Q2 2024 Orthofix Medical Inc Earnings Call
Krista: Thank you for standing by. My name is Krista and I will be your conference operator today.
Speaker Change: At this time, I would like to welcome everyone to the Orthofix Medical 2nd Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Operator: At this time, I would like to welcome everyone to the Orthofix Medical Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. I will now turn the conference over to Julie Dewey. Julie, the floor is yours.
Speaker Change: If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. And if you would like to withdraw that question, again press star 1. Thank you. I will now turn the conference over to Julie Dewey. Julie, the floor is yours.
Julie Dewey: Thank you, Operator, and good morning, everyone. Welcome to the Orthofix Second Quarter 2024 Earnings Call. We appreciate you joining us.
Julie Dewey: Thank you, operator, and good morning, everyone.
Julie Dewey: Welcome to the Orthofix second quarter 2024 earnings call. We appreciate you joining us.
Julie Dewey: I'm Julie Dewey, Orthofix's Chief IR and Communications Officer. Joining me on the call today are President and Chief Executive Officer Massimo Calafiore and Chief Financial Officer Julie Andrews. During this call, we'll be making forward-looking statements that involve risks and uncertainties. All statements other than those of historical facts are forward-looking statements, including any earnings guidance we provide and any statements about our plans, beliefs, strategies, expectations, goals, or objectives. Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the events contained in such statements will occur.
Julie Dewey: I'm Julie Dewey, Orthofix's Chief IR and Communications Officer. Joining me on the call today are President and Chief Executive Officer Massimo Calafiore and Chief Financial Officer Julie Andrews.
Julie Dewey: The forward-looking statements we will make on today's call are based on our beliefs and expectations as of today, August 6, 2024. We do not undertake any obligation to revise or update such forward-looking statements. Some factors that could cause actual results to be materially different from the forward-looking statements made by us on the call include the risk factors disclosed under the heading Risk Factors in our Form 10-Q filed this morning, August 6, 2024, as well as additional SEC filings we make in the future.
Speaker Change: During this call, we will be making forward-looking statements that involve risks and uncertainties. All statements, other than those of historical facts, are forward-looking statements, including any earnings guidance we provide, and any statements about our plans, beliefs, strategies, expectations, goals, or objectives.
Julie Dewey: In addition, on today's call, we will refer to various non-GAAP financial measures. We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to review these matters as a supplement to the financial measures determined in accordance with U.S. GAAP.
Speaker Change: Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matter contained in such statements will occur.
Speaker Change: The forward-looking statements we will make on today's call are based on our beliefs and expectations as of today, August 6, 2024.
Speaker Change: We do not undertake any obligation to revise or update such forward-looking statements.
Speaker Change: Some factors that could cause actual results to be materially different from the forward-looking statements made by us on the call include the risk factors disclosed under the heading risk factors in our Form 10-Q
Speaker Change: Filed this morning, August 6th.
Speaker Change: 2024, as well as additional SEC filings we make in the future.
Speaker Change: In addition, on today's call, we will refer to various non-GAAP financial measures.
Speaker Change: We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to review these matters as a supplement to the financial measures determined in accordance with U.S. GAAP.
Speaker Change: Please refer to today's news release announcing our second quarter 2024 results for information regarding our non-GAAP results, including our reconciliations of these non-GAAP financial measures to our U.S. GAAP results.
Speaker Change: Additionally, all revenue percentage changes discussed will be on a constant currency year-over-year basis. As a reminder, as noted in the first quarter call, we have annualized the impact of the C-Spine merger and will, therefore, no longer be referring to pro forma growth.
Speaker Change: In addition, all results of operations that we refer to in our prepared comments will be on a non-GAAP as-adjusted basis. With that, I'll now turn the call over to Massimo.
Massimo: Thank you, Julie, and welcome to the team.
Massimo: Glad to have you on board with us.
Massimo: Good morning everyone and thank you for joining us for our second quarter earnings call. I'll spend some time providing business updates and information about other key initiatives.
Julie Andrews: Before I turn it over to our CFO , Julie Andrews, to cover the specifics of our Q2 results and revised guidance.
Massimo: Orthofix had a strong second quarter, delivering above-market growth across virtually the entire portfolio.
Massimo: Our team continues to execute the plan and after two quarters in my role, I can very confidently say that the business fundamentals are excellent.
Massimo: We have the momentum to continue leveraging our strategic advantages.
Julie Andrews: Net revenue for the second quarter was $198.6 million, representing year-over-year growth of 6% on a constant currency basis.
Julie Andrews: Growth was led primarily by strength in our U.S. Spine and Bone Growth Therapy, or BGT, businesses, as well as continued market penetration in U.S. orthopedics.
Julie Andrews: Spine and fracture steam in the PGT markets were once again bright spots and have benefited from cross-selling efforts from our spinal and orthopedic implant business.
Julie Andrews: During the second quarter, we began a limited market release for two new interbody designs. The features are suffix proprietary.
Julie Dewey: Building on last year's successful launch, the Meridian ALIF portfolio has been expanded to include additional solutions. As it relates to reaching other key milestones post-merger, I'm pleased to say that the integration with C-SPINE has gone exceedingly well from an operational and cultural perspective, including the recent successful achievement of a key milestone to complete the ERP system implementation at C-SPINE. We believe the 7D system is well positioned for MIS procedures in the ASC.
Julie Andrews: Building on last year's successful launch, the Meridian ALIF portfolio has been expanded to include additional solutions.
Julie Andrews: that pair our best-in-class 3D-printed waveform surface technology with new options to address the vast majority of surgeon preferences.
Julie Andrews: We are in a limited market release for both of these products, which we expect to launch in Q2 2025.
Julie Andrews: In prior calls,
Julie Andrews: I've outlined the key priorities that we're focusing on this year.
Julie Andrews: including
Julie Andrews: Profitable Growth, Strategic Innovation, and a Synergistic and Balanced Approach to our Portfolio and Products Platforms.
Julie Andrews: In addition to those priorities, I'd like to call out some highlights relating to the leadership team.
Julie Andrews: Expanded commercial innovation opportunities and successes across merger integration milestones.
Speaker Change: One of my first tasks in taking on this role was to recruit a world-class leadership team capable of shaping a culture of value creation and successfully executing on a long-term vision for Orthofix.
Speaker Change: I am pleased to report that we have finalized the executive leadership team with the latest addition of a seasoned business leader for our orthopedics team, who will start in mid-August.
Speaker Change: We have a blend of new and tenured talent ready to deliver on our commitments and fuel future profitable growth.
Speaker Change: Collectively, this team has more than 250 years of experience in the orthopedics and spine space.
Speaker Change: And now, more than ever, I believe we are poised to unlock the company's full potential in each of our respective markets.
Speaker Change: The team's focus is now on prioritizing the most impactful initiatives that will fuel profitable growth.
Speaker Change: To achieve this, we will be bringing together a cross-functional group of leaders at the end of August to further define our long-range plan and align on the specific strategies and vital few initiatives.
Speaker Change: to propel our business forward.
Speaker Change: We plan to share our strategy as well as our intermediate to longer term goals and financial targets with you on a third quarter earnings call in November .
Speaker Change: including the recent successful achievement of Akeem Milestone to complete the ERP system implementation at C-Spine.
Speaker Change: We are laying the foundation for sustainable above-market growth across our portfolio with a more focused commercial strategy to drive meaningful innovation to improve outcomes and efficiencies for our patients and surgeon customers.
Speaker Change: At high level, this strategy includes three key components.
Speaker Change: One, going deeper into existing accounts.
Speaker Change: 2. Taking advantage of multiple commercial access points across our product portfolio. 3. Leveraging our 7D Flash navigation system to drive surgeon engagement and build brand loyalty.
Speaker Change: First
Speaker Change: with a comprehensive product portfolio which includes spinal hardware, biologic and enabling technologies.
Speaker Change: We also believe that our comprehensive portfolio, a steady cadence of innovation, will enable us to attract top sales talent, increase exclusive distributor relationships,
Speaker Change: Second, the breadth and depth of the orthofix spine and orthopedic offerings provides multiple paths
Speaker Change: to grow the business and sustain above market rates. For example,
Speaker Change: Finally, we believe that our 7D Flash Navigation System represents a unique opportunity to drive surgeons and hospital account interest in the broader Orthofix portfolio.
Speaker Change: As announced last quarter, we have reorganized parts of our commercial structure such that 7D Flash Navigation will be under the leadership of our Spine Team.
Speaker Change: With the capability for registration in mere seconds versus 30 minutes or more for competitive systems.
Speaker Change: And requiring no intraoperative radiation, 7D technology is proving compelling to surgeons, especially those performing open surgeries.
Speaker Change: with a small relative footprint, efficient workflow, and pricing.
Speaker Change: Although still in the very early stage.
Speaker Change: We've been able to gain some initial experience in the ASC with a few accounts where we have placed a 7D system.
Julie Dewey: With the evolution of our 7D strategy, we are more confident than ever in its increasingly significant role in our portfolio. Overall, Orthofix is in a great position to capitalize on our recent product launch successes and deliver meaningful innovation to improve outcomes and efficiencies for our patients and surgeon customers. Additionally, our broadened spine portfolio is best-in-class and fully supported by highly differentiated and compelling enabling technologies.
Speaker Change: With the evolution of our 7D strategy, we are more confident than ever in its increasingly significant role in our portfolio.
Speaker Change: Additionally,
Speaker Change: This shift will allow our enabling technologies team to drive software innovation and enhance product integration alongside the R&D pipeline as we launch impactful products across all our franchises.
Speaker Change: We are highly motivated by the opportunity to differentiate ourselves through the combination of a hardware portfolio with our enabling technology platform system.
Speaker Change: Our surgeons and patients have become the product focus, and we will continue to provide them with a unique approach to navigation in the OR.
Speaker Change: Overall, Orthofix is in a great position to capitalize on our recent product launch successes and deliver meaningful innovation to improve outcomes and efficiencies for our patients and surgeon customers.
Speaker Change: We remain the market leaders in bone growth therapies, have a comprehensive market-leading biologic portfolio.
Speaker Change: and differentiated products in several specialized or submitted markets, such as complex trauma reconstruction and deformity correction.
Speaker Change: Additionally, our broadened spine portfolio is best in class and fully supported by the highly differentiated and compelling enabling technology.
Speaker Change: In summary, I am pleased with our second quarter performance and remain optimistic about the opportunities ahead.
Speaker Change: Based on continued positive momentum
Speaker Change: The strengths of our differentiated and expanding product portfolio.
Speaker Change: which continues to win share and our confidence in sustainable growth trends, we are raising our full-year net sales and adjusted EBITDA guidance.
Speaker Change: And, as I mentioned earlier, we are on track to achieve positive free cash flow for the second half of this year, much earlier than we originally anticipated.
Speaker Change: With a clear line of sight, I believe we are well positioned to achieve our objectives this year and beyond. We are not letting up on the operational efficiencies.
Speaker Change: and strategic execution it will take to deliver long-term value for customers, patients and shareholders.
Speaker Change: I'm looking forward to a productive second half of 2024 and what's to come for Orthofix.
Speaker Change: With that, I now turn the call over to Julie to review our second quarter financial results and updated guidance.
Julie: Thank you, Massimo, and good morning, everyone. Orthofix had a strong second quarter, delivering total company net sales of $198.6 million, or 6% constant currency, top-line growth, and adjusted EBITDA margin expansion of approximately 310 basis points.
Julie: For my commentary, I'll go through each of our business units and review financial results for the quarter, as well as provide an update to our guidance for the full year 2024.
Julie: Bone Growth Therapy's revenue grew 12% to $59.1 million in Q2 and marked the 6th consecutive quarter of double-digit growth for the BGT franchise.
Julie: This growth was driven by above-market performance in both the spine and fracture channel. In the BGT spine market, where we hold the number one market share position, we continued to take share with more than 50% of the growth coming from new customer acquisitions.
Julie Dewey: In addition, investments in the Fracture Market sales channel drove 14% growth in Fracture, with the Excel STEM Bone Growth Therapy device continuing to outperform the market. As a reminder, the Fracture Market represents an opportunity of more than $200 million, and we are still in the very early innings of building our position in that market.
Julie: In addition, investments in the Fracture Market Sales Channel drove 14% growth in fracture with the Excel STEM Bone Growth Therapy device continuing to outperform the market.
Julie: As a reminder, the fracture market represents an opportunity of more than $200 million and we are still in the very early innings of building our position in that market.
Julie: Global Spinal Implants, Biologics and Enabling Technologies, second quarter revenue was $108.9 million with year-over-year growth of 3%.
Julie: U.S. fine fixation revenue grew 12%, well above market growth rates, driven by deeper penetration of existing accounts and expansion of our customer base.
Julie: Additionally, in the U.S. biologics business, we saw a positive impact of new distributor partnerships as well as cross-selling initiatives, which drove growth in line with the overall market.
Julie: The global orthopedics business grew 6% in the second quarter, led by 7% growth in the U.S. as a result of strong performance across our portfolio, as well as distributor expansion and sales channel investment.
Julie: The international business grew 6% versus prior year, primarily due to recent line extension in our Galaxy fixation Gemini system.
Julie Andrews: Due to the nature of this business, particularly around the timing and volume of stocking distributor orders, we expect to see variability from quarter to quarter in the growth rate. As Massimo stated, we are increasing our guidance for full-year net sales to range between $795 million and $800 million, representing implied growth of 6.7% to 7.4% year-over-year on a constant currency basis compared to our previous guidance of $790 million to $795 million, or 6% to 7% growth.
Julie: Due to the nature of this business, particularly around the timing and volume of stocking distributor orders, we expect to see variability from quarter to quarter in the growth rates.
Julie: Moving on to some detail below the sales line, starting with our Q2 non-GAAP adjusted growth margins, which were 71.3% for the quarter compared to 71.6% in Q2 2023.
Julie: non-GAAP sales and marketing expenses were 50% of net sales for the second quarter compared to 52% of net sales for Q2 2023.
Julie: The decrease as a percent of sales was primarily driven by the realization of cost synergies and a lower effective commission rate due to product mix.
Julie: non-GAAP general and administrative expenses were 14% of net sales for Q2, compared to 16% in the same quarter prior year. The decrease as a percent of sales was primarily driven by the impact of cost synergies and a reduction in stock-based compensation.
Julie: non-GAAP research and development expenses were relatively flat at 9% of net sales for the quarter.
Julie: Below the operating income line, non-GAAP interest expense and other was $4.8 million for the quarter.
Julie: All together this resulted in non-GAAP adjusted EBITDA of $16.6 million or 8.4% of net sales for the quarter.
Julie: A 310 basis point expansion over Q2 2023 due to the capture of merger-related synergies and driving leverage on sales growth.
Julie: This represented a 58% drop-through on incremental revenue dollars. We remain encouraged by these results as we are seeing the impact of merger-related synergies and our ability to drive leverage on sales growth materialize.
Julie: From a cash standpoint, our total cash balance, including restricted cash, at the end of Q2 was approximately $28.9 million.
Julie: Our free cash flow usage was $700,000 in the quarter, a significant improvement over the first quarter of this year.
Julie: Adjusting for the annual bonus payment and one-time merger-related retention payments, pre-cash flow improved approximately $10 million over Q1 2024. This was a result of higher EBITDA as well as improvements in DSO and inventory utilization.
Julie: We have achieved $38 million in annualized Synergies to date and are confident in our ability to achieve $50 million in Synergies three years post-close of the merger.
Julie: Overall, we are pleased with our second quarter results and we continue to be confident in our ability to drive profitable revenue growth moving forward.
Julie: Moving on to 2024 full-year guidance.
Julie: As Massimo stated, we are increasing our guidance for full-year net sales.
Massimo: to range between $795 million and $800 million.
Massimo: representing implied growth of 6.7 percent to 7.4 percent.
Julie: Year-over-year on a constant currency basis compared to our previous guidance of $790 million to $795 million or 6% to 7% growth.
Julie Andrews: Please note that our expectations are based on current foreign exchange rates and do not account for rate changes that may occur through 2024. These comments remain in line with the directional remarks provided on our fourth-quarter call in March. Q3 Adjusted EBITDA Margin Expansion is expected to be less than in Q4.
Julie: Please note, our expectations are based on current foreign exchange rates and do not account for rate changes that may occur through 2024.
Julie: We are also increasing our full year 2024 non-GAAP adjusted EBITDA to $64 million to $69 million compared to our previous guidance of $62 million to $67 million.
Massimo: Finally, we are continuing to focus on improving our working capital management, specifically our inventory and instrument utilization and DSO efficiency.
Julie: With these efforts, as well as continued execution of merger-related cost synergies, we now expect to be free cash flow positive in the second half of 2024, earlier than we had originally anticipated.
Julie: While we do not provide quarterly guidance, I will provide directional commentary on the expected cadence of our business to assist you in modeling our quarterly performance. These comments remain in line with the directional remarks provided on our fourth quarter call in March.
Julie: We expect Q3 net sales growth to be at the high end of the guidance range due to disruption in the prior year as we close the quarter and the impact of one additional selling day in 2024 versus 2023.
Julie: For gross margin, we continue to expect 2024 full year gross margin to be in the 71% range in line with 2023.
Julie: We also expect operating expenses to decrease approximately 200 to 300 basis points through leverage on incremental sales and additional cost synergies.
Julie: To assist you with modeling EBITDA, we reiterate our outlook for depreciation expense, which for the full year 2024 is in the range of approximately $36 million to $37 million.
Julie: Stock-based compensation expense is now expected to be in the range of $33 million to $35 million, below the operating income line. Our expectation for interest in other is approximately $5 million per quarter.
Julie: We expect adjusted EBITDA margin improvement of approximately 200 basis points for the full year, with margin expansion in the second half of the year to be slightly lower over prior year, as we annualized the bulk of 2023 synergies in the first half of 2024.
Julie: Q3 Adjusted EBITDA Margin Expansion is expected to be less than in Q4.
Julie: Now, before we open up the call for questions, let me turn it back to Massimo for concluding comments. Massimo?
Massimo: Thanks Julie. In closing, I want to express my appreciation to our entire Orthofix team for their efforts in Q2.
Massimo: Their contributions have been instrumental in driving our performance, and I am very proud of the progress we have made.
Massimo Calafiore: and I'm very proud of the progress we have made.
Speaker Change: With our full leadership team in place, it is now time for us to continue executing against our commitments.
Massimo: Drive sustained, profitable growth and expand shareholder value.
Massimo: The fundamentals are strong and we have an innovative mindset to carry us forward. I'm encouraged by what we achieved and excited for what's to come.
Speaker Change: Operator, let's now open the line for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star 1.
Speaker Change: We also ask that you limit yourself to one question and one follow-up. Your first question comes from Matthew Blackman with Stiefel, please go ahead.
Matthew Blachman: Good morning, everybody. Can you hear me okay?
Matthew Blachman: We can. Hi, Matt. Hi, Matt. Hi.
Speaker Change: Hello everybody. Julie, I've got a couple for you. Julie Andrews.
Speaker Change: [inaudible]
Speaker Change: Should we expect positive free cash flow in 3Q and 4Q, or just in the second half in some? And then, with the exception maybe of the seasonally heaviest spend in 1Q25, should free cash flow stay positive from here out?
Julie: Okay, thanks Matt.
Julie: So I'll start with your first question. So in terms of the free cash flow usage and the improvement.
Speaker Change: We saw a really good drop through on our EBITDA, that was one driver, as well as we're seeing improved working capital efficiency with inventory utilization and had improvement there, as well as DSO improvement as well. Those were the main drivers within the quarter. We do still think that there is opportunity.
Julie: within our inventory line. And it allows opportunity with DSO efficiency, but some there as well. And that's really what's driving kind of our outlook on the back half of the year, being free cash flow positive. We're not guiding to Q3 and Q4.
Julie: Individually being free cash flow positive, Q4 we are, but the full back half of the year.
Speaker Change: And then, your second question was about, yeah, sustainability.
Unknown Executive: Yeah, it's the state of the league.
Speaker Change: Yeah, we, I mean, we believe for, you know, we will be free cash flow positive for 2025. It won't be every quarter. You know, as you mentioned, Q1 has, you know, seasonal payments that we make, and that won't be a free, we wouldn't expect that to be free cash flow positive.
Julie Andrews: Okay, and if Julie, do allow me one follow-up question. I think the implied, and this is for you Julie Andrews again, the implied drop-through, I think in the second half, is something like 40 percent, something in that neighborhood. Is that how we should be thinking about drop-through as a rule of thumb beyond 2024? Or does it go lower than that as you annualize some of these cost synergies and maybe some of the initial initiatives?
Julie Andrews: Generally, we would expect to be in the 30-35% range as we annualize our synergies. We won't maintain the 40% range over time. We haven't specifically given numbers.
Speaker Change: Okay, I'll get back in queue. Thank you so much.
Speaker Change: Thanks, Beth.
Speaker Change: Your next question comes from the line of Ryan Zimmerman with BTIG. Please go ahead.
Ryan Zimmerman: Good morning. Thanks for taking our questions and congrats on all the progress this quarter, guys.
Ryan Zimmerman: I want to ask you two questions on products, if I may.
Speaker Change: You know, as I look at the overall spine growth, particularly in hardware, biologics, and enabling tech.
Speaker Change: Appreciate the caller on the hardware.
Speaker Change: Commentary on Biologics. I'm wondering if you could spend a little bit on enabling tech, Massimo.
Speaker Change: kind of how how is that shaping up?
Speaker Change: Relative to the growth of that segment, what do you see for the pipeline in terms of, you know, 70 demand, and just how to think about kind of, you know, going forward that contribution to that segment in enabling tech. And then I have a question on STEM after that. Thank you.
Massimo Calafiore: Yeah, look, great question. We discussed this multiple times, and we see 7D as a fundamental for us in creating sustainable growth. There is a lot of interest around 7D and a lot of focus that we're putting right now on creating more placements of our machines for earn-out.
Speaker Change: Yeah, look, great question. You know, we discussed this multiple times and we see 7D as a fundamental for us on creating sustainable growth.
Unknown Executive: Actually, there was a pretty good...
Speaker Change: Strong effort by the team to start to be focused on that because we believe that creating more arenalts out there is going to drive higher in plant utilization and a sustainable growth.
Speaker Change: Because you can, you know, I've said multiple times, 7D is a unique technology that really creates a differentiable experience in the OR and all of this is translating and is going to translate for us.
Speaker Change: on bringing Mott Surgeon on board.
Speaker Change: At the same time, from the R&D perspective, we are very excited about what we can do with 7D. There's going to be...
Speaker Change: A very, let's say, focused investment on 25 and beyond around the technology because we believe that we can have peace that no other company can have given our proprietary machine vision.
Speaker Change: So, in brief, again.
Speaker Change: Great focus on development on 7D, great focus on creating air-and-out opportunities out there to become an alternative not just to other navigation systems but also to robotic systems out there.
Speaker Change: Okay.
Speaker Change: Next question on STEM. You continue to, I think, surprise, you know, not just myself, but everyone on your continued success in STEM. Six quarters in a row doubled it. It's very impressive.
Speaker Change: Part of that is a benefit, I would imagine, from cross-selling, you know, particularly from the legacy C-SPAN business.
Speaker Change: Where do you think you're at in that, in terms of that penetration? I mean, how much more can you benefit from cross-selling Bonestem into the legacy C-Spine customer base?
Speaker Change: And, you know, again, if this is a market that's growing low single-digit, you know,
Speaker Change: At some point we I worry maybe not other maybe not you guys But I worry that that growth may may slow and so you know help me understand kind of you know How long these tailwinds you think in your mind and continue?
Speaker Change: Yeah, this is a great question because it's a question that we ask of ourselves. So right now, you can see that we are like at the infancy of our merger with C-Spine.
Speaker Change: So, I think that for the foreseeable future...
Speaker Change: We keep seeing the opportunity to leverage, as you said, the synergistic approach that we are bringing up on cross-selling within our segment, given that the whole point is the same.
Speaker Change: Over time, I think that given our dominance in the market, we're going to see a slowdown, a natural slowdown of the growth.
Speaker Change: to, let's say, market rates, above market rates.
Speaker Change: But, you know, as I said before, we are still at the infancy of our merger, so I think there is still room to drive a synergistic, let's say, to drive and leverage the synergies that you're seeing right now.
Speaker Change: But, again, I think that you're seeing the right set of eyes.
Speaker Change: Well, congratulations again.
Operator: And as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from Jason Wittes on Roth MKM. Please go ahead.
Ryan Zimmerman: Thank you. Thanks, Ryan.
Speaker Change: And as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from Jason Wittes with Roth MKM. Please go ahead.
Jason Witts: Hi, thanks for taking the questions. Maybe just a quick follow-up on 7-D. From your commentary, it sounds like...
Speaker Change: Most of the growth or placements are focused on open surgical procedures and MIS is still sort of a work in progress. Is that the right interpretation or how should we think about 7D especially for MIS and percutaneous applications?
Massimo Calafiore: Yeah, Jason, thank you for the question. Look, at the end, that one is, as I said before, and I said in my remarks, you know, like, we also, 7D, given the footprint, is poised to be a machine that can be easily used in the ASC setting, where we are going to see, where we are expecting over time, a switch on the MIS procedure. So, right now, you need to see 7D as a system that, for MIS, is comparable to all of the systems out there in the market.
Speaker Change: Let's say a machine that can be easily used on the ASC setting where we are going to see what we are expecting over time.
Speaker Change: the switch on the MIS procedure. So right now, you need to see 7D as a system that for MIS is comparable to all of the systems out there in the market. Of course, we talk about open procedure because for the specific market, 7D is the state of the art.
Massimo Calafiore: Of course, we talk about open procedure because, for the specific market, 7D is the state of the art. But, again, given that we believe in MIS, we are investing in MIS on the hardware side, and we want to create a tighter connection between the hardware and software, you see that a...
Speaker Change: Again, given that we believe on MIS, we are investing in MIS on the hardware side, and we want to create a tighter connection between hardware and software, you see that as a result
Speaker Change: an investment on on the specific MIS module that they're going to bring 7D if not, you know, at the same level, let's say, of 7D for open procedure.
Speaker Change: So, the system right now, again, you can do MIS, it performs as well as others, but over time, as I said before, given that we believe that for open procedure we are state of the art, over time we're going to work for make.
Speaker Change: Our MIS capability even better than competitors out there.
Speaker Change: Okay, thanks. That was very helpful. And then on distribution, I think, at least that was my read that, you know,
Speaker Change: Until, you know, you go to cash flow breakeven, you're going to be somewhat selective and pretty careful on distribution. I guess two questions related to that. One, can you give us an update in terms of what's happened with your sales force this quarter in terms of ads?
Speaker Change: And then secondly, am I right to assume that when the cash position improves, which sounds like it's certainly happening at a faster pace, there may be a more aggressive increase in the sales force?
Speaker Change: This is a great question. We don't give specifics about our distribution network.
Speaker Change: is how the distribution network is today. What I can tell you is that, look, our philosophy about commercial, our commercial strategy is not going to change. It's not going to be dependent on our ability.
Speaker Change: to spend. I think that I've said multiple times, we want to create sustainable growth.
Speaker Change: and we will not, we will not.
Speaker Change: force our commercial leaders to find growth.
Speaker Change: Growth just for the sake of growth.
Speaker Change: Look, what has made me very proud right now is not how much we are growing, but the quality of revenue that we are bringing to the organization. At the end of the EBITDA pull-through that you saw,
Speaker Change: This quarter is just a function of our ability to be very dogmatic on how we are doing.
Speaker Change: If you want to see us, if you want to imagine us in the future, this is a company that is going to keep focusing on growing above market rate.
Speaker Change: that is going to make, let's say it's going to trade accelerated revenue to decrease EBITDA profitability and it's going to stay always focused on being the best partner.
Speaker Change: that we can found. Because at the end of the day, success is not just growth rate, but also our ability to utilize the asset that we have in the best way as possible. And we can do that if we have a very good commercial partner.
Speaker Change: Great, congrats on a solid quarter. I'll jump back in queue.
Speaker Change: And that concludes our question and answer session. I will now turn the conference back over to Julie Dewey.
Julie Dewey: Thank you. We appreciate all of you joining us and we look forward to talking with you next quarter. This now concludes our call.