Q1 2022 NuVasive Inc Earnings Call

Good day, ladies and gentlemen.

Welcome to the new basis first quarter 2022 earnings conference call.

I would now like to introduce your host for today's call Ms. Juliet Cunningham Vice President of.

Industrial Nations Acme invasive. Please go ahead.

This kind of thing.

Thank you good afternoon, everyone. Joining me today are Chris Barry Chief Executive Officer, and Matt Harbaugh, Chief Financial Officer.

This will provide an overview of new basis first quarter 2022 business results and trends as well as innovation highlights and updates on our strategy.

Matt will review, our detailed financial results and updated 2020 to financial guidance and then we'll host a question and answer session.

The earnings release, which we issued earlier. This afternoon is posted on the IR section of our website and has been filed on form 8-K with the SEC.

We have also posted supplemental financial information on our IR website.

As a reminder, this call is being recorded and an archive will be available on our IR website later today.

Before we get started I'd like to remind you that our comments. During this call will include forward looking statements, which are based on current expectations and involve risks and uncertainties assumptions and other factors, which if they do materialize or prove to be correct.

Could cause actual results to differ materially from those expressed or implied by such forward looking statements.

Factors that could cause actual results to differ materially are described a new base of news releases and periodic filings with the SEC.

Except as required by law, we assume no obligation to update any forward looking statements or information, which speak as of their respective date.

In addition, this call will include certain non-GAAP financial measures.

Reconciliations of these measures to the most directly comparable GAAP financial measures are included in today's earnings release, and the supplemental financial information both of which are accessible from the IR section of Nuvasive website.

And now I'd like to introduce Chris Barry.

Yeah.

Thank you Juliet and good afternoon, everyone.

Earlier today, we reported first quarter 2022 financial results on.

On today's call I will provide an overview of our first quarter 2022 performance.

A review of key innovation highlights.

And updates on our strategy, which continues to unlock multiple vectors of growth.

<unk> delivered strong first quarter 2022, net sales of $298 million, an increase of seven 2% on a reported basis or nine 1% on a constant currency basis compared to the prior year period.

Despite COVID-19 impacts during the first half of the quarter. We saw procedural volumes return our gross February with continued growth in March.

This was evident in our U S and international commercial performance.

Overall, I'm very pleased with the health of our business.

I'm confident in our near and long term strategy to execute on new opportunities for growth.

In particular U S spinal hardware delivered high single digit year over year growth.

Led by continued growth in cervical, including the <unk> hundred 60 system and the simplify cervical disc.

Further adoption of new product introductions, and our interior portfolio and.

And growth in durable lumbar fixation.

The U S surgical support business rebounded well in the first quarter with pulse platform unit sales performing as expected and biologics benefiting from the increase in procedural volumes.

This was partially offset by a decline in our Nuvasive clinical services business driven by headwinds due to payer mix.

We continue to see strong performance in our international business as we delivered low double digit growth over the prior year period on a reported basis and high teens growth on a constant currency basis.

Europe continues to execute well despite impacts related to COVID-19 in southern Europe.

Latin America delivered solid performance throughout the region.

And in Japan, we continue to see growth due to our differentiated technology offerings.

Another key growth driver is enabling technology led by the pulse platform.

We are executing against our plan as expected and recently surpassed the 500 commercial case milestone for pulse.

With additional pulse units up and running in the United States in the first quarter and our first international commercial cases in the United Kingdom. The pulse value proposition is resonating with hospital executives and surgeon partners around the globe.

As a reminder, the <unk>.

Whole software ecosystem integrates multiple hardware technologies into a single platform.

This unique ecosystem provides surgeons a seamless workflow when utilizing multiple technologies in the operating room.

And can be used in 100% of spine surgery cases.

Most importantly, it's extensible software architecture allows for integration for current and future technologies.

We're pleased with our collaboration with Siemens Health <unk> to enable seamless integration between the pulse platform and the Seo spend mobile CRM, which provides.

Hospitals and surgeon partners, a leading intraoperative two D and three D imaging solution.

We continue to invest in robotics, R&D and execute on our pulse robotics roadmap.

We have completed numerous labs, our surgeon partners and have additional lab scheduled throughout the year.

While early surgeon feedback has been very positive we have not yet submitted for regulatory approval and thus we will not complete burst in human this year.

Pulse robotics will be a key application for the pulse platform.

And we will provide information on upcoming milestones at a later date.

Our team is making progress on building out the broader pulse ecosystem.

Integrating new applications, new tools and new capabilities is what we believe will resonate most with our surgeon partners.

To that end, we've made strategic investments to advance our data and analytics and preoperative surgical planning strategies.

To support the development of new applications for the pulse platform.

Turning to cervical another key strategic growth driver for the company.

Our <unk> 360 portfolio delivered greater than 20% growth in the first quarter.

This was led by the simplify cervical disc, which continues to receive tremendous surgeon feedback as the most clinically effective technology and the cervical total disrepair procedure segment.

To further support the discs growing body of clinical evidence. The simplified this two level U S. FDA <unk> study data was recently published in the journal of Neurosurgery spun.

The peer reviewed publication reiterates that the simplified this has a significantly greater success rate at the 24 month follow up compared to ACD when used for two level ctr.

The disc continues to demonstrate superiority in comparison to alternative techniques and I look forward to seeing more patients benefit from this differentiated technology.

To advance our portfolio and position in the $2 6 billion cervical sub segment, we remain on schedule to relaunch <unk> cervical or next generation posterior cervical fixation system in the third quarter of 2022.

Reliance cervical provides compatibility with the pulse platform and integrates with our relying fixation system.

One of the most comprehensive fixation systems on the market today.

We continue to receive positive surgeon feedback on your line cervical and clinical evaluations and are excited incorporate this new technology and further expand the industry's most innovative cervical portfolio.

And less invasive surgery, we continued to invest in differentiated technology to extend our leading position in the $900 million anterior sub segment and to take share in the $1 6 billion post areas spine subsegment.

Our comprehensive procedurally integrated solutions address the anterior and posterior column from a lateral or prone position, providing surgeons the flexibility to treat any patient pathology with new base of procedure.

We continue to see growth in a lift due to strong surgeon adoption of modulus alias.

Commercially launched in 2021 modulus, a lift as our latest three D printed porous titanium implant designed for both <unk> and <unk> procedures.

Research and development continues on our next generation expandable interbody for anterior and posterior surgery we.

We remain on track to begin clinical evaluations in 2022 on Mod X X lift for lateral spine surgery, and mod ex Pel for posterior lumbar procedures.

In addition, we remain on schedule to launch the new base of tube system in the second half of 2022.

And the base of tube system, a new tubular retractor system designed to support less invasive posterior decompression and fusion procedures will be a key addition to our comprehensive portfolio of instruments for prone procedures.

International will remain a key growth driver in 2022 and beyond.

Tankard by our differentiated technology and global infrastructure, we anticipate continued growth around the globe.

We expect that our international business will also benefit from the return of our precise system from new base of specialized orthopedics and key markets outside the U S.

This is supported by our recent announcement that precise has now surpassed 100 peer reviewed publications.

The milestone is significant as it further supports the clinical benefits and efficacy of the novel technology.

I am pleased with our surgeon education efforts at our West Coast experience Center in San Diego and our recently opened East Coast experienced center outside of New York City.

In 2021, we had a record year training.

Training more surgeons than any other year at new basis.

As the industry leader in surgeon education, and training surgeon demand for our clinical professional development program remains high and 2022 with training courses at both centers focused on pulse simplify.

<unk> hundred 60.

Ex lift and mass Taylor.

In closing I am excited for what's ahead for an invasive.

I am encouraged by the momentum in our business and our progress to extend our leadership position in less invasive surgery.

Take share in sub segments, where we historically had underrepresent in market share delay.

To deliver on our differentiated innovation and enabling technology and drive continued growth in our international business.

We're evolving from a company focused on a single sub segment of spine.

To accompany that is helping transform the future of spine care.

We're committed to delivering sustained growth unlocking value and making progress against our vision to change a patient's life every minute.

I'll now turn the call over to Matt to discuss the Companys financial results in greater detail. Thanks.

Thanks, Chris and good afternoon, everyone. Today I will cover our first quarter 2022 financial results and drivers I'll also walk you through the updated 2022 financial guidance. Our detailed financial results have been provided in today's press release during my remarks, I will be discussing both GAAP and non-GAAP .

Measures and refer you to our press release for GAAP to non-GAAP reconciliations.

Total first quarter net sales were $298 million, an increase of seven 2% as reported and nine 1% on a constant currency basis compared to the prior year period.

The first quarter was a story of two halves. The first half of the quarter was significantly impacted by COVID-19, and related health care staffing shortages. However procedure volumes improved over the second half of the quarter as government restrictions eased in hospital systems increased elective surgeries and.

Most of our key markets. Despite these.

These headwinds we saw continued positive momentum from our new product introductions, including the pulse platform and our cervical portfolio led by the simplify cervical disc, which I'll cover in more detail shortly.

Strong international sales of $71 $5 million in the first quarter of 2022 grew 10, 5% as reported and 18, 6% on a constant currency basis compared to the prior year period. These results were driven by Europe , Latin America, and Japan, all posting double digit.

<unk>.

Now I'd like to share some key highlights from our U S product lines.

U S spinal hardware net sales were $155 6 million representing.

Representing a seven 2% increase over the prior year period within U S spinal hardware, our thorough columba and cervical portfolios both grew year over year with cervical posting greater than 20% growth in the first quarter. This.

This performance was led by our <unk> hundred 60 system, including increasing surgeon adoption of this simplifies cervical disc.

U S surgical support net sales were $63 6 million in the first quarter.

An increase of three 8% compared to the prior year period. This growth was driven by net sales from the pulse platform in our biologics business, but was somewhat muted by the results of Nuvasive clinical services, which declined year over year due to unfavorable payer mix.

Turning now to operating highlights non-GAAP gross profit in the first quarter was $212 2 million compared to $199 6 million in the prior year period.

The year over year increase was primarily driven by higher procedure volume.

As a percent of net sales non-GAAP gross margin was 73% a decrease of 60 basis points compared to 73, 6% in the prior year period. The year over year decline was primarily driven by product mix and normal levels of low single digit pricing impacts partially offset.

By a decrease in inventory charges in the quarter.

First quarter 2022, non-GAAP operating expenses were $178 2 million, an increase of eight 5% compared to $164 3 million in the prior year period. The year over year increase was primarily driven by variable expenses on higher net sales, particularly <unk>.

<unk> commissions freight expenses and our continued investment in R&D to further our core spine and enabling technologies portfolios.

We are also experiencing some inflationary impacts, which we will continue to monitor and navigate.

First quarter 2022, non-GAAP operating margin was 11, 7% a decrease of 130 basis points from 13% from the prior year period the.

The year over year decline was primarily driven by lower gross margin and continued investments in commercial.

non-GAAP other income and expense was $2 $6 million of income for the quarter compared to $10 $6 million of expense in the prior year period.

The year over year change was attributable to.

To unrealized foreign currency gains in the first quarter of 2022 versus unrealized foreign currency losses in the prior year period. Additionally.

Additionally, interest expense decreased compared to the prior year period as a result of the settlement of the 2021 senior convertible notes in March of last year.

non-GAAP tax expense in the first quarter of 2022 was $8 4 million compared to $5 $6 million in the prior year period.

Q1, 2022 effective tax rate was 23%, which was consistent with the prior year period.

On a GAAP basis, we reported first quarter net income of $19 2 million or diluted earnings per share of <unk> 35.

Compared to a net loss of $7 5 million or diluted loss per share of <unk> 15 in the prior year period.

GAAP diluted EPS includes the dilutive impact of applying the if converted method to the company's convertible notes.

On a non-GAAP basis, we reported first quarter net income of $28 2 million or diluted earnings per share of <unk> 54.

Compared to net income of $19 million or diluted earnings per share of <unk> 37 in the prior year period.

This was largely driven by higher net sales and unrealized foreign currency gains, which contributed <unk> <unk> to diluted earnings per share in Q1 2022.

Moving to cash flow, our free cash flow for the first quarter of 2022 was negative by $27 6 million versus positive $6 6 million in the prior year period.

As you know our first quarter is historically, the lowest free cash flow quarter of the year and typically negative in.

In addition to the typical seasonality we had impact from our cash collection timing, resulting from ramping sales in the second half of Q1 as COVID-19 lesson in procedure volume increased.

As of March 31, 2022, we had cash and cash equivalents of $205 $3 million. The cash use since December 31, 2021 was primarily related to Capex investments in Q1 and acquisition related contingent consideration milestone payments or <unk>.

$550 million revolving credit facility remains undrawn.

Turning to our full year 2022 financial guidance.

Given our strong results in Q1, and the overall health of our business as we exited the quarter. We are updating our 2022 guidance as follows.

We are raising the low end of the guidance range for net sales. We previously provided a guidance range for net sales of 5% to 8% growth as reported or 6% to 9% on a constant currency basis.

We now anticipate net sales growth of 6% to 8% as reported and seven five to nine 5% on a constant currency basis.

This includes an updated estimate of negative currency impact of approximately 150 basis points for 2022.

We are not changing our guidance range for non-GAAP operating margin, which remains at 13% to 14, 5%.

And we have raised our guidance range for non-GAAP diluted earnings per share based on our revised expectations for net sales we.

We previously provided a guidance range for non-GAAP diluted earnings per share of $2 five to $2 35.

We now expect non-GAAP diluted earnings per share in a range of $2 15 to $2 45.

While we remain cognizant of the macro issues that could affect us. All we are monitoring these issues closely and have factored these considerations into our 2022 guidance range.

We are confident in the trajectory of our business, especially with the positive momentum from our new product introductions and multiple vectors of growth.

Our focus continues to be on executing on our plans and delivering on our commitments for the benefit of all our stakeholders.

And now operator, please open the call for questions.

Thank you Sam.

Okay.

Be conducting a question and answer session.

I would like to ask a question.

And then one on your telephone keypad.

Tony will indicate your line is in the question queue. You May proceed.

I would like to remove yourself from the queue.

Call participants using.

It may be necessary pickup your handset before pressing the sloppy.

The first question.

The first question is from.

So Josh Jennings from Cowen. Please go ahead.

Hi, good afternoon, thanks for taking my questions.

Congratulations on a strong start to the year.

Despite the difficult environment I wanted to ask about the <unk>.

The strong revenue performance in the first quarter.

And just wondering if you could share.

Any benefit from case mix I mean, one of the thoughts on recoveries spine, Marc but also from the basis specific lease it potentially more of the complex cases were postponed at least late last year and even in early January and it's more complex coming back multilevel cases coming back could increase revenue per case. So did you receive a benefit do you think.

<unk> and should that continue or was it just purely total volume recovery broad based across all different case types. Thanks for taking my question and congrats again.

Thank you Josh and I appreciate the question.

We didn't really see the mix change, but what I really attribute our growth from was really.

This idea of multiple vectors of growth I've been talking a lot about our company moving from that one dimensional company and Im really proud how we've evolved we've made a lot of investments over the last couple of years.

If you think about where we are now.

We've extended our leadership in and minimally invasive our interior the $900 million subsegment, where now balance out our leadership and excellent for now a leader and a lift.

We continue to take share in some segments that we've traditionally had low share cervical $2 6 billion sub segment.

We've delivered now a couple of quarters in a row 20 plus percent growth.

Still have some advancements to make and posterior $1 6 billion. That's ahead of us and with with a tube system I talked about in the prepared remarks.

Work to do and expandable.

The differentiated technology with with pulse.

Surpassed our 500 case milestone, so thats up and running and I have talked a lot about the global business now represents 25% of our revenue and that continues to grow double digit and that's been consistent for us. So those things combined is what I attribute our growth to.

I didn't see the mix in the pent up demand for complex, but we may see it going forward, but we will see but I appreciate the question.

Okay.

Thank you.

The next question, we have as you know.

Please go ahead.

Okay.

Great. Thanks, and congrats on a really strong start to the year.

A follow up on.

Some of your comments on margins just to make sure we understand this.

I think you mentioned that there was some maybe unfavorable margin mix.

Product mix in the quarter.

But holding your full year margin guidance.

Youre expecting that to correct throughout the year.

Could you maybe talk a little bit about the margin dynamics in the quarter and then your expectations for the year and I have one quick follow up.

Yes, thanks for the question.

I was very pleased with how the quarter came.

Came together for us and as you can tell we came in line with expectations on the bottom line.

From an operating income as a percent of net sales perspective, EPS was higher a lot of that driven by currency foreign currency adjustments.

So all in all a good quarter really pleased to see the top line and I would just highlight in addition to the.

Vectors of growth that Chris just highlighted we're also very pleased with our international business.

We posted strong results as well so.

Hard to find.

Rough patch in the and these results good start to the year I will say that.

We didn't change our guidance from an operating income perspective.

Just because it's early on in the year and there are a lot of macro economic events.

Interest rate changes here in the states today or in Ukraine supply chain challenges and so we just wanted to give ourselves a little more room, obviously, if we continue to form.

To deliver excuse me of these strong results as we get into future quarters, our goal would be to be on the higher end of the range we provided.

Thanks, and then the follow up and I almost hate to ask this question because theres. So many things that are going so well right now.

As you know.

Around Chris in your comment of pushing out the the.

First in human.

Online a little bit for the robot can you talk about maybe what's.

What has led you to that and maybe expectations for win.

When we can expect that ticket.

Get that back on track and if that's the right way to think about it but.

Right.

Some expectations of visibility as to when that will happen.

Yes.

As we expected the question, but listen the hull of announcement here really is.

<unk> is just adjusting the timeline, we're making great progress we continue to have robust investment in R&D perspective surgeon feedback has been very good we continue to do labs on a routine basis.

Wanted to this project right and as we did the assessment as I pointed to in late Q2 early April we just have more work to do it's a complex system involving hardware software systems integration not only within the robot arm itself, but within the pulse ecosystem.

And for those reasons, we're not ready to submit regulatory approval, which is the gating item for us to get into first clinical im not going to give a guideline or a timeline today, but I will tell you as we move closer I will provide that timeline, we just need to assess the elements of the system and make the appropriate progress on the timeline.

Fair enough. Thank you.

Thanks, Matt.

Cool.

The next question Matthew Blackman from Stifel.

<unk>.

Hi, good afternoon, everyone. Thanks for taking my question.

I was actually hoping to talk a little bit about international.

Particularly the strength that youre seeing in Japan.

Guys have spent a ton of time revamping.

The Japanese business, the international business as a whole and it's proving to be a really important and durable growth driver, but can you just a little bit more color on what is driving growth. There just trying to get a sense of why youre confident that you can sustain this outsized growth relative to the.

The market is there, but also even relative to the U S market I mean any help there.

Yes, it's been an investment area for us and I think a lot of.

The competitive dynamics are slightly different if you get out of the U S. The U S. As it is.

More.

As more as more dense with competitors. If you will a lot of smaller competitors here that we don't necessarily see at a global level.

So number one.

Dynamics are slightly different.

As far as Japan, specifically, we've made we've made.

We've made a good investment have the right team introduced product specifically for Japanese market.

And made a real commitment to that market, we've got dedicated infrastructure supply chain.

Logistics have been further developed there.

So those things I think have led us into continuing to evolve and trade a very good leadership position in that market.

So that that is a model due to the Japanese model is exactly what I'd like to see us do in other large markets and some of the things that we've talked about we're doing those things and some of the key European markets in Asia Pac and Latin America, Japan happens to be.

Further along outside the U S and development and that's driving our growth.

And if I could slip in sneak in one more question on.

Simplify I appreciate it it's really early days here still but any sense of whether the six.

Thats Youre seeing is it taking share today from other competitors or are you seeing some market expansion.

And again I appreciate it's early small sample size, but are you starting to see and I am just hearing you talk about the <unk> 360 portfolio as a whole are you starting to see pull through for the broader portfolio.

Because of simplify is that working as a.

A good way to get into new accounts appreciate it. Thanks.

Yes, a few questions in there then I'll take a shot at here number one we obviously I believe are taking share in the short term.

We've got a very clinically differentiated technology and the ctr market. So I would say the answer is yes were taking share but I also feel the early stages of market acceleration in the <unk> market and we believe that's happening and we're starting to see it it's early coming out of Covid, we need to see durability.

Some of the data that we're looking at but for sure. We think we're leading in an expanding market over time now how fast and how large that gets we'll have to see.

And I think the last question was.

Pull through just pull through the portfolio.

So.

It's opening doors I'd say the C 360 portfolio is benefiting from the lead in product, which is our simplified artificial disc. So the answer is yes, we're seeing a benefit across the across several portfolio, we're meeting new customers and new surgeons that we didn't necessarily engage with in the past that.

Thats introducing the broader portfolio. So we're excited about the technology and I think we're just getting started.

Okay.

Thank you.

Question.

Chaco from Wells Fargo.

No.

Hey, good afternoon, thanks for taking the questions and congrats on a great start to 2022. So two questions for me first maybe on simplify can.

Can you talk potentially about the performance.

In the quarter from a revenue perspective, I know you blew out sometimes I know you exceeded your guidance for 2021, and how we should think about the potential impact to sales from simplify in 2022.

And my second question is on your new product launches how much do they contribute to growth this quarter and is an expectation of half the growth coming from new products.

Still stand with the updated guidance. Thanks, so much.

You bet. Thanks This is Matt.

With regard to simplify the reason we talk about our cervical portfolio is that you've kind of missed the robustness of <unk> hundred 60, if youre only talking about simplify and as Chris said in the prepared remarks, we've had greater than 20% growth in surgical for the last two.

Quarters also international for cervical is doing well too so all in all we're taking share in cervical and we're really pleased with the results with regard to your question around new products I don't really think about it on a quarterly basis I think about it on a full year basis and I'll just remind you of my comments on the last call, which.

About half of the growth in our guidance and that this remains even though we changed it today about half the growth was coming from new products and then the other half is coming from taking share and growing the business on a natural basis. So that's how you should think about it on a full year perspective.

Thank you.

Sure.

Next question, we have is from David Buckley.

Hi, guys. This is Joseph on for David.

Okay.

I guess first question.

How much of your debt right now is floating rate and how should we be thinking about the impact of that on an EPS.

As interest rates increase.

Yeah. Thanks, we do have two convertible notes.

Both are 450 million tranche as you can see all the data in the 10-Q that we filed today.

It's reasonable it's manageable.

We have not drawn on our revolver, which.

I went out of my way to talk on the prepared remarks.

If we were to draw on that.

Depending on our leverage it's Lee.

A LIBOR plus 2% or LIBOR, plus two 5% so.

We're tracking the market very carefully, but we're comfortable that we're in a pretty good shape from a balance sheet perspective.

Okay. That's helpful. And then if I can just squeeze in one more.

Is there anything notable destruction lies in the supply chain that we should be aware of.

I guess, especially with titanium procurement.

Okay.

Now we are keeping a close eye I think Matt's comments were kind of sums it up in his prepared remarks around some of the guidance questions. We had on margins.

Margins, just keeping a close eye on supply chains, we havent experiencing material, yet clearly, we're feeling inflation in areas like freight.

Some of the internal travel budgets things like that we're feeling a little bit of pressure, but overall nothing material at this particular time, but but it's still early in the year. So we're going to keep an eye on it but the other thing.

I would just frame it a little bit further Chris from a financial perspective.

If you look at our cost of goods sold roughly.

Roughly three quarters of the spend there is labor and overhead and so if youre thinking about commodity costs.

Yes, there is something we're keeping our our eyes on but the lion's share is labor and overhead for that particular line item, which I think is good for us considering what's going on in the world right now.

Yeah, absolutely. Thank you guys very much thanks.

Answering the question.

Thank you.

Next question is from Sheldon <unk> from RBC capital markets.

Great. Thank you so much being the question and congratulations on a strong print here Matt.

Matt I was wondering if you could provide some color on Q2 or the cadence through the year I think consensus was previously looking for about 4% year over year growth in Q2, and EPS down 5%. So just any puts and takes would be helpful. And just a question on the long term youre guiding to about 7% to nine 5% growth in 'twenty two.

Following about 8.5% underlying growth last year, I think simplify and wildfire policy must be additive as well. So what does this imply for 'twenty three.

It might be going to a 5% to 7% do you expect to be at the top end or above it.

Yes, it's a little too early to be talking on 2023, just yet, but here's how I would frame 2022.

As we're looking at consensus for Q2 from a net sales perspective.

Prior to this call was around 307, I think thats a good number to use for the second quarter.

Considering what we've seen so far I've got a couple of months here to deliver against and we've said all along that the plan for this year is back half weighted I will just remind you that NSO should have a strong third quarter and it was a weak quarter last year and then we're going to see the ramping to your question around simplify and pulse.

As we get into future quarters. So.

It also led US as we were thinking about guidance, we wanted to raise guidance to reflect the strong performance we released today.

<unk>.

Play it down the field a little bit further here in the second quarter.

Thank you you guys willing to share the contribution from simplifying Hudson Q1, and what you might be assuming in your full year guidance. Thanks for taking the question.

Yes, I'll go back to my question earlier, which is cervical grew greater than 20% over the last couple of quarters.

We're really happy to see that and Thats simplify that's C. $3 60, that's the cervical portfolio in total we're going to talk about it that way as opposed to specific to simplify because you kind of missed the story of what we're doing strategically by only focusing on simplify and then on pulse you can see it there with.

The growth in U S support.

And the lion's share of the units we placed.

U S.

The only challenge there, which we talked about in the in the prepared remarks was NCS actually was down year over year, so that put a little bit of pressure, but we were pleased with the results a lot of that driven by pulse.

Thank you.

Thank you.

Next question Jeremy to Joanne Wuensch.

Good afternoon. This is Anthony on for Joanne. Thanks for taking our question can you just provide some commentary on the hospital capital spending environment, just what youre seeing on appetite and also maybe touch on contract to see any material impact from staffing at the moment.

Thanks, Anthony I. Appreciate the question, we're obviously keeping an eye on capital budgets and we've obviously heard from others that have a <unk>.

<unk> for us that Theres been some challenge we haven't we haven't experienced it yet.

I think we.

We had a fairly robust pipeline that pipeline is pretty well vetted and I think the team's done a good job of executing against the milestones to get those systems transacted.

But we're keeping an eye on it because we are hearing things as far as staffing goes.

I do not believe that hospitals are fully up and staffed yet I think they are making improvements.

We are benefiting from the fact that spine procedures are generally profitable procedures.

We're also benefiting as we've talked a lot about taking advantage of areas that we haven't played in the past so it's upside for us even if the market is still sluggish we're still feeling positive momentum from our key launches so.

Definitely keeping our eye on capital spend and capital budgets at our with our customers, but we feel like we've got a strong pretty well vetted pipeline ahead of us, but we'll continue to monitor as we go forward.

Great. Thanks.

Okay.

Thank you.

The next question.

Could you Bank of America.

Good afternoon, guys. Thanks for taking the questions and sorry, if I missed any comments on this earlier.

Chris wanted to see what you guys are seeing in April in terms of procedure volumes.

<unk> seen those pick up.

Pick up from March.

Okay. Thanks, Craig.

We're just now getting in EMEA, but April was was what I would consider to be sort of natural seasonality starting to come back into to the business. You have spring breaks. So it was it was good volume in line with what I would look at like 18 to 19 coming out of Q1 into Q2.

It's very reflective of pre Covid years, which would say you had spring break you had surgeons traveling you had kids traveling you had all these other inputs that create the natural seasonality that we see.

We'll see how it plays out I feel pretty confident that we're on track, but what we need to see how may and June turn out, but I would say April was.

It was a it was a good reflective.

Reflective quarter that would indicate that seasonality sort of flowing back into the business. The way it did for prior to the Covid disruption.

Yes.

This being said, we don't expect it to have growth Q1 to Q2 as I mentioned earlier Q2 consensus is a good number to use for the second quarter. So.

It is true that May and June are going to define the quarter, but that's a good number to use.

And maybe just following up on that just bigger picture Chris.

Obviously I hear your comments.

The seasonality, but are we back to a.

Normal procedure volume levels pre clupeid burials.

You wanted to define it and I know that you guys haven't really talked about the backlog. We're seeing your backlog. So just wanted to make sure that that's still accurate.

Youre not seeing a huge backlog in procedures.

No I don't believe we're seeing a huge backlog I think we're getting back to pre Covid I think were back to pre COVID-19 levels. Today are we are we actually experiencing a backlog that's bolstering the number it's probably a little early to tell.

The good news for US is we're not dependent on the pent up demand because we're we've got multiple ways that we're growing the business in areas that we didn't have pre COVID-19.

We're in a decent spot it's a little early for me to determine.

With any level of confidence how can I assess what happened in Q1 in relation to pent up demand versus natural volume.

But I think the system is showing it can deliver pre COVID-19 volume, which is a great sign for us in the past we didn't see that we're seeing that durability start to flow in even with.

The ebbs and flows of.

It's picking up I feel like we're back to a durable position. So with that we will continue to monitor and try to assess the underlying volume in any pent up demand that may be that may be on top of it.

Yes.

Great. Thanks, guys.

Yes.

Next question.

Thank you the next question.

Jason.

New capital. Please go ahead.

Hi, Thanks for taking my question and congrats on a strong start to the year.

On U S. Surgical support maybe if you could just help kind of look at the pieces in terms of Directionally, where theyre going.

Biologic it sounded like it was growing which relative to last year. I think is a positive because I think there was some some negative pressure last year.

It sounds like a lot of the growth was pulse and then the third part would be on the monitoring side.

How should we be thinking about that business going forward and I guess, all three businesses, but I'm just curious to know about sort of what are the drivers that you are sort of the sport business and how we should be looking at it in 2022. Thank you.

I'll take a shot and Matt may want to complement what I say here, but yes, we've got a little bit of a mixed bag with surgical support we have biologics, where we feel like it's sort of rebounding into normalized growth, which is going to be in line with market growth.

Obviously, we see pulse is a growth engine and a growth driver for us over the next several quarters next few years going forward and then the NCS business had a had a bit of a volatile quarter as Matt mentioned.

Payer mix related issues.

More of a grow with the market if the volume based business.

So those.

Those three those three elements really makeup the surgical support business. So we're clearly.

Looking to continue to build out and accelerate our pulse system and we'll continue to monitor the biologics business and the NCS business going forward.

And just a quick follow up if I could.

On pulse.

Can we assume we're in full launch now or is that still sort of are we still kind of gradually building up to a full launch.

The pulse system as it stands right now.

I would say, we're kind of on that on that starting line. We've got the 500 case milestone we talked about so we've got very good.

Think.

Insights to utilization and how to install these the right way we've had to kind of cover the ground. There as we always do in these launches specifically for us being somewhat new to selling capital. We wanted to do this the right way.

But the pipeline is growing and first commercial first commercial cases as I mentioned earlier in Europe that starts to signify that we're expanding outside the U S and accelerating the overall launch, but I would say in the U S. We're in full launch globally, we're working through the steps and we will continue to accelerate as we move forward.

Great. Thanks, I'll jump back in queue.

Thanks, Jason.

Thank you.

Next question how did you each of you that you withdrew from <unk> Securities. Please go ahead.

Hi, Thanks for taking the questions and congrats on a great start to the year.

Sure.

Was hoping to start off Chris on an international when you came in a couple of years ago. I remember you made some tough decisions about where to put strategic focus.

Regional organizational decisions, some some product decisions and I'm, just curious relative to what initiatives.

Steps that you've taken since then.

Do you think you are relative to seeing the payoff from some kind of.

From those moves.

Where do you think your growth trajectory is relative to where that payoff could get you.

Yeah, Thanks rich for the question.

I came in.

Almost four years ago, now and the nearest opportunity that I saw was international growth really accelerating our position there and I think the team's done a good job and that's that's been a pretty durable growth engine for us over the last couple of years and through this quarter as well and there is still room to run there. We're still early days in my opinion in a lot of key.

Markets.

From there, we doubled down and as we've talked about multiple vectors of growth.

We invested in cervical we started investing in some of the posterior procedures, we doubled down and AOS to round out our position in interior.

We continue to invest in enabling tech.

So all of those things I think have kind of led us to this point I would say over the last few quarters. We're just now starting to feel those investments start to show up for us. So I think it's early days of what we've invested in over the last three years, but by doing that I think this all allows us to sort of pivot the company.

Two from sort of that one dimensional to procedural focused our broad innovator in this space, leading across a multitude of different procedures, which leaves us right into integrating those procedures with pulse and expanding the pulse platform leveraging our ecosystem to really think about integrating both organic and inorganic opportunities.

<unk> technologies capabilities to really start to then say how do we create the <unk>.

Most comprehensive.

Surgical procedure, how do we create the most comprehensive lateral procedure what can we extend now with some of the new technologies are brought in so I think we're we're in a unique position to have pretty durable.

Growth from the investments we've made over the last three years and we have a real chance to start looking forward. We're excited to talk more about that in the coming quarters and are and hopefully at our Investor day later, but I'm.

Looking forward as opposed to looking down at which isolate hot within the four walls of our company.

I think we've made the right investments over the last couple of years, we've got to make the right investments going forward to really make sure that we're innovating in the market longer term.

Yes, I would add the other thing I would add from a financial perspective is the other thing that.

<unk> seen in the international business over the last two years, despite COVID-19 impact.

Said for years.

Doubled.

Double digit growth low to mid double digit growth is what we're going to see in our international business. We saw that continue in the first quarter, we saw that throughout the pandemic.

Yes, we had some markets that were off but the performance there in total in aggregate has been relatively consistent if you actually do the math on a full year basis, which we've been very pleased to see especially since since nearly a quarter of our total net sales at this point.

Thanks for that and simplify.

I know, it's early but any any metrics you can share just.

Give us a sense, what what might be some trialing here versus what is sticky.

And here is the ongoing use.

Repeat ordering I guess, how are you looking at that and evaluating that aspect.

Yes.

Yeah.

As I mentioned this in some of my remarks, but there was a recent.

A study head to head study between Ctr, simplify and ACF and Postop pushed up our data was significantly better for the ctr procedure. So.

We're excited about this technology and I think we're just now scratching the surface of where it could go and I'm excited about the space.

I don't I look at most of our sales if not all of ourselves.

As organic and repeatable were taken on customers they're extending.

Same sales same store sales type of metrics, we're looking at but.

Our demand is high.

Our training centers are in high demand for training on this on this device.

So it's pretty organic theres, not a lot of because a lot of fuzziness in the number.

Feel like we're ahead of schedule and what we need to deliver and looking to continue to accelerate.

Excellent and if I could just squeeze one more in on the robot.

I appreciate that that these things are fluid you want to get it right.

In the past.

Now back to the question you said that when you do come to market with your first generation robotic capability.

On Poles that you will likely be coming to market with something thats.

On a more advanced level, not just kind of pedicle screw placement robot, but it will be like.

The competitive with where next generation current robotic systems will be at that point in time, I guess should we be thinking that the feature set that maybe is causing some delays and things here on the timing it is going to be expanded and more advanced and does that comment still holds.

I mean, the thing that I would think about is I would think about the pulse ecosystem and its totality right.

We think about robotics as an application within a broader ecosystem.

So what I'm excited about is we've talked about procedure elevation in the past we talk about our focus on expectation on implantables on surrounding technologies on fixation systems now, we're incorporating navigation <unk> <unk> imaging incorporating this into a singular ecosystem and now adding robotic capability I think those things.

In a in an integrated systemic procedural approach I think creates the right the right opportunity for us to truly advanced spine surgery. So.

I don't think about robot to robot competition, I think about procedure to procedure competition and when I say that I think will have some advancements in the space and robotics will be a force multiplier for us.

Within what we're doing in the broader enabling tech space.

Thank you.

Okay next question.

Thank you nutrition. The last question is from Andrew.

And then Jones from J P. Morgan.

Hey, guys.

One quick question another follow up sorry, if it's been asked before I've been jumping around but the first one is I know.

Did we lose some.

Hi, sorry can you hear me.

Lost you for a minute could you start from the top there.

Oh, sorry about that yes.

Yes, I just wanted to say unfortunately have been jumping around so sorry, if I ask a question that's been asked before but.

Your international business is obviously, a key driver for you and that's continued to grow very well and I know you don't have exposure to China, but when we think about growing COVID-19 case volumes and some shutdown dynamics internationally is that affecting your business at all as we head into the second quarter.

Yeah. Good question I mean in Indiana disciplines.

We're still dealing with with.

Sort of a broad.

Impact of Covid related or staffing related or anything.

Associated with the last couple of years in certain markets. I mean, if you look at Q1, Australia was challenging for US It was still somewhat on the shutdown mode as was.

And part of January into February so we get to have a non impacted covey quarter period since since since late 2019, we have not had one quarter. They didn't have some level of impact which is.

Both been challenging but also it gives me more optimism than than pessimism that the best is yet to come for what we can do and the investments. We've made so we're clearly still dealing with coming out of the last couple of years and we still have pocketed areas of challenge that we have to deal with but we're more diverse.

Which gives us a little more insulation against some of the Choppiness that we may fill in any given market.

Got it and then.

I feel like from what we've seen so far in earnings you know a lot of it is top line looks a little bit better because omicron has been less of a headwind unexpected, but we've also seen incremental pressures down the P&L.

More mixed updates on EPS I think it's really nice to see you.

As raising both the bottom and the top of your EPS range. So early based on the first quarter.

But when it comes to ongoing challenges apparel environment. What are you seeing on your own business like has it gotten incrementally worse has it gotten incrementally better and is it just the first quarter really kind of carrying the date for that EPS raise.

You so much.

Yeah, you bet, so I would say that.

Freight has been a challenge for us throughout the past year, we saw it in the second quarter of last year that continued we also did see fuel surcharges that were rolling in.

As I mentioned earlier.

From an operating income perspective, we're taking a cautious viewpoint right now because it's hard to predict where a lot of things are going to go I mentioned earlier, but I'll repeat it.

And our cost of goods sold our labor and overhead is about three quarters of the spend there and so we have some exposure to commodities, obviously, we want to get continuity of supply for chips for pulse, but all in all we've seem to be able to navigate through that successfully with our supply chain team.

Hope for that to continue.

But with all the macroeconomic events out there right now I think it's wise to kind of play it down the field a little bit more.

Yeah.

Thanks for the question.

Yeah.

Ladies and today right.

We have reached the end of our question and answer session I would now like to turn the conference call back to Chris <unk> for closing remarks.

Thank you and thank you all for your questions and participation today I'll just I'll close with just I want to reiterate that I'm very proud of our progress to deliver on our strategic plan of really developing and executing on those multiple vectors of growth.

As I said before we remain committed to delivering sustained growth unlocking value and making progress against our vision to change a patient's life every minute.

We look forward to speaking with you all next quarter. Thank you and have a great day.

Okay.

Thank you.

And gentlemen that does conclude today's conference. Thank you for joining US you may now disconnect your lines.

Okay.

[music].

Yes.

[music].

Yes.

[music].

[music].

[music].

[music].