Q3 2022 NuVasive Inc Earnings Call
Good day, ladies and gentlemen.
And welcome to the new bases.
Third quarter 2022 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
I would now like to introduce your host for today's call Ms. Juliet Cunningham, Vice President of Investor Relations at New basis. Please go ahead Ms Cunningham.
Thank you and good afternoon, everyone. Joining me today are Chris Barry Chief Executive Officer, and Matt Harbaugh, Chief Financial Officer.
Chris will provide an overview of your basis third quarter 2022 busiest herself and trend.
As well as innovation highlights.
Matt will review, our detailed financial results and full year 2022 outlet 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.
As a reminder, this call is 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 the call will include forward looking statements, which are based on current expectations and involve risks and uncertainties assumptions and other factors, which could cause actual results to differ materially from those expressed or <unk>.
Played by such forward looking statements.
The factors that could cause actual results to differ materially are described in invasive 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 on the basics website.
And now I'd like to introduce Chris Barry.
Yeah.
Thank you Juliet and good afternoon, everyone.
Earlier today, we reported third quarter 2022 financial results.
On today's call I'll review, our performance for the quarter discuss the three fundamentals of our growth strategy and review of the company's innovation strategy uniquely positions us to deliver on the future of spine and specialized orthopedics.
After my remarks, Matt will provide additional financial details on the quarter and commentary on the remainder of the year.
No basically delivered third quarter 2022, net sales of $295 $3 million, an increase of 9% on a reported basis.
On a constant currency basis, the third quarter net sales were $305 $8 million.
An increase of 12, 9% compared to the prior year period.
Like many other leading global companies, we're not immune to macroeconomic pressures. However, we continue to grow above market in both our U S and international businesses.
We had another strong core in our international business, achieving double digit growth in every region on a constant currency basis.
Led by correspond growth and higher net sales from new bases specialized orthopedics.
In the U S. Our spinal hardware business delivered double digit year over year growth driven by continued demand for the X 360 portfolio led by modulus, a lip adoption in excellent procedure volume recovery.
Strong performance by new base of specialized orthopedics and higher cervical net sales led by the C 360 portfolio.
This quarter.
We delivered more net sales from our cervical portfolio than any quarter in our history and most importantly, we still have significant runway in this key procedural segment.
Our U S surgical support business delivered mid single digit year over year growth in the third quarter, driven by procedure volume recovery and new base of clinical services growth in intra operative neuro monitoring disposables impulse platform sales.
While we cannot control fluctuations in foreign currency rates, we can't control, how we execute on our growth strategy.
As evidenced by our net sales performance this quarter, we continue to outpace the global spine market.
We have seen an increase in procedure volumes, specifically in lower acuity to Oracle lumbar and cervical procedures.
And given our leading portfolios within those respective segments, we're well positioned for continued Barton recovery.
Conversely, higher acuity cases within the complex procedural segment have not rebounded as quickly.
In early October I outlined at our 2022 investor day, the three fundamentals of our long term growth strategy fundamental number one delivering core growth, which continues the momentum in our core business and opportunities from globalization.
Fundamental number two introducing intelligent surgery, which extends the pulse platform with integrated solutions supporting the care pathway from preoperative to post operative care and fundamental number three aggressively pursuing attractive market opportunities both in and outside of traditional spine.
Starting with core growth, we have significant procedural runway that are 360 strategies will continue to target through meaningful innovation.
To remind you $3 60 represents our comprehensive procedurally integrated solutions that are applied to a surgical approach.
Giving surgeons the flexibility to choose the right procedure for the right patient.
Within the $900 million anterior segment, we remain the market leader and have a strong foundation to build upon.
We continue to see high demand for modulus, a live as well as our core procedural offerings within X 360 portfolio, including X lift xa lift and expectation.
We have continued to grow our advanced materials science portfolio. The company's best in class implant portfolio to include our next generation expandable technology Monex.
In early 2023, MA X X lift will begin clinical evaluations, which.
Which we expect will bring continued interest in our market, leading X 360 portfolio.
Within the $1 7 billion dollar posterior segment, we have tremendous runway with our P 360 portfolio, providing comprehensive path biology, driven solutions from the proposition.
To that end Mod X P. L. Beginning clinical evaluations in the U S market. This month. In addition, the recent commercial launch of the new basic tube system provides surgeons less invasive surgical access for both T lift and decompression applications and as the company's first tubular access system today.
Turning to the $2 6 billion dollar cervical segment as I mentioned earlier, our seed 360 portfolio delivered a record quarter in net sales.
We have a highly differentiated portfolio and we will continue to take share with the industry's most clinically effective cervical total disrepair iceman with the simplify cervical disc. The finished interior plate system on the market with new base of ACP and our most recent addition to the <unk> hundred 60 portfolio relying cervical the cervical extension.
To the industry's most comprehensive fixation system relying.
Central to our core growth strategy is enabling technology and integrating the pulse platform with each procedure.
While other enabling technologies in market deliver limited clinical utility pulse differentiates itself in that it can be used in 100% of spine procedures.
Our customers are experiencing the benefits of the platform.
We've achieved new milestones this quarter, including our first post case in an ambulatory surgery Center.
Our first pulse case in Australia and.
And increased extra 60 integration with pulse and multiple global markets.
Our customers are not just focused on the next group placed implants, and Standalone navigation systems surgeons and providers need intelligently design solutions and we remain laser focused on furthering our philosophy of comprehensive procedurally integrated solutions with our 360 portfolios and the pulse platform.
That focus is reflected in the recent commercial launch of our line cervical.
The onset relying cervical was designed to be integrated with pulse, giving surgeons the ability to support more complex deformity cases with the help of global alignment planning neuro monitoring radiation reduction in imaging enhancement navigation and patient specific rod bending.
Combining state of the art technology for post era cervical fusion with pulse delivers an optimal solution for our surgeons and most importantly for our patients.
As the foundation of our enabling technology strategy pulse is key to unlocking our vision for our second fundamental of growth intelligent surgery.
Unlike other orthopedic segments. The spine industry has been challenged to drive clinical standardization due to the variability in outcomes.
Outcomes will improve when clinical decisions are fact based and not subjective.
And enabling technology support this focused effort.
To achieve better outcomes, we must help surgeons identify whether a patient is an appropriate surgical candidates.
What the right procedure is for the patient.
Will it lead to the patient's desired outcome and whether the surgeon achieve that intended outcome.
To do so we need to provide data and advanced planning preoperatively inner.
Integrate smart tools that deliver real time information intra operatively and make intelligent devices available that track outcomes post operatively.
Our vision to change a patient's life every minute and our purpose to transform surgery advanced care and change lives guides, our next phase of innovation.
By delivering on the promise of intelligent surgery.
He will help define the standard of patient care from pre op post op.
We are investing and we'll continue to invest in meaningful innovation to drive this future of spine surgery.
Our growth journey will be aligned with aggressively pursuing market opportunities, including those outside of traditional spine.
Which is our third fundamental for growth.
Our team is actively identifying novel technologies that further our spine and specialized orthopedic portfolios.
And expand into other adjacent markets.
An example of this is our recent partnership with Smile, a French based technology company that specializes in the use of clinical data and preoperative planning.
Many companies with our scale and global presence, we're not immune to current market challenges. However, we're making continued progress to deliver multiple vectors of growth through extending our 360 strategy across all key segments.
Integrating our procedural solutions with enabling technology and pulse.
And driving continued above market growth in global markets.
I'm confident in the three fundamentals of our growth strategy, the durability of our business and how we are strategically positioned to deliver on our commitments in the short and the long term.
New basic will make surgery more intelligent.
And as we do we will transform the future of surgery supporting our surgeons, but also helping change the lives of millions of people around the world suffering from back pain.
I'll now turn the call over to Matt to discuss the company's financial results in more detail.
Thank you, Chris and good afternoon, I'm going to cover our third quarter 2022 financial results and drivers as well as update you on our full year 2022 outlook. Our detailed financial results have been provided in today's press release and supplemental information.
During my remarks, I will be discussing both GAAP and non-GAAP measures. Please see our press release for GAAP to non-GAAP reconciliations.
I'll begin with commentary on worldwide net sales.
Our third quarter results reflect strong net sales compared to the prior year period.
Third quarter worldwide net sales were $295 $3 million, an increase of 9% as reported compared to the prior year period.
This includes a 10 and a half million dollar negative impact on our net sales due to foreign currency fluctuations.
On a constant currency basis third quarter net sales were $305 8 million or 12.
<unk>, 9% increase compared to the prior year period International net sales for the third quarter showed continued strong momentum at $68 $8 million representing growth of five 3% as reported and 21, 3% on a constant currency basis compared to the prior year period.
As a percentage of total net sales international was approximately 26% on a constant currency basis.
Our U S business demonstrated double digit growth during the third quarter of 2022.
Turning now to our U S. Net sales by product line U S. Spinal hardware net sales were $163 $5 million, representing a 12, 7% increase over the prior year period or.
Our cervical portfolio.
Achieved a record quarter and net sales led by the C 360 portfolio in the simplify cervical disc, which continues to experience strong surgeon demand due to its differentiated features.
In addition, our thorough Columbia portfolio growth was fueled by continued demand for modulus, a lift as well as procedural growth and excellence.
U S surgical support net sales were $63 million.
An increase of four 2% compared to the prior year period.
And our services and pulse business was partially offset by a decline in biologics.
Which was due to fewer stocking orders as well as shifts in procedure volume towards cervical cases, which utilize a lower proportion of biologics.
Yeah.
Moving to operating results non-GAAP gross profit for the third quarter was $214 $4 million compared to $197 million in the prior year period.
The year over year increase was largely driven by net sales associated with higher procedure volume as a percentage of net sales non-GAAP gross margin was 72, 6% essentially flat compared to 72, 7% in the prior year period.
Third quarter 2022, non-GAAP operating expenses were $174 $3 million, an increase of four 7% compared to $166 $6 million in the prior year period. The year over year increase was primarily driven by variable expenses on net sales higher depreciation costs from <unk>.
Investments in surgical instruments sets and inflationary impacts in areas, such as travel and freight costs.
Third quarter 2022, non-GAAP operating margin was 13, 6% an increase of 240 basis points compared to 11, 2% in the prior year period.
The year over year increase was primarily driven by higher net sales lower R&D expenditures as a percentage of net sales and increased commercial efficiencies.
Fluctuations in foreign currency exchange rates also had a material negative impact on non-GAAP operating margin during the quarter.
Current quarter non-GAAP operating margin using foreign currency exchange rates from the third quarter of 2021.
Would have yielded a non-GAAP operating margin of 15% and approximately 140 basis point improvement from our reported results.
non-GAAP other income and expense for the third quarter was $5 $1 million of expense compared to $7 1 million of expense in the prior year period. The decrease was mainly driven by unrealized foreign currency losses due to fluctuations in exchange rates.
non-GAAP tax expense for the third quarter of 2022 was $6 6 million compared to $6 $4 million in the prior year period, our third quarter 2022 effective tax rate was 18, 9% compared to 27, 5% in the year ago period, and we continue to expect.
The full year 2022, non-GAAP effective tax rate in the low 20% range.
On a GAAP basis, we reported a net loss of $2 million or diluted loss per share of <unk> in the third quarter of 2022 compared to a net loss of $21 6 million or diluted loss per share of <unk> 42.
In the prior year period.
Included in our GAAP results for the third quarter were unfavorable impacts of foreign currency exchange fluctuations of approximately $20 million, primarily associated with the weakening of the Australian dollar against the U S dollar related to our 2021 acquisition of simplify medical.
On a non-GAAP basis, we reported third quarter net income of $28 3 million or diluted earnings per share of <unk> 54, compared to net income of $16 9 million or diluted earnings per share of <unk> 32 in the prior year period.
The year over year increase in non-GAAP earnings per share was primarily driven by operating profit growth.
Turning to the balance sheet, we ended the third quarter with cash and cash equivalents of $237 $5 million.
In addition, we have an undrawn $550 million revolving credit facility and our total net debt leverage is three three.
We generated $15 9 million and free cash flow during the quarter compared to $33 $2 million in the prior year period.
The decrease was primarily due to timing of net sales and collections within the quarter as well as continued investments in surgical instrument sets to support net sales growth and new product launches.
Moving on to full year 2022 guidance, our updated outlook takes into account our year to date performance through the third quarter, along with fourth quarter expectations.
We have also considered macroeconomic pressures on net sales and operating profit experienced to date and expect to experience similar levels of impact through the remainder of the year.
Based on our current business outlook, we are updating our full year 2022 guidance as follows.
We are updating our full year reported net sales growth range to be between five 5% to six 5%.
We are narrowing the top end of our net sales growth range on a constant currency basis, and now expect growth of $8 seven to nine 7% based on foreign exchange rates as of September 30th.
We now expect non-GAAP operating margin of 12, 3% to 13% a reduction from the 13% to 14, 5% range to which we previously guided from a full year perspective foreign currency exchange rates are negatively impacting our expected non-GAAP operating margin by approximately.
120 basis points on a constant currency basis.
It is worth noting that this impact is materially worsen from expectations assumed in our prior guidance ranges and we now expect non-GAAP diluted earnings per share of between $2 210 per share.
We continue to work diligently to navigate and manage the challenging macro environment, we face.
We remain confident in our business, our competitive position and product portfolio and our near and long term growth opportunities now I would like to ask the operator to please open up the call for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset equal pressing keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two please.
Please limit yourself to one question.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Matt <unk> with Barclays.
Please go ahead.
Hey, good evening. Thanks, so much for taking the question.
So one on sort of the topline good and one on some of the impacts on an EPS and margin so.
Impressive and I loved the I think we're all happy to hear that the progress on cervical.
That's a long long battle and it sounds like you're winning it finally.
If you could talk maybe a little bit about.
The difference between contribution and instead of the implants and surgical side versus maybe what your thoughts are.
Or where expectations were for pulse.
And then I have just as I mentioned, one follow up on the P&L, but good.
Hey, there.
Alright, Chris Matt can you hear me.
Just one moment please.
Okay. The line is open. Please go ahead with your answer.
I apologies umbrella, Matt can you hear me now.
We can yet thank you alright listen I was I had a really good answer for your question. The first Amit it's getting the ops.
Outside of repeat it.
Listen we're very pleased with our results. Several calls has been a great growth engine for us. So we've had now consecutive quarters of very strong growth led by.
We talked about with this quarter being the highest net sales growth.
We're more than on track for the deal model, we put together for simplify.
I need to be a key growth now I'll just kind of backing up if you think about our core strategies and we talked about at Investor Day, We talked about core growth really extra <unk> hundred 60, <unk> complex surgery, and pulse and all of those things are actually contributing I would say really our extra 60 franchise with with growth in Ala cervical.
Growing across the board.
Our <unk> hundred 60, <unk> really just getting started and work to do to invest more in complex and then the globalization efforts will continue to produce as well as our introduction of Paul So.
We're pleased across the board with the growth profile and feel like it's got the durability and the runway we talked about.
Yep.
Appreciate that and just on margins if I could for Matt.
As we turn the corner here into 'twenty, three and think about the impact that FX had worsening FX has had on on your margins and EPS.
Can you can you help us at all to think about.
What what sort of and underlying margin assumptions might be that we could start thinking about it for next year and then and then how that that should continue to weigh on on that if that contract sort of the expectations you have at this moment.
Yes, Matt it's a bit early to be talking about 2023, but let me kind of frame. This for you from a 2022 perspective.
I think what has happened is the currency fluctuations have been.
Much more material at least for us than what we've seen in prior quarters and in the second quarter.
<unk>.
You know 7 million dollar hit on the top line from currency.
And so as we came out of that earnings call for the second quarter.
Hard to predict where currencies were going to go.
They've gotten worse since August .
You can calculate it out we saw.
A little over a $10 million impact on the third quarter and as we're thinking about the fourth quarter and looking at currencies, we think that will actually be.
A couple of million worse than that probably based on our current forecast. So it's weighing the topline and the bottomline Unfortunately, but if you've seen through the clearing.
This was a very strong quarter for us as Chris mentioned.
Did come in above consensus.
On operating margin and EPS. Despite the currency headwinds that we were able to kind of offset it but as we're coming into the fourth quarter.
More and more material impact from currency.
Okay, well I appreciate the color you can provide and congrats again on a really strong top line.
Look forward to catching up later thanks, Matt.
Okay. Operator next question. The next question comes from Josh Jennings of Cowen. Please go ahead.
Hi, good evening, thanks for taking the questions.
Wanted to ask Chris on.
<unk> hundred 60 integration with pulse it sounds like you guys are making some progress in order to better understand the.
The steps.
Essential in.
Crossing the finish line, there and just kind of getting your customer base.
<unk> with its integration is there anything on the software or hardware side, that's needed or is it more just training and then just a quick follow up on U S surgical support and other than just wanted to just understand if there is seasonality in that business and just thinking about the <unk> performance in U S surgery.
It'll support another Christmas of <unk> sequentially.
We we mis modeled it's a midstream business.
Isn't it.
Okay.
An aggressive assumption, but just wanted to better understand season.
Seasonality or anything that changed sequentially in that business. Thanks, a lot alright, thanks, Josh I'll take the first one and I'll, let Matt.
The second one as far as if there's some sort of seasonality or anomalies.
With three.
First thanks to the integration of calls.
A lot of applications. There today the software integration will continue to make really enhanced the navigation relationship with both the navigation system and the expectation that we use in those cases, so we're applying that to not just sector, thanks need but across the entire portfolio over time.
It's a lot of it a lot of the ramp we're done with our software iteration and upgrading our software over time to continue enhancing the procedure of procedural innovation. If you will to be inclusive of not only the instrumentation implant for now the policy ecosystem. So natural natural part of the investment strategy.
We've had around pulse and clearly I think a value add moving forward at pace.
Hopefully increases the value of the system with our customers as we move forward over time, if that makes sense.
Yes.
Definitely.
Okay.
Yes, Josh Thanks for the question.
Pulse defined for the quarter for us which is in the surgical support.
NCS did ever rough quarter last year, it had a better quarter. This year. So that did put some variability in there, but all in all not much that's very notable U S surgical support to go through.
Alright, Thanks, Matt appreciate it thanks, Jeff.
The next question comes from Vik Chopra from Wells Fargo. Please go ahead.
Hey, good afternoon, and thanks for taking the questions.
Two for me first Matt I guess I appreciate all the comments you've made on the margin, but how are you thinking about the pace of margin expansion, especially as you think about your <unk> Eagles.
And my second question is for Chris Chris.
Your analyst day, you spoke to about getting more aggressive on M&A just wanted to follow up on that and if youre actively looking for M&A and if so what areas. Thank you.
Yeah on your margin question I feel good about the plan that we rolled out on October six.
Fully committed to delivering on that plan.
Do.
Hope to see progress next year.
In our in our bottom line performance in particular, the good thing about the currency situation is as its transient rate.
So we really try and look at the math without currency to see what the underlying trends are and when you look at those trends, whether it's cervical international growth we're firing on all cylinders.
Yes, I would just say.
If you could talk a little bit about M&A and our focus now is kind of a natural progression of our investment strategy.
Even during the pandemic really accelerated a lot of our R&D to produce a lot of the technology that we're seeing translate into growth today and will continue that translation over the next couple of quarters into 'twenty, three 'twenty four and beyond.
Out of that core growth strategy.
And Ryan and the R&D team has done a phenomenal job, we've got great product launches coming out this year that continue to complement extra <unk> hundred 60, <unk> hundred 60, and extend the whole <unk> family with <unk> <unk>.
PL, we also have the relaxing system coming out so a lot of great technologies coming out.
But we also recognize the power that we're seeing in products like simplify so we'll continue to try to deploy capital to to add.
That complement to our core.
To continue to accelerate this whole intelligent surgery strategy continuing to build out technologies like smile and add those into the portfolio and also look at things like NSO is this material growth driver for some of the Strat plan, we've talked a little bit about it we'll talk more about it.
I can say without a near adjacency and will continue to explore not only building on NSO, but other near Adjacencies within the portfolio is it really those three areas are the areas that we really want to focus on but we're excited.
They have the core growing simplify and the acquisitions, we've done have been have been fruitful.
I need to deploy capital as we see opportunity.
Okay.
Yes.
Was there a follow up Mr Chopra.
Now next quarter, but that was it thank you.
The next question comes from Joanne Wuensch with Citibank. Please go ahead.
Good evening and thank you so much for taking the question can I just want a little bit of time on what's going on in the international market because on a constant currency basis that looked quite strong to me.
Yeah. Thanks, Joanne it was.
As reported I believe it was around five 3%.
At constant currency was 21, a little over 21%. So very strong performance I will just say that the sort of the net average diversification strategy. If you will that we've deployed really is working well and as I've talked about before we sort of shifted gears around two or three years ago, not just to export product, but really try to expand our.
Brand and presence in these markets. Good example is the experience center, we opened up recently in Singapore, We've done a lot of work and how you'd like Japan, where we have market specific launches we continue.
I believe the teams in those markets and continue to do a great job of.
Going out and marketing our technologies and really building out the right commercial teams to execute so.
We were hitting on all cylinders really over the last quarter with all markets growing above double digits. So in other quarters I would say, we might have had a bit of a.
Whack, a mole for lack of a better term, where you might have one or two market situation due to COVID-19 or some external factor made up by the others. This this particular quarter, we saw pretty consistent growth across all the key markets So were pretty happy.
With the success the teams are driving and we think thats like we talked about a lot. We think globalization is a very durable.
Growth engine for us with some good runway.
And as a follow up is there a particular product that's driving this or is it just broad based.
It's fairly broad base to think about it think about like this there is probably.
Generationally, but that's the only way to come to mind.
Just introducing excellent some of these markets.
So really drive our cervical portfolio in a meaningful way, so that's where I get the confidence that we not only can grow today, but have the opportunity to continue to introduce new technology to market because we're on a bit of a lag.
So that's it's not one specific I think our interior portfolio is likely growing com.
Complex surgeries growing we're likely just getting into some of these markets in areas like cervical pulse is being introduced in certain markets as we speak. So I think it's just general and let them work.
We're generating as a company.
With a good runway of technology to follow.
Next question.
Yes.
The next question comes from Richard New Winter with Truest. Please go ahead.
Hi, Thanks for taking the questions. This is <unk>.
Sam on for rich.
One more on international line.
Qualify it to the U S as well, but is there any way you can break down sort of NFL contribution.
How that grill versus sort of the core portfolio. Thank you.
Yeah, Here's how I would answer it.
From an international perspective, our core spine business, we've said low to mid double digit growth very consistently.
Over the last three or four years and the underlying business was in that zone and then the rest would have been driven by NSO recovery.
The next question comes from <unk> Singh with RBC. Please go ahead.
Great. Thank you so much for taking the question just I guess, if you can help us with the guidance a little bit so you've lowered EPS by 11% at the midpoint or about 25 cents.
I'm, assuming the majority is FX, but is there anything else in Adelaide <unk> kitchen supply just any other factors.
Yes, sure than we have been able to absorb that through the third quarter and the impact that we've seen from freight and oil related oil costs. So we've done okay. There we put in some measures to contain costs, where we could.
And so that's been successful through the third quarter. The challenge, we find ourselves in and why we adjusted the guidance today is the bottom line impact from currency is significant.
And you know difficult to overcome but yes and currency has been a challenge for us, but as we said earlier the business itself is very strong in.
Poised to set ourselves up well for 2023.
Yeah.
Yeah.
The next question comes from David Saxon with Needham and company. Please go ahead.
Hi, good afternoon, and thanks for taking the questions maybe a follow up on on a previous question. Just wondering how we should think about your appetite for M&A, that's dilutive or would maybe make it more difficult.
<unk> achieved your <unk> operating margin target for one you're prioritizing over the other.
I'll just ask my second upfront, Matt any update on how you're thinking about the $4 50 coming due in June I would imagine you have to refi Ed maybe higher rate.
So any thoughts on how youre thinking about paying down a portion versus refinancing that full 450. Thanks so much.
Hey, David I'll take the first one thanks for the question.
Listen I never I never try to make a hard fast rule on margin dilution in relation to innovation and how that actually fits into the growth of the company, having said that we do believe we are committed to the op margin expansion stores. So we definitely favor the types of technologies that we can synergize and ultimately drive some neutrality or at least creating a non dilutive scenario over the.
Strapline period.
It could have some disruption in the short term, but we're committed as we've talked about to get it up to that 18 to 21 range that we talked about a few weeks ago.
<unk> thousand 27, so I'm contemplating that as we talk now clearly some of that comes about that I think is a game changer I'll come back and talk about it but.
That's how we're thinking about it today in those categories I mentioned in the earlier question.
Yes.
Always see simplify like deal, where you're getting a nice return within one year of the acquisition.
Turning your question on the convertible notes.
We continue to monitor the market as you might imagine I spend a lot of time talking with bankers.
We we've said clearly that if need be we can cover the $4 50.
Through the revolver and cash on hand, but.
We'll be sensible and we'll be thinking about how to navigate with that and as I joke with Chris from time to time I'm hopeful that we will be doing a transaction a business development transaction, while we're while we're looking to solve that $4 50.
The next question comes from Jeff Johnson of Baird. Please go ahead.
So maybe just to follow up Matt on the guidance again, I just want to understand so the the one point adjustment to the top end of the constant currency guidance for the year, what changed just between second quarter and third quarter that made you.
The midpoint of that range, a little bit and then it sounded like your answer on EPS. The guidance reduction there is all FX.
In my model, the FX as well its really maybe.
10 to 15 of the 25 takedowns. So just trying to compare my map to yours was there anything else. Besides FX in that 25% reduction to the midpoint of the EPS guidance or is it all FX. Thanks guys.
Yeah, you bet, so as we're getting closer to the end of the year, obviously, it's November nine.
We wanted to.
Aero the ranges.
And kind of be clear as to the.
You know above $10 million impact, we're likely to see from currency.
In the fourth quarter and we've calculated based off the end of October so it's the <unk>.
Precious number we have there is some.
Room in there.
For the uncertainties that we have out there from a macroeconomic perspective.
Certainly currency is a key driver of EPS adjustment and the operating income for that matter. Thanks for the question.
Yes.
Yes.
The next question comes from Matt Taylor.
With Jefferies. Please go ahead.
Yeah.
Hi, Thank you for taking the question.
I just wanted to ask about market dynamics, which you touched on the prepared remarks.
I guess my question stems from.
Youre looking at the Q4 range, it's a bit wide so.
I was wondering if you could give us any update on <unk>.
What youre seeing in early Q4 over Q3, and what do you think are the main variables.
Put your hiring lower in the range.
Yes, I'll take a shot at it a little early I mean, we've seen unless we saw we saw sluggish volumes and in kind of the July August .
September improving.
That improves into October .
I've said all along for the last couple of years, we want to see something trend out and show some normal seasonality. So we hope that we hope that transitions that we'd get into very normal seasonality. Then I think there is a central upside. We're also seeing some clear differentiation in.
Lower acuity versus higher acuity types of cases, and what that translates to is really strong volume, but those higher acuity cases generate generally generally more revenue if those were to come back into Q4.
I want to be well positioned in the lower acuity, where we're seeing a lot of our growth now and allows us to actually grow as youre seeing double digit in what I consider to be a flattish market, but also positions us to take very much.
I've taken opportunity to really pick back up the upswing in some of the lower acuity should say I'm sorry, the higher acuity case. These complex cases, a lot of dynamics are governing us.
Cases aren't going away, but the velocity is going to slow down and some of the reasons that I would just point to are likely.
Or block times are probably in.
Being used versus for lower.
Acuity cases, you can do more of those cases get more patients through.
These complex cases, I'm talking about our <unk> daylong cases that take up a lot of time, there could be some patient dynamics influencing but.
Better better more more more improved volume over the last couple of months.
Into the first couple of months of Q4 still seeing some differential in the mix as I talked about but all things considered feel very good about acquisition and the scenario that we're talking about the only other thing I'd remind you our fourth quarter is typically one of our strongest quarters and it tends to be weighted towards December . So October is kind of a small.
This month than November gets bigger in December gets bigger so we're counting on.
Volume throughout.
Thank you guys.
Question <unk>.
Next question comes from Allen Gong with J P. Morgan. Please go ahead.
Hi team. Thanks for taking the question I just had a quick one on the organic side of the topline guidance you lowered that's the bottom half of the range and apologies if anyone has asked this already but it.
It seems like the main shortfall this quarter was really on the biologics side of the equation. So should we think of that as being the main driver of the shortfall once again in fourth quarter and you related that to essentially growing utilization of cervical and a lower reliance on biologics. There. So should we think of this as a more durable.
We'll challenge that you'll be facing going forwards.
Look I would say biologics pretty much goes with spine growth rate market growth rates that is whereas a pulse and some of the other businesses cervical we're growing significantly above the market and so yeah.
Yes, we are.
Probably more conservative on biologics in the fourth quarter and what we saw in the third quarter, but not a huge needle driver from a bottomline perspective I'd say.
We've talked about earlier the currency is really <unk>.
Significant part of why we adjusted the net sales guidance.
Yes.
Alright, Thanks for taking my question. So I wanted to talk about the U S.
Spinal hardware business, if you had a good quarter, but you did have the easiest comps with some of the pure play spine companies out there in a couple of them grew faster than you even have any.
Much harder comps.
The surgical business is clearly I think leading the charge here.
So it would imply that the lumbar business is doing fine, but still somewhat exposed.
Talk about the dynamics, there and then and then X.
60, <unk> hundred 60, and the tube product, which I don't think people realize that's an important launch for you guys.
As far as stabilizing that lumbar business and getting you back to maybe market growth or even a little bit better based on what we're seeing from some of your competitors. Thanks.
Yes, Matt Let me, let me clarify.
Cant compare the comps of all the other companies out there, but I will just say if you look consistently over the last several quarters, including this one we continue to outperform in their market and the majority of our peers and a reminder of what I talked about in Investor day as you know.
<unk> hundred 60 is the anterior segment.
We're the market leader in X list, that's probably a competitive area that we've got to protect ourselves and but by complementing what we've done there is now we generated leadership in Asia, and we're seeing strong growth if you're looking at tier segment in general.
Still outpacing the entire growth of the market and leading in the growth in that market cervical and a flat to declining market likely.
If the market pressure down because we are taking share.
We're growing that segment clearly on the P. 360, <unk> are the posterior side. We're just really getting started that's the tubular retractor system. That's <unk> PL a lot of a lot of the technologies that we launching.
Over the next 12 to 12 12 months or so we think will really give us a shot to go in and take further share and Taylor and Plaza midline surgery.
No.
We're feeling from our perspective.
We are.
We are diversified within the key segments in the U S spine market today and seeing the growth across the board with.
With key launches coming up so I feel very good about it and clearly it's hard to kind of characterize the entirety of the spine market Theres a lot of players maybe eight or 10 makeup 70, 80%.
And you can kind of look at the numbers, one way or the other but if you look at what we're posting and the growth in Ontario, and the gross growth in cervical the key launches coming.
To fruition now and the posterior segment, we feel like we're not only well positioned today, but well positioned in the next year or two years to continue to take share.
The next question comes from Mathew Blackman with Stifel. Please go ahead.
Hi, good afternoon, everybody. Thanks for taking my questions I've got a few simplify questions I'll just rapid fire them upfront here at the first are you able to fully meet demand now. So do you have full supply number two are you seeing pull through you obviously talk to strengthen the C 360 portfolio portfolio broadly wondering.
If it is simplify as an anchor product pulling that through and then the last question I think at Analyst Day, you mentioned, new geographies for simplify can you just remind us on timing and magnitude of the opportunities and whether they could be visible contributors in 'twenty three or 'twenty four from these new geographies. Thanks.
Yes, Matt Thanks for the questions.
Sort of yes on all but let me just kind of unpack on as far as the meat demand yes.
It seems done a great job.
Team in West Carrollton does a great job our supply chain leaders have done a great job. So we are meeting demand now and demand continues to grow.
From a bolter perspective, we are seeing pull through or we're seeing introduction to the other aspects of our cervical portfolio as well as connectivity and introduce and simplify and having some bleed over to areas like the Oracle lumbar. So it's still like I said early days, but there is a halo effect there that that's taking shape as far as your new geographies.
It's all been a function of set expectation and getting those sets out as we've all talked about supply chain on that side.
<unk> has been delayed we're meeting demand, but we would likely not gone as fast as we'd like to and some of the key geographies.
Australia is a key market, we're going to go into as well as some of the European market. So it will be it will be a contributor to our growth next year I would say not noticed not overly material. This year most of the growth coming in the U S. But clearly these markets are clamoring, they're attending the same conferences surgeons are hearing information on the CPD, our market and excited about.
Simplify so.
Pretty much yes to all your questions and like I said before.
We're excited about cervical portfolio in its entirety is I would also just just also reinforce we're just now launching <unk>.
Which is the third kind of leg of the stool of the ACP play CTD are to simplify this now was posterior fixation.
Well positioned to continue to take advantage of the opportunity we see in this market.
Thank you Chris.
This concludes our question and answer session I would like to turn the conference back over to Chris Berry for any closing remarks.
Thank you all and thanks for participating in the earnings call today.
Guided by our strategy to drive continued growth will continue to deliver on our core growth intelligent surgery and market opportunity fundamentals that create value for our circuit partners health care providers and most importantly.
Patients around the world.
Look forward to speaking with you all again next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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