Globus Medical, Inc. Class A

Welcome to Globus Medical's third quarter 2025 earnings call. At this time, all lines will be on mute and a Q&A session will be held after the prepared remarks. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising 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, Stephanie, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Keith Feil, President and CEO, and Kyle Klein, 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 2024 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 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 will now turn the call over to Keith Feil, our President and CEO.

Thank you, Brian, and good afternoon, everyone. We are extremely pleased with our overall Q3 performance, delivering sales of $769 million and non-GAAP diluted earnings per share of $1.18, growing 22.9% and 42.6%, respectively, over the prior year quarter. In addition, Free cash flow is a record for the third quarter, delivering $213.9 million. Digging in a bit further, our base business delivered revenue of $669.8 million, growing 7% as reported and 7.1% day adjusted versus the prior year quarter, with the same number of selling days in the U.S. and one fewer selling day in Japan. The recently acquired Nevro business delivered $99.3 million of revenue during the quarter, Overall, the Globus business saw a meaningful expansion in profitability, driven by improvements to adjusted gross margins, operating leverage, and the continued realization of synergies from cost actions taken, resulting in the base Globus business delivering adjusted EBITDA margins of 35.3%, growing 435 basis points over the prior year quarter. The Nebra business also delivered a positive adjusted EBITDA margin, finishing at 16.2%. We remained active with share repurchases, spending $40 million during the quarter, bringing our year to date repurchases to $256 million, which Kyle will expand on later with his remarks. Our overall results reflect continued market penetration and earnings expansion that is sustainable and enduring. In short, the business delivered on nearly all of its objectives during the quarter, driving results and establishing confidence. as evidence in our ability to revise upward our full-year financial guidance, which Kyle again will discuss later in his prepared remarks. Before I turn it over to him, let me first go a little deeper into the business. Consistent with last quarter, our U.S. Spine business led the way, growing 9.6% as reported. We continued to see growth in U.S. Spine during every week in Q3, which has carried forward into Q4 as we now sit at 32 weeks of consecutive growth. Competitive recruiting remains a bright spot for US Spine as we continue our relentless focus on hiring top talent. Whether we look at competitive rep visits, new reps onboarded, or business converted, all signs point to strength within this core objective. The expansive product portfolio, team approach, and financial strength create stickiness within our business. We remain laser focused on attracting and retaining the best long-term sales talent who will help us drive sustainable growth. 2025 is setting up to be a record competitive recruiting year. Overall, our team has doubled down its collective cross-functional efforts to ensure we are beating internal goals set for US Spine revenue, product development projects, sets and inventory deliveries, recruiting, as well as enabling tech placements. Q3 enabling technologies revenue was $28 million, declining 27% to the prior year quarter, driven primarily by lower sales of eGPS systems. While our view of the pipeline and its strength remains positive, we have not closed sales at the same pace and cadence as we have in years past. While a significant portion of this relates to fewer full revenue cash deals, we have increased our flexibility of capital deal structures as our overarching goal remains focused on achieving increased spinal implant growth. Our install base continues to drive strong recurring revenue growth with implant pull-through, service contracts, and disposal revenue, with robotic procedures now surpassing 115,000 cases. The Globus robot remains the pinnacle of robotic technology in spine based on customer feedback. We launched Excelsius XR during the quarter, which is a wearable extended reality navigation headset designed to seamlessly blend visualization and control for the surgeon, increasing their focus on the patient through enhanced ergonomics and uninterrupted workflows. Earlier in Q4, we received FDA 510 clearance for additional Excelsis GPS instruments for use with additional inner body fusion devices including Modulus XLIF, Modulus TLIF-O, Cohere XLIF, Cohere TLIF-O, Hedron L, and Hedron P. The new Excelsis GPS instruments consist of verification adapters and various surgical instruments including inner body inserters and trials for use with Xcelcius, GPS, or Xcelcius Hub. Thinking back to the new invasive merger and revenue synergies, we can now offer to use pedicle screws and inner body solutions to those customers who are using the invasive products. The Xcelcius platform, which delivers a single vendor spine ecosystem across capital, implants, and software, provides for consistent workflow, data continuity, and training across the OR. When stepping back and looking at the broadening competitive INR landscape, Globus continues to be a standalone when it comes to pairing imaging, navigation, and robotics together. If a surgeon desires robotic navigation and imaging, they can pair an eGPS with an e3D, bringing together best-in-class robotic functionality and state-of-the-art intra-op imaging capabilities, working seamlessly together. If the surgeon desires freehand navigation, they can combine the Excelsius Hub and the XR augmented reality headset with the E3D imaging system. The features and benefits of these products working seamlessly together is second to none. Looking ahead, we will continue to expand on our ways to sell capital as well as driving greater attention to operationalizing how capital is acquired versus the traditional CapEx model of procurement by hospitals. Q4 is typically our strongest quarter for capital and we continue to act with urgency in converting pipeline deals. Over time, the mix of revenue may change. However, the overarching goal remains focused on driving capital placement and launching successful, durable capital programs that enable implant sales growth. Our international spine business grew 5.6% as reported, and 6% on a day-adjusted basis, driven by one fewer selling day in Japan, which I had mentioned earlier. The EMEA geography continues to be led by our largest markets, including the UK, Italy, Germany, and Spain, As we go deeper, however, smaller countries within these geographies are beginning to contribute meaningfully as we continue to emphasize the broadness of our portfolio, innovation, and service quality. The Asia Pacific region saw an uptick in revenue growth led by Australia and Japan. Australia delivered its strongest Q3 performance with a growing share of fixation sales, while Japan realized growth within cervical, expandables, and bio. Our LATAM region saw growth primarily within Brazil and Colombia, while we refocused our commercial efforts in targeting higher volume categories where we maintain a low share position, which ties back to our larger strategy of driving further penetration in the countries in which we operate. Our cadence of inventory and set deliveries has continued to improve across our international locations and will continue to do so as we move through Q4. Longer term, we still see our international markets as having the ability to grow revenue in the 10 to 15% range. The trauma business delivered a strong third quarter, growing 17.2% with the highest quarterly revenue figure since its inception. Challenges experienced with precise manufacturing are now behind us, which will drive continued growth looking ahead both in the US as well as our international markets. Our continued investment in the manufacturing of the full line of NSO products will further accelerate growth moving ahead as we bring these online over the next several quarters. Reviewing our legacy trauma portfolio, we add it to our Anthem plating line with the Q3 launch of our comprehensive elbow plating system. With this launch, we have now reached the milestone of 80% plus of matching our competitors' portfolios. The significance of this is that we are now able to bid on primary or preferred vendor contracts when surgeons request our products in their health system. Shifting to joints, we've been working closely with several large institutions to secure our first eFlex deal. We have shown and demoed the robot to numerous surgeons and many have commented on the ease of use and its ability to accurately perform TKA procedures in both imageless and image-guided workflows. Surgeons have come away impressed with the ease of auto-registration between eFlex and e3D. We've made great strides with product development and are seeking to complete the modernization of the primary procedure portfolio by early 2026 and then use 2026 to complete our revision portfolio while adding procedural applications to eFlex, namely HIP. As noted earlier, Nevro revenue totaled $99.3 million, growing 4.9% sequentially, representing the strongest quarter of 2025 for this business on a pro forma basis. We are seeing the uncertainty subside from the pre-acquisition Nevro financial condition as well as post-acquisition changes that have been implemented since we closed the deal on April 3rd, earlier this year. While integration activities still continue, we've seen positive progress since making significant organizational and procedural changes as this business is rolled into the larger Globus organization. We believe the positive results seen thus far sets us up well as we look ahead. Operationally, the team is focused on fully digging into the supply chain and production activities while we work to centralize shipping, driving additional scale and efficiencies. Commercially, we see an ability to drive growth within Nevro as we focus on surgeon conversions and competitive rep recruiting to expand our footprint. Shifting our attention to strategy, we remain focused on partnering with surgeons and helping to solve unmet clinical needs with a focus from our product development engine to improve outcomes. Our sales force will penetrate markets through surgeon conversions and continued sales force expansions. We remain laser focused on driving operational excellence while maintaining prudent financial discipline. Our investment thesis shows a business with an ability to grow in the mid to high single digits with revenue stickiness. Our capital structure and lack of debt maintains a maximum flexibility to organically invest in R&D and discipline CapEx to self-fund growth. We've demonstrated belief in our business while providing a return to shareholders through our share repurchase program and we've deployed capital for complimentary M&A without creating balance sheet stress. The earnings profile and free cash flow profile suggest strong conversion and high quality cash generation. Simply stated, we are a compelling business focused on innovation, operational excellence, and execution. Thank you to our people for another successful quarter. We look forward to closing 2025 strong and moving into 2026. I will now turn the call over to Kyle.