GLOBUS MEDICAL INC Q3 2025 earnings call

Thank you, Stephanie, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Keith Pfeil, President and CEO, 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 will now turn the call over to Keith Pfeil, 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. 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 was 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 in 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 Nevro 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 evidenced 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 continue 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 U.S. 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 U.S. spine revenue, product development projects, set 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(k) clearance for additional Excelsius GPS instruments for use with additional interbody fusion devices, including Modulus XLIF, Modulus TLIF-O, Cohere XLIF, Cohere TLIF-O, Hedron-L, and Hedron-P. The new Excelsius GPS instruments consist of verification adapters and various surgical instruments, including interbody inserters and trials for use with Excelsius GPS or Excelsius Hub. Thinking back to the divisive merger and revenue synergies, we can now offer to use pedicle screws and interbody solutions to those customers who are using divisive products.

The Excelsius 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 are 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 U.K., 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 refocus 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%-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 U.S. 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%+ 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 set 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've seen the 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 maximum flexibility to organically invest in R&D and disciplined 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 complementary M&A without creating balance sheet stress. The earnings profile and free cash flow profile suggest strong conversion and high-quality cash generation.

Thanks, Keith, and good afternoon, everyone. The third quarter of 2025 for Globus was exceptional. We posted record results this quarter in revenue, earnings, and cash flow generation. The stellar results were driven by revenue growth in our domestic spine business, growing 10% over the third quarter of 2024 and accelerating from the 7% day-adjusted growth we saw in the second quarter of this year. As we move into the final quarter of the year, Globus is in great position to close out a record-setting 2025 and capitalize on the acceleration we've seen in the middle two quarters of the year. Today's prepared commentary will focus on providing insights into our quarterly business performance, including the impacts of Nevro, reiterate our capital allocation priorities, and update our guidance for the remainder of the year.

Consistent with last quarter, 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. Moving into the quarter, our third quarter revenue was $769 million, growing 22.9% on an as-reported basis and 22.3% on a constant currency basis as compared to the third quarter of 2024. GAAP net income in the third quarter of 2025 was $119 million, and GAAP fully diluted earnings per share was $0.88. Non-GAAP net income was $159.4 million, compared to $114 million in the prior year quarter, growing 39.8%. Our fully diluted non-GAAP earnings per share were $1.18, growing 42.6% over the prior year quarter. Consolidated adjusted EBITDA was 32.8%, and we generated $249.7 million of operating cash flow and $213.9 million of free cash flow during the quarter.

The growth in both earnings and cash flow generation was primarily driven by: one, the overarching sales growth in the quarter across a majority of our businesses led by U.S. spine, international spine, trauma, and neuromonitoring; two, execution of our operational goals to drive synergies across the businesses; and three, the impact of the recently acquired Nevro business, which achieved sequential sales growth and will now be accretive to non-GAAP earnings per share in fiscal year 2025. Our legacy Globus adjusted EBITDA margin was 35.3%, while legacy Globus operating cash flow was $238.3 million and free cash flow was $205.4 million. Standalone Nevro adjusted EBITDA margin was 16.2% for the quarter, growing from -1.4% in the second quarter of this year and generating operating cash flow of $11.4 million. $8.5 million of free cash flow.

By comparison, in the second quarter of this year, standalone Nevro represented an operating and free cash burn of $26.3 million and $29 million, respectively. Our third quarter net sales of $769 million reflect legacy Globus sales totaling $669.8 million, growing 7% as reported and 7.1% on a day-adjusted basis, with the same number of selling days in the U.S. and international and one fewer day in Japan compared to the prior year. The growth in our legacy Globus sales was primarily driven by U.S. spine, which achieved 9.6% as reported growth. International spine, which achieved 5.6% as reported and 2.9% constant currency growth. Trauma, which achieved 17.2% as reported growth, and neuromonitoring, which achieved 15.8% as reported growth, partially offset by lower enabling technology sales of $10.3 million.

Nevro contributed $99.3 million of revenue during the quarter, growing sequentially over the second quarter of this year by 4.9%, inclusive of $83.3 million of domestic revenue and $15.9 million of international revenue. Musculoskeletal revenue was $741 million, growing 26.2% over Q3 of 2024. Legacy Globus musculoskeletal revenue was $641.8 million, growing 9.3% as reported. Enabling technologies revenue was $28 million, declining 26.8% as reported. We continue to remain optimistic on the overall enabling tech business as our pipeline remains strong, and we believe we have the best capital portfolio in the industry. U.S. revenue during the third quarter of 2025 was $617.6 million, growing 24.6% as reported. Legacy Globus U.S. revenue during the third quarter of 2025 was $534.3 million, growing 7.8% versus the prior year quarter. Our legacy Globus U.S. growth was primarily driven by our U.S.

spine, trauma, and neuromonitoring businesses, partially offset by declines in enabling technologies. Our U.S. spine business took another step forward this quarter, growing 9.6% as reported after posting 5.7% as reported and 7.4% day-adjusted growth in the second quarter of this year. We continue to see the strong momentum in October and early November as we seek to stabilize as a high single digit above market grower. Trauma saw an acceleration in domestic growth, with both our core trauma and NSO portfolios achieving 27.6% growth. Our neuromonitoring business grew 15.8% as we anniversary the reimbursement headwinds that occurred in mid-2024. Q3 2025 international revenue was $151.4 million, growing 16.5% as reported and 13.5% on a constant currency basis.

International revenue for the legacy Globus business was $135.5 million, growing 4.3% as reported and 1.6% on a constant currency basis compared to the prior year quarter, and we saw growth across EMEA, LATAM, and Asia-Pacific markets. As mentioned previously, our supply chain strategy ensures that the U.S. is prioritized for inventory, which had an impact on the international supply in the quarter. Despite strong U.S. demand, we saw incremental improvement in international supply as we moved through the quarter, and we continue to experience momentum in the legacy Globus international spine business, as we have seen sequential growth each quarter throughout 2025. GAAP gross profit in the quarter was 64.2% compared to 53% in the prior year quarter, with the resulting improvement driven primarily by lower inventory step-up amortization.

Consolidated and legacy Globus adjusted gross profit was 68.1% compared to 66.5% in the prior year quarter, primarily driven by favorable sales mix and the impacts of synergy execution. Nevro adjusted gross profit was 67.6%. Manufacturing initiatives remain a key focus for us as we close the back half of the year. We continue to see the benefits of our efforts in adjusted gross profit percentage with four straight quarters of sequential improvement and a 70 basis point boost between Q2 and Q3. This endeavor continues to pay dividends in cash spending on inventory and will ultimately drive a return to mid-70s adjusted gross profit. For 2025, we expect total adjusted gross profit to be in the range of 67%-68% of consolidated revenue.

Research and development expenses in Q3 2025 were $38.1 million, or 4.9% of sales, compared to $35.4 million, or 5% of sales, in the prior year quarter. Legacy Globus R&D expenses totaled $33.9 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 and leverage from higher sales volume. Nevro R&D was $4.2 million, or 4.2% of Nevro sales. For 2025, we now expect total research and development expenses to be in the range of 5%-5.5% of consolidated revenue. SG&A expenses in the third quarter of 2025 were $313.6 million, or 40.8% of sales, compared to $240.1 million, or 38.4% of sales, in the prior year quarter. Legacy Globus SG&A expenses were $264.5 million, or 39.5% of sales.

Current period SG&A expenses included one-time net charges for estimated litigation of $28.3 million. Excluding these one-time charges, which we adjust out of our results for non-GAAP reporting, our consolidated SG&A expenses were $285.3 million, or 37.1% of sales, and our legacy Globus SG&A expenses were $236.2 million, or 35.3% of sales. The decrease in spend after removing the one-time estimated litigation charges is attributable to decreased employee-related costs from synergy actions, lower employee benefit costs, and lower bad debt expenses, partially offset by increased sales compensation costs from higher volume. Nevro contributed $49.1 million of SG&A expenses in the quarter, or 49.5% of Nevro sales. Q3 2025 net interest income was $1.5 million compared to $0.8 million of net interest expense in the prior year quarter.

The $2.2 million favorable change is driven by a decline in interest expense from the paydown of the remaining $450 million outstanding convertible debt in Q1 2025 that was assumed from the NuVasive merger. The GAAP tax rate for Q3 2025 was 17.4% compared to 9.1% in the prior year quarter. The prior year rate was impacted by a reserve reversal, which favorably impacted the rate by approximately 11%. The current year rate includes favorable impacts from legal entity restructurings of both NuVasive and Nevro. Our non-GAAP tax rate for the quarter was 20.8%, lower than our projected rate of approximately 25%, resulting from a discrete benefit in the quarter related to certain NuVasive restructuring activities. The favorability in tax resulted in 7 cents of non-recurring non-GAAP fully diluted earnings per share favorability in the quarter. We expect our full year non-GAAP tax rate to be approximately 24%-25%.

Cash, cash equivalents, and marketable securities were $407.2 million at September 30, 2025, compared to $956.2 million at December 31st, 2024. The decline in cash is driven primarily by three main factors. One, as mentioned previously, in March, we fully repaid in cash the remaining $450 million outstanding convertible debt assumed from the NuVasive merger. Two, in April, we acquired Nevro for a purchase price of $252.5 million. Three, during the past three quarters, we spent $255.5 million to repurchase approximately 3.5 million shares. In Q2 2025, we announced that our share repurchase program was expanded by an additional $500 million. During the third quarter, we repurchased $40 million, or 0.7 million, shares and have $435 million of authorization remaining under this program at September 30th, 2025.