GLOBUS MEDICAL INC Q2 2025 earnings call

Thank you, Haley, and thank you, everyone, for joining us today. Joining today's call from Globus Medical will be David Paul, Globus' founder and Executive Chairman; Keith Pfeil, President and Chief Executive Officer; and Kyle Kline, 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'll now turn the call over to David Paul, our founder and Executive Chairman.

Thank you, Brian, and good evening, everyone. I want to begin by congratulating Keith Pfeil on his promotion to the role as CEO of Globus Medical effective July 18, 2025. Keith will lead Globus on setting and executing our strategy to become the preeminent musculoskeletal technology company in the world. Before joining Globus Medical, Keith built nearly two decades of experience in corporate finance, operations, and strategic leadership. He began his career in public accounting with Arthur Andersen, later transitioning to KPMG, where he was primarily focused on financial audits and compliance. Keith later moved into the consumer products industry, where he advanced through a series of finance and operational leadership roles, including serving in a divisional CFO role for several years and ultimately serving as Executive Vice President and CFO.

His tenure included extensive experience leading financial planning, M&A due diligence, investor relations, manufacturing, and sourcing initiatives, as well as large-scale restructuring initiatives that improved liquidity and operational efficiencies. Beginning in 2019, when Keith started at Globus as our CFO, it was obvious to me and our board that he was destined to one day be in this CEO role. We quickly began exposing him to all aspects of our business over the last six years. In addition to finance, Keith was given responsibility within the company in IT, operations, pricing, regulatory, quality, and commercial. Finally, Keith led the financial due diligence and the entire integration planning effort for NuVasive and Nevro and has made amazing progress in a short period of time with both.

Keith has become an integral part of the Globus executive team, providing steady, positive, and committed leadership that will now extend to the entire organization to drive our strategic goals. I also want to take this opportunity to thank Dan Scavilla for his many contributions to Globus over the last 10 years. He has been a great partner to Globus and me and has served with distinction for the last 10 years, beginning with his role as CFO and his last three years as CEO. We wish Dan well in his new position at Dentsply. I will now turn the call over to Keith and Kyle for their comments on our quarter, and we'll have a few words to say in closing at the end.

Thank you, David. Good afternoon to everyone, and thank you for joining us on today's call. As this is my first earnings call as CEO following our July 21st announcement regarding a leadership transition, I'd like to take a moment to thank David Paul and the Board for their confidence in me. I also want to take a moment to thank Dan Scavilla for his contributions to Globus, as well as his guidance and mentorship to me over the past several years. I sit here today excited for the opportunity and ready to begin a new chapter of the Globus story. Before I jump into a discussion on the Q2 company performance, I'd like to take a few minutes to step back and talk about who Globus is and where our strategy lies.

Our strategy remains grounded in the same principles that have driven our success for many years. Our mission remains unchanged. Globus Medical is a global musculoskeletal technology company dedicated to improving clinical outcomes and solving unmet clinical needs to improve the lives of our patients. We innovate with passion, provide world-class dedication and clinical support, and advance care through our comprehensive product portfolio. We will continue to support and advance care and focus on the patient with the goal of improving musculoskeletal care, doing so in a manner that exhibits financial discipline. Our leadership team is aligned towards this pursuit. Globus has seen tremendous growth and change, starting with eclipsing $1 billion in annual revenue in 2022, followed by the transformative merger with NuVasive in 2023, and then most recently, the closing of the Nevro acquisition.

All of this coming from a company that was founded just 22 years ago in 2003. The growth and evolution of the company remains second to none and highlights the strategic focus of living its mission. The change over the past several years has helped further position us within the musculoskeletal market, and we are at a point where we want to finalize and fully integrate the merged and acquired entities. Our team is intently focused on accelerating our product development engine to launch new and exciting products. These exciting products will add to our best-in-class bag, which will further propel our ability to retain and grow our sales force through competitive rep conversions. We will continue to do this in a manner in which Globus maintains financial prudence with strong earnings, cash and cash flow, and overall balance sheet strength, all of which is consistent with our history.

In short, I want everyone joining us today to know that Globus has many opportunities in the pipeline to fuel future organic growth and remain confident in our position within the market. Knowing that our business has undergone dramatic change in the past few years, we have invested heavily in our leadership team to ensure focus and strategy development occur at the right level within the organization, such that M&A activities don't distract from the existing businesses. Those leaders are specifically focused on our core categories of spine, ortho trauma, and interventional pain, and are responsible to execute commercial strategy while maintaining responsibility for product development timelines. Now, let's move into our update on the second quarter. I will start by touching briefly on top-level financial performance, then provide more qualitative updates on our business and Q2 performance.

I'll then turn things over to Kyle, where he will go into greater details on our Q2 financial results. At a top level, Globus delivered Q2 sales of $745 million and non-GAAP EPS of $0.86 per share, growing 18.4% and 14.1% respectively over the prior year quarter. Free cash flow was $31.3 million, growing 18% despite the impact of the Nevro acquisition, as well as higher CapEx spending. Our base business delivered $651 million in revenue during Q2, growing 3.3% as reported and 4.9% day adjusted versus the prior year quarter, with one less selling day in the U.S. and two fewer days in Japan. Nevro contributed $95 million in revenue during the quarter. Operational challenges noted in our first quarter comments have largely subsided as the supply of product has dramatically improved across our business.

Delivery of U.S. spine sets in inventory returned to a normal cadence, while a supply of international spine and growing rods increased gradually throughout the quarter. Overall, we exited Q2 in a strong position with product and sets. We will continue to ramp up our supply as we enter the back half of our year to accommodate for anticipated growth, including the normal Q4 seasonal bump. Our U.S. spine business led the way commercially, growing 5.7% as reported or 7.4% on a day-adjusted basis.

The key procedures or categories leading growth included expandable TLIF with our SABLE implants, posterior cervical with Reline C, ALIF procedures with HEDRON and Modulus implants, as well as continued increasing contribution from MIS pedicle screws, namely Reline MAS and CREO, biologics, as well as our DuraPro oscillating drills. Growth in U.S. spine has been consistent and sustaining, driven by increasing focus on key areas of the business.

Every week in Q2 had shown growth versus the same week in the prior year, and we are now at 19 consecutive weeks of U.S. spine implant growth, which includes a strong July and a great start to August. Growth in our core business is being driven by several factors, including increasing set and inventory availability, driving targeted product conversions, competitive rep hiring, as well as a key focus with increasing our surgeon engagement. All of these factors are key to growth as we continue on the basics of launching new products, growing our sales force, and driving robotic pull-through. To highlight the importance of new products, I'd like to take a minute to talk about our DuraPro oscillating drill system. As a refresher, this product was launched in 2024 and features an oscillating technology designed to be soft tissue sparing, allowing surgeons to treat anatomy adjacent to delicate tissue.

We are seeing accelerated levels of growth in this product since launch, fueled by surgeon-to-surgeon testimonials. Moving forward, we see this product as a game changer and have ramped up supply with increasing levels of sets being delivered to our field to fund this growth. Enabling technologies experienced a bounce back in Q2, growing 58% sequentially to finish at $35.2 million. Despite the sequential improvement, Q2 sales were lower by 4% compared to the prior year quarter, driven by lower sales of EGPS robotic systems, partially offset by growing sales of E3D imaging systems. While we closed many robotic deals from Q1 in the second quarter, we are still experiencing an elongation in the selling cycles. We see these deals as alive and active and seek to drive a strong second half.

Importantly, feedback from our surgeon customers who use our robotic systems remains incredibly positive with respect to its features and capabilities as they exist today. We will aggressively seek to close down open opportunities as we move ahead. Over the long term, we expect robots and robotic procedures to grow within spine and believe that robotic surgery will be the standard of care for patients suffering from spine disorders. To date, we've seen almost 110,000 procedures and expect this to continue to grow as adoption becomes more widespread. Our international spine business grew roughly 4% as reported, but was essentially flat on a constant currency basis. I commented earlier on the improvements in the supply chain as we move through the quarter. I'd like to take a few moments to provide some additional insight.

Breaking our international business into regions and key countries, we see growth across our EMEA region led by the U.K., Spain, Germany, Ireland, and Italy. The interest in Globus products across EMEA remains high, driven by our key differentiators, namely our product portfolio, technologies, and service levels. The combination of these factors drives interest from our customers while also attracting competitive reps. Our second quarter saw the quarter-over-quarter growth improve versus Q1. We expect this trend to continue looking ahead as the supply of product continues to drive incremental growth. Within the APAC region, we're continuing to focus on our largest markets, which are Japan and Australia. Recent trends are showing success in these selling markets; however, we continue to see opportunity to generate additional share growth in these core markets moving ahead.

The LatAm region, our smallest international region, has been most impacted by sales shortfalls in Brazil, which are a combination of a slowing market as well as isolated supply issues. We will continue to focus on this key market moving forward and see the flow of product improving in Q3 and Q4. The overall strategy of our international business is to focus on key markets and go deeper in those markets to drive higher share positions. As we continue with our international integration, we view this strategy as key to overall long-term international success. While this may result in some near-term impacts on growth rates, we view this as the right approach long-term to ensure the health of our international business. Our core trauma business grew 35% in Q2 compared to the prior year quarter, while our NSO growing rod business declined during the quarter.

Thanks, Keith, and good afternoon, everyone. I'd like to start today by thanking David Paul, the Board of Directors, and Keith for this opportunity. I am thrilled to be taking on this role and partnering with Keith and the talented Globus leadership team. In my 8+ years with Globus, we've seen remarkable growth and change in our business, and it's been a career highlight for me to be part of what we're building here alongside the best and brightest professionals in the industry.

As Keith mentioned in his prior comments, on April 3rd, 2025, we closed our acquisition of Nevro Inc. after Nevro shareholder and regulatory approval. The purchase price of $252.5 million was paid using existing cash reserves. The resulting impact of the April 3rd acquisition of Nevro is such that my discussion on our results will seek to identify the underlying legacy Globus Medical results, as well as the contributions from the inclusion of Nevro financial information. Our Q2 2025 results include three months of legacy Globus financial information and three months of Nevro, reflective of the April 3rd acquisition closing date.

My comments today will provide insights into our quarterly business performance, including the impacts of Nevro, our capital allocation priorities, as well as views on overall guidance for the remainder of the year. As I move through my discussion this afternoon, I will first comment on our as-reported results, providing insights into the legacy Globus business, as well as high-level comments on the contributions from Nevro on an as-reported basis. All information is presented based on Globus accounting policies and is consistently applied in the as-reported results from legacy Globus and legacy Nevro. We are extremely pleased with our second quarter results, both with and without the impact of Nevro. The headlines for the quarter include: one, above-market sales growth in our U.S. spine business; two, record non-GAAP earnings per share of $0.86; and three, a bounce back in enabling technology sales.

Adding to Keith's comments, our sales results clearly demonstrate that we are driving market share growth and are executing our strategies around product, sales force, and integration. Moving into the quarter, our second quarter revenue was $745.3 million, growing 18.4% on an as-reported basis and 17.6% on a constant currency basis as compared to the second quarter of 2024. GAAP net income in the second quarter of 2025 was $202.8 million, and GAAP fully diluted earnings per share was $1.49, reflective of the impact of both a bargain purchase gain of $110.6 million and partially offset by $28.8 million of merger and acquisition-related costs resulting from the April 3rd acquisition of Nevro.

The bargain purchase gain, which for accounting purposes is recognized in the period as a benefit to the P&L, is primarily driven by the value of certain deferred tax assets, specifically federal net operating loss carryforwards with indefinite lives that were acquired in the Nevro acquisition. As the legacy Nevro business did not historically generate profit, these tax benefits were not able to be utilized under its structure. However, upon acquisition, the combined Globus profit profile allows us to recognize and utilize $141.5 million of these deferred tax assets, which will generate cash tax savings over a prolonged period. In our acquisition of Nevro, Globus acquired net tangible assets from Nevro of $168 million, which consist primarily of inventory and accounts receivable, and another $141.5 million of the deferred tax assets described a moment ago.

Coupling this value with the intellectual property portfolio and the deal rationale that Keith discussed in his opening remarks highlights why we feel the Nevro acquisition was a strategic opportunity for us. Returning to results for the quarter, non-GAAP consolidated net income was $116.8 million compared to $102.7 million in the prior year quarter, growing 13.7%. Our fully diluted non-GAAP EPS were $0.86, growing 14.1% over the prior year quarter. Consolidated adjusted EBITDA was 28%, and we generated $77.9 million of operating cash flow and $31.3 million of free cash flow during the quarter. Our legacy Globus adjusted EBITDA was 32.3%, while legacy Globus operating cash flow was $104.2 million, and free cash flow was $60.3 million.

Our second quarter net sales of $745.3 million reflect legacy Globus sales totaling $650.8 million, growing 3.3% as reported and 4.9% on a day-adjusted basis, with one less selling day in the U.S. and two fewer days in Japan compared to the prior year. The growth in our legacy Globus sales was primarily driven by U.S. spine, which achieved 5.7% as reported and 7.4% day-adjusted growth. Nevro contributed $94.6 million of revenue during the quarter, inclusive of $82.1 million of domestic revenue and $12.5 million of international revenue. Musculoskeletal revenue was $710.2 million, growing 19.8% over Q2 2024. Legacy Globus musculoskeletal revenue was $615.6 million, growing 3.8% as reported.

Enabling technologies revenue was $35.2 million, declining 4.4% as reported, but growing sequentially 58.5% over Q1 2025. We saw a bounce back in enabling tech during Q2. However, we continue to be impacted by extended timelines to close deals in the quarter. Despite the headwinds created by these extended timelines, we remain confident in our enabling tech business, driven by our robust pipeline and the sequential improvement from Q1 to Q2. U.S. revenue during the quarter, the second quarter of 2025, was $600.8 million, growing 20.3% as reported.

Legacy Globus U.S. revenue during the second quarter of 2025 was $518.7 million, growing 3.8% versus the prior year quarter. Our legacy Globus U.S. growth was primarily driven by our U.S. spine business and trauma, partially offset by declines in enabling technologies and neuromonitoring. Our U.S. spine business continues to build momentum, getting us back to high single-digit growth and achieving its highest growth on a pro forma basis since prior to the NuVasive merger in September of 2023. Our U.S. spine business continued this momentum in July and early August, and our confidence remains high in our ability to capture above-market growth in this business. Q2 2025 international revenue was $144.6 million, growing 11% as reported and 7.5% on a constant currency basis.

International revenue for the legacy Globus business was $132.1 million, growing 1.4% as reported and declining 1.8% on a constant currency basis compared to the prior year quarter. Legacy Globus saw growth in many of our direct markets, primarily in EMEA, partially offset by lower international distributor sales as we felt lingering impacts of the Q1 supply chain interruptions and integration driven by consolidation of distributors and transitioning certain geographic markets from distributor to direct. However, as Keith mentioned, the supply chain impact dissipated as we moved through the quarter, with each successive month in Q2 growing sequentially. Overall, we saw sequential improvement in legacy Globus international revenue, growing 15.6% over Q1 2025. GAAP gross profit in the quarter was 63.3% compared to 55.2% in the prior year quarter, with the resulting improvement driven primarily by lower inventory step-up amortization.

Adjusted gross profit was 67.4% compared to 67.2% in the prior year quarter, primarily driven by synergy capture and partially offset by sales mix. Legacy Globus non-GAAP gross profit was 67.6% versus 67.2%, primarily driven by favorable sales mix and partially offset by increased depreciation from CapEx investment in sets and instrumentation. Nevro non-GAAP gross profit was 66.4%. We continue to receive, set up, and validate machinery and equipment in our manufacturing facilities in Pennsylvania and Ohio, as we remain focused on manufacturing initiatives, which are beginning to pay dividends and cash spending on inventory and will drive a return to mid-70s adjusted gross profit. Research and development expenses in Q2 2025 were $40 million, or 5.4% of sales, compared to $37.7 million, or 6% of sales in the prior year quarter. Legacy Globus R&D expenses totaled $33.1 million, or 5.1% of sales.

The resulting decline in legacy Globus R&D, both in dollars and as a percentage of sales, is attributable to synergy capture, resulting in lower headcount. Nevro R&D was $6.9 million, or 7.3% of Nevro sales. SG&A expenses in the second quarter of 2025 were $303.6 million, or 40.7% of sales, compared to $239.5 million, or 38% of sales in the prior year quarter. Legacy Globus SG&A expenses were $242.9 million, or 37.3% of sales. The increase in spend is attributable to increased sales compensation costs from higher volume, increased third-party spend, and higher employee benefit costs, partially offset by lower bad debt expenses. Nevro contributed $60.7 million of SG&A expenses in the quarter, or 64.2% of Nevro sales. Q2 2025 net interest income was $0.7 million, compared to $2.3 million of net interest expense in the prior year quarter.

Thank you, Kyle, and congratulations on your new role. I am looking forward to working with Keith in his new role as he leads Globus forward. I have never been more excited about our future prospects as we are reimagining the operating room and musculoskeletal surgery to drive better patient outcomes. Our Excelsius ecosystem will play a large role in this transformation with our suite of imaging, navigation, and robotic systems leading the way. Our unwavering commitment to improving surgical outcomes and solving unmet clinical needs continues to be the motivation for all of us to work toward. We remain committed to bringing exciting technologies to market with our R&D engine to achieve our goal of improving the lives of patients with musculoskeletal disorders. Thank you for joining our call today. We will now open the call for questions.