Globus Medical, Inc. Class A

Welcome to Globus Medical's second quarter 2024 earnings call. At this time, all lines will be on mute and a Q&A session will be held after the prepared remarks. I'll now turn the call over to Brian Kearns, Senior Vice President of Business Development and Investor Relations. Mr. Kearns, please go ahead.

Thank you, Stephen, 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 Pfeil, 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 discussions 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 GAAP 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 another robust post-merger quarter in Q2 with sales of $630 million, growing 116% or $338 million. Non-GAAP EPS was 75 cents, increasing 20% versus prior year, even with the 35% increase in outstanding shares driven by the merger. Free cash flow was $26 million for the quarter, and adjusted EBITDA crossed 30% as we built our way back to the mid-30s range. Q2 is the second 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 four new products in Q2, reaching nine product launches year to date, 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. Focusing on the performance of our business, US Spine grew 100% in Q2, with notable gains across our product portfolio in expandables, biologics, MIS screws, and cervical offerings, including Simplify Cervical Disc. This 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 remains solid through Q2, and the pipeline is growing. As mentioned in the last earnings call, 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. On the product development front, we continue to execute, launching four new products from our prolific R&D pipeline. The combined product development team has hit its stride with meaningful collaboration in developing and launching new products and we expect these to continue at this accelerated pace due to improved development processes. I want to share these meaningful launches with you. REVL-S is an expandable standalone ACDF spacer system delivered at a minimized height to reduce impaction and tissue retraction while providing controlled, continuous expansion to help restore disc height and sagittal balance. In situ bone delivery allows for additional bone graft to be introduced after expansion to help promote fusion. Highline is a versatile posterior band fixation system for the cervical and thoracolumbar spine, featuring robust implants and advanced instruments. The system is engineered to help achieve strong reduction during deformity correction, provide reliable stabilization and compromised anatomy, and facilitate ligament augmentation. The XLIFT PRONE system is yet another testament to our commitment advancing XLIFT procedural solutions with dedicated instruments and positioner combined with eGPS and e3D. The system is designed to improve the safety, reliability, and reproducibility of the XLIFT procedure, emphasizing secure patient positioning, MaxS4 retractor stability, and surgeon ergonomics. Audubon PRO instruments and digital targeting system are next-generation instruments for trochanteric nailing, that allow for streamlined surgical workflow. The procedural targeting solution features a minimally invasive aiming handle, targeted anti-rotation wires, self-retaining sleeves, and tactile compression, while the universal nailing instruments improve efficiency for the Audubon Pro Troke Nail and the Audubon Embryo Femoral Nail platforms. In addition to driving growth from the nine products we've launched so far this year, I look forward to sharing future impact with launches as we go through the rest of 2024. Enabling technology sales were $37 million, up 6% versus prior year. Q2 was the highest number of robot unit placements since launch, growing 59% over prior Q2, including the acceleration of our rental program where, unlike a unit sale, we recognized revenue over the rental contract life. Robotic procedures continued to accelerate, growing 26% versus prior year, and exceeding 77,000 robotic procedures performed since launch. We are adding invasive products such as ReLine and Modulus to our enabling tech platform to expand customer options and plan on offering this later this year. Exiting Q2, our robot pipeline is healthy and we are poised to have a great second half robotic performance. We also continue to penetrate the market with Excelsis 3D imaging systems and market interest remains high for E3D as we enter Q3. Our international spinal implant business delivered record sales in Q2, growing 200% on a constant currency basis compared to prior year. Globus increased investment in our international business for people, products, and sets, and we have achieved consistent above-market growth throughout 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 321% growth for Q2, driven by the continued powerful 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 products and market-changing innovation. Late in Q2, we received FDA 510 clearance for two significant components of our arthroplasty business. Joining the already best-in-class Excelsis ecosystem is the Excelsis Flex robotic navigation platform paired with the Excelsis Flex TKA, a total neoarthroplasty application designed to enable consistent, accurate cuts while maintaining surgeon flexibility and tactile feel. It accommodates varying surgeon preferences by offering imageless and CT-based workflows in ergonomic, unrestricted, jigless resections. Excelsis Flex TKA is engineered, to restore control of the sole and the procedure to the surgeon while active tracking is engaged. The system features advanced registration and planning algorithms to enable a streamlined and efficient procedure along with a simplified user interface. The ACTIFY 3D Total Knee System is a contemporary total knee solution that pairs cementless reconstruction with operative efficiency and anatomic fit. Compatible with manual or robotic-assisted workflows, Actify3D is engineered to combine implant endurance and a porous lattice interface for cementless fixation, addressing surgeon preference and varying patient anatomies. Launch programs have begun for these products as we continue to expand our direct sales force to penetrate the market later this year. Innovative clinical services is a key element in our proceduralization strategy and cross-selling synergies, growing 5% on a pro forma basis. Globus is investing in expanding our neural monitoring inventory worldwide to ensure that NCS neural monitoring is used in more of our procedures. Looking ahead, we've begun investing in next-generation systems that will expand surgical applications, add more signal analytics, automation, and seamless integration with our enabling technologies. Moving into integration status, we continue to invest in our field sales teams with product cross-training, enabling tech hands-on experience and significant investment in key product sets so they can increase their growth opportunities and offerings to their surgeons through cross-selling. We have implemented common operating systems in the U.S., allowing us to work as one company and one team. International system synergies will start later this year. In product development, we are carrying forward the rich history of rapid development as an industry thought leader as we work with our surgeon partners to 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 with the most advanced interoperative CT imaging, we are 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 Globus is committed to further expanding this lead, especially in the 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 we'll have an ongoing PD presence on the West Coast focused on spine and neuromonitoring solutions. I believe our long-term prospects as a leading innovator have never been stronger. We continue to enhance our surgeon engagement programs to increase our impact with surgeons and further strengthen how we interact with them in all aspects of our business through professional affairs, scientific affairs, marketing, and education. In the second quarter alone, we trained over 400 surgeons globally through Merck programs and case observations, and in addition, hosted approximately 250 surgeon in-house visits or VIPs where they learned about products and programs through hands-on training. As you can see from this quarter's financials, synergies have been identified and actions have begun to be realized for benefits focusing on out-of-pocket spending and prioritizing investments to match future growth plans. In-house organizational structures have been implemented and we're working towards reaching steady state in the second half of the year. 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 quarter and furthering the pathway to becoming the preeminent musculoskeletal technology company in the world. I will now turn the call over to Keith.