Q2 2022 Globus Medical Inc Earnings Call

August 4, 2022

Yeah.

Welcome to the Globus Medicals second quarter 2022 earnings call at this time all lines will be on mute and a Q&A session will be held after the prepared remarks.

Ask a question during this session you will need to press star one one on your telephone.

You will then hear an automated message.

That your hand as rates.

Please be advised that today's conference call is being recorded I will now turn the call over to Brian Kearns Senior Vice President of business development and Investor Relations. Mr. <unk>. Please go ahead.

Thank you hope and thank you everyone for being with US today, joining todays call from Globus medical will be Danske Debello, President and Chief Executive Officer, and Keith Pfeil, Senior Vice President and Chief Financial Officer.

This review is being made available via webcast accessible through the Investor Relations section of the Globus medical website at Www Dot Globus medical Dot 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 2021 fiscal year and our subsequent filings with the Securities and Exchange Commission.

Identifies 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 Dan <unk>, our president and CEO .

Thanks, Brian and good afternoon, everyone. It's good to connect with you again to review our solid results for the second quarter.

Q2 was a record sales quarter for globus with revenues, reaching $264 million or 5% growth, surpassing the difficult Q2, 'twenty, one comp, where we had achieved 69% growth.

In addition, Q2 at 14% sequential growth versus Q1 with stronger performance throughout the portfolio.

Setting a new monthly sales record in June where we exceeded $100 million in monthly sales for the first time.

Adjusted EBITDA was 35% and non-GAAP EPS was <unk> 56.

Including significant non operational headwinds for currency and tax rate that Keith will discuss further in his section.

U S spine had a record quarter with two 5% growth against a challenging prior year comp of 64% growth.

The primary drivers of U S gains were competitive rep conversions and robotic pull through.

Our recruiting pipeline is strong and should lead to a record rep recruiting year I feel we are well positioned to deliver strong second half growth. This year in our U S spine business.

Enabling technology sales were $29 million up 44% on a constant currency basis versus prior year.

Setting new quarterly records in both domestic and international sales robotic procedures and implant pull through continued to accelerate growing 30% versus prior year and surpassing approximately 35000 robotic procedures performed since launch.

Entering Q3, our pipeline is strong for both robots in imaging systems.

We recognize that the remainder of the year contained several macro risks including inflation.

Aybar shortages supply chain disruptions and potential recession that may impact us and our customers purchasing cycles.

We will continue to work with our customers to get the best technology in their hands as we all work through these environmental challenges.

In may.

We shipped our first <unk> <unk> imaging systems and continue to sell units throughout the quarter.

We successfully completed over 150 procedures in Q2.

Surgeons have said this is a game changer.

<unk> three D is a three in one imaging platform offering three image modalities in a single cart with high maneuverability.

Large field of view and a seamless integration with our Celsius GPS robotic navigation system.

It is a key component to realizing the globus ecosystem in the operating room and ecosystem that is built and designed from the ground up to communicate together seamlessly.

Market interest is high for the state of the art technology and customer orders continue to grow <unk> is positioned to be a major growth driver for us as we continue to penetrate the market.

On the international front, our spinal implant business grew 8% on a constant currency basis compared to the second quarter prior year.

We delivered double digit growth in several markets, including Belgium, Brazil, India, and Poland, where growth rates exceeded 40% for each market.

International growth was partially offset by continued declines in Japan.

Trend, we identified last year and expect to continue through the third quarter.

We remain positive on the progress and potential of our international business for long term growth as we continue to reset the Japanese market.

Our trauma business delivered its strongest quarter to date was 67% annual and 5% sequential growth driven by sales force expansion strong uptake of our anthem. Many fragment plating system in the second quarter launch of anthem distal femur fracture system.

We achieved double digit growth in every product family. We are on track to launch meaningful products throughout the rest of 2022 and our recruiting pipeline is strong.

Despite being faced with supply chain challenges, we've been able to offset vendor delivery delays and supply shortages without significant impact of sales.

To remediate the extended vendor lead times, we've altered our ordering pattern to increase inventory levels.

Electronic component market remains difficult, but has been offset so far by a nimble procurement team.

In addition to these disruptions freight surcharges continue to impact our cost of goods sold.

We continue to seek to mitigate the impact of these challenges where possible.

As we move into the rest of 2022, we remain focused on three core elements for long term growth innovative new product introductions.

Robot in imaging placements and competitive rep recruiting.

I am pleased with our record sales in the quarter the highest monthly sales record in June .

And the successful launches of the <unk> imaging system and anthem distal femur fracture system.

The second half of 2022 is all about focus and execution to deliver value to our customers and drive growth.

I feel globus medical is well positioned to achieve our mission of becoming the preeminent muscular skeletal company in the world.

I will now turn the call over to Keith.

Thank you Dan and good afternoon, everyone.

<unk> completed a strong second quarter building momentum across the portfolio, especially with the initial launch and rollout of our <unk> imaging system, we saw revenue growth and profitability improvements despite difficult prior year comps and macro headwinds.

Revenue in the second quarter of 2022 was a record $263 6 million growing 5% as reported versus Q2 of 2021 and six 5% on a constant currency basis.

Sales on a day adjusted basis also grew by 5% as we had the same number of selling days in the U S and international.

Specific attach into our record sales in Q2, and the associated 5% growth when compared to the prior year quarter, given the tough comp in Q2 of 2021, where we grew 68, 6% when compared to Q2 of 2020 and 29% when compared to Q2 of 2019.

Second quarter net income was $54 6 million growing 31, 4% over the second quarter of the prior year.

non-GAAP net income was $57 $3 million delivering 56 fully diluted non-GAAP earnings per share, which was flat to the prior year. However, I do note <unk> of non operating headwinds in this figure driven by a higher tax rate and unfavorable foreign currency impacts.

Adjusting for these non operating items, our non-GAAP EPS would have grown 16% versus the prior year quarter.

Adjusted EBITDA for the second quarter was 34, 9% and we generated $13 1 million of free cash flow.

Drilling further into sales our second quarter U S revenue was $225 3 million growing four 7% as reported when compared against the second quarter of the prior year.

This growth is reflective of continued share taking within U S spine.

Higher sales of our enabling technologies robotic systems, new sales related to the rollout of our <unk> imaging system and continued growth within our trauma business.

International revenue for the second quarter was $38 4 million growing six 9% as reported and 17, 3% on a constant currency basis, when compared to the second quarter of the prior year and is reflective of continued global expansion of our robotics portfolio.

International implant sales were essentially flat to the prior year with growth noted in many countries as Dan commented earlier. However, this growth was offset by lower Japan revenue.

Musculoskeletal revenue grew one 7% as reported and three 1% on a constant currency basis in the second quarter of 2022 as compared to the prior year quarter. The as reported growth was driven by spine and trauma implant portfolios, partially offset by constant currency impacts and lower sales in Japan as mentioned earlier.

Earlier.

We have and continue to drive market share growth across our portfolio of products and remain confident in our ability to deliver a strong second half.

Second quarter, enabling technologies revenue grew by 41, 7% as reported and 44, 4% on a constant currency basis as compared to the prior year quarter.

Consistent with our Q1 call comments, a robotics pipeline saw sequential improvement between the first and second quarters, resulting in higher sales of robotic units when compared to the prior year quarter. In addition, enabling technologies revenue was also favorably impacted by the initial shipment and sales of our <unk> imaging system.

Initial shipments have been received well by our customers and as Dan noted market interest remains extremely high in this new and exciting product.

Moving further into the P&L, our second quarter gross profit was 74% compared to 74, 6% in the second quarter of the prior year.

The decline in gross profit was driven by continued freight inflation and higher product costs.

These headwinds were partially offset by lower inventory reserves driven by onetime write offs in the prior year quarter that did not repeat in the current year.

Research and development expenses for the quarter were $17 4 million or six 6% of sales compared to $15 5 million.

Or six 2% of sales in the prior year quarter.

The increase in spend is in line with expectations and consistent with earlier comments made regarding our continued investment in R&D across our portfolio as we drive planned spending increases on future growth drivers.

SG&A expenses for the second quarter were $106 7 million or 45% of sales compared to $107 $3 million or <unk> 42, 7% of sales in the second quarter of the prior year.

The decreased spending is reflective of lower compensation and benefit costs, partially offset by higher travel and meeting expenses. In addition, SG&A is lower as a percentage of revenue due to the leverage impact of higher sales.

The effective income tax rate for the quarter was 22, 6% versus 15, 1% in the second quarter of 2022 the.

The increased tax rate in Q2 is reflective of tax benefits realized in the prior year quarter related to stock option exercises, which did not repeat in the current year quarter.

During the quarter the company spent $144 $5 million to repurchase as class a common shares in connection with its previously authorized and announced share repurchase program. We currently have $158 million remaining on the share repurchase authorization.

The company will fund its share repurchases with operating cash flows and excess cash.

We ended the quarter with $881 $7 million of cash cash equivalents in marketable securities.

Net cash provided by operating activities was $36 9 million and free cash flow was $13 $1 million. The lower free cash flow is reflective of continued investments in working capital, namely inventory as well as increased capex investment predominantly in machinery and equipment.

The company remains debt free.

We are reaffirming our previously provided full year 2022 guidance of $1 <unk> $5 billion in net sales and $2 10, and fully diluted non-GAAP EPS, which includes estimated currency impacts.

Looking back on the second quarter I am pleased with our performance and note the resilience of our employees and partners as we manage through inflationary pressures supply chain challenges and currency fluctuations as we entered the back half of 2022, we are focused on driving continued share taking across our implant businesses. While we continue to expand on the sales of our technology.

To the marketplace.

Driving operational performance managing execution and maintaining cost discipline, our key focus items for our team as we continue throughout 2022, which will drive long term shareholder value.

We remain focused on improving musculoskeletal care through the delivery of products that serve and improve the lives of patients and I remain thankful to our global team and their pursuit of excellence, we will now open the call for questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Our first question comes from the line of Sugan, Zhang with RBC capital markets. Your line is open.

Great. Thank you so much for taking the questions.

I was wondering if you could provide any color on procedure volumes into Q3 have you seen any impact from COVID-19 and nurse staffing shortages.

And then on enabling tech how much was spinal robotics versus imaging in Q2, and then just my last question is on guidance can you just help us understand the magnitude of some of the macro pressures you're seeing you called out FX as inflation supply how much are you absorbing and what's built into your guidance. Thank you for taking the questions.

Hey, John Thanks, It's Dan I'll start and then I'll pass it off to Keith So we won't comment obviously about Q3, where we're in strides, but I would tell you honestly to date, we've not seen anything impactful yet that we would comment on related to your question of procedural volumes being significantly off our eyes are on that and you never know when that can change, but thats kind of where we are.

Right now lightly for enabling tax the intent is not to really breakout robot from imaging, but you would imagine that the vast majority of that being robotic at this point, we will see how that moves over time as both of those volumes adjust but thats really where we are as far as guidance I'll hand, it to Keith. So just one other thing I would add on enabling texture gun is that when you look I may.

Just a comment in there that we saw higher sales of our robotic units in Q2 versus prior year. So that is a call out that our robot business did grow as I look to the full year from a from a guidance perspective.

We're factoring in give or take I would say <unk> of currency, but offsetting that you have to remember we had the share repurchase.

Submissions items planned in the year, but really currency is getting offset by that share repurchase which is why we felt comfortable to still finish up to $2 10 from a guidance perspective.

Thank you so much.

Please standby, while we get the next question.

Our next question comes from Vik Chopra with Wells Fargo. Your line is open.

Hey, good afternoon.

A question.

Two from me can you just talk about some of the trends youre seeing in the capital.

On the capital side and your would love to get your take on the capital environment heading into the back half of the year.

And my second question is on the imaging system or any of these chip shortages of any supply chain issues and back to your ability to meet demand for the orders. Thanks. So much.

Hey, Vic Thanks, It's Dan again, so kind of go through a few things here at trends in capital somewhat tough to predict right. When we still have some of the uncertainty out there with COVID-19. So if you look at last year, while it was a banner year for US we would say that was due to market penetration and certainly some pent up demand that carried over because of <unk>.

Covid.

We obviously weren't overly pleased with the first quarter, but I think our momentum and what we've seen is improved in the second quarter.

And as we look out through the year.

Assuming no significant disruptions of a pandemic our intent is to surpass what we had done in 2021.

The environment, we have.

Called out before somewhat elongated cycles from hospitals, they're distracted with many things.

But nonetheless, we are able to work through that so far without coming meaningfully off any of our projections I would just tell you a chip shortages. There are certainly day to day issues that arise they need to pivot to go through things.

We've been working through those daily for months now as has everyone else too.

To date, we have had all of the materials that we need to build all of the systems for sales. So we have not been hindered to date, but again, that's just a shout out to an incredibly strong procurement team, that's making that possible.

Thank you.

Please standby, while we grew up our next question.

Our next question is from Richard newsletter with truly Richard Your line is open.

Hi, Thanks for taking my question.

Was hoping maybe you reiterated your guidance, but I know there's been a lot that's changed.

Since you originally provided that outlook I was wondering if you could just talk through U S spine international spine, and you're enabling tech and the pieces there where are you feeling like.

Relative to your original expectations, a little better a little worse.

The ultimate Youre getting to the same place or is it all kind of playing out the way that you thought it would.

Thanks for the question this is Keith.

As we look further out we didn't give a ton of insights into the parts and pieces, but what I would say.

As we look back we had a soft Q1 from enabling tech business, but as we talked about last quarter. We saw the maturation of that pipeline from a robotics perspective, and we did realize that coming into the second quarter. When you look at our robot business. We feel good we're cautiously optimistic as we look out to the remainder of the year for that business, we know that last.

You may have had a little bit of a bolus from from Covid overhang and the business came back and hospitals use money and we also realized that the hospitals may look may be a little bit more cautious this year, but all in all we still feel good that we have a robotic business that can grow year over year on top of that the enabling tech business, that's going to land pretty much kind of where we think where we thought it would land stepping.

Back when you look at the muscular skeletal business key driver there hasnt still remains to be our U S spine business out of the gate here growth looks a little bit lower but again I would call out the growth that we saw last year.

When you look to the back half of the year, we feel that we're bullish on the back half of the year and feel that we're going to get back to that high single digit growth across our spine portfolio.

Got it and then I guess the missing link there is international because by my math.

Matt.

If youre going to end up in the call, but the constant currency international.

Digit range.

Would imply the back half needs to be for U S spine double digits or about 10%. So is it maybe that international are all stronger than you would've thought in the back half ramp ramps to high single digits instead of low double digits or do you feel good with that original assessment, maybe 10% in the back half.

I caution I caution on split I'd caution on splitting it out.

As I think about the rest of the year, we remain extremely positive about where we are.

We're landing.

Six months in where we thought we would and we're planning on finished strong finishing strong the rest of the way.

Okay last one just what about EBITDA margins just given the currency.

How much is still kind of mid 30% range next year.

Still trending towards mid <unk> EBIT margin.

Thank you.

Thank you Richard please standby for our next question.

Our next question will come from David Saxon with Needham <unk> co. David Your line is open.

Okay.

David are you there.

Yes.

Thanks for taking the questions.

I'll start with enabling tech.

Now that you have multiple systems.

In the back there.

Curious are you seeing success kind of selling.

On a combined ecosystem are you still kind of selling.

Each system individually.

And then.

In the back half of the first quarter you obviously saw the order book, we can strengthen into the second half second quarter here.

Can you just comment on how the order books looking as we go into the third quarter.

Thanks, David as Dan So, yes, it's a great question and yes, we certainly have seen a combo.

Opportunity with this even as we've just begun launching this in the second quarter. So we are seeing that and it is the intent because you do hear us use the phrase ecosystem and that still needs to be built out further but these are intended to be used seamlessly together and the value. There is in using them together that smooth activity and so the intent will be to continue to do that.

And to push that and make inroads that way.

Do you want to handle the second half the second half as it relates could you repeat the second part of your question, Yes, just on the order book, how you're feeling about it yes.

Yes.

Yes, the order book and so when you look at when you look at the year still historically Qs one and three are historically slower quarters.

We are actively quoting and the order book is building, but I would caution that Q3 is typically a slower quarter than Q2, and four but the activity around robotics, enabling tech remains robust.

Okay.

And then maybe a related question just on the knee robot.

Maybe your latest on timing, how youre thinking about the launch strategy and.

If you want to talk about the feature set relative to some of the existing robots in the market. Thanks, so much.

No problem, we'll listen I would tell you that it's under development. It has not been approved yet so I'm not going to walk out and talk about the features of it just yet with where it is it's progressing well.

And actually we're looking forward to getting out on the market. Our initial estimates if everything goes as planned that we would have it out in the first half of next year of 2023, that's really what it will be it is certainly going to be a market appropriate and add several benefits, but again, we need to go through get approvals before we want to talk more about exact features.

Got it thank you.

Thank you David.

Please standby for our next question.

Our next question is from Ryan Zimmerman with BT.

Hey, good afternoon, Thanks for taking my questions I want to start.

A little higher level for you Dan.

Stepping in as CEO role.

I appreciate your comments around adjusted EBITDA margins being in the mid thirties.

Certainly expect you guys to continue to be there, but I guess I'm curious about your view around reinvestment for growth.

Whether you want to push a little bit.

On that lever.

Maybe at the expense of adjusted EBIT margin longer term as we look out in 'twenty, three and beyond and as you make these that inroads in to join recon.

We are positioned and trauma et cetera.

Be helpful to get your perspective on that.

Thanks, Brian I appreciate the question.

Yes, we do.

Enjoys being profitable in the mid <unk> is one of those items that we took.

Tend to move by we're not hampered by it and as we have today and as you've seen through other quarters, we spend and invest for the long term and if that means some short term downs, we're okay with that for the long term growth.

I think there would always be opportunities to invest on a longer ramp and go through that over time, but ultimately everything that we work on to date, we feel that we can leverage up and grow to where we can remain within that mid thirty's EBITDA. So at this stage I don't see a reason to signal us coming off of that.

And in particular, I don't feel like were hindering our hampering any levels of investments that would set us off in a negative fashion for growth.

Okay.

Just one thing.

So please.

Just one thing I would add to that when you when you look at our when you look at our numbers at the quarter. As an example, our R&D spending is up about 12% year over year. So we are investing I think as Dan said, you can't forget that we've been continuing investing in our business. We grew the robotics portfolio that took a lot of R&D and as those businesses continue to come online. We're looking to go reinvest in.

The next big thing.

I appreciate that Keith.

And then just as a follow up I mean, you guys did repurchased some shares this quarter stuff I think.

$150 million remaining but.

Youre sitting on a lot of cash and you have signaled at least last year I think around your intent to be more aggressive, particularly on the M&A front end and so I'm curious kind of does the share repurchase signal of that theres not items out there are assets out there that.

Are attractive to you at this time, because again you've been sitting on this cash for a while and we really haven't seen you guys get.

Incrementally more aggressive on the M&A front.

As we would have probably expected.

Yes, that's a great.

Great question I mean, we took we took the opportunity to buy back some shares during the quarter, but that doesn't really signal a change in our long term strategy, we're going to continue to grow organically, we're going to continue to make complementary acquisitions I. One thing I would call out is that coming into Covid, one would have thought that.

Evaluations would have become more favorable.

And they really went the other way and we continue to look around and stay on the sidelines, but now where we're sitting with with interest rates going up the cost of borrowings and increase for some of these companies IPO market has slowed down I think it's going to create more opportunities for us and for a company like us sitting with that amount of cash I think in any sort of a recessionary environment, it's going to create a better opportunity.

For US, yes, Ryan I'll, just add to that too right. I think you know us we don't feel the pressure to act because of that cash with the right move for the long term strategic growth will use it and to date, we've not seen anything that we're willing to use it for but it will happen over time, but again, we're not going to make a move for the sake of it it's got to be the right move.

I appreciate you taking my questions. Thank you.

Okay.

Hope you might be on mute.

And so sorry about that our next question comes from Kyle Rose with Canaccord.

Great. Thank you for taking the questions.

So just wanted to talk a little bit more about guidance as it pertains to the supply chain, where you stand now.

Sounds like one of the biggest I.

I guess headwinds would be electrical components, obviously, you've got new products launching with <unk>, maybe just help us understand what are you assuming in your top line guidance relative to the supply chain and constraints, if situation worsens and Oregon better through the end of the year.

Thanks for the question so from a top line perspective, as we look out we remain very confident in our ability to fulfill the year. We're keenly aware of the supply chain challenges and Dan commented earlier that our supply chain. Our team has really done a really nice job of working around and dealing with these challenges, but as it looks right now and as I look at.

Guidance, we feel comfortable that we can deliver even in spite of the supply chain challenges.

Okay, and then one of the things that some of the larger ortho peers commented on on earnings when they were talking about your capital sales with an increasing trend at least in the total joint space are moving towards the earn outs rental placements of that.

Or just any commentary youre seeing there and then I'll ask my last question as well which is.

But just building a little bit on Ryan's question regarding M&A I mean, historically, you've had a build versus buy biased, but you have made acquisitions, when we think about <unk> and <unk>.

T talk from a biologics perspective is it fair to think that any.

External.

Inorganic purchases would come more on tangential type of assets of products rather than existing markets that you're in now thank you.

As I want.

Let me ask the answer the second part of the question for a second part is from an M&A perspective.

We're continuing to look at all things you think about our mission we want to be.

<unk> the company, we grew up in spine, we're known as a spine company. The company is continuing to diversify itself. We did a joint acquisition a couple of years ago, but also within enabling tech there's complementary pieces of technology out there that could help advance the <unk> story. So it's really focused on buying things that we think are appropriate for our business at any point in <unk>.

<unk>.

Could you expand a little bit more on the first part of your question.

Okay.

Hi, Al are you still there.

Okay.

It looks like we might have lost him I'm going to go ahead and move on to our next question.

Okay.

Our next question comes from Jason Wittes with loop capital.

Hi, Thanks for taking the questions just a quick follow up I think you've made it clear that you are still in the market.

Youre going to be disciplined in terms of what you essentially buyout there, but if I look at the share repurchase I think this is the first one I've seen from you at least in recent memory.

I assume youre, just being somewhat opportunistic.

Even with the share prices and.

Additionally, as a way to offset FX is that the right way to think about it.

Jason we've done this in the past if you look back last year as well. So we did make some moves prior to this is not the first and Neil with this we're just setting out believing that the stock was undervalued versus our long term look and so we felt it was.

Youre right, an opportunistic buy to actually clean some of this off and make it that way because we think in the long term is going to be worth more.

Okay. Thanks for the clarification and then on the on the trauma business.

I don't know if you can sort of size it where it is right now for us and Additionally in terms of your product portfolio I know you've talked about filling it out do you think you are kind of a critical mass at this point with trauma.

Almost right on the cusp of it how is that really pleased with how we stripped it out in the past year or two and they have certainly put out some meaningful products that will <unk> in the larger markets.

Honestly, the mini frag and the distal femur are significant steps for us the launches that we anticipate.

The latter part of this year second half of this year I think will really get us to critical mass and while there's still more.

Families of products to develop I would tell you exiting 2022, I believe we have enough product family offerings to compete directly.

And then last question and I appreciate you putting a stake in the ground in terms of when you'd be launching the largest joint robotics piece can we assume that there is going to also be.

Our joint implants accompanying that launch or how should we be thinking about how that's positioned.

No that's exactly right, Jason we need to build the basic bag enjoys like we.

We had done with trauma and we are in progress with those our anticipation is that those implants would be approved.

In time for the robot close to it in timing to not very much in advance but at that point when the robot comes out we will offer our implants to be used with that robot.

Great I'll jump back in queue. Thank you very much.

Please standby for the next question.

Our next question comes from Matt Music with Barclays.

Okay.

Hey, thanks, so much for taking the questions.

One follow up on your <unk> technology robotics and imaging.

As we go into the back half I think.

Okay.

Q1.

It seems like some of that pipeline and through here in the second quarter I would love to just make sure. We are all understanding how to think about.

Sequence in Q3, and whether there was any Q.

Q1 pulled into Q2 or any thinking like that that should inform our back half estimates in terms of cadence and then I have one follow up.

Matt. Thanks, So I'd tell you when we talked about Q1, we had felt like.

We had come into Q1 with a weaker pipeline as we had exited Q4, if you remember that's really what we're filling the.

The team had rebuilt that it had gotten good traction as you can see for Q2 what.

What I commented on is I feel like we're exiting Q2 with a stronger pipeline and so always hard to predict in Norwood, we actually break out the quarters, but I would say as we enter Q3. The pipeline is stronger certainly stronger than it was as we kind of were in the Q1 and our eye is on that the demand is high and I think that's very helpful. With us so can't quite say one of them.

<unk>, we don't know, but I would say as we exit the second quarter New third.

We have more potential than we had done when we delivered in Q1.

Okay, but then tempered by your comment earlier on seasonality Q1, and Q3 being the weakest.

That seasonality is still in place pipeline enough to.

Row blow past that are or should we expect to see that same kind of.

Not a pause, but sort of flat sequential or something like that off maybe a little sequential and then up into Q4. It's just the way these deals seem to flow.

No. Your assumption is right because that isn't necessarily the impact of a pipeline that's human nature of vacations and suddenly at the end of the year the need to use capital. So I don't think theres anything now, which shift that type of seasonality and I would plan for that if I were you.

Great and then just one question on color around the growth that you saw in spine, which not everybody.

So sort of a.

Squeaky clean.

Growth into Q2, I think there was a fair amount of strengthen in.

And volumes across your peers in musculoskeletal implants, but but but you seem to do may be better than average, especially given your comp.

Love to get any color you can give on sort of mix of procedures geographic regional.

Differences across the U S.

Or anything like that that you noticed.

In Q2 versus previous quarters or.

During the recovery brands.

Yes. Thanks, I would tell you that there is nothing significantly scaling it geographically or even that it was surgical versus lumbar or anything like that with it it's really driven by the two main factors.

We go out and we recruit reps throughout the year and so youre seeing the fruit of that.

Bruce that you had done in 2021 coming online in enacting and giving activity in 2022, that's one of the new lifts that are out there as I mentioned in my script as well the robot placements and then that as you know greater than average pull through related to robot is really part of that thing to come over and I can't express enough out.

Pleased I am that we actually exceeded Q2 of last year into this year. It was such a hurdle in such a peak for US I really think it's a testament of the team in the field to have gotten that done and achieved it.

Congrats on a solid quarter.

Thanks for taking the questions.

Thank you.

Thank you Matt please hold for our next question.

Yes.

Okay.

Our next question comes from Steve Lichtman with Opco.

Hey, everyone.

Amir on for Steve.

I just had a question around we see players in.

Orthopedic robot can you talk about.

In installations from sales to placement.

And I was just wondering is that something that you guys are seeing on the ground and open follow up what are you seeing overall in terms of the appetite for Capex at all.

Hospital.

Hey, Thanks, Sameer, it's Dan I would tell you that to date.

We continue to sell and we've always had different mechanisms for the customer in which the purchase.

We haven't shifted off of that and we haven't seen the pressure to shift off of that to date.

Okay that makes sense and just as a quick follow up also on gross margin.

Based on what you guys are seeing today in terms of the cost of materials and I know you guys also called out chip.

You guys see an opportunity for growth margin expansion in 2023.

And also have a quick follow up to that are you seeing any opportunity to take pricing actions to help offset the headwinds.

It's a great question this is Keith.

As we look at gross margins. We've always said, we're a mid <unk> gross margin company and we remain there we are seeing some inflation this year with freight and some product cost, but as we look we're in mid Seventy's business I don't really want to get too far into 2023.

As it relates to the price we're locked into a lot of contracts outside of our customers. If there are places for us to take advantage of price, we will but at the end of the day, we drive price through new product introductions.

We're locked into a lot of contracts outside of our customers.

If there are places for us to take advantage of price, we will but at the end of the day, we drive price through new product introductions that helps offset the decline seen in older products.

Great. Thank you guys.

Thank you.

Thank you Amir please hold for the next question.

Yes.

Our next question comes from drew <unk> with Morgan Stanley . Your line is open.

Hi, Dan and Keith Thanks for taking the questions.

Just on the <unk> for a moment I know, it's very early days, but could you talk about where you are where you are selling these two is it existing customers of Globus are you seeing any competitive.

Competitive wins, and just maybe talk a little bit more about what that incremental pull through might look like for an account with with <unk> and sorry to piggyback off just the prior question in terms of pricing, but as Youre rolling out <unk>. I mean is this another opportunity for you to take advantage of pricing looking ahead.

Okay.

I'll take that drew so a couple of things certainly, placing the initial units into globus users as a benefit for us and for them and a chance to work together.

Kind of where the first wave went certainly getting into.

Competitive areas as well and that will accelerate over time going through both sort of if there was not a conservative strategy of just go to these spots, but again. The first few are in Globus People's hands, and then I think for now we began to branch out that way. The pull through is an interesting question because I think the technology itself will be just a benefit to them.

To the hospitals and customers.

In many procedures not just spine and again it is part of the ecosystem that we have design have been talking about so when you do combine it with our robots and soon to be our hub and other technologies. It's just going to be that seamless flow of data, it's going to hopefully be footprint beneficial to the to the customers in a way for them to actually save time hat.

Better quality data and all work together, so I do believe that as we put these pieces out it will generate the sale of pull through of other capital equipment, and obviously then lining up using implants.

Got it and then.

Then just maybe on Japan, I believe it resets kind of in the third quarter anniversaries, but could you just talk maybe about the expectations you have for that for the country going forward.

And maybe just helps us sort of level set of expectations. There. Thank you.

Thanks, No I will tell you I'm very I'm very bullish on Japan, I think what we should see as.

The slowdown of what we've been experiencing I would expect to be neutralized, possibly in the fourth quarter and then begin some reasonable growth in 2023, but given the market the strength of that economy. The offerings that we have planned and have been working through I think it can be a major sized market for us over the next five years I can't quite predict what happens.

Per year, but one of our strategic focus is to make that one of our top markets over the next five years.

Thank you.

Thank you Zhu please standby for the next question.

Our next question comes from Dave carefully with JMP Securities.

Great I just had two really quick ones on enabling.

If I could you mentioned the combo potential as we think about our model I would imagine it's got to be over half, but I don't know if theres any number I know, it's early that you would throw out there but.

Could the combo will be 80% moving ahead in terms of you saw on the <unk> on the robot and the follow up would just be as you compare those two together as a platform.

When you look at peers could.

Could you maybe just refresh our memory on sort of where you think that says maybe even versus some of the bigger folks like medtronic. Thank you.

Hey, Dave So a couple of things. It is too early for me to even venture to guess as to what that combo would be and how to model that out I am probably going to leave that to you and as we get more data and get past the very first quarter. We can certainly I'll refine that so right now I don't really have a decent answer to guide you to it as part of the plan, but I just don't know what that.

Fallout to along those lines.

<unk> benefits and something I had said is remember that both of these have been designed.

From the ground up by Us with our engineers with our software with our thoughts the intent of it to work seamlessly together as one unit as you bring these together is from the start as opposed to buying alternative technologies and trying to patch them. So I think the benefit there for US is having started with a blank sheet and design them up.

We would think that not only is the technology more advanced and the outcomes are better for you as far as the images that can be taken to the options that are out there, but loading that data into your planning packages will be much much more of a benefit there where I think competition currently is.

Thank you.

Thank you very much please standby for our next question.

Okay.

Our next question comes from Craig <unk>.

With bank of America.

Great. Good afternoon, guys. Thanks for taking the question apologies. If you guys have discussed this but it's really a follow up on some of the sentiment that you have on the back half and use corresponding so.

You guys obviously.

Number has been a bit lower in the first half than what you've seen in prior years and what we're normally used to see.

And I believe youre expecting a big big second half or rebound in acceleration.

So.

Maybe Dan if you can just go into a little bit more detailed out what gives you the confidence in that ramp in the second half.

Is it signs within the market, where we're just what you're seeing internally that makes you feel good about that ramp.

Yeah. Thanks, Craig.

I would tell you look at it holistically.

Then.

Over over the past couple of years, such a confusion with the pandemic. So you look at what occurred last year.

<unk> had a strong Q1 in extreme spike of strength in Q2 and in somewhat of a leveling in the second half of the year. So even as you just look at the comps you are coming off of we're exiting out of what was probably a 40 plus percent growth for us in the first half.

2021, and that Wouldnt be repeated in the second half of 2021, so just by maintaining the sales levels you have but just maintaining them you would get to the growth that youre used to seeing from us. That's what really gives me the confidence of that.

Given the strength that we're going to do with our launches and our recruiting and our drives I don't see why we wouldn't have a couple of strong levers to get into stronger deliveries in the second half of the year.

And just a follow up and again, sorry, I was hopping around so you might have answered this already but.

Just the spine market procedure recovery there has been some comments, it's hard to parse through what everyone's saying.

Some people call it out a little bit of softness some sluggishness.

Just wanted to get your thoughts.

From where from where you guys sit.

No. It's a great question and listen there is a level of uncertainty out there.

We have record weeks I called out that June was a record month.

Then youll come in and there was some soft weeks. So the procedures are certainly not fully stabilized certainly not throughout the country I think we continue to monitor it.

We're going with that but certainly a lumpy move as we get through the second half of the year and what we've experienced in the first half of the year.

Great. Thanks for taking the questions guys.

Thank you for your question Greg as a reminder, if you would like to ask a question you need to click star one one on your telephone.

Our next question comes from Kyle Rose with Canaccord go ahead Kyle.

Okay.

Great hopefully my mute button works at this time.

Question, just wanted to ask two follow up questions.

One was on.

One was on <unk>.

Ailes force conversions that you talked about.

The pipeline I just wanted to see if you can.

We're going to see continued robust hiring.

Where are they coming from what kind of our reps are you seeing is it more on the spine side or is it weighted on the.

On the other parts of the business with respect to trauma and imaging.

So I called them out in kind of two different things.

They are obviously different sources. So trauma is having a lot of competitive conversions and again, if you want market appropriate and looked at who the players are that's where you see a lot of that source income.

I think with spine as well that would be the same comment it's almost based on the market share there are certainly quarters, where its heavier for one versus the other but if you map it out over time.

It's pretty appropriate just given the amount of reps. They are for those sizes that you see that kind of pro rated recruiting type effort.

Great and then you mentioned something earlier that I don't think.

I'd heard before you talked about the hub product with respect to enabling tack just wondering if you could kind of flesh that out for us. Thank you very much.

Well there is a navigation system that we had had approved last year were still finishing up a few things before we go out we had mentioned that in a few previous earnings calls.

Part again of that ecosystem that will bring out so we've always talked about the robotic solutions, whether it be for spine and orthopedic.

And then with that comes the imaging and then again hub will be a sub part of that at the right time, we'll look to bring that to the market and make sure that we can.

Drive that growth as well.

Thank you.

With no further questions that concludes global Medical's second quarter conference call. Thank you for joining us and have a good evening you may now disconnect.

Okay.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Welcome to the Globus Medicals second quarter 2022 earnings call at this time, all lines will be on Q and a Q&A session will be held after the prepared remarks.

Ask a question during this session you will need to press star one one on your telephone.

You will then hear an automated message.

Is it that your hand is raised.

This review is being made available via webcast accessible through the Investor Relations section of the Globus medical website at Www Dot Globus medical Dot com.

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 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.

Thanks, Brian and good afternoon, everyone. It's good to connect with you again to review our solid results for the second quarter.

Q2 was a record sales quarter for globus with revenues, reaching $264 million or 5% growth, surpassing the difficult Q2, 'twenty, one comp, where we had achieved 69% growth.

In addition, Q2 at 14% sequential growth versus Q1 with stronger performance throughout the portfolio.

Setting a new monthly sales record in June where we exceeded $100 million in monthly sales for the first time.

Adjusted EBITDA was 35% and non-GAAP EPS was <unk> 56.

Including significant non operational headwinds for currency and tax rate that Keith will discuss further in his section.

U S spine had a record quarter with two 5% growth against a challenging prior year comp of 64% growth.

The primary drivers of U S gains were competitive rep conversions and robotic pull through.

Our recruiting pipeline is strong and should lead to a record rep recruiting year.

We are well positioned to deliver strong second half growth this year in our U S spine business.

Enabling technology sales were $29 million up 44% on a constant currency basis versus prior year set.

Entering Q3, our pipeline is strong for both robots in imaging systems, but we recognize that the remainder of the year contained several macro risks, including inflation labor shortages and supply chain disruptions and potential recession that may impact us and our customers purchasing cycles.

We will continue to work with our customers to get the best technology in their hands as we all work through these environmental challenges.

In may.

We shipped our first <unk> three D imaging systems and continue to sell units throughout the quarter.

We successfully completed over 150 procedures in Q2.

Surgeons have said this is a game changer.

<unk> is a three in one imaging platform offering three image modalities in a single cart with high maneuverability.

Large field of view and a seamless integration with our Celsius GPS robotic navigation system.

It is a key component to realizing the global ecosystem in the operating room and ecosystem that is built and designed from the ground up to communicate together seamlessly.

Market interest is high for this state of the art technology and customer orders continue to grow <unk> is positioned to be a major growth driver for us as we continue to penetrate the market.

On the international front, our spinal implant business grew 8% on a constant currency basis compared to the second quarter prior year we.

And we delivered double digit growth in several markets, including Belgium, Brazil, India, and Poland, where growth rates exceeded 40% and for each market.

International growth was partially offset by continued declines in Japan a.

A trend we identified last year and expect to continue through the third quarter.

We remain positive on the progress and potential of our international business for long term growth as we continue to reset the Japanese market.

Our trauma business delivered its strongest quarter to date was 67% annual and 5% sequential growth driven by sales force expansion strong uptake of our anthem, many fragment plating system.

In the second quarter launch of anthem distal femur fracture system.

We achieved double digit growth in every product family. We are on track to launch meaningful products throughout the rest of 2022 and our recruiting pipeline is strong.

Despite being faced with supply chain challenges, we've been able to offset vendor delivery delays and supply shortages without significant impact to sales.

To remediate the extended vendor lead times, we've altered our ordering pattern to increase inventory levels.

The electronic component market remains difficult, but has been offset so far by a nimble procurement team.

In addition to these disruptions freight surcharges continue to impact our cost of goods sold.

We continue to seek to mitigate the impact of these challenges where possible.

As we move into the rest of 2022, we remain focused on three core elements for long term growth innovative new product introductions.

Robot in imaging placements and competitive rep recruiting.

I am pleased with our record sales in the quarter the highest monthly sales record in June .

And the successful launches of the <unk> imaging system and anthem distal femur fracture system.

The second half of 2022 is all about focus and execution to deliver value to our customers and drive growth.

I feel globus medical is well positioned to achieve our mission of becoming the preeminent muscular skeletal company in the world.

I will now turn the call over to Keith.

Thank you Dan and good afternoon, everyone.

Revenue in the second quarter of 2022 was a record $263 6 million growing 5% as reported versus Q2 of 2021 and six 5% on a constant currency basis.

Sales on a day adjusted basis also grew by 5% as we had the same number of selling days in the U S and international.

Second quarter net income was $54 6 million growing 31, 4% over the second quarter of the prior year.

Adjusting for these non operating items, our non-GAAP EPS would have grown 16% versus the prior year quarter.

Adjusted EBITDA for the second quarter was 34, 9% and we generated $13 1 million of free cash flow.

Drilling further into sales our second quarter U S revenue was $225 3 million growing four 7% as reported when compared against the second quarter of the prior year.

This growth is reflective of continued share taking within U S spine higher sales of our enabling technologies robotic systems, new sales related to the rollout of our <unk> imaging system and continued growth within our trauma business.

International revenue for the second quarter was $38 4 million growing six 9% as reported and 17, 3% on a constant currency basis, when compared to the second quarter of the prior year and is reflective of the continued global expansion of our robotics portfolio.

International implant sales were essentially flat to the prior year with growth noted in many countries as Dan commented earlier. However, this growth was offset by lower Japan revenue.

Muscular skeletal revenue grew one 7% as reported and three 1% on a constant currency basis in the second quarter of 2022 as compared to the prior year quarter.

The as reported growth was driven by spine and trauma implant portfolios, partially offset by constant currency impacts and lower sales in Japan as mentioned earlier, we have and continue to drive market share growth across our portfolio of products and remain confident in our ability to deliver a strong second half.

Second quarter, enabling technologies revenue grew by 41, 7% as reported and 44, 4% on a constant currency basis as compared to the prior year quarter.

The initial shipments have been received well by our customers and as Dan noted market interest remains extremely high in this new and exciting product.

Moving further into the P&L, our second quarter gross profit was 74% compared to 74, 6% in the second quarter of the prior year.

The decline in gross profit was driven by continued freight inflation and higher product costs.

These headwinds were partially offset by lower inventory reserves driven by onetime write offs in the prior year quarter that did not repeat in the current year.

Research and development expenses for the quarter were $17 4 million or six 6% of sales compared to $15 5 million.

Or six 2% of sales in the prior year quarter.

SG&A expenses for the second quarter were $106 7 million or 45% of sales compared to $107 3 million or 42, 7% of sales in the second quarter of the prior year.

The effective income tax rate for the quarter was 22, 6% versus 15, 1% in the second quarter of 2022 the.

The increased tax rate in Q2 is reflective of tax benefits realized in the prior year quarter related to stock option exercises, which did not repeat in the current year quarter.

The company will funded share repurchases with operating cash flows and excess cash.

We ended the quarter with $881 $7 million of cash cash equivalents in marketable securities.

Net cash provided by operating activities was $36 $9 million and free cash flow was $13 $1 million. The lower free cash flow is reflective of continued investments in working capital, namely inventory as well as increased capex investment predominantly in machinery and equipment.

The company remains debt free.

We are reaffirming our previously provided full year 2022 guidance of $1 <unk> 5 billion in net sales and $2 10, and fully diluted non-GAAP EPS, which includes estimated currency impacts.

To the marketplace.

Driving operational performance managing execution and maintaining cost discipline, our key focus items for our team as we continue throughout 2022, which will drive long term shareholder value we.

Yes.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Our first question comes from the line of Shagong, Zhang with RBC capital markets. Your line is open.

Great. Thank you so much for taking the questions.

I was wondering if you could provide any color on procedure volumes into Q3 have you seen any impact from COVID-19 and our staffing shortages.

And then on enabling tech how much with spinal robotics versus imaging in Q2, and then just my last question is on guidance can you just help us understand the magnitude of some of the macro pressures you're seeing you called out FX as inflation supply how much are you absorbing and whats built into your guidance. Thank you for taking the questions.

Sure John Thanks, It's Dan I'll start and then I'll pass it off to Keith So we won't comment obviously about Q3, where we're in strides, but I would tell you honestly to date, we've not seen anything impactful yet that we would comment on related to your question of procedure volumes being significantly off our eyes are on that and you never know when that can change, but thats kind of where we are.

Right now lightly for enabling taxing tended not to really breakout robot from imaging, but you would imagine that the vast majority of that being robotic at this point, we will see how that moves over time as both of those volumes adjusted but Thats really where we are as far as guidance I'll hand, it to Keith. So just one other thing I would add on enabling tech Shogun is that when you look I may.

A specific comment in there that we saw higher sales of our robotic units in Q2 versus prior year. So that is a call out that our robot business did grow as I look to the full year from a from a guidance perspective.

We're factoring in give or take I would say <unk> <unk> of currency, but offsetting that you have to remember we had the share repurchase.

Submission items planned in the year, but really currency is getting offset by that share repurchase which is why we felt comfortable to still finish up to $2 10 from a guidance perspective.

Thank you so much.

Yes.

Please standby, while we get the next question.

Our next question comes from Vik Chopra with Wells Fargo. Your line is open.

Hey, good afternoon, guys. Thanks for taking the question.

Two for me can you just talk about some of the trends youre seeing in the capital.

On the capital side and your would love to get your take on the capital environment heading into the back half of the year.

And my second question is on the imaging system or any of these chip shortages in the supply chain issues and back to your ability to meet demand for the orders. Thanks. So much.

Hey, Vic Thanks, It's Dan again, so kind of go through a few things trends in capital somewhat tough to predict right. When we still have some of the uncertainty out there with COVID-19. So if you look at last year, while it was a banner year for US we would say that was due to market penetration and certainly some pent up demand that carried over because of <unk>.

All of it.

Obviously, you weren't overly pleased with the first quarter, but I think our momentum and what we've seen is improved in the second quarter.

And as we look out through the year.

Assuming no significant disruptions of a pandemic our intent is to surpass what we had done in 2021.

The environment, we have.

Called out before somewhat elongated cycles from hospitals, they're distracted with many things.

But nonetheless, we're able to work through that so far without coming meaningfully off any of our projections I would just tell you a chip shortages. There are certainly day to day issues that arise they need to pivot to go through things.

We've been working through those daily for months now as has everyone else too.

To date, we have had all of the materials that we need to build all of the systems for sales. So we have not been hindered to date, but again thats just a shout out to an incredibly strong procurement team, that's making that possible.

Thank you.

Please standby, while we grew up our next question.

Our next question is from Richard newsletter with truly Richard Your line is open.

Hi, Thanks for taking my question.

Was hoping maybe you reiterated your guidance, but I know there's been a lot that's changed.

Since we originally provided that outlook I was wondering if you could just talk to us by international spine, and you're enabling tech and the pieces there where are you feeling like.

Relative to your original expectations, a little better a little worse.

Ultimately youre getting to the same place or is it all kind of playing out the way that you thought it would.

Thanks for the question this is Keith.

As we look further out we don't give a ton of insights into the parts and pieces, but what I would say.

Back when you look at the muscular skeletal business key driver there has and still remains to be our U S spine business out of the gate here growth looks a little bit lower but again I would call out the growth that we saw last year.

When you look to the back half of the year, we feel that we are.

Bullish on the back half of the year and feel that we're going to get back to that high single digit growth across our spine portfolio.

Got it and then I guess the missing link there is international because by my math.

If youre going to end up in the call, but the constant currency international.

Digit range.

Or would imply the back half needs to be for U S spine double digits or about 10%. So is it maybe that international whole stronger than you would have thought in the back half ramp ramps to high single digits, instead of low double digits or.

Do you feel good with that original assessment, maybe 10% in the back half.

Yes.

I caution I caution on split I'd caution on splitting it out as I think about the rest of the year. We remain extremely positive about where we are we're landing six months in where we thought we would and we're planning on finished strong finishing strong the rest of the way.

Okay.

Last one just.

EBITDA margins, just given the currency EBITA margins still kind of mid 30% range. Thanks.

We're still trending toward mid 30% EBITDA margin.

Thank you.

Thank you Richard.

These standby for our next question.

Our next question will come from David Saxon with Needham <unk> co. David Your line is open.

Okay.

David are you there.

Yes.

It was just on mute thanks for taking the questions.

I'll start with enabling tech.

Now that you have multiple systems.

In the bag. There was just curious are you seeing success selling the kind.

Kind of combined ecosystem are you still kind of selling.

Each system individually.

And then.

In the back half of the first quarter you, obviously saw the order book weekend strengthened into the second half second quarter here.

Can you just comment on how the order books looking as we go into the third quarter.

Thanks, David as Dan So it's a great question and yes, we certainly have seen a combo.

Opportunity with this even as we've just begun launching this in the second quarter. So we are seeing that and it is the intent because you do hear us use the phrase ecosystem and that still needs to be built out further but these are intended to be used seamlessly together and the value. There is in using them together that smooths activity and so the intent will be to continue to do.

That and to push that and make inroads that way.

Do you want to handle the second half the second half as it relates could you repeat the second part of your question, Yes, just on the order book, how you're feeling about it.

Yes.

Yes, the order book and so when you look at when you look at a year still historically Qs one and three are historically slower quarters. We are actively quoting and the order book is building, but I would caution that Q3 is typically a slower quarter than Q2, and four but the activity around robotics, enabling tech remains robust.

Okay.

And then maybe a related question just on the knee robot maybe the latest on timing, how youre thinking about the launch strategy and.

If you want to talk about the feature set relative to some of the existing robots in the market. Thanks, so much.

No problem, we'll listen I would tell you that it's under development, it's not been approved yet so I'm not going to walk out and talk about the features of it just yet with where it is it's progressing well.

And actually we're looking forward to getting out on the market. Our initial estimates if everything goes as planned that we would have it out in the first half.

Next year of 2023, that's really what it will be it is certainly going to be a market appropriate and add several benefits, but again, we need to go through get approvals before we want to talk more about exact features.

Got it thank you.

Thank you David Please standby for our next question.

Our next question is from Ryan Zimmerman with BT.

Hey, good afternoon, Thanks for taking my questions I want to start.

Maybe a little higher level for you Dan.

Stepping in a CEO role.

I appreciate keith's comments around adjusted EBITDA margins being in the mid thirties, and certainly expect you guys to continue to be there, but I guess I'm curious about your view around reinvestment for growth and whether you want to push a little bit.

On that lever.

Maybe at the expense of adjusted EBIT margin longer term as we look out in 'twenty, three and beyond and as you make these that inroads into joint recon and bigger positions in trauma et cetera.

Helpful to get your perspective on that.

Thanks, Brian I appreciate the question again.

Again, we do.

Enjoys being profitable in the mid <unk> is one of those items that we.

And in particular, I don't feel like were hindering our hampering any levels of investments that would set us off in a negative fashion for growth.

Okay.

Just one thing.

So please.

Just one thing I would add to that when you look at our when you look at our numbers at the quarter. As an example, our R&D spending is up about 12% year over year. So we are investing I think as Dan said, you can't forget that we've been continuing investing in our business. We grew the robotics portfolio that took a lot of R&D and as those businesses continue to come online. We're looking to go reinvest in.

The next big thing.

I appreciate that Keith.

And then just as a follow up I mean, you guys did repurchased some shares this quarter.

150 million Keith remaining but.

Are attractive to you at this time, because again you've been sitting on this cash for a while and we really haven't seen you guys get.

Incrementally more aggressive on the M&A front.

As we would have probably expected.

Yes, Thats a great question I mean, we took.

Look the opportunity to buy back some shares during the quarter, but that doesn't really signal a change in our long term strategy, we're going to continue to grow organically, we're going to continue to make complementary acquisitions. One thing I would call out is that coming in the COVID-19, one would've thought that evaluations would have become more favorable.

And they really went the other way and we continue to look around and stay on the sidelines, but now where we're sitting with with interest rates going up the cost of borrowings and increase for some of these companies IPO market has slowed down I think it is going to create more opportunities for us and for a company like us sitting with that amount of cash I think in any sort of a recessionary environment, it's going to create a better opportunity.

Yeah.

I appreciate you taking the questions. Thank you. Our next question comes from Kyle Rose with Canaccord.

Great. Thank you for taking the questions.

I just wanted to.

Talk a little bit more about guidance as it pertains to the supply chain, where you stand now.

It sounds like one of the biggest.

Headwinds would be electrical components, obviously, you've got new products launching with <unk>, maybe just help us understand what are you assuming in your top line guidance relative to the supply chain and constraints, if situation worsens and Oregon better through the end of the year.

So thanks for the question so from a from a top line perspective, as we look out we remain very confident in our ability to fulfill the year.

We're keenly aware of the supply chain challenges and Dan commented earlier that our supply chain. Our team has really done a really nice job of working around and dealing with these challenges, but as it looks right now and as I look at guidance, we feel comfortable that we can deliver even in spite of the supply chain challenges.

Moving towards the earn outs rentals placements.

Or just any commentary youre seeing there and then I'll ask my last question as well which is.

Which is building a little bit on Ryan's question regarding M&A I mean, historically, you've had a build versus buy biased, but you have made acquisitions when we think about <unk>.

<unk> from a biologics perspective is it fair to think that any.

External.

Inorganic purchases would come more on tangential type of assets of products rather than existing markets that we're in now thank you.

As I said.

Let me ask <unk> to answer the second part of the question for a second part is from an M&A perspective.

We're continuing to look at all things you think about our mission we want to be.

<unk> the company, we grew up in spine, we're known as a spine company. The companies can you continuing to diversify itself. We did a joint acquisition a couple of years ago, but also within enabling tech there's complementary pieces of technology out there that could help advance the <unk> story. So it's really focused on buying things that we think are appropriate for our business at any point in <unk>.

Time.

Could you expand a little bit more on the first part of your question.

Looks like we might have lost him I'm going to go ahead and move on to our next question.

Okay.

Our next question comes from Jason Wittes with loop capital.

Hi, Thanks for taking the questions just a quick follow up I think you've made it clear that you are still in the market.

Youre going to be disciplined in terms of what you essentially buyout there, but if I look at the share repurchase I think it is the first one I've seen from you at least in recent memory I assume youre just being somewhat opportunistic.

Even with the share prices and.

Additionally, as a way to offset FX is that the right way to think about it.

Youre right, an opportunistic buy to actually cleaned some of this off and make it that way because we think in the long term is going to be worth more.

Okay. Thanks for the clarification and then on the.

On the trauma business.

Almost right on the cusp of it how is that really pleased with how we've laid out in the past year or two and they have certainly put out some meaningful products that will <unk> in the larger markets.

Honestly, the mini frag and the distal femur are significant steps for us the launches that we anticipate.

The latter part of this year second half of this year I think will really get us to critical mass and while there's still more.

Families of products to develop I would tell you exiting 2022.

I believe we have enough product family offerings to compete directly.

And then last question I appreciate you putting a stake in the ground in terms of when you'd be launching the largest joint robotics piece can we assume that there is going to also be <unk>.

Large joint implants accompanying that launch or how should we be thinking about how that's positioned.

No that's exactly right, Jason we need to build the basic bag in joints like we had done with trauma and we are in progress with those our anticipation is that those implants would be approved.

In time for the robot close to it in timing to not very much in advance but at that point when the robot comes out we will offer our implants to be used with that robot.

Great I'll jump back in queue. Thank you very much.

Please standby for the next question.

Our next question comes from Matt Music with Barclays.

Okay.

Hey, thanks, so much for taking the questions.

One follow up on your enabling technology in robotics and imaging.

As you go into the back half I think.

The comment you made about Q1.

It seems like some of that pipeline came through here in the second quarter I would love to just make sure. We are all understanding how to think about.

Sequence in Q3, and whether there was any Q.

Q1 pulled into Q2 or anything like that that should inform our back half estimates in terms of cadence and then I have one follow up.

Matt. Thanks, So I'd tell you when we talked about Q1, we had felt like.

We had come into Q1 with a weaker pipeline as we had exited Q4, if you remember that's really what we're billing the.

The team had rebuilt that it had gotten good traction as you can see for Q2.

I commented on is I feel like we're exiting Q2 with a stronger pipeline and so.

Always hard to predict and nor would we actually break out the quarters, but I would say as we enter Q3. The pipeline is stronger certainly stronger than it was as we kind of were in the Q1 and our eye is on that the demand is high and I think that's very helpful. With us So can't quite say when it would occur we don't know, but I would say as we exited second quarter into the third.

We have more potential than we had done when we delivered in Q1.

Okay.

By your comment earlier on seasonality Q1, and Q3 because of the being the weakest.

Sure.

That that seasonality is still in place right your pipeline enough to.

Grow blow past that are or should we expect to see that same kind of.

Not a pause, but sort of flat sequential or something like that off maybe a little sequential and then up into Q4. It's just the way these deals seem to flow.

Assumptions right because.

That isn't necessarily the impact of a pipeline that's human nature of vacations and suddenly at the end of the year the need to use capital. So I don't think theres anything that would shift that type of seasonality and I would plan for that if I were you.

Great and then just one question on color around the growth that you saw on spine, I mean, which not everybody.

Sort of a.

Squeaky clean.

<unk> into Q2, I think there was a fair amount of strength in.

And volumes across your peers in musculoskeletal implants, but you seem to do may be better than average, especially given your comps and I just.

Love to get any color you can give on sort of mix of procedures geographic regional.

Differences.

Or anything like that that you noticed.

In Q2 versus previous quarters or.

During the recovery brands.

We go out and we recruit reps throughout the year and so youre seeing the fruit of that.

Congrats on a solid quarter.

Thanks for taking the questions.

Thank you thank.

Thank you Matt please hold for our next question.

Okay.

Our next question comes from Steve Lichtman with Op co.

Hey, everyone.

Amir on for Steve.

Yes.

I just had a question around we see players.

What's the <unk> robot in can you talk about it.

In installations from sales to placement.

And I was just wondering is that something that you guys are seeing on the ground and ultimate follow up what are you seeing overall in terms of the appetite for Capex at a hospital.

Hey, Thanks, Samir, it's Dan I would tell you that to date.

We continue to sell and we've always had different mechanisms for the customer in which the purchase.

We haven't shifted off of that and we haven't seen the pressure to shift off of that to date.

Okay that makes sense and just as a quick follow up also on gross margin based on what you guys are seeing today in terms of the cost of materials and I know you guys called out chip do you guys see an opportunity for growth margin expansion in 2023.

And also have a quick follow up to that are you seeing any opportunity to take pricing actions to help offset the headwinds.

It's a great question this is Keith.

As we look at gross margins. We've always said, we're a mid <unk> gross margin company and we remain there we are seeing some inflation this year with trade and some product cost, but as we look we're in mid Seventy's business I don't really want to get too far into 2023.

As it relates to the price we're locked into a lot of contracts with a lot of our customers. If there are places for us to take advantage of price, we will but at the end of the day, we drive price through new product introductions.

We're locked into a lot of contracts outside of our customers.

If there are places for us to take advantage of price, we will but at the end of the day, we drive price through new product introductions that helps offset the decline seen in older products.

Great. Thank you guys.

Thank you.

Thank you Amir please hold for the next question.

Our next question comes from drew Ranieri with Morgan Stanley . Your line is open.

Hi, Dan and Keith Thanks for taking the questions.

Just on <unk> for a moment I know, it's very early days, but could you talk about where you are where you are selling these two is it existing customers of Globus are you seeing any competitive.

Our competitive wins, and just maybe talk a little bit more about.

What that incremental pull through might look like for an account with with <unk> and sorry to piggyback off just the prior question in terms of pricing, but as Youre rolling out <unk>. I mean is this another opportunity for you to take advantage of pricing looking ahead.

I'll take that drew so a couple of things certainly, placing the initial units into globus users as a benefit for us and for them and a chance to work together.

Kind of where the first wave went certainly getting into.

Competitive areas as well and that will accelerate over time going through Bowles, who was not a conservative strategy of just go to these spots, but again. The first few are in the Globus People's hands, and then I think from that we began to branch out that way.

Pull through is an interesting question because I think the technology itself will be just a benefit to the to.

To the hospitals and customers.

In many procedures not just spine and again it is part of the ecosystem that we've designed <unk> been talking about so when you do combine it with our robots and soon to be our hub and other technologies. It's just going to be that seamless flow of data, it's going to hopefully be footprint beneficial to the to the customers in a way for them to actually save time had better.

<unk> data in all work together, so I do believe that as we put these pieces out it will generate the sale of pull through of other capital equipment, and obviously then lining up using implants.

Got it.

And then just maybe on Japan.

Leave it resets kind of in the third quarter anniversaries, but could you just talk maybe about the expectations you have for that for the country going forward.

Maybe just help set a certain level set of expectations. There. Thank you.

Thanks, No I will tell you I'm very I'm very bullish on Japan, I think what we should see us.

Year, but one of our strategic focus is to make that one of our top markets over the next five years.

Thank you.

Thank you Zhu please standby for the next question.

Our next question comes from Dave carefully with JMP Securities.

Great I just had two really quick ones on enabling.

I could you mentioned the combo potential as we think about our model I would imagine there's got to be over half, but I don't know if theres any number I know, it's early that you would throw out there but.

Could the combo will be 80% moving ahead in terms of you saw on the <unk> on the robot and the follow up would just be as you compare those two together as a platform.

And you look at peers could.

Fallout to along those lines.

<unk> benefits and something I had said is remember that both of these have been designed.

Thank you.

Thank you very much please standby for our next question.

Okay.

Our next question comes from Craig <unk>.

With bank of America.

You guys obviously.

Number has been a bit lower in the first half than what you would see.

In prior years, what we're normally used to see.

And I believe youre expecting big Big second half.

Rebound in acceleration.

So.

Maybe Dan if you can just go into a little bit more detailed out what gives you the confidence.

That ramp in the second half.

Is it signs within the market or we're just what you're seeing.

Yeah. Thanks, Craig.

Over the past couple of years, such a confusion with the pandemic. So you look at what occurred last year.

You had had a strong Q1 in extreme spike of strength in Q2 and in somewhat of a leveling in the second half of the year. So even as you just look at the comps you are coming off of work.

We're exiting out of what was probably a 40 plus percent growth for us in the first half of 2021 and that wouldnt be repeated in the second half of 2021. So just by maintaining the sales levels you have but just maintaining them you would get to the growth that youre used to seeing from us. That's what really gives me the confidence of that then gives.

The strength that we're going to do with our launches and our recruiting and our drives I don't see why we wouldn't have a couple of strong levers to get into stronger deliveries in the second half of the year.

Hard to parse through what everyone's saying.

Just wanted to get your your thoughts.

No. It's a great question and listen there is a level of uncertainty out there.

We have record weeks I called out that June was a record month.

Then youll come in and there was some soft weeks. So the procedures are certainly not fully stabilized certainly not throughout the country I think we continue to monitor it.

Where we're going with that but certainly a lumpy move as we get through the second half of the year and what we've experienced in the first half of the year.

Great. Thanks for taking the questions guys.

Thank you for your question Greg as a reminder, if you would like to ask a question you need to click star one one on your telephone.

Our next question comes from Kyle Rose with Canaccord go ahead Kyle.

Okay.

Great hopefully my mute button works at this time.

Question, just wanted to ask two follow up questions.

One was on.

One was on <unk>.

Ailes force conversions that you talked about.

The pipeline I just wanted to see if you can.

Cogent is the continued robust hiring.

Where are they coming from what kind of our reps are you seeing is it more on the spine side or is it weighted on the.

On the other parts of the business with respect to trauma and imaging.

So I called them out in kind of two different things.

It's pretty appropriate just given the amount of reps. They are for those sizes that you see that kind of prorated recruiting type effort.

Great and then you mentioned something earlier that I don't think.

I'd heard before you talked about the hub product with respect to enabling tack just wondering if you could kind of flesh that out for us. Thank you very much.

Well Theres a navigation system that we had had approved last year were still finishing up a few things before we go out we had mentioned that in a few previous earnings calls and just part again of that ecosystem that will bring out. So we've always talked about the robotic solutions, whether it be for spine and orthopedic.

And then with that comes the imaging and then again hub will be a sub part of that at the right time, we'll look to bring that to the market and make sure that we can.

Drive that growth as well.

Thank you.

With no further questions that concludes Global's Medical's second quarter conference call. Thank you for joining us and have a good evening you may now disconnect.

Q2 2022 Globus Medical Inc Earnings Call

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