Globus Medical, Inc. Q3 FY2024 earnings call

• September 1st marked the one-year anniversary of the Globus NuVasive merger. Globus had an exceptional third quarter with sales of $626 million, growing 63%, non-GAAP EPS of $0.83 (a record), and record free cash flow of $162 million. - Launched four new products in Q3 across businesses, reaching 13 product launches year-to-date. - U.S. spine grew 55% in Q3 due to factors like high retention rate of field sales team, successful distributor-to-direct conversions, strong combined product offering, etc. - Enabling technology sales grew 39% versus prior year, with Q3 unit placements at a record high. - International spinal implant business saw 86% growth on constant currency basis. - Combined trauma and NSO business grew 99%. - Highlighted new product launches like Excelsius navigation Hub, Excelsius helped navigated instruments, Actify 3D Total Knee system, and CAPTIVATE SOLA headless compression screw system. - Integration progress including territory realignments, cost redundancies elimination, facility consolidations, system integrations, and contract renegotiations.

U.S. spine grew 55% in Q3 with significant gains across its product portfolio. Enabling technology sales were $38 million, an increase of 39% versus the prior year, with Q3 being the highest number of unit placements since launch, growing 50% over prior Q3. International spinal implant business delivered record sales in Q3, growing 86% on a constant currency basis compared to the prior year. The combined trauma and NSO business delivered 99% growth for Q3.

• Now expects 2024 net sales to be in the range of $2.49 billion to $2.5 billion. - Revised fully diluted non-GAAP EPS is expected to be in the range of $2.90 to $3 per fully diluted share. - Expect full-year adjusted gross profit rate to be in the range of 67% to 68% for 2024. - Expect R&D expenses to be in the range of 6.5% to 7% for the full-year 2024. - Expect full-year SG&A expenses to improve 1 to 2 percentage points over the full-year 2023 SG&A expense as a percentage of sales.

• FDA warning letter related to internal processes of handling complaints, not directed towards the actual robot or patient safety. The FDA wanted more criteria for analyzing complaints, but Globus has submitted a revised approach and is working to resolve the issue through reinspection and clarifications with the FDA.

Q: Hey, good evening and congrats on a really strong quarter, guys. So one quick sort of question on margins and then a follow-up on robots, if I could.

A: Sure. So Matt, I'll take the first part of that question, actually I'll take the first part of what you stated. Really, when you look back on the year, we aggressively went after eliminating cost redundancies as well as facility consolidation like I commented on in the quarter. As we got into the year, we identified more and more places where we felt that there was opportunity for savings. And really as we -- as we looked at the year coming together, the key focus for us is driving cash savings. I'm not super interested in driving or finding ways to generate non-cash savings. We really took a look at four wall spending and said what do we need to do to really drive improved profitability. It's really -- it's really about it.

Q: Hi, congrats on the quarter. This is Dino on for Vic. I just wanted to ask about if you have an update on the FDA warning letter that recently came out. What update can you provide on it and what are the next steps. Do you expect it to be resolved soon. And what, if any is the commercial impact?

A: Thanks. Dino, I'll take that as well. So just again to remind everybody, that warning letter was really about our internal processes of how we handle complaints. It was not directed towards the actual robot, nor did it imply any issues with the robot or with patient safety. It was about how we handle complaints. And it was really about the array of criteria we selected when we're analyzing complaints. The FDA would like us to do more, in which case we did. We went back to the very first complaint and went through every single one of them, realized that our outcome would not change with all the additional criteria. We've agreed to put that going forward. We've submitted that out to the FDA. We've had a few back and forth for clarification and now we're in the phase of just proving it out as an effective approach and we're willing and we're excited to actually have them come back in for reinspection to get this behind us. Warning letters in the past from other companies tend to last in a year or excess of the year. So we're seeing if we can close that down and do that faster than that normal curve. As far as sales, there's no doubt there's probably been a few customers that were worry about this. We've gone out and had direct conversations with them. We've assured them in several different ways, but it's not a product related issue. And while there's some impact, I wouldn't quantify it, and I don't feel that it's been significant to date.