Q4 2024 Globus Medical Inc Earnings Call
Thank you. Thank you.
Welcome to the Globus Medical's fourth quarter and full year 2024 earnings call. At this time all lines will be on mute and a Q&A session will be held after the prepared remarks.
Speaker Change: I will now turn the call over to Brian Kearns, Senior Vice President of Business Development and Investor Relations. Mr. Kearns, please go ahead.
Speaker Change: Thank you, DeeDee, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Dan Scavilla, President and CEO, and Keith Pfeil, Chief Operating and Chief Financial Officer.
Speaker Change: This review is being made available via webcast accessible through the Investor Relations section of the Globus Medical website at www.globusmedical.com. Before we begin, let me remind you that some of the statements made during this review are or may be considered forward-looking statements.
Speaker Change: Our Form 10-K for the 2024 fiscal year and our subsequent filings for the Securities and Exchange Commission identify certain factors that could cause our actual results to differ materially from those projected in any forward-looking statements made today. Our SEC filings, including the 10-K, are available on our website.
Speaker Change: We do not undertake to update any forward-looking statements as a result of new information or future events or developments. Our discussion today will also include certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP.
Speaker Change: We believe these non-GAAP financial measures provide additional information pertinent to our business performance.
Speaker Change: Reconciliations to the most directly comparable gap measures are available in the schedules accompanying the press release and on the Investor Relations section of the Globus Medical website. With that, I'll now turn the call over to Dan Scavilla, our President and CEO.
Dan Scavilla: Thanks, Brian, and good afternoon, everyone. Globus finished 2024 with a great fourth quarter, making this the fifth consecutive combined earnings release with sales growth, strong financial performance, and best-in-class innovative product launches.
Dan Scavilla: Revenue for the full year was a record $2,519,000,000. Delivering $951,000,000 of revenue growth or 61% versus the prior year.
We achieve record sales while maintaining industry-leading profitability.
Dan Scavilla: This strong cash flow will enable us to return to a debt-free status as we exit Q1 2025, paying off the remainder of the $1 billion.
Dan Scavilla: that inherited from the Nuvasiv merger. We had a banner year in enabling tech with our highest level of robot imaging system and hub placements, setting the stage in 2025 and beyond for increased implant pull through.
Dan Scavilla: These results reflect continued market penetration, synergy acceleration, and sustained profitable growth through financial discipline.
Dan Scavilla: I'd like to congratulate the entire Globus team for their speed, dedication, and success. I look forward to building on this base and accelerating growth in 2025.
Dan Scavilla: In addition to our great financial performance, Globus launched 18 new products in 2024 throughout our business. These results are a testament to our incredible team, working tirelessly to drive integration and create scalable solutions so that we can reach steady state quickly and shape the markets in which we compete.
while delivering meaningful innovation to our surgeons.
Dan Scavilla: In Q4, we delivered our highest sales yet with $657 million, increasing 7% versus prior year.
Dan Scavilla: Non-GAAP EPS was $0.84, increasing $0.24 or 40% versus prior year. And free cash flow for the quarter was $193 million, up $111 million or 136% versus Q4 last year.
Dan Scavilla: In Q4, we achieved our highest quarterly enabling tech sales and unit placements to date. We also launched five new products this quarter, flexing our innovation muscle and shaping spine surgeries with our best-in-class technologies.
Dan Scavilla: Focusing on the quarterly performance of our business, U.S. spine grew 4% in Q4 with significant gains across our product portfolio in expandables, MIS screws, Cervical offerings, and 3D printed spacers.
Dan Scavilla: The growth is driven by several factors, including a high retention rate at all levels of our field sales team, the strength of our combined product offering, increased product cross-selling, and implant pull-through from robotic procedures.
Dan Scavilla: 2024 is one of our strongest competitive rep recruiting years over the past five years, and the recruiting pipeline is robust as we enter 2025. We continue to attract the most successful and tenured competitive professionals who see the power and future we can offer as a destination of choice for innovation and growth.
Dan Scavilla: As mentioned earlier, we launched five new products in Q4, and I want to share these innovative launches with you.
Dan Scavilla: The Cortex MIS system introduces disposable towers that attach to any existing screw from our highly successful Cortex system, offering a percutaneous solution designed to minimize disruption in the posterior cervical and upper thoracic spine.
Dan Scavilla: The Allegiance Retractor System is a ringless anterior exposure system designed for quick setup, precise tissue retraction, and maximum rigidity.
Dan Scavilla: Radiolucent handheld blades facilitate initial manual tissue retraction and quickly attach to rigid table mounted arms, ensuring a more stable exposure.
Dan Scavilla: Each independent blade handle features a built-in toe mechanism, enabling fine-tuned micro-adjustments without affecting previously well-positioned blades, a challenge common with traditional ring-based designs. This innovative design enhances surgical efficiency and visualization, providing a more reliable solution for ALIF exposure.
Dan Scavilla: The Modulus ALIF anchoring blades paired with the Modulus ALIF spacer portfolio is designed to enable procedural efficiency with the ability to deliver anchoring blades fixation by reducing the number of surgical steps and instruments needed in the surgery.
Dan Scavilla: Modulus A-Lift Anchoring Blades feature low-profile instrumentation for maximum visualization of the anatomy and streamline delivery of fixation without the need for secondary step.
Dan Scavilla: The addition of Modulus A-Lift anchoring blade fixation further strengthens our market-leading A-Lift portfolio.
Dan Scavilla: In addition, we launch the Excelsius Flex robotic navigation platform and the Actify Unicondylar knee system in Q4. I'll expand further on recon launches in future quarters.
Dan Scavilla: 2024 is a record year of launches for us, and this innovation is key to building long-term growth. We are investing significantly in product development and comprehensive PD training to harmonize our processes, expecting this to further expand our significant lead over the competition in IP generation and new product creation.
Dan Scavilla: In addition to driving growth from the 18 products we launched in 2024, I look forward to sharing future impactful launches we have planned in 2025.
Dan Scavilla: Enabling technology sales for the quarter were $47 million, an increase of 44% versus prior year. As mentioned, Q4 was the highest number of unit placements since launch, growing 47% over prior Q4.
Dan Scavilla: Robotic procedures continue to accelerate, growing 17% versus prior year, and exceeding 94,000 robotic procedures performed since launch.
Dan Scavilla: The Excelsis hub launch from Q3 is going well as we enter the freehand navigation market, opening the largest market segment of navigation for Globus innovation and growth.
Dan Scavilla: The combination of the E3D imaging system with the E-Hub navigation platform gives Globus the most comprehensive and sophisticated navigation offering available.
Dan Scavilla: We also plan to advance navigation in the near future with our XR Augmented Reality headset designed to work with the Excelsis Hub. We expect to gain FGA clearance of the headset in Q1.
Dan Scavilla: The DuraPro and Viscera PowerTool systems launched in Q124 continue to differentiate our PowerTool offering and pair seamlessly with our enabling technology portfolio.
Dan Scavilla: The unique ability of DuraPro Oscillating Drill to add extra safety around soft tissue structures, including neurovascular anatomy, while allowing for easier removal of bone, helps surgeons work safely and effectively.
Dan Scavilla: Market interest remains high for our state-of-the-art Excelsis 3D imaging system with most surgeons immediately recognizing and appreciating the stark differentiation over existing systems and seeing the value of combining E3D with the Excelsis GPS or Hub.
Speaker Change: We're delivering on our promise to create and launch our Enabling Tech Ecosystem, an ecosystem that is designed and built from the ground up to communicate together seamlessly. Investment in this area remains strong.
Speaker Change: and we enhance our ecosystem offerings and bring more about functionality in our imaging, navigation, and robotic current and future portfolio.
Speaker Change: Our international spine implant business delivered record Q1 sales of 13 or Q4 sales and 13 percent on a cost and currency basis compared to prior year with high double-digit growth in most markets and strong dollar contribution driven by Japan, United Kingdom, Italy and Ireland.
Speaker Change: We have yet to fully harness the power of the Combined Globus Nuvasive product offering internationally and feel this will be a significant tailwind as we move forward in 2025 and beyond.
Speaker Change: To combine trauma and NSO business delivered 8% growth in Q4, driven by the powerful performance and market penetration of our base trauma business, combined with the ongoing uptake of the Nuvasiv specialty orthopedic growth now, partially offset by a temporary supply chain disruption that will be rectified in the first quarter.
Speaker Change: The growth potential for this business has never been stronger with our growing product offerings, increased market interest, and tenured sales and product development teams.
Integration is progressing well.
Speaker Change: We exceeded our 2024 synergy targets and were able to accelerate value creation and shareholder return as a result. For year two synergies, we're continuing to implement common systems in our international markets, expand our in-house production for invasive implants,
Speaker Change: consolidate external vendors, and utilize our existing product offerings to drive cross-selling. There's been a great deal of progress from our teams and we're fortunate to have such strong leaders throughout the world driving integration, realizing synergies, and building a platform for future growth.
Speaker Change: A few weeks ago, we announced a definitive agreement to purchase all shares of Nevro Corporation in an all-cash transaction for approximately $250 million.
Speaker Change: The acquisition of Nemro further expands our reach into the musculoskeletal market, adding an additional $2 billion market space for us to compete in and grow.
Speaker Change: We believe our high-frequency technology offers clinically superior solutions that can alter the standard of care for patients.
Speaker Change: Nevro technology has potential beyond its current application to benefit our cranial enabling technology, next-generation spinal implants, data mining, and other areas of our business.
Speaker Change: Their patent portfolio will strengthen our already best-in-class musculoskeletal innovation suite, while Globus' scale and customer base can accelerate market penetration for the differentiated high-frequency technology.
Speaker Change: We see this move as an expansion of our continuum of care and complementary to our current spinal portfolio offering. The strong and dedicated neuromodulation sales force will be able to leverage our existing spine team to drive uptake and penetration, while our spine team can offer more solutions to their surgeons.
Speaker Change: Globus's financial strength will accelerate investments in neuromodulation to expand existing product reach and future product development. Combining Nevro into Globus's existing infrastructure will improve the profitability and cash flow of the Nevro business, generating more cash for future investments and growth.
Speaker Change: I believe the potential for GLOWIS has never been greater. It's up to us to harness our resources and shape the future of our markets. We have at our fingertips everything we need to realize this.
Speaker Change: I want to thank the Globus team worldwide for your dedication and support, delivering an incredible year, and furthering the pathway to becoming the preeminent musculoskeletal technology company in the world.
I will now turn the call over to Keith.
Keith Pfeil: Thanks Dan and good afternoon everyone. We capped off 2024 with a strong fourth quarter, helping us successfully complete our first combined fiscal year following the September 2023 merger with Nuvasiv.
Keith Pfeil: operationally we continue to execute on key integration objectives while financially we achieve meaningful sales growth and expanded profitability along with record free cash flow helping to build our overall cash position as we closed out the year
Keith Pfeil: Full year 2024 revenue was $2.519 billion, growing 60.6% on an as-reported basis and 61.1% on a constant currency basis. Pro forma sales growth on an as-reported basis was 5.2% and 5.5% on a constant currency basis.
Keith Pfeil: Net income was $103 million, resulting in 75 cents of fully diluted earnings per share, and includes $281.4 million of pre-tax merger and acquisition-related costs, as well as restructuring expenses.
Keith Pfeil: Non-GAAP net income was $419.6 million, which delivered $3.04 of fully diluted non-GAAP earnings per share.
Keith Pfeil: representing 31.2% non-GAAP EPS growth over the prior year despite a 20.3% increase in the fully diluted share count driven by the stock-for-stock merger.
Keith Pfeil: Full year adjusted EBITDA was 29.2% and we generated a record $405.2 million of free cash flow.
Keith Pfeil: Included in the full year results is an approximate 10 cent headwind to non-gap EPS and a 0.72% unfavorable impact to adjusted EBITDA driven by foreign currency loss.
Keith Pfeil: Moving into the fourth quarter, our Q4-24 revenue was $657.3 million, growing 6.6% on an as-reported basis and 6.9% on a constant currency basis over the prior year quarter.
Keith Pfeil: They adjusted sales growth was 5.2% with one more selling day in the fourth quarter of 2024 as compared to the prior year quarter.
Keith Pfeil: Fourth quarter net income was $26.5 million, growing 76.3% over the prior year quarter, resulting in $0.19 of fully diluted GAAP earnings per share.
Keith Pfeil: Q4 Adjusted EBITDA was 30% and we generated a record $193.2 million of free cash flow.
Keith Pfeil: Included in our Q4 results is an approximate 6 cent headwind to non-gap EPS and an unfavorable 1.5% impact to adjusted EBITDA driven by FX loss.
Keith Pfeil: Musculoskeletal sales for the fourth quarter of 2024 were 610.3 million dollars, growing 4.5 percent as reported compared to the prior year quarter.
Keith Pfeil: Our U.S. and international supply businesses were the primary drivers of growth, which was partially offset by lower neuromonitoring revenue driven by lower net revenue per case.
Keith Pfeil: Moving into geographic sales, Q4-24 U.S. revenue was $521.9 million, growing 6.3% as reported versus the prior year quarter. The growth drivers are driven by enabling tech, U.S. spine, and trauma, partially offset by lower neuromonitoring revenue.
Keith Pfeil: International revenue for the fourth quarter was 135.4 million dollars growing 7.7 percent as reported and 8.9 percent on a constant currency basis with the primary driver being the spinal implant business.
Keith Pfeil: As Dan noted earlier, the primary countries driving growth include Japan, United Kingdom, Italy and Ireland.
Keith Pfeil: Gap gross profit in the fourth quarter of 2024 was 57.2% versus 55.4% in the prior year quarter driven by operational improvements as well as lower inventory step-up amortization.
Keith Pfeil: The fourth quarter of 2024 was the last quarter in which we encouraged step-up amortization related to the evasive merger.
Keith Pfeil: Adjusted gross profit, which excludes the impacts of step-up amortization, was 67.1 percent compared to 65.5 percent in the prior year quarter. The improvement was driven by lower freight expenses as well as other operational spending improvements partially offset by higher inventory write-offs.
Keith Pfeil: Full year 2024 gap gross profit was 55.6% compared to 64.1% in the prior year.
Keith Pfeil: The decline in gross profit was driven predominantly by the inclusion of inventory step-up amortization and higher product costs as a result of the inclusion of a full year of newvasive in the consolidated results versus four months in the prior year.
Keith Pfeil: Full year 2024 adjusted gross profit was 67.4% compared to 69.6%, driven again by the full year inclusion of divasives in the consolidated results, compared to only four months in the prior year.
Keith Pfeil: As a reminder, legacy and invasive product costs are a higher cost than Globus, driven primarily by their higher mix of outsourced production.
Keith Pfeil: representing step improvement compared to 2024 as our insourcing efforts begin to take shape. It remains our long-term goal to be a mid-70s adjusted gross profit business driven by manufacturing insourcing and operational excellence.
Keith Pfeil: Research and development expenses in Q4 were $33.4 million or 5.1% of sales compared to $52.3 million or 8.5% of sales in the prior year quarter. The decreased spending is reflective of headcount savings and lower operational spending within R&D driven by the realization of cost synergies.
Keith Pfeil: Full year 2024 research and development expenses were 163.8 million dollars or 6.5 percent of sales compared to 124 million dollars or 7.9 percent of sales in the prior year.
Keith Pfeil: Our 2024 R&D includes $12.6 million of spending related to an in-process research and development acquisition from our first quarter.
Keith Pfeil: The increased dollar spending is due to the inclusion of New VESA for the full year, which primarily resulted in increased personnel-related expenses.
Keith Pfeil: The decrease as a percentage of sales is driven by cost synergies realized as a result of achieving integration objectives.
Keith Pfeil: Looking ahead to 2025, we expect R&D expense to be in the range of 6-7% of net sales.
Keith Pfeil: SG&A expenses in the fourth quarter were $253.5 million or 38.6% of sales compared to $244.7 million or 39.7% of sales in the prior year quarter.
Keith Pfeil: The decreased spending as a percentage of sales is driven by the realization of cost synergies, lower third-party legal costs, partially offset by higher year-end sales compensation costs.
Keith Pfeil: Full year 2024 SG&A expenses were $981 million, or 38.9% of sales, compared to $643.4 million, or 41% of sales in the prior year.
Keith Pfeil: The increased spending is driven by commission impacts from higher sales, as well as the full-year inclusion of invasive, inconsolidated figures, which primarily resulted in increased personnel-related expenses, third-party professional service fees, and rent expense.
Keith Pfeil: These increases were partially offset by cost synergies realized, which reflected in the lower spending as a percentage of sales.
Keith Pfeil: Looking ahead to 2025 we expect our base GMED business SG&A expense to be in the range of 37.5 to 38.5 percent.
Keith Pfeil: The gap tax rate for the fourth quarter was negative 7.4 percent compared to 39.8 percent in the prior year quarter. The decreased rate is driven by non-repeating acquisition charges in the prior year quarter as well as higher stock option windfall benefit and favorable tax credits in the current year quarter.
Keith Pfeil: On a full year basis, our gap tax rate was 14.7%, while our non-gap tax rate was 25.9%. Looking ahead to 2025, we expect our non-gap tax rate to be approximately 25%.
Keith Pfeil: Q424 operating and free cash flow were both records at $210.3 and $193.2 million respectively.
Keith Pfeil: Full year 2024 operating and free cash flow was also a record at $520.6 and $405.2 million.
Keith Pfeil: The increased operating and free cash flow is driven by the volume impacts from higher sales as well as more disciplined cash spending related to integration and synergy capture as well as modest working capital improvements.
Keith Pfeil: Shifting over to cash and liquidity, our cash, cash equivalents, and marketable securities were $956.2 million at December 31st, 2024, increasing $363 million as compared to the prior year end.
Keith Pfeil: The improved cash position is driven primarily by higher free cash flows, as previously mentioned, and net proceeds from stock option exercises, partially offset by share repurchases, related to our open share repurchase authorization.
Keith Pfeil: We had no short-term borrowings against our $400 million unsecured line of credit at December 31st, 2024.
Keith Pfeil: Looking ahead, we plan to pay off our senior convertible notes in cash, totaling $450 million, which is due in March of 2025.
Keith Pfeil: Separate of the near-term debt pay down, our capital allocation priorities in 2025 and beyond will focus on funding internal investments for product development, inventory, and capital expenditures while facilitating complementary M&A, which aligns with our go-forward strategies.
Keith Pfeil: Organic and inorganic investment remain the primary intent for capital deployment, so we will continue to utilize share of purchases within our capital structure.
Keith Pfeil: We expect capital expenditures to be in the range of 5-6% of sales in 2025. And lastly, we have $190.3 million open and authorized on our share repurchase program at December 31, 2024. Consistent with history, we expect any share repurchases to be funded using cash on our balance sheet.
Keith Pfeil: As we close out 2024 and enter 2025, synergies related to the invasive merger remain consistent with my comments in our third quarter earnings call.
Keith Pfeil: We expect to achieve $170 million over 3 years and have realized approximately 55% in the first full year post-merger close. We expect to realize 40% in year 2 and the remainder in year 3.
Keith Pfeil: Subsequent to year-end, the company announced on February 6, 2025, that it entered into an agreement to acquire Neveracorp for $5.85 per share, or approximately $250 million. This deal is still subject to shareholder and regulatory approval and other customary closing conditions.
Keith Pfeil: We expect this deal to close late in the second quarter of 2025, and we plan to fund this acquisition purchase price with cash on our balance sheet.
Keith Pfeil: Shifting to guidance, on a standalone basis, Globus Medical reaffirms its full year 2025 revenue guidance of $2.66 billion to $2.69 billion and fully diluted non-GAAP earnings per share range between $3.40 to $3.50.
Keith Pfeil: Following the consummation of the Nevera Corp. acquisition, which we expect to close late in the second quarter of 2025, Globus Medical anticipates 2025 net sales of $2.8 billion to $2.9 billion and fully diluted non-GAAP earnings per share ranging between $3.10 to $3.40.
Keith Pfeil: We expect NEVRO to be accretive to earnings in the second year of operation.
Keith Pfeil: Looking back on 2024, we were successful in leaning in and driving towards a fast and meaningful integration. We achieved sales growth and spine as well as across the portfolio. We brought systems together, eliminated cost redundancies and launched significant new products.
Keith Pfeil: All of this translated into sales and profitability growth, as well as strong cash flow generation.
Keith Pfeil: In 2025, we will seek to continue these trends while focusing more on operational integration of manufacturing and distribution while accelerating our pursuit of top-line growth.
Keith Pfeil: Thank you to our employees for their commitment and dedication. We will continue to win by listening to our customers and seeking to drive further innovation in a competitive marketplace.
Keith Pfeil: Our employees are well-suited to meet the challenges of the market and to help Globus succeed by introducing products that improve musculoskeletal care while differentiating us from the competition. We remain excited for the future as we continue our relentless pursuit of excellence.
Speaker Change: Operator, we will now open the call for questions. Thank you. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
and Keith Pfeil. Thank you.
Speaker Change: Our first question comes from Vic Sopra of Wells Fargo. Your line is open.
Vic Sopra: Oh hey, good afternoon and thanks for taking the questions too for me. I'll throw the first one out there. On the deal that you recently announced for Nevro, just talk about why this was the right time to enter the SES market and why Nevro was the right target and I have a follow-up.
Vic Sopra: Hey Vic, it's Dan. I'll do that. So, you know, a couple things keep in mind that with our rapid integration that we did in 2024 with Nuvasiv, we actually have set up enough
Vic Sopra: depth in where we're going with integration that we could actually take advantage of this opportunity.
Vic Sopra: And so, you know, the fact that it was out there as an asset that we looked at.
It really looks like it's a more well-rounded
Vic Sopra: for us to build on and while we're interested in entering into that and capitalizing high-frequency in that area, we're thinking that there's reaches beyond that.
Vic Sopra: My follow-up question is, one of your large competitors announced the sale of their U.S. vinyl implants business and they also plan to sell their international businesses. Do you expect to benefit from this at all in 2025 or beyond?
Speaker Change: Now it's a great question and look there's a lot of activity in the market I like to believe that the moves we made created market disruption and there's still waves going through that.
Speaker Change: At the end of the day, you know, we say this, we play the long game, we focus on the patient on the table, driving on that clinical needs.
Speaker Change: And so while all of these things will move around, we're going to stay focused on where we're going, putting innovation out, capitalizing on what we have, using our enabling tech to make meaningful moves.
Speaker Change: and if there's opportunities out there we can benefit from, great, but nonetheless nothing's occurred that would take us off our plan and our execution approach.
Thank you.
Thank you.
Speaker Change: Our next question comes from Matt Miksic of Barclays. Your line is open.
Thanks for watching!
Speaker Change: Hey, thanks so much for taking the question. To follow up to Vic's question on on Nevro, and congrats by the way on the on the free cash flow generation and and last year and in the fourth quarter which
Speaker Change: My numbers are right may have may have just funded the the Nebro deal, but on on that transaction if you could maybe
Speaker Change: put the level of investment into context of other programs that you have in place and have had in place like, I don't know, imaging system, orthopedic robot, trauma, just to kind of do this.
Speaker Change: Is this a bigger swing for you? Is it a similar swing? Not to compare which are your favorites or which are most likely to be successful, but just in terms of what your investment level, that would be super helpful. And I have one follow-up.
Speaker Change: You got it, Matt. Thanks for that too. And yeah, we'll never really say which child is our favorite when we talk about the investments and what-have-you, but...
Speaker Change: To answer your question, simply no. I don't think that this would take a meaningful shift of investment that you would see on our P&L. As you know, and as Keith said, we're shooting to have that 6-7% range of investment, and I think even with this in, you would still see that factored into where we're going.
Speaker Change: So, it really is not anything that we think will take us off track. There's certainly other areas we want to focus on, which is quicker penetration, possibly spending on sets or scale-up as we need to get into that type of business.
Speaker Change: But again, none of that that I think you would see as meaningfully move off of where we're going as far as who we are and how we spend. And if I could add a couple of comments, you know, I would say that, you know, from a CapEx perspective looking ahead, I don't think that this materially changes our approach to our capital expenditures for the base global business when you bring Nevro in on top of that. And when I step back and look at the business and the purchase price.
Speaker Change: If I compare the purchase price to tangible book value, you're paying basically tangible book. So from an investment perspective, that seemed to make sense for really what we were getting, tying back to what Dan noted on the long-term growth potential we see with this business under our umbrella.
Speaker Change: That's helpful. And the follow-up was just on, you know, the last couple of quarters have been very strong in terms of robot placements.
the ranks of your new...
new VASA colleague, you know, Globus colleague at the VASA.
Speaker Change: How deep are we into, you know, doing robot deals here?
Speaker Change: you know at 20-30 percent into the ranks or are we successfully executing or are we halfway there?
Speaker Change: just to get a sense of what kind of lift we could see going forward. Thanks so much. Yeah.
Speaker Change: Thanks, Matt. You know, I'll tell you in an interesting way, I would say it's actually better than that. We really just have had Relon and Modulus ready to go, the instrumentation out there and getting it approved, and so you're really at the cusp of penetrating. We've sold some, but I would tell you that, you know, I wouldn't assign a character of 20% or more to that. I really think that we're just starting.
Speaker Change: And as we've always said, 2025 was the year to go in and penetrate those. I think we're on target for that.
Speaker Change: So, I think that the lift and the strength that we are going to see this year in those placements will be deeper in new bases than we have in the past, okay?
Speaker Change: and Matt just one thing to add to that I just stepping back from that I don't see that changing the mix or cadence of our capital sales typically Q's two and four still the heaviest quarters I still see that being the case as we get into 25
Speaker Change: Sure, so step down and cue one sequentially and then working your way back to a cue four.
Correct.
Thanks so much.
Thank you.
David Saxon: Our next question comes from David Saxon of Needham and Company. Your line is open.
David Saxon: Great. Good afternoon, guys. Thanks for taking my questions and congrats on the quarter. Maybe, Keith, a couple on the P&L. So can you just talk about the gross margin cadence we should be thinking about throughout the year as you work to
David Saxon: ensured some of the new vases manufacturing and then the R&D guidance.
David Saxon: It looks like it implies a step up in dollars, so we'd love to hear, you know, what's driving that, where the incremental dollar is going, and then I'll have a follow-up.
David Saxon: Yeah, sure. So, you know, my comments are going to be fairly limited. I mean, from a gross margin cadence perspective, we said that 2025 would be, you know, show some modest improvement in gross margin, because remember, the insourcing is focused on getting the machines online and programmed this year. You're going to build inventory, which will roll through the P&L in 2026.
David Saxon: So I expect to see the most gross margin expansion next year. As I think, you know, as we move throughout the year, you'll see some modest improvement quarter to quarter, but you have to remember, again, my earlier comment, what quarters are heavier with capital.
Speaker Change: When you think about investment for R&D stepping forward into 2025, you know, we're just continuing to invest across our business. You know, as we, like, from a base perspective, our dollar investment will improve, will increase a little bit, but when you think about, kind of, our plans, if you go back several years, our investment initially in INR kind of happened, and as that came online, we shifted those dollars to other areas in our portfolio. That concept keeps going, but as Dan said earlier,
Speaker Change: for the long term. So if we see opportunities to drive growth, we're gonna bring that investment to market. And right now, as we move forward into 2025, we wanna keep that new product cadence going. So we're gonna continue to drive investment across the portfolio.
Thank you.
Speaker Change: Okay, great. Thanks for that. And then maybe just a follow-up on the Nevro deal. I think in the script you talked about
Speaker Change: the potential to see benefit for a next-gen spinal implant. You know, that sounds interesting. Maybe can you just elaborate on that and kind of, you know, what does that actually look like? Thanks so much.
Yeah, thanks. I'll make the answer short and say no.
Speaker Change: It really is about what we're developing in our product portfolio, and I think you know us. We don't tend to talk about future products and where we're going until we're right at launch. So I'm just simply putting out there the note to thanks beyond Noor Ahmad.
Speaker Change: into where this can be applicable in many things, including data. And so still working through those. I would say stay tuned, but nothing that's on the forefront coming out this year. Just a little bit more long-term strategy where this makes sense.
Okay, great. Thanks so much.
Thank you.
Thanks for watching!
Speaker Change: Our next question comes from Jason Wicks of Ross, the line is open.
Thank you. Bye.
Speaker Change: Hi, thanks for taking the questions. Just on the Nevro deal, in terms of how you get this business accretive in the first year, or after the first year,
Speaker Change: I assume most of that is just simply scale and improving distribution or how should we think about that and related to that be helpful to understand on the SG&A line how much of that is sales and how much of that is G&A.
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Speaker Change: As a rule, I'm going to keep my comments somewhat limited because, you know, the deal still hasn't closed yet.
Speaker Change: When I think about Nevro and moving the business forward, we want to get that business scaled to drive profitability.
Speaker Change: Obviously, that will come at some point with sales growth, but also taking a hard look at cost. I think when you look at the approach we've taken with maintaining sales growth and managing costs with an invasive merger, I think it's a fair way to look at NEVRO once it closes, but I want to keep my comments fairly limited.
Thank you.
Speaker Change: Okay, I appreciate that. Maybe if I could just push you on one more NeverRelated question.
Speaker Change: I assume there's some dissynergies just based on kind of the out Comparing sort of what consensus is for Nevro versus what you're looking for assuming a late second quarter Closure, I don't know if you can comment on you know what the expectation is in terms of potential top-line dissynergies from the deal
Speaker Change: Jason, one of the things I'd probably put out there since we haven't really gone in and closed the deal and we still have to go shareholder approvals and etc. Let's kind of pause on that we'll share it when it's right I just think the timing is off right now for us to get into that level.
Speaker Change: Okay, why don't I switch gears and just ask one more question, unrelated to Nevro, if you don't mind. And that is, I think about your enabling tech business, what is the take rate for imaging? And are you seeing just straight up imaging sales? I'd love to get an understanding of that.
Speaker Change: sort of how that's developing now that you kind of have a whole suite of products and sort of who's buying what, are they buying the full suite, buying a partial suite, and or are they simply buying the imaging piece would be really helpful to understand.
Speaker Change: Yeah, the answer is kind of a little bit mixed. We're definitely seeing acceleration in sales of imaging. There's no doubt about that. And they are both standalone and often in a package. So it really just depends on what the customer wants.
Speaker Change: I would say in total, it's accelerating, it's increasing, and it really just depends on the mix of when they want it. It's probably almost a mixed bag. It's not unusual to have both go through. So, good position, but again, it really just depends on what the customer wants.
Speaker Change: Okay, great. I'll jump back to you. Thank you very much.
Thank you.
Speaker Change: Our next question comes from Chaggan Singh of RBC. Your line is open.
Bye!
Chaggan Singh: Thank you so much for taking the question. I guess two for me, you know, the first is just on Nevro, you know, the company has had some challenges in the SCS market in recent quarters. What was your assessment of what caused those? Is it the market? Is it the technology? Is it the commercial focus? And why do you think you can be successful with this asset? And then the second question just focuses on M&A. I think this acquisition does give you, expands your call point, you know, to the interventionalist.
Chaggan Singh: Should we expect you to do more M&A to fill the bag to cater to that call point? Thank you for taking the questions.
Chaggan Singh: So again, I would say, you know, when you think about Nevro and
Chaggan Singh: what we think we can do with it. I mean the market, the market is there. I would say that Never probably hasn't grown as fast as the market over the last couple of years. I think that bringing it, bringing it under our umbrella and allowing it to really get into our larger spine business creates opportunities for us. I think our scale and the strength of our balance sheet also helps to maybe sell some of these products in. I would say that those are two key drivers from my perspective.
Speaker Change: Yeah, I'm going to agree with that. I think there's a couple things. Obviously, they needed to be selective in where they worked and what they could do and how they invest. I think there's a little bit of market.
Speaker Change: hesitation on size and viability that may have had some impact with them.
Speaker Change: I think we're coming in and making it clear that we're into this high-frequency technology. We believe it is the way, and we're going to use our scale and our balance sheet, as Keith said, to go push that with them. So I think that's really what we're looking to do where we're coming. To answer your second part of the question.
Speaker Change: It's certainly possible as we look to fill this out, but again, let's get this first, get it in place first, evaluate what it is we have that we're building internally versus what we may want to do inorganically, and then we'll decide to do that. I don't know if anything would occur.
Chaggan Singh: of size or meaningful scale right now. And I would tell you we have nothing on the radar for that. Yeah, and Shagan, the only thing I would add to Dan's comments is, as I think about the Globus business,
Speaker Change: We see plenty of organic sales opportunity and growth for us internally to drive innovation. Absolutely, M&A will become a bigger part of our portfolio as time passes, but we see plenty of organic growth opportunities still. Thank you.
Thank you.
Speaker Change: Our next question comes from Caitlin Cronin of Kennecord Tenuity. Your line is open.
Caitlin Cronin: Hi, congrats on a great quarter. Just to touch on NEVPro, you know...
Speaker Change: Yes, thanks. Just to touch on Nevro, you know, how important is their SI joint portfolio to your decision to acquire the company and with that the access to the interventionist paying call points for your current SI joint portfolio?
Speaker Change: It's a great question. I would say that while it is interesting It was not a driving force or even something we valued out to any level of significance with this I think it's a bag enhancement. We already have some great offerings with SI joints, and you know I think the question is
Speaker Change: Can this further it out? And again, we'll have to get through the approval before we get deep enough to truly evaluate this and see. But again, not a driving force of where we said it would go or the reason to drive the deal.
Speaker Change: Got it. And then just a touch on Excelsius Flex which launched in the Q4, you know how is the launch going and what's the commercial strategy in 2025 and beyond?
https://www.kenhub.com
Speaker Change: Dan mentioned that he's keeping the comments fairly brief at this point, you know, as we go into 2025, obviously, we will begin to work to market that and sell it. But you know, we had said in earlier calls, that we don't see that being a meaningful part of revenue in 2025. This is still something it's a crawl, walk, run, it's out, we're working to sell it. But as time passes, we will start to see cumulative effects. That to me is more of a 2026 event.
Speaker Change: And what I would add to that, too, is very similar to what we did with Spine, is we'll offer a variety of options for people to go out to get this, right? And so it really just depends on what...
Speaker Change: perhaps we're willing to do with the customer and go and so I feel pretty good again the strength of our balance sheet can help us do a lot of those things but you know we continue as well to flesh out and strengthen all of the implants that go around that and so it's a holistic approach of
Speaker Change: Robotic Procedure with these new implants and we still have to scale up and finish up some of those implants to make sure we get more uptake in the market.
Thank you.
Thank you.
Thank you.
Speaker Change: Our next question comes from Craig Bishu of Bank of America Securities. Your line is open.
Craig Bishu: Good afternoon guys, thanks for taking the questions. So I want to start with with Nevro, but maybe from a bigger picture perspective.
Speaker Change: Obviously, as was noted in a couple of the other questions, you're going to have access to interventional pain docs, interventional spine specialists.
Speaker Change: and we just saw a striker sell their implant business and retain the interventional spine business. So.
Speaker Change: I guess, Dan, I wanted to get your thoughts on the...
Speaker Change: you know, the convergence or, you know, how those two channels play out over time in the Spine Surgeon and the Interventionalist, and if there is some convergence that happens over the next, you know, five, ten years. Just want to get your thoughts there.
Speaker Change: Thanks, Craig. You know, I think what you're asking, there's always potential for that and as more...
Speaker Change: Procedures come, there's always the interventionalist that may have the ability to do that. We're not signaling a clear step into that or that we're shifting away from anything that's our core spine with this. Remember, we were really...
Speaker Change: Lee's with what that high-frequency technology can do and like I said longer-term applications of it throughout And so that was really our main focus right now doesn't mean we're not it doesn't mean maybe never It's just right now. Let's get past this get the shareholder approval. Make sure we see what we have Capitalized on the reason for our purchase here, and then from there see can we expand in the future?
Speaker Change: got it that's helpful and then maybe just bigger picture on the on the spine market your thoughts as you enter 25 you know are you still as
Thank you.
Speaker Change: bullish on the prospects for the market. You know, the spy market ended the year pretty strong, so maybe just your thoughts on where you see it going next year and beyond.
Speaker Change: Yeah, and as you know, it's always a guess, right? I think it was a strong year. You know, do I think it will continue to accelerate or get up into some high single digits? My answer is no. I think it has historically been around that 3%, and I think over some period of time, it'll trend somewhere around that over the long term.
Speaker Change: But again, keep an eye on it. I think the point is, regardless of what its growth is...
Speaker Change: Goal is to outpace it through the innovation and through the investment and set expansions and those type of things But as we look at it, you know I'm still going to go back to the low single-digit look that we know historically And that's kind of our main assumption as we look at it in this year in the upcoming few
Great, thanks for taking the questions.
Thank you.
Thank you.
Speaker Change: Our next question comes from Matt Taylor of Jeffries. Your line is open.
Zach Young: Hey guys, it's Zach Young on format. I guess the first question was wondering
Speaker Change: With the AAOS upcoming, should we expect to see more of your knee and hip implants and the ortho robot portfolio at the conference?
talk a little bit related to that.
value prop for robotics and ASDs for SPI.
Speaker Change: So, with the AALS, yeah, we will have a bigger presence now that we have a bigger bag and we've moved our technology through to approval, so you will see some of that or more of that than we have been able to do in the past as we get there.
Speaker Change: Your ASC question, a little bit more on the spine side, I know it's a hot topic, right? Will they expand and continue to grow? The answer is yes. Will it ever be 100%? Unlikely.
Speaker Change: and look at where that is. So as we balance out where patient care is.
We're going to be ready to support these and go.
Speaker Change: and with that, work with surgeons to see what makes the best sense to go through that. Tough to call it a number because it's all over the board with what people think, but, you know, again, at the end of the day, we're not thinking it goes away, nor do we think it becomes the only thing out there. And we just are positioning ourselves to kind of, if you will, be in the middle to understand where that growth is, perhaps similar to or even less than where joints are landing.
Speaker Change: Okay, great, very helpful. I guess a quick follow-up on the navigation headset product. I was curious if you can talk about, you know, some of the key benefits of that product and also the economic model for it.
Thank you.
Speaker Change: Sure. You know, as far as economic model, it's going to work with the hub. That's really the main thing, and it will eventually have robotic application as well, so we go through that. You know, the main thing beyond its lightweight ability, more data, the ability to flow through...
Speaker Change: is just going to be the line of sight directly on to your patient as opposed to looking off on a screen.
Speaker Change: One of the things I really like is the fact that with those cameras as well, it creates less interruption with people who are around the operating table.
Speaker Change: And it's also a great teaching tool because if you have someone you're teaching, you can actually see through their eyes what they're seeing directly. It's going to help them out that way. So, you know, it's lightweight. It's got a great line of sight. It has the ability to help you have better visualization when it comes to not blocking cameras.
Speaker Change: And as a teaching tool itself, it's really something that I think can become useful as we get deeper into teaching institutions with it. Economic model is really...
Speaker Change: tough to explain. Of course, we're looking to sell them. And if there's other reasons to do not and come up with a different package, we'll consider it. But I think right now, along with a hub, that's going to be the main thing that we'll put out a quote.
Speaker Change: for people to purchase. We have the ability to really sell, rent, lease. We can do it really in any way that the customer is looking to do, but it will be a complimentary purchase with existing capital.
Okay, thank you very much.
Thank you.
Speaker Change: Our next question comes from Richard Newitor of Truist Securities. Your line is open.
Hi, this is Ben on Fur Rich.
Speaker Change: I see that the 2025 EPS range including the acquisition is 310 to 340 so I'm wondering if you can talk about some considerations that may drive that either to the top or the bottom of that range.
Speaker Change: You know, it's a great question. Again, I'm going to keep my comments limited. I go back to the fact that we noted we expect it to close the back half or the back half of the second quarter late in the second quarter, so you should assume that you know the sales are going to go along that cadence. From the standpoint of the guidance range, it really comes back to, number one, driving sales retention or driving modest sales growth, as well as our ability to really get better control of the cost structure. I'd leave my comments there.
Speaker Change: you know, as you think about our overall combined implied guidance.
Speaker Change: Thank you. And just one more. So I know there's been some discussion throughout MedTech of potential tariff exposure for companies that manufacture internationally or a business there. And I'm wondering whether you have any exposure and what your thoughts is on the matter.
Speaker Change: Our exposure is very limited. Roughly 95% of our products are U.S. based or sourced in the U.S. so any tariff exposure is extremely immaterial to our cost structure for 2025 and that's assuming 10 or 25 percent.
Speaker Change: I'd even add the other 5% is more of long-term instrumentation as opposed to implants or disposables as well So it even further limits down the risk that we see
Thank you.
Thank you.
Speaker Change: Our next question comes from Matthew O'Brien with Piper Sandler. Your line is open.
Thank you.
Matthew O'brien: Afternoon, thanks for taking the questions and sorry about the background noise and sorry to keep Beating this Nebra horse, but just on the profitability side of things
Speaker Change: You know, you've talked about getting back to mid-30s EBITDA margins for the overall business. Is that still possible with all the investment that you have to put into NEVRO and the updated products? Or maybe said another way, if you can get there, is it just going to be pushed out a little bit versus kind of what we were expecting before you made this investment?
Speaker Change: I would say it's a great question Matt. You know my prepared comments I focused on getting back to mid-70s gross profit. That's still our goal even with bringing NeverEnd to the fold. I think their gross margin profile lines up pretty well with ours and we think we can you know drive operational improvements to enhance margin. So you know really the big thing I look at is SG&A spend and that's something we'll continue to examine as time passes. I wouldn't say I would move off of our mid-30s goal but as we grow as a company our focus
Speaker Change: really shifts a little bit more towards just overall EPS growth.
Speaker Change: I think that we can maintain a high EBITDA profile and still get to that globus historical mid-30s. But in the near term, focus is on, again, insourcing the evasive merger, driving that gross profit expansion next year, the majority of it next year, achieving the additional synergies, and then bringing Nevron into the fold, and really falling back on some of the comments I just made as relates to their spend structure.
Speaker Change: Understood. And then a question for Dan. I know there's still concerns out there that, you know, you could see more dislocation from the basic sales force or just the combined sales force.
Speaker Change: about a year after the close of that deal, is that something? I know you said you had some of the best
Speaker Change: you know new rep hires but have you seen retention move at all or is that better than you expected maybe just a little bit of commentary about your confidence in retaining a lot of these reps as we move past that one year mark thanks
Speaker Change: Yeah, it's a great question and if you remember too, we talked a while back It's not that everyone were on some special guarantees that all expire, you know over time that was something that was an odd
Speaker Change: rumor that was put out there you know these folks are out there doing their thing and retention has been great doesn't mean we haven't lost people but it's actually less than I would have anticipated the retention is really high thanks to the great leadership and the structure that was set up out there
Speaker Change: I've been out traveling the country extensively and boy it sure feels good to me where they are.
Speaker Change: I think putting 18 new products in the hands of reps can be great. I think, you know, helping a lot of them with the compensation increases that we did when we brought Nuva into us is a good thing.
and when they look and come here and see that...
Speaker Change: Those products and the future products are even more powerful. I think folks really understand that this is the destination of choice So I feel good about it. I think that's also why we're getting a lot of competition coming in to look at us
Speaker Change: and see if they can sign up with us. So, so far it's been great. It doesn't mean we don't keep our eyes on it. We have to work and earn those people and keep them with us. We respect who they are and what they do. But I think so far we're doing our best to keep them there and they seem great to be responding to us.
Thank you for joining us.
Speaker Change: Thank you. As a reminder, if you have a question, please press star 1 1.
Speaker Change: And our next question comes from Steve Lichtman of Oppenheimer. Your line is open.
Speaker Change: Hi, this is Amir on for Steve and I just have two questions. My first question is, are you guys seeing any changes in the capital purchasing appetite for customers? As in, are you guys seeing any increased shift towards rental or volume deals as you enter 2025?
Keith Pfeil: Great question, this is Keith. You know, as I think about the appetite, I think the capital market remains strong. Earlier I got, we got a question, right, I made a statement that I still see the cyclical nature of capital. It's a long selling cycle, you know, eight to twelve months to really secure a robot piece of capital with Q's two and four still being the high watermarked quarters. In terms of how a customer acquires the capital,
still the vast majority of our purchases are outright.
Keith Pfeil: buys on terms where they pay 30 to 60 days. As I think about other ways to offer capital, we can rent, we could lease, we can do volume-based arrangements. I mean, we have the ability to match the market, but still the vast majority of our sales are outright purchases.
Keith Pfeil: Thanks Keith, and just one last one on my side. Can you give us a sense of the components of the sales guidance for this year by major segments?
Now we historically have it
Keith Pfeil: Yeah, we historically haven't done that. There's a lot of moving parts and pieces, and we really look at our business in the aggregate. We're comfortable with where our overarching implied guidance is, and if you look back at my prepared remarks, I think you can get a good view of the Guide for the Year based business globus, and even with considering the Nevro acquisition.
Make sense. Thank you all
Thank you. Thank you.
Speaker Change: Our next question comes from Ryan Zimmerman of BTIG. Your line is open.
Hey guys, thanks for taking our questions. I appreciate you.
Speaker Change: Yeah, I think on a pro forma basis, we're kind of hovering low single digits, mid-single digits.
Speaker Change: on a pro forma basis, arguably in line with the spine market. Now, the street is modeling a higher growth rate in 25, as I'm sure you're aware.
Speaker Change: And there's a number of drivers in that portfolio. I guess what I'm trying to understand and get to is, you know, where you feel like you're under-indexed within particular areas of the spine, you know, be it cervical with the simplified disc.
be it, can you accelerate maybe some of the legacy?
Speaker Change: surgical support business and biologics from Nuvasiv or the fact that, you know, you didn't have Neuromonitoring and Legacy Globus, now you do with Nuvasiv. I'm just wondering if you can kind of dig into that U.S. spine business a little bit and kind of directionally talk about some of the subcomponents within it.
Speaker Change: True thing Ryan. Long question is fun too. You answered a lot of the stuff therein, but I'll just tell you
Speaker Change: We under index in biologics, and I think one of the easiest things we could do is get there and move that up further as one of the lifts, so that'd be probably one of the ones. The other areas you called out not so much, you know, neuromonitoring coming over more into the Globus projects, and by that I mean the NCS neuromonitoring coming over. I think that that's a great cross-selling that we call out and say there's opportunity to do it that way.
Speaker Change: You know, I think the focus on putting together all of the incredible assets we have in pediatric deformity and making that more powerful, I think we have this stuff at our fingertips and we just have to do a better job coordinating and launching that and making that stronger out there. I think those three things are great focuses that I really think are there.
Speaker Change: truly capitalizing on cross-selling is one of the biggest things for this coming year and honestly Getting the emerging tech as we've always said into those new accounts
Speaker Change: All of those things, I think, create strong lift for us as we kind of walk into this year. The only thing I'd add to Dan's comments really goes back to enabling tech.
Speaker Change: is as we continue to put more capital out there, you know, we have a robot, we have navigation now, we have imaging, so there's more of a suite of products and launching those programs successfully should help facilitate future implant sales.
Brian.
Okay, that's fair. And then, Keith, last one for me.
Keith Pfeil: You talked about year two synergies, you know, the commonalities, the consolidated external vendors, in-house manufacturing, and that's going to be about 40%. What's that last 15% that you're targeting in year three, you know, just in broad strokes? Where do you still have that opportunity, you know, as we move, think about maybe even 26?
Keith Pfeil: Yeah, the year three, it's a great question. Year three is really going to focus on gross margin expansion, gross margin rate expansion, because again, you're bringing the machinery in-house this year, you're bringing the products in-house. As you build that, you should start to see a working capital benefit in 2025 that will create its way back to the P&L in 2026.
Hope that.
All right, thank you guys
Thank you.
Speaker Change: Our next question comes from Matthew Blackman of Steeple, your line is open.
Speaker Change: Good afternoon everybody, appreciate you taking my question. I'll just leave it to one. Keith, was there anything one time on the P&L in the fourth quarter I asked because
Speaker Change: Basically get to the bottom end of your standalone 2025 EPS range. I appreciate there might be Incremental FX headwinds, but is there something else going on? Am I missing something?
Speaker Change: I commented in my prepared remarks that we had some higher write-offs in inventory that was a little bit of a drag on gross margin that's worth a couple tenths of a point and down in SG&A we probably had some higher bad debt expense but again in the aggregate you're talking a point point and a half of impact
Speaker Change: Okay, but again, you know, 85 cents roughly times 4 gets you to the bottom end 340 and I appreciate it's not linear But it wouldn't see
Speaker Change: It doesn't seem to assume much incremental synergy capture or revenue growth.
Speaker Change: just just help me understand what up what I'm missing about the bridge from where yeah no I'm caught we're comfortable where we're sitting here with your two synergies when I think about because you asked about the quarter if you expand out further from the year there's other headwinds that we saw there was steward bankruptcy earlier in the year that drove a drag on SG&A expense earlier in the year but overarching it's still I mean it's early we're confident with where we're positioned going in the next year I feel
Speaker Change: and the team at the bottom line and really we want to continue to drive execution. The $170 million of Synergy over three years, we feel good about them. We achieved year one, we feel confident in year two and like I said per the earlier question in year three, that's where we're going to see the gross profit expansion.
Speaker Change: Okay, I'll leave it at that. Thank you for taking my question.
Speaker Change: Thank you. Thank you. With no further questions, that concludes the Globus Medical Earnings Call. Thank you for participating, and you may now disconnect.