Q4 2024 Orthofix Medical Inc Earnings Call
Jeannie: Thank you for standing by. My name is Jeannie and I will be your conference operator today. At this time, I would like to welcome everyone to the OrthoFix Q4 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Speaker Change: 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. We do not undertake any obligation to revise or update such forward looking statements factors that could cause actual results to differ materially are discussed in our most re.
Speaker Change: <unk> filings with the SEC and May be included in our future filings with the SEC.
Speaker Change: In addition on today's call, we will refer to various non-GAAP financial measures. Please refer to today's news release announcing our fourth quarter and full year 2024 results for information regarding our non-GAAP results, including a reconciliation 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, and all results of operations that we will refer to will be on a non-GAAP as adjusted basis.
Speaker Change: Moving to today's agenda Masimo will open with comments on our performance and business updates Julie Andrews will then review the specifics of our fourth quarter results and our financial guidance for 2025.
Masimo: With that I'll now turn the call over to Masimo.
Masimo: Thank you Julie good morning, everyone and thank you for joining us for our fourth quarter earnings call.
Speaker Change: 2024, it was a year worth celebrating for Arthur fix.
Masimo: We executed against our guidance.
Masimo: Trends in our market position and accelerated innovation across the business.
Masimo: We continue to invest in our most important differentiators our people.
Support our ability to best serve with our surgeons need and deliver excellent.
Masimo: Our technology to advance our portfolio of pipeline and fuel our growth.
Masimo: We've put a new leadership team in place that define a cohesive long term profitable growth plan for our company and aligned our organization with our go forward strategy.
Masimo: Throughout 2020 for this team capitalized on north to fixed competitive advantages to advance our strategic initiatives, taking advantage of significant gross portfolio of commercial opportunities.
Masimo: And profitably growing our business.
Masimo: In spine, we grew our U S spinal fixation business more than doubled the market growth rate, including 24% growth in our top six implant systems.
Masimo: Twice the market growth rate in total column, but a fixation and triple the market growth rate in inter body and cervical fusion.
Masimo: Demand for our enabling technology was strong and included a record number of 70 flash navigation system placements.
Masimo: 2024 was a record setting year for our bone growth therapies business.
Masimo: We generated more revenue manufacture more devices and support more surgeons and patients with our life changing technology than any year in the company history with B G.
Masimo: Collectively we continue to expand our capabilities and build upon our best in class status market share, leading position and market expander in spine and orthopedics.
Masimo: Our <unk> business also had an excellent year.
Masimo: Safe being a record for both global and U S sales.
Masimo: We are redefining the category of leading medical destruction with a unique portfolio of solutions addressing the most challenging orthopedic conditions in patients.
Masimo: All ages.
Masimo: Under our new business unit leadership, we are executing towards an exceptionally focused strategy that optimizes the impact all our innovative portfolio and enables Arthur fix to meaningfully gained traction in the USA market while growing.
Masimo: Our position internationally.
Masimo: Across the business, we continue to transform our commercial organization, a strengthened relationship with our surgeon partners and their patients.
Masimo: Additionally, we are delivering an unexceptional pace of innovation with a number of key new product introductions across each of our portfolios areas and leveraging our strengths in enabling technologies to continue to differentiate our.
Masimo: <unk> in the market.
Organizationally, we sharpened our focus and launch new project teams to tackle our vital few initiative. The most essential priorities that will enable us to strengthen our market position and keep us to explore new growth opportunities.
Masimo: And when in 2025.
Masimo: With our focus on innovative technologies, our commercial organization dedicated to delivering an unrivaled customer experience.
Masimo: Disciplined planning and execution strategies to guide our effort.
Masimo: We have significantly improved our operating and financial position and paved the way for sustainable growth.
During 2024.
Masimo: Made significant strides in improving our financial strength, including $21 million in positive free cash flow in the second half of 2024.
Masimo: Negotiating a new term loan with extra capacity through our rates and increased flexibility to further optimize the company's capital structure.
Masimo: Finally, we set long term financial targets that Dream force, our commitment to long term profitable growth.
Masimo: And we are just getting started.
Masimo: Looking ahead, we will continue to focus on our vital few initiatives in our long range plan that we believe we fuel profitable growth and Brookdale our business forward.
Masimo: This includes an innovation focus and continued development of differentiated products to meet diverse surgeon preferences.
Masimo: Our commercial strategy and cement to drive deeper market penetration through comprehensive portfolio offerings.
Our technology leadership that hardness advanced system for improve surgical outcomes and efficiencies.
Masimo: Emphasis on high quality revenue streams, and operational excellence for growth sustainability, and disciplined cash flow management and strategic financial planning through sustained positive free cash flow.
Masimo: I'm excited and energized about the path that we have set for our self and.
And the opportunities for the business to deliver exceptional value to our surgeons their patients and our shareholders in 2025 and beyond.
Masimo: Now onto the numbers for the fourth quarter of 2024.
Masimo: Our fourth quarter net.
Masimo: Net sales of $215 $7 million represents year over year growth of 8% on a constant currency basis.
Masimo: And the reflected record above market performance across all three major product lines.
Masimo: Providing further evidence that our fixed balance and complementary product mix offer a differentiated advantage across multiple markets.
Masimo: We had another quarter of strong adjusted EBITDA margin expansion with positive free cash flow of $15 2 million far exceeding our original expectation that we set at the beginning of last year.
Masimo: I can confidently say that the business fundamentals are excellent and we have positive momentum to continue leveraging our strategic advantages in 2025 and beyond.
Masimo: USA spinal fixation grew 12%.
Masimo: Revenue growth was driven by continued strong market demand of the recently launched <unk> reef and wave form interbody products.
Masimo: Along with the strengthening of our distributor network.
Masimo: More specifically, our lateral portfolio grew 33% and our a leaf and <unk> portfolios both grew at over 19%.
Masimo: All significantly outperforming the market due to increased focus on procedural selling that the shift of new larger more dedicated distributor and expanding our relationship with our top distributors.
Masimo: Growth within our spine segment has been supported by a 30% increase in our global 70 Flash navigation system placement in 2024.
Masimo: Including <unk> hundred 50% year over year increase in the number of earn out agreements.
Masimo: We are leveraging these differentiable platform to create the long standing relationship with our surgeon partners.
Masimo: With continued investment our next generation advancement in enabling technology and our hardware portfolio will build upon this unique foundation and establish us as a partner of choice for surgeons seeking a reality.
Masimo: Time data driven intra operative solution in DIY.
Masimo: At the end of the fourth quarter, we received FDA clearance for our flush EV or external ventricular drain cranial navigation product.
Masimo: <unk> is a call more neurosurgical procedure, but can result in a higher rate of catheter placement errors using this standard the freehand technique as well as higher rate of infection.
Masimo: EV is designed to address these drawbacks.
Masimo: Although the cranial market is not a strategic focus for us.
Masimo: This clearance supports an increased footprint and presence at the hospital for our 70 systems.
Masimo: As our enabling technology strategy continues to evolve we are more confident than ever in its increasingly significant role in our portfolio.
Masimo: New product introductions.
Masimo: Our driving force and continued to open doors to new surgeon <unk>.
Masimo: Beginning in Q2, we have several product launches planned, including the full launch of reef ALLL lateral lumbar interbody and additional solution in our med <unk> a leaf portfolio.
Masimo: These new Interbody design feature several appropriate aerie advanced surface technologies, and expand our portfolio of lumbar interbody fusion products to address bearing surgeon preferences and patients anatomies.
Masimo: In parallel we will integrate our hardware products with access and navigation, creating a comprehensive procedure solution to enhance efficiency and predictability in deepwater.
Masimo: We believe that our comprehensive portfolio spinal hardware biologics and an enabling technology and steady cadence of innovation will enable us to attract top sales talent increase exclusive distributor relationships.
Masimo: And drive stickier relationships with Surgeons and hospital account, which we expect to result in incremental pulp product pull through as well as H P lift from mix benefit.
Masimo: Now to bone growth therapies.
Masimo: Even as we continue to own the number one market share position is spine <unk> net sales still grew an impressive 9% overall in Q4.
Masimo: We continue to take share with more than 50% of the growth coming from new customer conversions.
Masimo: Validating our strategy of capitalizing on multiple access points. In addition investment in the fracture market sales channel drove 10% growth in BGC fracture with the axle steam bone growth therapies device continue to us.
Masimo: Form the market.
Masimo: As a reminder, that fracture market represent an opportunity of more than $200 million.
Masimo: And we are still in the very early evening, So building our position in the market with a clear goal to become the number one player.
Masimo: Our <unk> business is focused on maximizing our market leading position with the most comprehensive portfolio and most indication of bone growth stimulation devices in the market.
Masimo: We will continue to focus on cross selling with orthopedics or spine.
Masimo: The new market channel with established sales representative.
Masimo: And drive penetration in the fracture market with access team.
Masimo: Later this year, we anticipate FDA approval for our up sell steam to point all of which we expect to redefine the recall that experience by engaging patients and surgeons with their prescribed three men through the steam on track them.
Masimo: Mobile app.
Masimo: Our global Orthopedics business delivered a record net sales in Q4, representing constant currency growth of 18%.
Masimo: Compared to prior year.
Masimo: U S sales <unk> benefited from strong execution and grew a record 21%.
Masimo: Growth was led by the combination of our true locker and feet bond products.
Masimo: Well as growth in the Galaxy fixation product family.
Masimo: We are in the very early stages of expanding into the USA orthopedics market, which presents incredible growth opportunities given our unique and innovative product lines.
Masimo: Our fault.
He is on areas, where we can win.
Masimo: Specifically is redefining the category are leaving Barrick was structured.
Masimo: This serves a market that includes limb preservation.
Masimo: <unk> correction limber lengthening and complex fracture management.
Masimo: As the only company solidly focused in Limbo records traction we have a growing portfolio of solution to address the most challenging condition in patients of all ages.
Masimo: I am excited to announce that we received FDA clearance and CE Mark registration for the true <unk>.
Masimo: Plus there's bond transport or <unk> system.
Masimo: The latest edition of our perfect flagship truelove family of external fixation.
Masimo: Two lakh elevate is the first FDA cleared device for PBT.
Masimo: And as indicated to correct, the non unions and Borneo soft tissue default.
Masimo: Or the effects, which could include non healing wounds wholesaler and deep dish awards.
Masimo: According to American Diabetes Association over 160000 amputation of cure H ear in the United States.
Masimo: As a result of diabetes related complications.
Masimo: Including a sizeable market opportunity of approximately $1 $2 billion.
Masimo: In addition, published studies have shown that patients with diabetic foot ulcer will receive an amputation have a five year mortality rate of 7%.
Masimo: And our bonded with lifetime cost.
Masimo: Cost of just over $640000 for carried directly related to their amputation.
Masimo: Thus <unk> offers the potential to not only be Ali embedded cost saving device by most importantly, a life saving solution to a challenging patient population.
Masimo: The true lock elevate D. BTC stem is currently in limited market release aesthetic centered in USA and Europe.
Masimo: Yes.
Masimo: Our superior growth in 2025 will be fueled by a number of new product introduction that we expect to capture additional market share.
Masimo: With existing and new customer.
Masimo: These include the true lock elevate <unk> system, the bond bond trusts portal lengthening nail the all of the Bond Trust Board mail available in United States and the fleet Bond Trochanteric mail.
Masimo: We expect all of these products to be in full market release in the second half of 2025.
Masimo: Underpinning our business strategies.
Masimo: Significant gross portfolio commercial opportunities.
Masimo: Breadth and depth of the offer fixed spine and orthopedics offering provide multiple paths to growth.
Masimo: Business, a sustained above market rates.
Masimo: Continued to take advantage of opportunities to cross sell our BGP product into spine accounts as well as introducing spinal hardware biologic and navigation to our spine <unk> surgeons.
Masimo: We also have IP share opportunities with our biologic and fracture stimulation products through our orthopedics, China overall.
Masimo: Overall <unk> is in a great position to capitalize on our recent product launch success and delivering meaningful innovations to improve outcomes and efficiencies for our surgeon customers and their patients.
Masimo: We remain the market leader in bone growth therapies have a comprehensive market, leading biologics portfolio and differentiated products in several specialized orthopedic markets such as complex thrombotic risk traction.
Masimo: Deformity correction.
Masimo: Additionally, our broaden spine portfolio is world class and is fully supported by the highly differentiated and compelling enabling technology.
Masimo: In summary is clear that our <unk> focus on our main strategic pillars and executing the clear strategy for profitable growth is delivering compelling results and I remain optimistic about the opportunities ahead.
Masimo: At the same time, we are confident that our emphasis on disciplined capital deployment within our business.
Masimo: Deemphasizing areas, we have a less scale or share we also drive our transformation.
Masimo: For profitable growth and increased penetration of our technology and product platforms.
Masimo: Areas, where we can win.
Masimo: As we look to 2025 or beyond we plan to build that on our progress by number one further sharpening our commercial focus and disciplined for margin expansion.
Masimo: Number two continue to innovate our enabling technology platform support our renewed procedure focus on spine in particular deformity and number three a ensuring we are well position to create value for our shareholders.
Masimo: Over the long term.
Masimo: Our full year 2025 financial guidance.
Masimo: Flex our confidence in sustainable growth trends.
Masimo: Strength of our differentiated and expanding portfolio, which continues to win share and our commercial strategy and focused execution.
Masimo: I believe we are very well position to accelerate our positive momentum and deliver on our commitment to drive disciplined profitable growth and innovation, while increasing long term shareholder value.
Masimo: With that I'll now turn the call over to Julie to review, our fourth quarter financial results and outline our 2025 guidance.
Thank you Mark and good morning, everyone, we delivered record fourth quarter and full year results in 2024, well above the guidance, we set at the beginning of the year and fortify our business for the future.
Masimo: We continued to prioritize investment in innovation rigorously allocating resources to high return opportunities to further sustain our share capture and U S spine and U S orthopedics and felt improving margins and cash.
Masimo: <unk> the company for near and long term profitable growth.
Masimo: As we look ahead to 2025, we will maintain a heightened focus on disciplined profitable growth and free cash flow generation to build on our financial foundation and prudently deploy capital to create long term value for our shareholders.
Masimo: I will now review financial results for the fourth quarter for each of our business units and then discuss our full year 2025 guidance.
Masimo: Global spinal implants, biologics and enabling technologies fourth quarter revenue was $116 million with year over year growth of four 5% U S. Spine fixation revenue grew 12% over twice the market growth rate driven by deeper penetration of existing occur.
Masimo: <unk> and expansion of our customer base.
Masimo: Moving now to bone growth therapies.
Masimo: <unk> revenue grew 9% to $63 9 million in Q4, driven by above market performance in both the spine and fracture channels BGC fracture growth with 10% in the quarter.
Masimo: Investments in our fracture market sales channel, we do expect our PDT growth to remain above market growth rates by <unk> continued to moderate somewhat as we move forward in 2025, each of our number one market share position in the BDC spine business and lapping the gains from 30 acquired last year.
Masimo: We will continue to focus on adding new surgeons and competitive surgeon conversions and PDT spine and continue our commercial focus in the BDC fracture market, where we are significantly less penetrated and see a substantial opportunity to drive new business with the orthopedic surgeons.
Masimo: The global Orthopedics business grew 18% to $35 8 million in the fourth quarter led by 21% growth in the U S. As a result of strong performance across our portfolio as well as distributor expansion and sales channel investment.
Masimo: Our international business grew 17% versus prior year.
Masimo: As we've previously said due to the nature of this business, particularly around the timing and volume of stocking distributor and tender orders, we expect to see variability from quarter to quarter and the growth rate.
Masimo: non-GAAP adjusted EBITDA of $23 9 million was driven by leverage on sales growth and represented growth at nearly three times revenue with 130 basis points of margin expansion. We remain encouraged by these results as we are seeing our ability to drive leverage on sales growth materialized as we continue.
Masimo: To focus on disciplined profitable growth.
Masimo: From a cash standpoint, our total cash balance including restricted cash at the end of Q4 increased to approximately $85 7 million.
Masimo: Our free cash flow generation with $15 2 million in the fourth quarter and $21 1 million in the second half as a year a significant improvement over the negative $30 million and free cash flow in the first half of 2024.
Masimo: This was a result of higher EBITDA as well as improvements in working capital usage.
Masimo: As part of our commitment to prudently deploy capital we are continuing to actively evaluate and manage our portfolio to ensure that we remain focused on our most profitable growth opportunities.
Masimo: In line with this process, we wanted to highlight a couple of updates that we believe will positively impact our results.
Masimo: First as we align our orthopedic product portfolio with our focus on redefining the category of limb reconstruction, we are sunsetting noncore products in the U S that do not align with our strategy. This impact has been included in our 2025 guidance.
Masimo: We will also be discontinuing the <unk> C artificial cervical disc and the <unk> al artificial lumbar disc product lines.
Masimo: This product phase out is in line with our commitment to direct resources to more profitable growth opportunities and as Massimo mentioned it is another milestone in our transformation and supports our strategic focus on driving profitable growth in areas, where we have a differentiated advantage.
Massimo: It is important to note that the sales at the <unk> desk had been a headwind to the company's topline growth rate for the past few years, which also factored into our decision to discontinue the product.
Massimo: Global net sales for the <unk> artificial desks were $23 4 million in 2024, we plan to provide a full update on the accounting treatment and financial impact for the discontinuation of the <unk> product lines on our first quarter 2025 earnings call.
Massimo: Also want to point out that we plan to file an automatic shelf registration statement today, we are putting the shelf on file nearly as a matter of good corporate housekeeping and do not have any plans to issue additional new equity at this time.
Massimo: As a reminder, with the debt facility that we put in place in November we are adequately financed for our current operations. We currently have approximately $83 million in unrestricted cash on our balance sheet, along with an additional $115 million and available capacity in our debt facility. We remained focused on pursuing the vital for you.
Massimo: Michigan that we outlined in our long range plan that we believe will fuel profitable growth supported achievement of our three year financial targets as we outlined in November and propel our business forward.
Massimo: Overall, we are very pleased with our fourth quarter results and our performance in 2024, where all key financial metrics exceeded our expectations, we delivered above market growth across all business lines, demonstrating the strength of our portfolio, we sequentially improved adjusted EBITDA every quarter.
Massimo: Became free cash flow positive well ahead of our plans and significantly strengthened our balance sheet, all of which underpin our confidence in our ability to deliver long term profitable growth.
Massimo: Moving on to 2025 full year guidance.
Massimo: We expect full year net sales of $818 million to $826 million, which excludes sales from the discontinued <unk> artificial disc product lines and includes a negative impact from foreign currency of approximately $4 million or 50 basis points on a reported basis as compared.
Massimo: For the full year 2020 form.
Massimo: These expected net sales represent implied constant currency growth at six 5% year over year at the midpoint of the range.
Massimo: This guidance range is based on the current foreign currency exchange rates and does not take into account any additional potential exchange rate changes that may occur this year.
Massimo: We expect full year 2025, non-GAAP adjusted EBITDA of 82 million to $86 million. This represents a 180 basis points of EBIT margin expansion at the midpoint of the range compared to 2020 form.
Massimo: We also expect to generate positive free cash flow for the full year 2025, excluding the impact of restructuring charges related to the discontinuation of the <unk> artificial disc product lines with regard to our long term financial targets. We are pleased to increase our long term net sales.
CAGR from 2025 through 2027 to six five to seven 5% up from the 6% to 7% net sales CAGR target that we provided on our last earnings call.
Massimo: This increased growth rate reflects the discontinuation of our <unk> artificial disc business.
Massimo: All of our other three year financial targets are unchanged, including mid teens non-GAAP adjusted EBITDA as a percentage of net sales for the full year 2027, and positive free cash flow generation from 2025% through 2027, excluding the impact of restructuring charges related to the discontinue.
Massimo: <unk> at the <unk> artificial disc product lines, which we expect to be a headwind to 2025% free cash flow. We believe these targets build on the positive momentum we've generated and put us on an accelerated path to profitability with a stronger financial profile to maximize value creation.
Massimo: While we are not providing quarterly guidance I do want to provide you with some directional comments on the expected cadence of our business to assist you in modeling our quarterly performance.
Massimo: Generally we expect normalized procedure volume and seasonality throughout 2025, and more pronounced impact from the newly launched products as the year progresses.
Massimo: We expect Q1 to be slightly below the low end of our full year net sales growth guidance range due to the timing of international stocking orders in 2025.
Massimo: In addition, the $4 million foreign exchange impact is expected to be more heavily weighted in Q1 and Q3 of this year.
Massimo: Also note that <unk> revenue was highest in Q1 of last year.
Massimo: Now for some specifics on the individual line items on our P&L for 2025.
Massimo: We expect gross margins to be approximately 71% in line with 2020 form we remain on track to deliver approximately 300 basis points of gross margin expansion over our long range plan period and achieve mid teens adjusted EBITDA as a percent of net sales for the full year 2020.
Massimo: Seven.
Massimo: We expect operating expenses to decrease approximately 100 basis points through leverage on incremental sales and a continued focus on disciplined investments.
Massimo: Before we move to line items below the operating income line to assist you with modeling EBITDA I want to provide you with an outlook for depreciation and amortization expense, which is the full year 2025 is in the range of approximately 38 million to $40 million as compared to $37 million in 2024.
Massimo: Stock based.
Massimo: Compensation expense is expected to be in the range of 33 million to $34 million.
Massimo: Now, let's touch briefly on the items below the operating income line.
Massimo: Our expectation for interest and other is approximately $5 million per quarter we.
Massimo: We expect our adjusted EBITDA margin improvement of 180 basis points to be weighted more towards the back half of the year due to the timing of revenue and R&D investment.
Massimo: As a reminder, Q1 always experiences a disproportionate amount of annual expenses due to industry conferences and certain other Q1 heavy expenses, such as payroll taxes, and 401, K matching that reset in the new calendar year.
Massimo: In addition, this year's Q1 expenses will include our U S National sales meeting, which occurred in Q2 last year.
Massimo: As a result, we don't expect to see operating expense leverage in Q1 of this year versus Q1 of 2024.
Massimo: With regard to free cash flow. Please keep in mind that while we expect to generate positive free cash flow, excluding the impact of restructuring charges related to <unk> discontinuation for the full year 2025, we do not expect to generate free positive free cash flow in every quarter.
Massimo: Q1 in particular has historically been the lowest cash flow quarter due to the payment of the prior year the annual bonus in Q4 commissions among other items.
Massimo: With a compelling combination of profitable above market growth and a stronger financial profile. We believe our focused commercial strategy and broad differentiated technologies combined with our robust innovation pipeline and our pace setting enabling technologies position us well.
Massimo: To enhance operational excellence to deliver on our financial commitments and create long term sustainable value for shareholders.
Massimo: Now before we open up the call for questions. Let me turn it back to <unk> for concluding comments Massimo.
Massimo: Thank Julie at the beginning of this call I said that 2024 was that year worth celebrating.
Speaker Change: As I reflect on the past year.
Speaker Change: I'm incredibly proud of the progress we have made.
Speaker Change: I want to express my appreciation to our entire <unk> theme.
Speaker Change: Our committed commercial partners, whose contributions have been instrumental in driving our record performances in Q4 and 2024.
Speaker Change: Together, we are working towards our vision to be the arrival pastoral in med Tech.
Speaker Change: Delivering exceptional experiences and the life changing solutions.
Speaker Change: We entered 2025 with great promise the momentum and to integrated organization that are moving forward as one team.
Speaker Change: We are building a culture, where we take ownership innovate boldly and win together.
Speaker Change: I look forward to leveraging our unique portfolio of platform to drive profitable growth.
Speaker Change: Building long term value for surgeon patients and shareholders in 2025 or beyond thank you for being part of our journey.
Speaker Change: Operator, let's now open the line for questions.
Speaker Change: Thank you we.
Speaker Change: We will now begin the question and answer session.
Speaker Change: If you have dialed in I would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: I would like to withdraw your question simply press Star one again.
Speaker Change: If you are called upon to ask your question and are listening will be allowed to speak or new device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Again press star one to join the queue.
Speaker Change: And your first question comes from the line of Caitlin Cronin with Canaccord Genuity. Please.
Speaker Change: Please go ahead.
Okay.
Speaker Change: Hi, good morning, everyone. Congrats on a great end to the year.
Speaker Change: A few questions from me.
Speaker Change: So starting out with the discontinuation of <unk> six I appreciate that this exit will help improve the overall growth rate, but would love some more color on why the exit to the business at this time given your work on the two level and <unk> studies.
Speaker Change: Increased competition in the space or other reasons.
Speaker Change: Locate them.
Speaker Change: Good morning.
Speaker Change: We.
Speaker Change: We look at we look at our product portfolio overall.
Speaker Change: And we start to think about okay, where do we want invest in 2025 beyond.
Speaker Change: And we saw that.
Speaker Change: With the decrease of demand on and fix.
<unk> was not lets say warford to invest anymore, given our focus.
Speaker Change: Innovate focus in the form it is thinking about spine. So we wanted to start the 'twenty five and beyond from a much cleaner slate and fixed.
Speaker Change: <unk> become one of the decision that we made together with other product would be in orthopedics, we didnt believe that just having.
Speaker Change: Two level indication with a few.
Speaker Change: Additional demand. So this is why the tough decision.
Speaker Change: Gain our goal given all of the progress that you saw including putting four was to start 2025 with a much solid footing and a potential let's say higher growth rate.
Speaker Change: Moving forward.
Got it and then let the analytics and other portfolio updates and with others in the industry really throwing their hat in the ring with M&A. What are your current thoughts on M&A, what would be your investment hurdles and what.
Speaker Change: Areas would you look to bolster and agile.
Speaker Change: Yes. This is a great question.
Speaker Change: We work very hard to improve our balance sheet in 2024, so between the strength that we have right now there.
Speaker Change: The new credit facility I think that is creating the opportunity for us to look at the market to be patient and take advantage.
Speaker Change: Something that fits our portfolio comes up so.
Speaker Change: So it's not let's say something that.
Speaker Change: We're going to be focused on this year, we are really focused on executing but compared to 2024 or let's say that we are creating the basis to be too.
To be ready in case opportunities.
Speaker Change: In the market that fits us.
Speaker Change: I was going to be available so I feel very good about where we are.
Speaker Change: As of today, we are keep making the tough decision and.
Speaker Change: Generating the free cash flows that we need in order to be more competitive at different level.
Speaker Change: Okay.
Speaker Change: Great and then just one more quick one on <unk> any color.
Speaker Change: Color on the installed base or even the net adds in 2024 as you continue to see traction in our nine agreements.
Speaker Change: Yes, we don't give specifics, but what I can tell you that is a record is a record year for 70.
Speaker Change: The demand stay very stronger if you see at the beginning when we start with new management in 2024, we decided to be focus on creating a announced agreement will be from partner.
Speaker Change: Around the United States and.
Speaker Change: The team executed very well.
Speaker Change: What is very <unk>.
Important is that we keep monitoring how these the air now to outperforming in the marketplace and what I can tell you that the vast majority of the everything that we've done is exceeding our expectation.
Speaker Change: And and you understand the fact that we are exceeding that.
Speaker Change: The we are exceeding our amounts.
They're all hospital exceeding the amounts agreement that commitment.
Speaker Change: Creating higher stickiness between our device our proud of and enabling tech. So we are very very pleased about the performance. It does being under 15 under 50% higher year over year.
Speaker Change: 70 is one of the pillar our strategy moving forward and I can clearly said that is delivering.
Speaker Change: Yes.
Speaker Change: Awesome. Thank you.
Speaker Change: Your next question comes from the line of Ryan Zimmerman with <unk>. Please go ahead.
Speaker Change: Hi, Good morning, everyone. This is <unk> on for Ryan. Thank you for taking the questions.
Speaker Change: Just to start out I wanted to continue on with the <unk>.
Speaker Change: Update I was curious if there's any margin impact that we should be aware of from exiting these product lines.
Speaker Change: Okay.
Speaker Change: We will provide more details in terms of the impact that it had on our historical financials on our Q1 call, but we had contemplated.
Speaker Change: Impact in our guidance that we've provided in terms of our EBIT margin.
Speaker Change: That we provided this morning.
Speaker Change: Got it thank you and then.
Speaker Change: Do you guys feel that this alright that theres going to be any gaps in the U S spine portfolio and how do you feel about that as a whole.
Speaker Change: No I think that we.
Speaker Change: First of all we are not we are discontinuing that we are facing out the product. So it's going to be available for a little while but in general I don't think that there is going to create a big gap for us actually is going up this is freeing up resources that we need to double down.
Speaker Change: On our the pillars to our future strategy.
Speaker Change: Adjusting with deformity.
Speaker Change: So we thought very hard about to tell you about this decision and we believe that is is the mass.
Speaker Change: It makes sense long term for what we want to be willing to what do we what do we want to accomplish here in order to fix.
Speaker Change: Helpful. And then last one from me Masimo you outlined several upcoming product launches throughout 2025 I was curious if theres any one in particular that you are excited for or which you expect will provide.
Speaker Change: The most impact to top line growth. Thanks for taking the question.
Speaker Change: Yes, I think look I think that if you see our portfolio as a whole I think that in every single hour business unit, we're going to have some strategic new initiatives and new product this year.
Speaker Change: Of course, I think that there are.
Speaker Change: Thinking about spine, the introduction and the full commercial launch of our new Interbody products is going to create a very good leverage for us.
Speaker Change: C <unk>.
2020, Florida, it's been a great year for adoption of our our cages. So I see this keep continuing.
Speaker Change: In orthopedics.
Speaker Change: The launch of our new.
Speaker Change: Elevate system that augment our through our Coke is already creating in just in the in the clinical space a lot of positive demand.
Speaker Change: Tom.
Tom: Very good.
Tom: That we're going to have in orthopedics and of course, the NB duty, even being the number one mark number one player in the market, we keep delivering the new solution to all of US So John So IC with access team to play at all.
Tom: A good boost in the structure side to keep.
Tom: To keep the fueling our rates to be the number one also on the three markets. So I'm very positive and bullish about 2025 or beyond for all of our business.
Speaker Change: Your next question comes from the line of Mathew Blackman with Stifel. Please go ahead.
Mathew Blackman: Good morning, everybody. Thanks for taking my questions.
Speaker Change: Couple of maybe Julie.
Speaker Change: Start with you on the 2025 guide can you just give us a sense of the total revenues revenue headwinds baked into 2025, I think $20 million roughly <unk> is $4 million FX headwind you mentioned, some ortho franchise sunsetting and I guess also the last question did you bake in any dislocation.
Speaker Change: Into that guide to the extent there may be some I don't know call. It backlash from still existing high volume and six users and then I've got a follow up on that.
Speaker Change: Okay. Thank you, Matt So yes, so our guide the 818% to <unk> 26.
Speaker Change: It assumes again, 6% to 7% kind of growth six 5% at the midpoint.
Speaker Change: Yes.
Speaker Change: Last year 2024, and <unk> revenue was $23 4 million and then also assumes about 50 basis points or $4 million impact from.
Speaker Change: FX.
Speaker Change: The base assumptions in the guide.
Speaker Change: We don't expect any significant disruption or dislocation from fixed in terms of the way that it sold in the market.
Speaker Change: Often different distributors.
Speaker Change: And then.
Speaker Change: We feel confident in the numbers that we put forward.
Speaker Change: And then I know you haven't guided to 2025 EBITDA, but.
I think you still landed roughly with all of those aforementioned revenue headwinds in 2005, you roughly landed in the same spot we were modeling and consensus was modeling. So I guess the question there is should.
Speaker Change: Should we read that as <unk>, maybe being less profitable than we perhaps thought or are we actually seeing your ability to offset some of that EBIT dilution with underlying margin outperformance you may <unk> you may be seeing elsewhere.
Speaker Change: Yes, so the EBIT guide for the year was <unk> $82 million to $86 million.
Speaker Change: I think consensus out there with just over $80 million little under $81 million.
Speaker Change: And again, yes, I think this shows the progress that we're making on <unk>.
Speaker Change: Expanding our EBIT margins.
Speaker Change: Above expectations as well as some of the headwind.
Speaker Change: That was in the <unk>.
Speaker Change: Profitability.
Speaker Change: Okay, and then Masimo, just hoping to get a little bit more out of you on on 70 adoption and what youre seeing on that front I.
Speaker Change: I guess are there are there any common themes of who is adopting or these or.
Speaker Change: So fixed portfolio portfolio users today are these accounts that perhaps are under index to the broader <unk> portfolio and I guess really the most important piece I wanted to ask is are you starting to see yet any sort of portfolio pull through or step.
Speaker Change: Step up in utilization of 70 at the sites really just trying to gauge the long term portfolio a portfolio pull through opportunity as you place more <unk> I can't help but notice it's behind us.
Speaker Change: It's been really strong in the last couple of years are we seeing that sort of tailwind from the <unk> pull through or is that opportunity you really still all in front of us and Thats all I had thank you.
Speaker Change: Thank you, Matt and good morning.
Speaker Change: 280 that we have is very is very large for us. So at the end of 50% year over year increase the net amounts agreement is driven by all new account.
Speaker Change: For us, it's all pretty much the majority of the new revenue and I've said.
Speaker Change: And I said earlier, what is very encouraging for US is that all of these are not the agreement are performing a while evolve.
Speaker Change: Where we're at.
Speaker Change: The agreement is set.
Speaker Change: All of these that translates on a higher utilization.
Speaker Change: Our 70 technology, we the our implant.
Speaker Change: Further the farther we go.
Speaker Change: With 70 is clear is clear for me that.
Speaker Change: The larger the number of implants that we're going to sell.
Speaker Change: The larger the opportunity with our implant and the peak there is our opportunity to convert so Joe. So I saw for you for every quarter every time, we talk about the earn out is an indication of customer conversion.
Speaker Change: Okay.
Speaker Change: And put words in your mouth here, but it would seem like the growth rate.
Speaker Change: In the spinal implant business is sustainable here at least over the next 12 to 24 months.
Speaker Change: Given the power of the portfolio, but also what youre seeing with $70 million and your ability from an earn out standpoint to potentially graph share is that a fair statement.
Speaker Change: Yes, it's under percent then there's going to be a combination between the 70 and the investment that.
We're doing on the technology, our focus on procedure, realizing 70 with access with our product. So you see we are making bold decisions because we want to make sure to over index. Our investment in areas that is going to drive our profitable growth and the <unk>.
Speaker Change: Relation of 70 with our planned let us go deeper and keep increasing let's say not just our sales, but also our margin. So I'm very pleased about where we are today and where we can go in 2025 and beyond.
Speaker Change: Alright, thank you so much everybody.
Speaker Change: Thanks, Matt Thank you Matt.
Speaker Change: Due to time constraints that concludes our Q&A session I will now turn the conference back over to Julie Dewey for closing remarks.
Thanks, everybody for joining us today, we appreciate your time and interest if you have more questions. Please reach out and we look forward to talking to you next quarter. This concludes our call.
Speaker Change: Thank you everyone for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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