Q4 2022 NuVasive Inc Earnings Call

February 22, 2023

Good day, ladies and gentlemen, and welcome to day in the fourth quarter and full year 2022 earnings conference call I would now like change reduced your host for today's call Ms. Juliet Cunningham, Vice President of Investor Relations at <unk>.

Please go ahead Ms Cunningham.

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

Chris will provide an overview of new base of fourth quarter and full year 2022 business results and trends as well as innovation highlights.

Matt will review, our detailed financial results and full year 2023 outlook and then we will 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 have been filed on form 8-K with the SEC.

We have also posted supplemental financial information.

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

Before we get started I'd like to remind you. There are comments. During this call will include forward looking statements, which are based on current expectations and involve risks and uncertainties.

Assumptions and other factors, which could cause actual results to differ materially from those expressed or implied by such forward looking statements.

The factors that could cause actual results to differ materially are described a new basis 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 <unk> website, and now I'd like to introduce Chris Barry.

Thank you Juliet and good afternoon, everyone.

Earlier today, we reported fourth quarter and full year 2022 financial results.

On today's call I will provide highlights of 2022.

And review our outlook for 2023, which is supported by our fundamentals of growth strategy and our definitive agreement to combine with Globus medical.

Matt will share additional financial details on the fourth quarter and full year 2022 performance as well as 2023 net sales guidance.

I couldn't be more excited about our combination with globus medical as it brings together two well regarded technology companies in the musculoskeletal industry.

The combined company will have an incredible commercial scale, an exceptional portfolio of clinically proven solutions supported by strong commercial and clinical professional development teams and.

An excellent capabilities to serve our customers effectively.

Being able to change the future of spine and orthopedic care, while unlocking our vision to change a patient's slides every minute is now even more achievable together with globus.

Moreno announcement later in my remarks.

Our progress over the full year 2022 reflects how our market, leading 360 portfolios and globalization efforts are advancing the company's core growth strategy.

And I'm excited to see how our investments over the past three years have further positioned us to accelerate growth in 2023.

<unk> delivered fourth quarter 2022, net sales of $305 $4 million, an increase of approximately 1% on a reported basis and approximately 5% on a constant currency basis compared to the prior year period.

Foreign currency negatively impacted our net sales performance by approximately $11 million, primarily driven by the Japanese yen and the euro.

As expected case mix favored lower acuity cases, both relative to the market and our procedural mix. However.

However, we remain optimistic that higher acuity cases will ramp up throughout the year.

In our international business, we achieved double digit growth of approximately 11% on a constant currency basis compared to the prior year period.

Led by correspond growth. They continue return of magic and precise titanium products for the full year. Our 2022 net sales came in at $1.202 billion, an increase of five 5% on a reported basis and eight 5% on a constant currency basis compared to the prior year.

In a challenging environment, we grew our U S spinal hardware and U S surgical support business as well as our international business.

We achieved greater than 20% growth in cervical and the U S and delivered a strong global formats from NSO.

Completing its first full year of commercial launch pulse platform net sales showed solid growth in the U S and international markets.

Despite ongoing macro environmental headwinds, we continue to make progress on our growth strategy during.

During 2022, we delivered core growth to the proliferation of our 360 strategy globalization and new product introductions.

And introduced intelligent surgery built on the foundation of the pulse platform with new partnerships commercial distribution agreements and asset acquisitions related to our innovation pipeline.

Starting with our core business, we have significant runway and key procedural segments that are 360 portfolios X 360, <unk> hundred 60, <unk> hundred 60, <unk> complex continue to target.

Our innovation gives us a strong competitive position to extend our leadership in the anterior segment and take share where we've historically been underrepresented.

This year marks 20 years of our flagship procedure excellent.

Today with approximately 300000 procedures performed more than 450 peer reviewed publications and 50 excellent products launched our success in introducing procedurally integrated solutions have made us a leader in the $900 million anterior segment.

In addition, this year also marks five years of the X 360 procedure, our lateral approach to single position surgery.

Last month. Another study published in the spine journal demonstrated the benefits of lateral single position surgery versus patients that needed to be flip mid procedure.

Operative time significantly decreases from approximately five hours to one and a half hours.

There is less for Scopic dosage of.

A certain length of hospital stay and a 36% reduction in post op complications.

We remain committed to delivering innovation that will improve clinical operational and financial outcomes for surgeons hospitals and patients.

This year, our next generation expandable technology Mod X X lift will begin clinical evaluations and the introduction of modulus Ayliffe blades will support the continued interest and modulus a lift as an interbody implant that choice.

Within the $1 7 billion posterior segment, we plan to tackle the tremendous opportunity with our <unk> hundred 60 portfolio, providing comprehensive pathology driven solutions from the posterior position.

<unk> X P L continuous clinical evaluations in the U S market and the recent commercial launch of the new base of tube system is providing our surgeon customers less invasive surgical access for both Chile and decompression application.

Turning to the $2 6 billion cervical segment, our <unk> hundred 60 portfolio continues to deliver greater than 20% growth.

We have a highly differentiated portfolio that continues to take share and maintain high surgeon interest.

The simplify cervical disc exceeded our expectations furthering our ability to capture more of the $450 million ctr market and creating pull through for the rest of the <unk> hundred 60 <unk> portfolio.

The team is committed to additional enhancements for the simplified disc with plans to launch advanced instrumentation in the second half of this year.

Our <unk> antibody implant modulus cervical received expanded indications for <unk> putty, allowing surgeons to utilize the cost effective biologic across our modular historical lumbar and cervical solutions.

And our most recent addition realized cervical continues to receive positive feedback with plans to launch an additional occipital system enhancement in Q4 2023 central to our core growth strategy is enabling technology, while other enabling technologies to date deliver limited clinical utility pulse differentiates.

Itself and that it can be used in 100% of spine procedures.

Pulse is demonstrating definitive pull through in hospitals that have adopted the technology. Our surgeon customers are experiencing the benefits of the platform. We have continued our global mentum by reaching 2000 plus commercial cases.

Our R&D and global operations teams are completing the next system level software release for pulse launching this summer.

Yes, coming release will enhance the line of sight for navigation and new instrument compatibility.

Improved remote support and services and further streamline the overall surgeon and staff experience.

That concludes my remarks, our planned combination with Globus medical to create an innovative global musculoskeletal company helps accelerate our near and long term strategy with presence in more than 50 countries and supported by over 5000 employees, the new organization will be well positioned to deliver on our vision.

Of intelligent surgery.

Combined spine and orthopedic portfolio as needed throughout the continuum of care to help deliver better clinical outcomes.

As a reminder, the complementary combination expands our reach to surgeons and patients around the world with limited commercial overlap in key markets.

Creates a comprehensive portfolio of innovative spine and orthopedic technologies.

Continues our commitment to meaningful innovation expands our operational capabilities and creates compelling upside net sales potential as well as a strong financial profile and value creation opportunity for shareholders.

I remain confident in our Standalone strategy, but together with Globus medical we can do so much more.

We're combining two of the most well regarded companies in the musculoskeletal industry to accelerate our vision to change a patient's life every minute and.

And further our purpose to transform surgery advanced care and change lives.

Now I'll turn the call over to Matt.

Thank you, Chris and good afternoon, I'm going to provide our fourth quarter and full year 2022 financial results and drivers as well as our full year 2023 net sales guidance are detailed financial results have been provided in today's press release and supplemental information during.

During my remarks, I will be discussing both GAAP and non-GAAP measures.

Please see our press release for GAAP to non-GAAP reconciliations all.

I'll reference our fourth quarter results first and then provide our full year 2022 results unless otherwise.

As noted all comparisons are to the prior year period.

We delivered above market net sales growth in 2022, driven by core spine growth new product introductions globalization and further adoption of pulse.

Worldwide net sales for the fourth quarter were $305 $4 million or one 1% increase as reported and a four 8% increase on a constant currency basis foreign currency exchange fluctuations had an unfavorable impact of approximately $11 million during the fourth quarter.

Worldwide net sales for the full year 2022, $1.202 billion of five 5% increase as reported and an eight 5% increase on a constant currency basis.

For the full year 2020 to foreign currency exchange fluctuations had an unfavorable impact of approximately $34 million.

International net sales for the fourth quarter were $68 4 million.

Which was a decrease of four 9% as reported and an increase of 10, 7% on a constant currency basis.

For the full year 2022 International net sales were $282 3 million or four 9% increase as reported and a 17, 7% increase on a constant currency basis.

Constant currency growth showed positive momentum in key international markets during 2022, driven by a corresponding growth in <unk> products.

Now turning to our U S. Net sales here are some key highlights by product line U S. Spinal hardware net sales for the fourth quarter of 2022 were $167 $8 million, representing a four 6% increase our cervical portfolio achieved greater than 20% net sales growth.

Once again led by the <unk> hundred 60 portfolio in the simplify cervical disc.

For the full year 2022 U S. Spinal hardware net sales were $652 1 million, a six 8% increase U S. Surgical support net sales for the fourth quarter of 2022 were $69 2 million roughly flat compared to the prior year period growth in the <unk>.

<unk> business and pulse was offset by declines in biologics net sales for.

For the full year 2022 U S. Surgical support net sales were $267 5 million or.

A three 3% increase.

Moving to operating results fourth quarter non-GAAP gross profit was $214 $7 million.

Compared to $219 1 million in the prior year period for the full year 2022, non-GAAP gross profit was $866 million compared to $832 8 million in the prior year.

non-GAAP gross margin as a percentage of net sales for the fourth quarter of 2022 was 73% a decrease of 220 basis points compared to 72, 5% in the prior year period. The year over year decline was primarily driven by unfavorable foreign currency impacts and a $6 million increase in <unk>.

Inventory related costs.

non-GAAP gross margin as a percentage of net sales for the full year 2022 was 72% a decrease of 110 basis points compared to 73, 1% in the prior year period.

The year over year decline was primarily driven by unfavorable foreign currency impacts and procedural mix.

Fourth quarter 2022, non-GAAP operating expenses were flat year over year at $180 $2 million for the full year 2022, non-GAAP operating expenses were $716 9 million, an increase of four 3% compared to $687 $3 million.

The increase was mainly driven by variable expenses associated with net sales growth higher depreciation costs from investments in surgical instruments sets and inflationary impacts, particularly in travel and freight.

Fourth quarter 2022, non-GAAP operating margin was 11, 3% a decrease of 160 basis points compared to 12, 9% in the prior year period the.

The year over year change was primarily driven by the decrease in gross margin as discussed earlier.

For the full year 2022, non-GAAP operating margin was 12, 4% a decrease of 40 basis points compared to 12, 8% in the prior year, primarily due to lower gross margins.

non-GAAP other income and expense for the fourth quarter was $3 $1 million of expense compared to $8 $8 million of expense in the prior year period. The decrease was primarily driven by lower unrealized foreign currency losses.

For the full year 2022, non-GAAP other income and expense was $14 $1 million of expense compared to $28 2 million of expense in the prior year. The decrease was primarily driven by higher levels of interest income in 2020 to lower unrealized foreign currency losses and lower interest.

<unk> expense as a result of retiring the 2021 convertible notes in March 2021.

non-GAAP tax expense for the fourth quarter of 2022 was $8 8 million compared to $9 3 million in the prior year period, our fourth quarter 2022 effective tax rate was 28% compared to 31% in the prior year period.

For the full year 2022, non-GAAP effective tax rate was 23% compared to 25% in the prior year for.

For the fourth quarter of 2022, we reported GAAP net income of $24 1 million or diluted earnings per share of <unk> 40 to <unk>.

Compared to a net loss of $36 7 million or.

Our diluted loss per share of <unk> 71 in the prior year period.

Included in our GAAP results for the fourth quarter were favorable impacts of foreign currency exchange fluctuations of approximately $15 million.

This increase was primarily associated with the strength of the Australian dollar compared to the U S dollar related to our 2021 acquisition of simple biomedical.

On a non-GAAP basis, we reported fourth quarter net income of $22 6 million or diluted earnings per share of <unk> 43.

Compared to net income of $20 7 million or diluted earnings per share of <unk> 40 in the prior year period.

For the full year 2020 to GAAP net income was $40 4 million or diluted earnings per share of <unk> 76.

Compared to GAAP net loss of $64 1 million.

Our diluted loss per share of $1 24 in the prior year.

Included in our GAAP results for the full year were unfavorable impacts of foreign currency exchange fluctuations of approximately $19 2 million.

Related to our simplify medical acquisition.

On a non-GAAP basis, we reported full year 2022, net income of $103 9 million or diluted earnings per share of $1 98, compared to non-GAAP net income of $87 8 million or diluted earnings per share of $1 68 in the prior year.

Turning to the balance sheet, we had cash and cash equivalents of $248 7 million as of December 31, 2022.

In addition, we continue to have an undrawn $550 million revolving credit facility and our total net debt Leverages three three.

We generated $14 3 million and free cash flow during the fourth quarter compared to $11 9 million in the prior year period.

For the full year 2022, we generated $29 9 million.

And free cash flow compared to $71 1 million in the prior year and.

In 2022, we increased our investment in surgical instrument sets to support net sales growth and new product launches.

And now turning to new basis full year 2023, net sales guidance as we assess the operating environment. We believe there will continue to be macroeconomic volatility and impact in 2023 include.

Including quarterly foreign currency fluctuations inflationary risks and supply constraints, while we can't predict the timing and extent of those impacts.

We believe we will continue to benefit from the investments we've made and the positive momentum we're seeing in our business. We expect continued procedural recovery further adoption and growth from new product introductions continued globalization and a strong net sales pipeline.

Given those factors, we expect worldwide net sales growth of between 6% to 8% for the full year 2023 on a constant currency basis compared to the prior year.

If rates hold near their levels as of February 15, 2023, we expect reported net sales growth to also be 6% to 8%.

We expect some quarterly growth rate implications from exchange rate fluctuations, but minimal impact to net sales growth on a full year basis.

Due to our pending merger with Globus medical which we expect to close mid year, we are not providing operating margin or EPS guidance. At this time, we continue to focus on driving our business in 2023, while improving operating margin and achieving profitable growth.

Now I'd like to ask the operator to please open the call for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two.

I would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pickup your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from.

Mike.

Barclays.

Please go ahead.

Okay.

Got you there.

Hi can you hear me okay.

Okay now.

Great. Thanks for that and thanks, so much for taking the question.

So a little color on the pipeline.

I wanted to just ask one question if I could about.

On the <unk>.

We announced.

Thanks, and with with Globus and sort of activity in jewelry accident. The company and then I had one follow up on the pipeline, So maybe Chris and Matt just to get a sense of.

One of the views out there has been that the cultures of these companies.

It has.

As different might not.

So well.

I think we.

We've seen something different.

Look to get a sense of how the teams are reacting to the news.

And your view on sort of the culture match between the organizations, enabling quick follow up.

Okay. Thanks for the question Matt.

Listen I will say this that I've had a chance to spend time with both teams over the last couple of weeks.

I found a lot more similarities and I found differences I think in general both sides are excited I think the strategic rationale is clear.

If you really step back both both organizations are very patient focused we'd like to say, we change a patient's life every minute they say improve the quality of life for patients with muscular skeletal disorders.

We both have a strong history of innovation and it's in our DNA.

They have a clear and decisive approach to operational rigor and financial discipline I think we have a marketing prowess and our best in class surgeon engagement and training capability.

Those things together I think you create a world class organization across multiple dimensions, and I think everybody sees that now clearly changes is challenging but <unk>.

Ben I've been uniquely impressed at the I don't know, let's say the east, but how the.

As a melting away and people have really gotten behind it now clearly we've got a ways to go but but.

But I've been I've been very impressed with the Globus team I've been impressed how the invasive team has come together and got behind this.

Early days, but I'm encouraged.

Second question, Matthew one of them alright.

That's super helpful.

So the question I had on the pipeline.

It's just.

The posterior segment that you've now talked about a few times and it's going to be ramping up this portfolio around.

Getting after like it.

It used to be maybe like an MAA is T list.

<unk>.

When can we see that to start.

Have you moved the needle or being reflected in some of the some of the results.

Yes. Thanks for the question, we're excited about <unk> hundred 60, and we've talked this before where you've seen us focus our efforts like <unk> hundred 60, we've had phenomenal results you have seen that more recently with <unk> hundred 60, where we double down and the cervical portfolio added at acquisition to simplify and now posted five plus quarters.

Greater than 20% growth within that portfolio and we're just now getting off the we're just not getting off the off the starting line. It's a $1 $7 billion second we have low single digit growth I mean, low single digit share excuse me.

We've recently launched our new base of tubular system Retractor system to I think give us an advantage in areas like telephony decompression.

We will do clinical trials, starting this year with SPL, So youll see meaningful contribution this year from our focus in <unk> hundred 60, now clearly we're still we're still counting on X 316, <unk> hundred 60, it would be the growth drivers, but we are we're now off the starting line I would say with <unk> hundred 60, <unk>, what I consider to be substantial.

Runway in this segment that that wood costs.

So that's exciting thanks, so much thanks.

Thanks, Matt.

Our next question comes from shotgun sync with RBC capital markets.

Go ahead.

Oh, great. Thank you so much I have two.

Two questions one on the deal and one on just Q4 exit rates and guidance.

On the deal I was just wondering if you could talk a little bit about the present stock price reaction in the context of the deal.

Why do you think this is the right that investor should bolt on.

Maybe just what youre hearing from investors.

Is your key messaging to them.

And then for my second question I was just wondering if you can talk about.

The confidence in the 6% to 8% growth why is that the right number given the Q4 exit rate I think you called out high versus lower acuity cases in spine and metric of <unk> seems to be different can you just talk about that thank you for taking the questions.

Thanks Shannon.

Obviously as everybody else is watching the stock price reaction.

Listen.

I know that the market has sort of been fixated on stock price and predicate deals in the space.

I focus our efforts and our.

Our look as we looked at this deal at a a clear strategic rationale that complementary global commercial organizations with minimal overlap.

Truly innovative and broad portfolio in spine and orthopedics.

R&D World Class R&D organization on both sides of the fence. If you will within this with tremendous surgeon education capabilities.

Manufacturing distribution synergies that we look to leverage compelling upside revenue potential and shareholder value creation and I would say I was very confident in our Standalone plan.

But nothing accelerates our strategy more than this deal. So we just got to come to terms with we went down this road.

We thought it was the best way to create value and create value for our shareholders in the long term.

There's a lot of people reacting in the short term, but to be clear we looked at this we looked at several other opportunities over the last several years as we always do we always came back to this is the most compelling combination and unlocks the most shareholder value over time.

I think over time people will come to terms with that I'm excited about this I am confident in this deal.

And like I said, we're early days, we've got a lot of work to do I've got to get out and talk to a lot of our investors, which I'll be doing over the next several weeks.

Telling them, how excited I am about about getting behind this deal.

Yes, <unk> with regard to your question, we feel good about the 6% to 8%.

I would say, we're continuing to feel good about our prospects internationally and low to mid double digit growth, we're going to still see great success and simplify.

<unk> continued to grow pulse.

As youre thinking about calendar as Asian, we're thinking upper two hundreds for the first quarter and if you look at that compared to last year that'll be a really strong start to the year.

Thanks for the question.

Thank you.

Our next question.

Comes from Jose.

Please call Inc. Please go ahead.

Hi, This is Eric on for Josh Thanks for taking the question.

Was hoping to just ask you about the new visa pipeline and pulls specifically I was just curious to hear your thoughts on pursuing a robust application of referrals.

And then also if if you're able to provide any placement metrics on pulse at the moment.

That would be helpful. Thank you.

Thanks for the question Eric.

Let's say we've been we've been we've been excited and.

Yes.

What we've done so far we've done over 2000 commercial cases.

We've got a broad pipeline of technology coming with pulse in the short term we've got software upgrades in the summer that will create we believe greater global expansion this year.

We've always talked about pursuing robotics in the future for pulse, it's always been a part of the roadmap and it's still is so.

Obviously the opportunity we see ahead with the Globus accelerates our opportunity with robotics, enabling tech in general if you back up.

If you recall our four major growth drivers are four major strategies should say core growth, which was the really the $3 60 strategies that we've talked about.

Second was intelligent surgery and this is all about the software capability is truly innovate and change patients' lives and spine surgery and if you think about the combination of the two companies coming together.

More than accelerates anything that we could have done as a standalone so they're world class.

They have a world class technology with a robotic system.

We think that that potentially creates a an accelerator for our ability to drive intelligent surgery.

So we're.

We're excited.

Paulson general units placed for.

For over a year, we've seen double digit pull through so a lot of the things that we're that we've done over the last year really set us up and create a lot of optimism for how we move ahead with pulse.

<unk>.

As far as placement metrics, we've sold the majority of these units we still have the capability to place, but we sold the majority of these units I've always said before.

My goal is to create flexibility and when we prove out the business model that we're getting the kind of pull through that we're seeing with some of the some of the units that I said it like I said replace for more than a year.

It might open up the opportunity to do a little more placements, but so far.

Generally speaking we sold most of our units were still remaining flexible and have several different programs for field so far the technology.

But again I'd say, it's still early days at year end with a lot of opportunity to go.

Understood. Thank you.

So the question.

Our next question comes from Matt Taylor with Jefferies. Please go ahead.

Hey, everyone. This is young Li for Matt.

Matt.

Thanks for taking our questions.

I guess was wondering maybe if you can highlight some of them for.

Major new basic businesses that are more complementary in nature with globus less overlaps thinking.

Cervical or U S NSO neuro monitoring.

Anything else you would highlight them and then for.

For the rest of the business.

You can maybe talk a little bit more about which ones might have slightly more overlap.

Yes.

We've looked at this a lot of different ways I'll, just say that the.

Portfolio as it.

He is highly complementary clearly theres some level of overlap, but again spine is a fragmented market. There's a lot of competitors out there so even though where we have overlap with.

We still have a lot of competition.

No.

They have a strength, enabling technology, obviously, we've done well in the areas like like lateral they've done a fantastic job with areas like enabling tack with more recently done a really nice job I think with our cervical portfolio.

We doubled down and globalization a few years back and I think we've got a we've got an opportunity there to create synergy between the two organizations, we're likely a little a little farther ahead with our global footprint.

Generally speaking there is a lot of complementary.

A lot of complementary nature to the way the two companies can be out there was one of the compelling areas when we sat down and looked at this.

Although competitors just the way the two companies have evolved and innovated over the course of our history we have.

Sort of an apparent on a parallel path, but actively engaged in a lot of different areas. So generally speaking we feel we feel very good about the complementary nature of the portfolio. We've talked a lot about the commercial overlap a lot of people ask me are you.

How overlapped are you commercially and I want to be really clear on this one.

And the majority of accounts and this is a U S statement and the majority of accounts we.

We don't have any overlap, meaning one company has revenue, but the other does not.

The accounts, where both companies have business in almost all instances one company has significantly more business than the other.

An incredible international runway. So if you think about the opportunity for us with the backdrop of what I, just said selling the 360 portfolio, including extra seeking to simplify in the Globus medical accounts, selling Excelsior and expandable and the new base of accounts.

The ability to sell NSO, and precise and <unk> and globus as existing orthopedic and trauma portfolio.

All of that should bring hopefully, it's a context and backdrop that we are confident in our ability to successfully integrate our commercial teams and as you ask very confident and the complementary nature of the portfolio and how that creates value to our patients to our surgeons and to our shareholders.

Alright, great I appreciate the detailed color there.

Maybe.

One on the U S market wanted to hear a little bit more.

It sounds like there are some macro headwinds scale, but getting more stable where do you think we are on the recovery curve as you can.

Maybe talk a little bit about the.

Impacts from maybe backlogs or staffing easing for 2023.

Yes, I mean, I think it's you know.

'twenty two is a very very volatile year from a lottery perspective, you sort of started with the COVID-19.

With a COVID-19 challenging January and February of 2022, and then you ran smack Dab into.

Stability and instability in the war in Ukraine, and then you ran into staffing shortages.

Currency fluctuations.

I think over the course of the year we found.

I guess.

More stability, although I would just say, we've probably got comfortable reacting to the challenges.

As I look at 'twenty, three I still think theres volatility and I still think Theres challenge I still think theres staffing shortages in some way shape or form and is currently clearly clearly still some currency volatility, but the good news is I think as an industry. We've had a chance to sort of react. So now we can be a little more proactive at least.

Predict now currency gets worse or there is further unrest or who knows after the last few years, who knows what happens, but I think we're set up to have a more stable year in 'twenty, three and with that stability I think.

We continue to move back to a normal and hopefully that normal is sort of a like into the pre COVID-19 normal.

Hard to predict where we are along that continuum today, but I would expect that 'twenty three it will be more stable than 'twenty two.

I can't imagine it wouldn't be and I think we have now the better prediction capabilities looking forward than we've had over the last several years so all of that.

Underlying statement as I am optimistic that 'twenty, three will be a much more stable and predictable year than what we've seen in the last couple.

Alright, great. Thanks for taking the question.

Thanks.

Our next question comes from Matt Blackman.

Please go ahead.

Hi, This is Emily on for Matt Thanks for taking the question.

Just a couple on simplify I was hoping for a bit more color on the rollout progress.

Pull through especially for simplify users who are new to new basins may.

Maybe where it has exceeded your expectations and if we're still kind of in the early innings for that and then maybe if you could touch on the competitive dynamics. If you get the sensor growth is coming more from share taking as opposed to market expansion.

Theres been any changes there with the recent disc lunches from Sentinel.

Thank you you and most of the question.

We're very excited about the progress we've made to simplify and I would say.

It's really exceeding expectations across the board.

We've seen we're being our deal model.

On or ahead of pace on some of the integration that we have we've completed most of the activities waiting for agencies response to fully integrate into west Carrollton.

So the other thing Thats exciting about this is as we had the opportunity to to really look at the market, but when we did our investor day back in October and in what was exciting about that is as we were watching the growth of our product, which we think is the leading technology in the Ctr space. We also recognize the market is growing greater than.

And 50% since we measure the market last time, so we have a leading technology and these and they probably the fasting expanding space in the spine market today. So all of those things. We're excited we've trained upwards of 800, plus surgeons, we've got roughly about let's say greater than 500 active today. So we've got a lot of runway.

There are still opportunities for us we think simplify in the CPI market to grow we think patient awareness patients want motion preservation.

We think surgeon awareness continues to increase we think the data that's associated with this procedure continues to show positive results versus things like Acs.

And the reimbursement.

Reimbursement gap is closing its not closed yet, but its closing and so those things all give us a lot of confidence that we've got opportunity as far as as far as.

Competitive dynamics of market share versus market expansion.

No we're taking share.

Obviously, the incumbent <unk> six Mobi C. We think we're doing well we're also taking advantage of the market expansion. So.

I don't have a number per se to say how much is market expansion and how much of share, but just suffice to say I am confident in our runway.

I am confident in the fact that it's pulling through the broader C 360 portfolio. We've grown that 20 plus percent for the last five quarters and I feel confident that runway going forward, we continue that trend.

Great. Thank you.

Thanks for the question.

Our next question comes from Joe Pratt.

Wells Fargo. Please go ahead.

Hey, good afternoon, and thanks for taking the questions two for me first.

First one for Chris Chris you talked about the complex for the higher acuity cases getting better.

Would you, perhaps put a finer point on that and what gives you confidence that they will ramp throughout the year and my follow up is for Matt. Matt can you just maybe talk about seasonality in 2023 as you see it both on revenues and on Opex. Thank you.

Thanks Vic.

This last quarter I believe.

I haven't seen any discernible difference in the velocity of cases, what I said was we're going to annualize our mix.

We've seen obviously.

More <unk>.

Should say muted number of complex cases in relation to the growth we saw in areas like cervical. So are our higher overall revenue per case was down because we had a mix.

Mixed disruption in 2022, although having said that we still grew the business eight 5%. So I was proud of how specifically when I look and I talked to us before when I look at the volume growth. The volume growth is much greater than the revenue growth because of this dynamic that we've seen with our mix. Good news is I don't know that I see a change in velocity.

Of high acuity cases, yet, but what I do see is we've annualized our mix. So we should get a much.

Generally equal benefit from volume to revenue where in 2022 time frame, we were at a deficit. So hey, if it picks back up that's great I haven't seen anything that would indicate that is picking up and increasing in velocity, but generally if the market stabilizes and staffing concerns go down.

And the floors on the hospital or not constrained than hopefully the throughput will increase and that should benefit some of the higher acuity cases, if that makes sense.

Yes, Vik this is Matt thanks for the question.

Feel really good about the 6% to 8% as I said earlier, we're thinking upper two hundreds for the first quarter from a currency perspective, we're expecting a negative impact in the first and second quarter and then it'll be muted in the back half of the year and on balance pretty much next to the plus or minus $1 million.

Nick I'll, just add one more thing, though that's interesting that that.

But I will say.

Coming out of last.

Q4 of 2022, we did see some softness in the very end of the very end of the quarter and latter December where either because of our strongest weeks of the year fairly muted now.

Correspondingly I have seen a less of a drop off in January now January doesn't doesn't represent the quarter, but it would indicate there may be a little more of a smoothness in the seasonality coming into this year and whether that progresses throughout the year and you have a smoother seasonality to 'twenty three is something we'll be we'll have to watch but.

At December to January usually have a peak and a valley we saw less of a pea for us seeing less of a valley if that makes sense.

Thank you very helpful. Thank you.

Thanks Vic.

Our next question comes from David Saxon Please make him and company. Please go ahead.

Hi, guys. This is Joseph on for David.

Maybe just wanted to do two questions around the.

Overlap.

With Globus.

I guess just looking at.

The accounts were.

You don't have any overlap with Globus could you maybe talk about your main competitors in those accounts that they arent globus.

I mean there.

There is a eight 8% to 10 companies, who make up 80% of the market. So it's not us our globus is one of them.

And.

On where you are it could be any one of those so medtronic as a market leader.

So if you want to throw a dart at it you'd probably hit them first but there's many others out there.

Okay, Yeah that makes sense and then I guess internationally.

If you could touch on that what the overlap looks like is it similar to the U S.

We've got work to do there, but generally speaking I can't speak for Globus here, but.

Off the top of my head I want to say they had.

Low double digit type of revenue representation of U S versus O U S.

Maybe 10% to 11%.

But we we.

We've amassed roughly about 25% of our revenue comes from markets outside the U S and that's growing substantially for us.

Seven 7% constant currency.

In 2022 so.

We'll get we'll get to the bottom of where we have overlap, but but safe to say I think both of us in early innings and in low single digit share positions.

In most markets, Japan is a market that we have a significant amount of strength as an example, where the number two share player in and Theyre probably.

Very very lower lower share player in that market, So thats clearly a synergy opportunity.

We'll be working through that as we go through the pre integration planning has got a lot of work to do there, but at first glance.

We're optimistic that there is significant opportunity and minimal overlap now we haven't gone to the granularity of gone to in the U S. Yet, but we will and like I said, we're confident we've got an opportunity there as well.

Okay, great. Thank you for taking our questions.

Thank you.

Our next question comes from Allen Gong with JP Morgan.

Please go ahead.

Hi, This is actually Lili on for Alan Thanks for taking my question.

EPS in the quarter was a bit softer than what we and the street were thinking so if you could just dig a little deeper into that.

In all dynamics, you saw in the quarter and what Premier Drybulk demand wise that would be helpful.

Yes, I think the tax rate was a little bit higher than what people were modeling and I would say in general interest expense is an area that.

<unk> has more volatility around it is being modeled and I would like to say for 2023 for interest expense.

We think $25 million is a good number to use.

Got it that's really helpful.

And then maybe just digging into the guidance a bit more could you talk a bit about your confidence in getting to the top half of the 60% range and one of the drivers that are needed.

Thanks, so much.

Yeah, So I'll hit that one.

We're confident in the guidance range clearly, we I've talked about this we haven't seen a normal year since 2019 so.

To the earlier question I think I forget who asked it but.

How do we look at 'twenty three from a stable stability perspective, I think you hit the high end of their end to the guidance, we need the macroeconomics too to subside.

Today, the macroeconomic headwinds to subside.

We need to beat currency.

Need to see staffing shortages go away.

But the fact is we feel pretty good we've got the extra 60 portfolio and the new product introduction, we talked about.

<unk> hundred 60 portfolio continues to grow we continue to drive Paul simplify continues to be a growth driver our international business continues to grow in the double digit range. So.

To get above that 8% range or get to the higher end I just need the market to.

To come in line for once in the last few years and give us a little bit of a little bit of stability.

And minimize some of the headwinds we face so providing those things happen I feel pretty confident that.

We're in the range of the year.

Were optimistic that Theres some upside if.

If the market continues to get better.

Great. Thank you.

Thanks for the question.

Okay.

Again, if you have a question. Please press star one on your telephone keypad.

Our next question comes from drew.

Drew Ranieri with Morgan Stanley . Please go ahead.

Yeah, Hey, Chris Thanks for taking the questions.

Just to start.

Really going back to the deal announcement, both companies have kind of talked about free cash flow generation being a.

A key value driver of the deal and Matt I think I heard in your remarks that you talked about 2022 is a key investment year for SaaS as Youre thinking about 'twenty three.

Can you maybe talk about any specific areas, where you are continuing to push your foot down on the gas from an investment perspective and sets or anything that you are pulling back on just.

How should we kind of think about set deployments that investment contributing to that 6% to 8%.

Top line growth for 'twenty three.

Yes. Thanks for the questions you are clearly.

We have talked in Investor day, we talked a lot about.

Programs that we believe will drive op margin, we continue to say, we're going to invest in the company.

And we've done that we've done that through the course of 'twenty two and we will continue to provide SaaS will continue to execute our 2023 plan will continue to execute our R&D programs.

We'll continue to operate the business I mean, all of those things will continue business as usual business continuity will be the key for us over the next several weeks and months as we move from the assigned to close period.

The things that the things that I will I will our likely pause on our sort of these multiyear initiatives.

Examples are ERP consolidations things that just don't make a lot of sense to do until we move into the context of the new entity SKU Rationalizations, one I talked about I believe in.

In October and under the context of global inventory, but within the combined entity, we just need to take a pause and see what that looks like so.

And all the things that we think drive our business forward today and continue to maintain top line growth will continue things that we need to rethink and the context of a combined entity, we will pause and rethink.

No.

I don't know if I'm answering your question, specifically, but thats kind of what we're looking at it.

Got it and then just.

May be a growth driver type question.

On International you were just.

Talking about Japan has been a strong market for you.

Leading the charge there versus Clovis, but as you look at the combined portfolio, putting everything together is there any geography that you think you have a better opportunity to kind of win as a combined company that you previously didn't have before with with the scale.

And just a second question if I may.

There with pulse said definitive pull through pretty strong language. So can you kind of give us a sense of in the cases that you're seeing.

How much that means in terms of wallet share per procedure, just any more context, there would be great. Thank you for taking the questions.

As far as that where I think we're better positioned to win in which geographies I mean.

I don't want to be contrite here, but I would say all of them.

If you look at like I said before our ability to access.

Enabling tech.

Capability that globus possessed and continues to innovate around what we've done like I said, we're about 360 portfolio things like simplify.

Our global footprint.

So and precise opportunity coupled with their orthopedic trauma portfolio I think we're stronger in every market we plan.

Just as a rule, it's one of the one of the key drivers of why we're doing this deal.

As far as Paul.

I would just say theres been double digit net sales growth in the account. So you compare that to our total global growth of eight 5%.

And even take that into consideration as probably more of a U S phenomenon for the most part double digits, where those where those for those customers that have had the system in for let's say a year or so we've seen double digit growth so substantially better than what you would say the average is if you look at our U S growth number or if you can translate that even to our to our global growth.

<unk>.

Substantially higher.

Thanks for the question.

Yes.

There are no further questions at this time I would like to turn the floor back over to merge.

Barry.

Yes.

Please go ahead.

Thanks, Maria Thanks for everybody for participating today and the earnings call.

Hopefully it came through that how excited I am about creating an innovative global musculoskeletal company together with Globus I'm also very excited about where we were with where we've come.

With new basis, and our confidence in our Standalone strategy.

But I am confident that this is the best path forward for us to create shareholder value and further enhance how we partner with surgeons and ultimately better treat patients. So thank you all for attending today and hope to talk to you next time.

Yeah.

You may now disconnect your lines at this time. Thank you for your participation and have a great.

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Good day, ladies and gentlemen, and welcome to the first quarter <unk> earnings Conference call.

Now like to introduce your host for today's call Ms. Juliet Cunningham Vice President.

The Investor Relations at.

Please go ahead Ms Cunningham.

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

Chris will provide an overview of new basis fourth quarter, and full year 2020 to business results and trends as well as innovation highlights.

Matt will review, our detailed financial results and full year 2023 outlook.

Then we will 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 being recorded.

I will be available on the IR website later today.

Before we get started I'd like to remind you. There are comments. During this call will include forward looking statements, which are based on current expectations.

And involve risks and uncertainties assumptions.

The assumptions and other factors, which could cause actual results to differ materially from those expressed or implied by such forward looking statements.

The factors that could cause actual results to differ materially are described a new basis 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 reckon.

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 <unk> website.

And now I'd like to introduce Chris Barry.

Thank you Juliet and good afternoon, everyone.

Earlier today, we reported fourth quarter and full year 2020 to financial results on.

On today's call I will provide highlights of 2022.

And review our outlook for 2023, which is supported by our fundamentals of growth strategy and our definitive agreement to combine with Globus medical.

Matt will share additional financial details on the fourth quarter and full year 2022 performance as well as 2023 net sales guidance.

I couldnt be more excited about our combination of Globus medical as it brings together two well regarded technology companies in the musculoskeletal industry.

The combined company will have an incredible commercial scale, an exceptional portfolio of clinically proven solutions supported by strong commercial and clinical professional development teams and.

An excellent capabilities to serve our customers effectively.

Being able to change the future of spine and orthopedic care, while unlocking our vision to change a patient's life every minute is now even more achievable together with globus.

More on our announcement later in my remarks.

Our progress over the full year 2022 reflects how our market, leading 360 portfolios and globalization efforts are advancing the company's core growth strategy.

And I'm excited to see how our investments over the past three years have further positioned us to accelerate growth in 2023.

<unk> delivered fourth quarter 2022, net sales of $305 4 million, an increase of approximately 1% on a reported basis and approximately 5% on a constant currency basis compared to the prior year period.

Foreign currency negatively impacted our net sales performance by approximately $11 million, primarily driven by the Japanese yen and the euro.

As expected case mix favored lower acuity cases, both relative to the market and our procedural mix how's.

However, we remain optimistic that higher acuity cases will ramp up throughout the year.

In our international business, we achieved double digit growth of approximately 11% on a constant currency basis compared to the prior year period.

Led by correspond growth. They continue return of magic and precise titanium products for the full year. Our 2022 net sales came in at $1 billion to $202 million, an increase of five 5% on a reported basis and eight 5% on a constant currency basis compared to the prior year.

In a challenging environment, we grew our U S spinal hardware and U S surgical support business as well as our international business.

We achieved greater than 20% growth in surgical in the U S and delivered a strong global formats from NSO.

Completing its first full year of commercial launch pulse platform net sales showed solid growth in the U S and international markets.

Despite ongoing macro environmental headwinds, we continue to make progress on our growth strategy. During 2022, we delivered core growth to the proliferation of our 360 strategy globalization new product introductions.

And introduced intelligent surgery built on the foundation of the pulse platform with new partnerships commercial distribution agreements and asset acquisitions related to our innovation pipeline.

Starting with our core business, we have significant runway and key procedural segments that are 360 portfolios X 360, <unk> hundred 60, <unk> hundred 60, <unk> complex to continue to target.

Our innovation gives us a strong competitive position to extend our leadership in the anterior segment and take share where we've historically been underrepresented.

This year marks 20 years of our flagship procedure excellent.

Today with approximately 300000 procedures performed more than 450 peer reviewed publications and 50 excellent products launched.

Our success in introducing procedurally integrated solutions have made us a leader in the $900 million anterior segment in.

In addition, this year also marks five years of the X 360 procedure, our lateral approach to single position surgery.

Last month. Another study published in the spine journal demonstrated the benefits of lateral single position surgery versus patients that needed to be flip mid procedure.

Operative time significantly decreases from approximately five hours to one five hours.

Theres less floor Scopic dosage a.

A certain length of hospital stay and a 36% reduction in post op complications.

We remain committed to delivering innovation that will improve clinical operational and financial outcomes for surgeons hospitals and patients.

Within the $1 7 billion posterior segment, we plan to tackle the tremendous opportunity with our <unk> 360 portfolio, providing comprehensive pathology driven solutions from the posterior position.

<unk> continuous clinical evaluations in the U S market and the recent commercial launch of the new basic <unk> system is providing our surgeon customers less invasive surgical access for both Taylor and decompression applications.

Turning to the $2 6 billion cervical segment, our <unk> hundred 60 portfolio continues to deliver greater than 20% growth.

We have a highly differentiated portfolio that continues to take share and maintain high surgeon interest.

To simplify cervical disc exceeded our expectations furthering our ability to capture more of the $450 million ctr market and creating pull through for the rest of the <unk> hundred 60 <unk> portfolio.

The team is committed to additional enhancements for the simplified disc with plans to launch advanced instrumentation in the second half of this year.

And our most recent addition, <unk> cervical continues to receive positive feedback with plans to launch an additional occipital system enhancement in Q4 2023 central to our core growth strategy is enabling technology, while other enabling technologies to date deliver limited clinical utility pulse differentiates.

Yourself in that it can be used in 100% of spine procedures.

Our R&D and global operations teams are completing the next system level software release for pulse launching this summer.

Yes, coming release will enhance the line of sight for navigation at new instrument compatibility.

Improved remote support and services and further streamline the overall surgeon and staff experience.

As I conclude my remarks, our planned combination with Globus medical to create an innovative global muscular skeletal company helps accelerate our near and long term strategy with presence in more than 50 countries and supported by over 5000 employees, the new organization will be well positioned to deliver on our vision.

Intelligent surgery.

Our combined spine and orthopedic portfolio as needed throughout the continuum of care to help deliver better clinical outcomes.

As a reminder, the complementary combination expands our reach to surgeons and patients around the world with limited commercial overlap in key markets.

Creates a comprehensive portfolio of innovative spine and orthopedic technologies.

I remain confident in our Standalone strategy, but together with Globus medical we can do so much more.

We're combining two of the most well regarded companies in the musculoskeletal industry to accelerate our vision to change a patient's life every minute and.

And further our purpose to transform surgery advanced care and change lives.

Now I will turn the call over to Matt.

During my remarks, I will be discussing both GAAP and non-GAAP measures.

Please see our press release for GAAP to non-GAAP reconciliations all.

I'll reference our fourth quarter results first and then provide our full year 2022 results unless otherwise noted all comparisons are to the prior year period.

We delivered above market net sales growth in 2022, driven by core spine growth new product introductions globalization and further adoption of pulse.

Worldwide net sales for the full year 2022, $1.202 billion of five 5% increase as reported and an eight 5% increase on a constant currency basis.

For the full year 2020 to foreign currency exchange fluctuations had an unfavorable impact of approximately $34 million in.

In international net sales for the fourth quarter were $68 4 million.

Which was a decrease of four 9% as reported and an increase of 10, 7% on a constant currency basis for.

For the full year 2022 international net sales were $282 3 million or.

A four 9% increase as reported and a 17, 7% increase on a constant currency basis.

Constant currency growth showed positive momentum in key international markets during 2022, driven by core spine growth and NSO products.

Now turning to our U S. Net sales here are some key highlights by product line.

U S spinal hardware net sales for the fourth quarter of 2022 were $167 8 million, representing a four 6% increase for cervical portfolio achieved greater than 20% net sales growth. Once again led by the <unk> hundred 60 portfolio in the simplify cervical disc.

For the full year 2022 U S spinal hardware net sales were $652 $1 million a.

A six 8% increase U S surgical support net sales for the fourth quarter of 2022 were $69 2 million roughly flat compared to the prior year period growth in the services business and pulse was offset by declines in biologics net sales.

For the full year 2022 U S. Surgical support net sales were $267 5 million or.

Three 3% increase.

Moving to operating results fourth quarter non-GAAP gross profit was $214 $7 million.

Compared to $219 1 million in the prior year period for the full year 2022, non-GAAP gross profit was $866 million compared to $832 8 million in the prior year.

Inventory related costs.

non-GAAP gross margin as a percentage of net sales for the full year 2022 was 72% a decrease of 110 basis points compared to 73, 1% in the prior year period.

The year over year decline was primarily driven by unfavorable foreign currency impacts and procedural mix.

Fourth quarter 2022, non-GAAP operating expenses were flat year over year at $182 million for the full year 2022, non-GAAP operating expenses were $716 9 million, an increase of four 3% compared to $687 $3 million.

Fourth quarter 2022, non-GAAP operating margin was 11, 3% a decrease of 160 basis points compared to 12, 9% in the prior year period.

The year over year change was primarily driven by the decrease in gross margin as discussed earlier.

For the full year 2022, non-GAAP operating margin was 12, 4% a decrease of 40 basis points compared to 12, 8% in the prior year, primarily due to lower gross margins.

non-GAAP other income and expense for the fourth quarter was $3 1 million of expense compared to $8 $8 million of expense in the prior year period. The decrease was primarily driven by lower unrealized foreign currency losses.

For the full year 2022, non-GAAP other income and expense was $14 1 million of expense compared to $28 $2 million of expense in the prior year. The decrease was primarily driven by higher levels of interest income in 2020 to lower unrealized foreign currency losses and lower interest.

<unk> expense as a result of retiring the 2021 convertible notes in March 2021.

For the full year 2022, non-GAAP effective tax rate was 23% compared to 25% in the prior year for.

For the fourth quarter of 2022, we reported GAAP net income of $24 1 million or diluted earnings per share of <unk> 42.

Compared to a net loss of $36 7 million or diluted loss per share of <unk> 71 in the prior year period.

Included in our GAAP results for the fourth quarter were favorable impacts of foreign currency exchange fluctuations of approximately $15 million.

This increase was primarily associated with the strength of the Australian dollar compared to the U S dollar related to our 2021 acquisition of simple biomedical.

On a non-GAAP basis, we reported fourth quarter net income of $22 6 million or diluted earnings per share of <unk> 43.

Compared to net income of $20 7 million or diluted earnings per share of <unk> 40 in the prior year period.

For the full year 2020 to GAAP net income was $40 4 million or diluted earnings per share of <unk> 76 <unk>.

Compared to GAAP net loss of $64 $1 million.

Our diluted loss per share of $1 24 in the prior year.

Included in our GAAP results for the full year were unfavorable impacts of foreign currency exchange fluctuations of approximately $19 $2 million related to our simplify medical acquisition.

On a non-GAAP basis, we reported full year 2022, net income of $103 9 million.

Our diluted earnings per share of $1 98, compared to non-GAAP net income of $87 8 million or diluted earnings per share of $1 68 in the prior year.

Turning to the balance sheet, we had cash and cash equivalents of $248 7 million as of December 31, 2022 in.

In addition, we continue to have an undrawn $550 million revolving credit facility and our total net debt Leverages three three.

We generated $14 3 million and free cash flow during the fourth quarter compared to $11 9 million in the prior year period.

For the full year 2022, we generated $29 $9 million.

And free cash flow compared to $71 1 million in the prior year.

In 2022, we increased our investment in surgical instrument sets to support net sales growth and new product launches.

And now turning to new basis full year 2023, net sales guidance as we assess the operating environment. We believe there will continue to be macroeconomic volatility and impact in 2023 include.

Including quarterly foreign currency fluctuations inflationary risks and supply constraints, while we can't predict the timing and extent of those impacts.

Given those factors, we expect worldwide net sales growth of between 6% to 8% for the full year 2023 on a constant currency basis compared to the prior year.

If rates hold near their levels as of February 15, 2023, we expect reported net sales growth to also be 6% to 8%.

We expect some quarterly growth rate implications from exchange rate fluctuations, but minimal impact to net sales growth on a full year basis.

Now I'd like to ask the operator to please open the call for questions.

We'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pickup your handset before pressing the star keys.

One moment, please while we poll for questions.

Our first question comes from.

Mike.

Barclays.

Please go ahead.

Okay.

Got you there.

Hi can you hear me okay.

Again now.

Great. Thanks, sorry for that thanks, so much for taking the question.

So a little color on the pipeline.

Yeah.

I wanted to just ask one question if I could about.

The.

We announced.

And with with Globus and sort of.

The internal reaction as a company and then I had one follow up on the pipeline So maybe Chris.

Just to get a sense of.

One of the views out there has been that the cultures of these companies.

It has.

Different might not match so well.

I think.

We've seen something different.

Look to get a sense of how the teams are reacting to the news.

And your view on sort of the culture match between the organizations, enabling quick follow up.

Okay. Thanks for the question, Matt listen I will say this that I've had a chance to spend time with both teams over the last couple of weeks in.

I found a lot more similarities than I found differences I think in general both sides are excited I think the strategic rationale is clear.

If you really step back both both organizations are very patient focused we'd like to say, we change a patient's life of every minute they say improve the quality of life for patients with muscular skeletal disorders.

We both have a strong history of innovation, it's in our DNA.

They have a clear and decisive approach to operational rigor and financial discipline I think we have a marketing prowess and our best in class surgeon engagement and training capability. You mentioned those things together I think you create a world class organization across multiple dimensions, and I think everybody sees that now clearly changes these chat.

<unk>, but.

I've been I've been uniquely impressed at the.

I will say the east.

But how the differences of melted away and people have really gotten behind it now clearly we've got a ways to go but.

I'd like to say that we don't have contradictory cultures, we have complementary cultures with complementary capabilities that we can drive together. So that's kind of where we are today again, we're two weeks in but I've been I've been very impressed with the Globus team I've been impressed how the invasive team has come together and got behind US It's early days, but.

But I'm encouraged.

Second question Matt.

Alright.

It has been helpful.

So the question I had on the pipeline.

It's just just.

The posterior segment that you've now talked about a few times and it's going to be ramping up at this portfolio around.

Getting after.

He used to be maybe like an M&A deal.

Opportunity.

When can we see that.

To maybe move the needle or being reflected in some of the some of the results.

Thanks.

Yes. Thanks for the question, we're excited about <unk> hundred 60, and we've talked this before where you've seen us focus our efforts like X 360, we've had phenomenal results you've seen that more recently with <unk> hundred 60, where we double down and the cervical portfolio added acquisition to simplify and now posted five plus quarters of greater than 20% growth.

Within that portfolio. We're just now getting off the we're just now getting off the off the starting line Thats a $1 $7 billion segment, we have low single digit growth I mean, low single digit share excuse me.

We've recently launched our new base of tubular system Retractor system to I think give us an advantage in areas like <unk> and decompression.

We will do clinical trials, starting this year with SPL, So youll see meaningful contribution this year from our focus in <unk> hundred 60, now clearly we're still we're still counting on X 360, and <unk> hundred 60, it would be the growth drivers, but we are we're now off the starting line I would say with <unk> hundred 60 <unk>.

What I consider to be substantial runway in this segment that we saw.

Thanks, so much.

Our next question comes from shotguns.

RBC capital markets. Please go ahead.

Oh, great. Thank you so much I have two questions one on the deal and one on just Q4 exit rates and guidance.

On the deal I was just wondering if you could talk a little bit about the current stock price reaction in the context of the deal.

Why do you think this is the rate that investors should bolt on.

Maybe just what youre hearing from investors.

What is your key messaging to them.

Then for my second question I was just wondering if you can talk about.

Thanks Shannon.

Listen.

As everybody else's watch some of the stock price reaction.

I know that the market has sort of been fixated on stock price and predicate deals in the space.

I focus our efforts.

Our look as we looked at this deal at a a clear strategic rationale.

At complementary global commercial organizations with minimal overlap.

Truly innovative and broad portfolio in spine and orthopedics.

R&D World Class R&D organization on both sides of the fence. If you will within this with tremendous surgeon education capabilities.

Manufacturing distribution synergies that we look to leverage compelling upside revenue potential and shareholder value creation and I would say I was very confident in our Standalone plan.

But nothing accelerates our strategy more than this deal. So we've just got to come to terms with we went down this road.

Because we thought it was the best way to create value and create value for our shareholders in the long term.

And I think Theres a lot of people reacting in the short term, but to be clear we looked at this we looked at several other opportunities over the last several years as we always do we always came back to this is the most compelling combination and unlocks the most shareholder value over time I think over time people will come to terms with that I am excited about this I'm confident in this deal.

<unk>.

And like I said, we're early days, we've got a lot of work to do I've got to get out and talk to a lot of our investors, which I'll be doing over the next several weeks.

Telling them, how excited I am about about getting behind this deal.

Yes, <unk> with regard to your question, we feel good about the 6% to 8%.

I would say, we're continuing to feel good about our prospects internationally and low to mid double digit growth.

Still see great success and simplify.

To continue to grow pulse.

As youre thinking about calendar <unk>, we're thinking upper two hundreds for the first quarter and if you look at that compared to last year that'll be a really strong start to the year.

Thanks for the question.

Thank you.

Our next question.

Strong Jose James with Cowen. Please go ahead.

Hi, This is Eric on for Josh Thanks for taking the question.

I was hoping to just ask you about the new visa pipeline in <unk>.

Specifically I was just curious to hear your thoughts on pursuing a robust application of referrals.

And then also if youre able to provide any placement metrics on pulse at the moment.

That would be helpful. Thank you.

Thanks for the question Eric.

Let's say we have been we've been we've been excited and.

Yes.

What we've done with pulse so far we've done over 2000 commercial cases.

We've got a broad pipeline of technology coming with pulse in the short term we've got software upgrades in the summer that will create we believe greater global expansion this year.

We've always talked about pursuing robotics in the future for pulse, it's always been a part of the roadmap and it's still is so the obviously the opportunity. We see ahead with the Globus accelerates our opportunity with robotics, enabling tech in general if you back up.

If you recall our four major growth drivers are four major strategy should say core growth, which was the really the $3 60 strategies that we've talked about.

More than accelerates anything that we could have done as a stand alone so they're world class, but.

They have a world class technology with a robotic system.

We think that that potentially creates a an accelerator for our ability to drive intelligent surgery.

So we're.

We're excited.

Paulson general units placed for.

<unk>.

As far as placement metrics, we've sold the majority of these units we still have the capability to place, but we have sold the majority of these units I've always said before.

It might open up the opportunity to do a little more placements, but so far.

Speaking we've sold most of our units were still remaining flexible and have several different programs for people to acquire the technology.

But again I'd say, it's still early days, a year and with a lot of opportunity to go.

Understood. Thank you.

So the question.

Our next question comes from Matt Taylor with Jefferies. Please go ahead.

Hey, everyone. This is.

Matt.

Thanks for taking my questions.

I guess was wondering maybe if you can highlight some of it there.

Major new base of businesses that are more complementary in nature with globus less overlaps thinking.

Cervical or U S NSO neuro monitoring.

Anything else you would highlight them and then.

For the rest of the business.

You can maybe talk a little bit more about which ones might have slightly more overlap.

Yes.

We've looked at this a lot of different ways I'll, just say that the portfolio is.

He is highly complementary clearly theres some level of overlap, but again spine is a fragmented market. There's a lot of competitors out there so even where we have overlap with.

We still have a lot of competition.

No.

They have a strength, enabling technology, obviously, we've done well in the areas like like lateral they've done a fantastic job with areas like enabling tacked with more recently done a really nice job I think with our cervical portfolio.

Generally speaking there is a lot of complementary.

A lot of complementary nature to the way the two companies can be out there was one of the compelling areas when we sat down and looked at this.

Although competitors just the way the two companies have evolved and innovated over the course of our history.

We've sort of been apparent on a parallel path, but actively engaged in a lot of different areas. So generally speaking we feel we feel very good about the complementary nature of the portfolio, we've talked a lot about the commercial.

Overlap a lot of people will ask me.

How overlapped are you commercially and I want to be really clear on this one.

And the majority of accounts and this is a U S statement and the majority of accounts.

We don't have any overlap, meaning one company has revenue, but the other does not.

The accounts, where both companies have business in almost all instances one company has significantly more business than the other.

An incredible international runway. So if you think about the opportunity for us with the backdrop of what I, just said selling the 360 portfolio, including extra seeking to simplify in the Globus medical accounts, selling <unk>, Lcs and expandable and the new base of accounts the.

The ability to sell NSO and precise in G meds, and globus as existing orthopedic and trauma portfolio.

All of that should bring hopefully a context and some backdrop that we are confident in our ability to successfully integrate our commercial teams and as you ask very confident and the complementary nature of the portfolio and how that creates value to our patients through our surgeons and to our shareholders.

Alright, great I appreciate the detailed color there.

Maybe one.

One on the U S market wanted to hear a little bit more.

It sounds like there's some macro headwinds scale, but getting more stable.

Where do you think we are on the recovery curve.

If you can maybe talk a little bit about the temporary impacts from maybe backlogs or staffing easing.

2023.

Yes, I mean I think it's.

'twenty two is a very very volatile year from a lot of perspectives, you sort of started with the COVID-19.

With a COVID-19 challenging January and February of 2022, and then you ran smack Dab into.

<unk>.

Instability in the war in Ukraine, and then you ran into staffing shortages in.

Currency fluctuations.

I think over the course of the year we found.

I guess <unk>.

More stability, although I would just say, we've probably got comfortable reacting to the challenges as.

If I look at 'twenty, three I still think theres volatility and I still think Theres challenge I still think theres staffing shortages in some way shape or form and is currently clearly clearly still some currency volatility, but the good news is I think as an industry. We've had a chance to sort of react. So now we can be a little more proactive at least.

We continue to move back to a normal and hopefully that normal is sort of a like into the pre COVID-19 normal.

Hard to predict where we are along that continuum today, but I would expect that 'twenty three it will be more stable than 'twenty two.

I can't imagine it wouldn't be and I think we have now the better prediction capabilities looking forward than we've had over the last several years so all of that.

Underlying statement as I am optimistic that 'twenty, three will be a much more stable and predictable year than what we've seen in the last couple.

Alright, great. Thanks for taking my question.

Thanks.

Our next question comes from Matt Blackman.

Please go ahead.

Hi, This is Emily on for Matt Thanks for taking the question.

Just a couple on simplify I was hoping for a bit more color on the rollout progress.

Pull through especially first simplify users who are new to new basins.

If theres been any changes there with the recent <unk>.

From Sentinel.

Thank you you and most of the question.

We're very excited about the progress we've made to simplify and I would say.

It's really exceeding expectations across the board we've seen we're beating our deal model, we're on or ahead of pace on some of the integration that we have we've completed most of the activities waiting for agencies response to fully integrate into west Carrollton.

The other thing Thats exciting about this is as we had the opportunity to to re look at the market, but when we did our investor day back in October and in what was exciting about that is as we were watching the growth of our product, which we think is the leading technology in the Ctr space. We also recognize the market is growing greater than.

50% since we measure the market last time, so we have a leading technology and these and they probably the fasting expanding space in the spine market today. So all those things. We're excited we've trained upwards of 800, plus surgeons, we've got roughly about let's say greater than 500 active today. So we've got a lot of runway.

There are still opportunities for us we think simplify in the CPR market to grow we think patient awareness patients want motion preservation.

We think surgeon awareness continues to increase we think the data that's associated with this with this procedure continues to show positive results versus things like Acs.

And the reimbursement.

Members May gap is closing its not closed yet, but it is closing and so those things all give us a lot of confidence that we've got opportunity as far as as far as the.

Competitive dynamics of market share versus market expansion, we know we're taking share obviously the incumbent <unk> six mobi C. We think we're doing well. We're also taking advantage of the market expansion. So.

<unk>.

I don't have a number per se to say how much is market expansion and how much of share, but just suffice to say I am confident in our runway.

Confident in the fact that it's pulling through the broader C 360 portfolio, we've grown that 20 plus percent for the last five quarters and I feel confident that runway going forward, we continue that trend.

Great. Thank you.

Thanks for the question.

Our next question comes from the.

Joe Pratt with Wells Fargo. Please go ahead.

Hey, good afternoon, and thanks for taking the questions two for me.

First one for Chris Chris you talked about the complex of the higher acuity cases getting better.

Could you, perhaps put a finer point on that and what gives you confidence that they will ramp throughout the year and my follow up is for Matt. Matt can you just maybe talk about seasonality in 2023 as you see it both on revenues and on Opex. Thank you.

Thanks, Vic I said this last quarter I believe.

I haven't seen any discernible difference in the velocity of cases, what I said was we're going to annualize our mix.

We've seen obviously.

More.

Should say muted number of complex cases in relation to the growth we saw in areas like cervical. So are our higher overall revenue per case was down because we had a mix.

I don't know that I see a change in velocity of high acuity cases, yet, but what I do see is we've annualized our mix. So we should get a much.

And Florida on the hospital or not constrained than hopefully the throughput will increase and that should benefit some of the higher acuity cases, if that makes sense.

Yes, Vik this is Matt thanks for the question.

Nick I'll, just add one more thing, though that's interesting that that.

I will say.

Coming out of last.

Q4 of 2022, we did see some softness in the very end of the very end of the quarter and latter December where either because of our strongest weeks of the year fairly muted now.

Correspondingly I have seen less of a drop off in January now January doesn't doesn't represent the quarter, but it would indicate there may be a little more of a smoothness in the seasonality coming into this year and whether that progresses throughout the year and you have a smoother seasonality to 'twenty three is something we'll be we'll have to watch but.

At December to January you, usually have a peak and a valley we saw less of a peak, but we're also seeing lots of a valley if that makes sense.

Thank you very helpful. Thank you. Thanks.

Thanks Vic.

Our next question comes from David Saxon Please make him and company. Please go ahead.

Hi, guys. This is Joseph on for David.

Maybe just wanted to do two questions around the.

Overlap.

With Globus.

I guess just looking at.

The accounts were.

You don't have any overlap with with Globus could you maybe talk about your main competitors in those accounts that they arent globally.

I mean.

There is eight 8% to 10 companies, who make up 80% of the market. So it's not us or globally is one of them.

And depending on where you are it could be any one of those so medtronic as a market leader. So if you want to throw a dart at it you'd probably hit them first but there's many others out there.

Okay, Yeah that makes sense and then I guess internationally.

If you could touch on that what the overlap looks like is it similar to the U S.

<unk>.

We've got work to do there, but generally speaking.

I can't speak for Globus here, but off the top of my head I want to say they had.

Low double digit type of revenue representation of U S versus O U S.

Maybe 10% to 11%.

But we we've amassed roughly about 25% of our revenue comes from markets outside the U S and that's growing substantially for us.

Seven 7% constant currency.

And in 2022 so.

We'll get we'll get to the bottom of where we have overlap, but but safe to say I think both of us in early innings and in low single digit share positions.

In most markets, Japan is a market that we have a significant amount of strength as an example, where the number two share player in and Theyre probably.

Very very lower lower share player in that market. So thats clearly a synergy opportunity we'll be working through that as we go through the pre integration planning <unk> got a lot of work to do there, but at first glance.

Okay, great. Thank you for taking our questions.

Thank you.

Our next question comes from Allen Dong with JP Morgan.

Please go ahead.

Hi, This is actually Lili on for Alan Thanks for taking my question.

EPS in the quarter was a bit softer than what we and the street were thinking so if you could just dig a little deeper into that.

P&L dynamics, you saw in the quarter and what Premier Drybulk demand.

That'd be helpful.

Yes, I think the tax rate was a little bit higher than what people were modeling and I would say in general interest expense is an area that.

It has more volatility around it is being modeled and I would like to say for 2023 for interest expense.

We think $25 million is a good number to use.

Got it that's really helpful.

And then maybe just digging into the guidance a bit more could you talk a bit about your confidence in getting to the top half of the 60% range and what are the drivers that are needed.

Thanks, so much.

Yeah, So I'll hit that one.

Confident in the guidance range clearly, we I've talked about this we haven't seen a normal year.

2019 so.

To the earlier question I think.

Forget who asked it but.

How do we look at 'twenty three from a stable stability perspective, I think you hit the high end of their end to the guidance, we need the macroeconomics too to subside.

I should say the macroeconomic headwinds to subside.

We need to beat currency we.

We need to see staffing shortages go away.

But the fact is we feel pretty good we've got the extra 60 portfolio and the new product introduction, we talked about.

<unk> hundred 60 portfolio continues to grow we continue to drive Paul simplify continues to be a growth driver our international business continues to grow in the double digit range. So.

To get above that 8% range or get to the higher end I just need the market to.

To come in line for once in the last few years and give us a little bit of a little bit of stability.

And minimize some of the headwinds we face so providing those things happen I feel pretty confident that.

We're in the range of the year.

Optimistic that Theres some upside.

If the market continues to get better.

Great. Thank you.

Thanks for the question.

Okay.

Again, if you have a question. Please press star one on your telephone keypad.

Our next question comes from drew.

Drew Ranieri with Morgan Stanley . Please go ahead.

Hey, Chris and Matt Thanks for taking the questions.

Just to start.

Really going back to the deal announcement, both companies have kind of talked about free cash flow generation being a.

A key value driver of the deal and Matt I think I heard in your remarks that you talked about 2022 is a key investment year for SaaS as Youre thinking about 2003 can.

Can you maybe talk about any specific areas, where you are continuing to push your foot down on the gas from an investment perspective and sets.

Anything that you are pulling back on just.

How should we kind of think about set deployment set investments contributing to that 6% to 8%.

Topline growth for 'twenty three.

Yes. Thanks for the questions you are clearly.

We talked in Investor day, we talked a lot about the <unk>.

Programs that we believe will drive op margin, we continue to say, we're going to invest in the company.

And we've done that we've done that through the course of 'twenty two and we will continue to provide SaaS will continue to execute our 2023 plan will continue to execute our R&D programs.

We're continuing operating business I mean, all of those things will continue business as usual business continuity will be the key for us over the next several weeks and months as we move from the assigned to close period, the things that the things that I will I will.

Our obliquely pause on our sort of these multi year initiatives.

Samples are ERP consolidations things that just don't make a lot of sense to do until we move into the context of the new entity SKU Rationalizations, one I talked about I believe in.

In October and under the context of global inventory, but within the combined entity, we just need to take a pause and see what that looks like so listen all of the things that we think drive our business forward today and continue to maintain topline growth. We will continue things that we need to rethink and the context of a combined entity we will pause.

Pause and rethink.

So.

I don't know if I'm answering your question, specifically, but thats kind of what we're looking at it.

And then just.

It may be a growth driver type question.

On International you were just talking about Japan has been a strong market for you you're kind of leading the charge there versus Clovis, but as you look at the combined portfolio, putting everything together is there any geography that you think you have a better opportunity to kind of win as a combined company that you previously didn't have before with with the scale.

Bill.

And just a second question if I may on there with pulse said definitive pull through pretty strong language. So can you kind of give us a sense of in the cases that you're seeing how much that means in terms of wallet share per procedure, just any more context, there would be great. Thank you for taking the questions.

As far as that where I think we're better positioned to win in which geographies.

I don't Wanna be contrite here, but I would say all of them I mean, if you look at like I said before our ability to access enabling tech.

Capability that globus possessed and continues to innovate around what we've done like I said, we're about 360 portfolios.

Like simplify.

Our global footprint, the NSO and precise opportunity coupled with their orthopedic trauma portfolio I think we're stronger in every market with plan.

Just as a rule, it's one of the one of the key drivers of why we're doing this deal.

As far as Paul.

I would just say theres been double digit net sales growth in the account. So you compare that to our total global growth of eight 5%.

And even take that into consideration as probably more of a U S phenomenon for the most part double digits, where those where those with those customers that have had the system and for let's say a year or so we've seen double digit growth so substantially better than what you would say the average is if you look at our U S growth number or if you can translate that even to our to our global growth.

<unk>.

Substantially higher.

Thanks for the question.

Yes.

There are no further questions at this time I would like to turn the floor back over to.

Barry.

Yes.

Please go ahead.

Thanks, Maria Thanks for everybody for participating today and the earnings call.

Hopefully it came through that how excited I am about creating an innovative global muscle skeletal company together with Globus I'm also very excited about where we where we've been where we've come with new basis, and our confidence in our Standalone strategy.

I am confident that this is the best path forward for us to create shareholder value and further enhance how we partner with surgeons and ultimately better treat patients. So thank you all for attending today and hope to talk to you next time.

You may now disconnect your lines at this time. Thank you for your participation and have a great day.

Q4 2022 NuVasive Inc Earnings Call

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