis GPS and various interchangeable birth styles designed for clinical applications in spine and orthopedics including joint arthroplasty and trauma. Feedback on this system has been excellent and we are ramping up distribution over the coming months. In spine, the ReLine 3D system for complex spinal deformity was launched in Q1 and perfectly augments the ReLine platform as our latest evolution in complex spine reducer technology. that allows for three-dimensional control of the spine. It is designed for usability as well as efficiency to reduce the cognitive load even of the most complex cases. The extremely low profile and versatile reducer is ideal for complex cases with significant axial rotation and Cobb angle correction, where access to the screws is limited by anatomical constraints. Adira Efflix plate system Introduced in February, provides a rigid coupling to a variety of inner body spacers to enhance construct stability and promote repeatable placement. The system allows for easy in situ attachment of inner body spacers, significantly reducing the risk of spacer migration, and creating a standalone construct when used with two bone screws. It offers compatibility with a range of static and expandable inner body spacers, bone screws, and bone anchors, facilitating a versatile surgical approach. Additionally, the ability to insert The plate spacer as a single construct streamlines the procedure by reducing the number of instrument passes. On the trauma side, we launched the Anthem Distal Radius System with additional plating options and more streamlined plate fitting, improving our existing offering of older plates and rounding out the wrist portfolio. It is receiving great clinical feedback and has had a strong start since introduction. We expect it to be the flagship plate of our wrist fracture fixation portfolio. In enabling technology, sales were $32 million, up 27% versus prior year, driven by higher robotic and imaging system sales. This was our highest Q1 since launch, and we have not yet seen the positive tailwind effects of new evasive accounts, which we believe will begin later this year. Robotic procedures continue to accelerate, growing 15% versus prior year, and exceeding 71,000 robotic procedures performed since launch. Our international spinal implant business delivered record sales in Q1, growing 193% on a constant currency basis compared to prior year. In 2022 and 2023, we increased our investment in our international business for people, products, and sets, and we have achieved consistent above-market growth through these regions as a result. We have yet to fully harness the power of the combined Globus Innovative product offerings internationally and feel this will be a significant tailwind moving forward. The combined trauma and NSO business delivered 308% growth for Q1, driven by the continued strong performance and market penetration of our base trauma business, combined with the fast uptake of the Nuvaso specialty orthopedic growth nail. The combination of these two businesses is one of the strengths of our merger, offering a broad range of product and market changing innovation. Moving into the integration status in January, we implemented the realigned U.S. and international sales team structure to support surgeons worldwide. We're investing in our field sales teams with product cross-training and enabling tech hands-on experience so they can increase their growth opportunities and offerings to their surgeons. In addition, we rolled out our common operating system in the U.S. this quarter, allowing us to work as one company and one team. Like any system implementation, there are areas working well, areas that require debugging, and areas to enhance our future productivity. I want to thank the field team and the in-house support groups for their dedication and speed in implementing the structure and systems, quickly pushing towards steady state as we continue to improve this platform. I especially want to call out our Memphis team, who not only implemented a new operating system and new processes, but quickly pushed their post-implementation daily shipments to record levels. Cross-selling our existing portfolio is beginning to take root as newly formed teams cross-train and share products to offer surgeons more options for treating their patients. In 2023, we made significant investments in key product sets and enabling tech long lead time components in preparation for higher demand and are ready to support increases in these areas. In product development, we carry forward the rich history of rapid development to remain an industry thought leader as we work with our surgeon partners who address unmet clinical needs. From pioneering the XLIF procedure that is now the gold standard of lateral surgery, leading the market in expandable spacer technology, and developing the best spinal robot and the most advanced intraoperative CT imaging, we're working to create surgical proceduralization of all key spine surgeries to create the standard of care across the spine industry. Our intellectual property portfolio has been number one in the spinal industry for the last decade, and we are committed to further expanding this lead, especially in enabling tech arenas as we continue to be at the forefront of imaging, navigation, and robotics. To accomplish this, we remain committed to continuing existing projects and will have a strong, ongoing PD presence on the West Coast, focused on spine and enabling tech solutions. I believe our long-term prospects as a leading innovator have never been stronger with the combination of our R&D people, our deep GMED and NUVA IP portfolio, and the revamped development process. We're enhancing our surgeon engagement programs to increase our impact with surgeons and further strengthen how we interact with them in all aspects of our business. Our professional affairs team has been expanded, and we've added scientific affairs, marketing, and communications teams, all with talented individuals. In addition, we're increasing our research and clinical investments and expanding the coordination of education programs and enhancing our presence in teaching institutions. Operations remains the strength of the merger. We've begun expanding in-house capabilities of the West Carrollton production facility as part of our ongoing synergies. The Memphis Distribution Center is now on our common system and increasing its role in the overall business. We will continue to invest in high-tech manufacturing equipment for our implant, instrumentation, and enabling tech production capabilities. We're also working to consolidate volumes and orders with third-party vendors to accelerate delivery times and drive cost savings. All of these activities are progressing as planned. As you can see from the first quarter results, synergies have been identified and actions have begun to realize benefits, focusing on out-of-pocket spending and prioritized investments to match future growth plans. In-house organizational structures are being implemented and should reach steady state by mid-year 2024. While some employees have been impacted by the merger and reorganization, the merger payback is not driven by deep employee or spending cuts. We remain focused on building an organization to support long-term, sustained, profitable growth. I believe the potential for Globus has never been greater. It's up to us to harness our resources and shape the future of our markets. We have at our fingertips everything we need to realize this. I want to thank the worldwide Globus team for your dedication and support delivering an incredible Q1 and furthering the pathway to becoming the preeminent musculoskeletal technology company in the world. I will now turn the call over to Keith.