NuVasive, Inc. Price & Performance (NUVA)

Thank you. Good afternoon, everyone. With me today are Chris Barry, Chief Executive to and then we'll host a question and answer session. The earnings release, which we issued earlier this afternoon, is posted on the IR section of our website to and has been filed on Form 8 ks with the SEC. We have also posted supplemental financial information. To turn the call over to Mr. President. To turn the call over to Mr.

President. Before we get started, I'd like to remind you that our comments during this call will include forward looking statements, which are based on current expectations to discuss the financial results and involve risks and uncertainties, assumptions and other factors, which could cause actual results to differ materially from those expressed to provide any further details or implied by such forward looking statements. The factors that could cause actual results to differ materially to discuss our 2019 earnings call and discuss our 2019 earnings call. I would now like to discuss our 2019 earnings call and discuss our 2019 earnings call. Except as required by law, to we assume no obligation to update any forward looking statements or information, which speak of their respective date. To turn the call over to Mr. President. Thank you, Mr. Chairman. Thank you, Mr. Chairman. Thank you, Mr. Chairman. Thank you, Mr. Chairman. To turn the call over to the operator. Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir. Thank you, to turn the call over to Chris Barry.

Thank you, Juliet, and good afternoon, everyone. To Earlier today, we reported Q2 2023 financial results. On today's call, I will review our performance for the quarter, to share how our differentiated product portfolios and continued commercial execution position us well for the pending combination with Clovis Medical to discuss where we are in the merger process and our current views of timing. After my remarks, Matt will share additional financial details on the quarter. To NuVasive delivered 2nd quarter 2023 net sales of $317,800,000 an increase to turn the call over to the operator of 2.4% on a reported basis or 3.1% on a constant currency basis compared to the prior year period. To turn the call over to Eric. In combination with our Q1 performance, we delivered in line with our expectations for the first half of twenty twenty three. To turn the call over to Steve.

Despite a challenging Q2 2022 comparison and merger related competitive noise, the NuVasive team delivered a solid quarter. To our U. S. Business achieved approximately 6% growth in U. S. Spinal hardware, led by more than 20% growth from cervical for the 7th straight quarter.

To turn the call over to Steve.

In our international business, we achieved approximately 10% growth on a constant currency basis compared to the prior year period. To turn the call over to Steve. This performance was driven by Core Spine and led by double digit growth in Europe as well as solid contributions from Latin America and Asia Pacific. To We remain focused on our commitment to delivering core growth, a pillar of our previously communicated growth strategy. To executing with discipline through our global teams who are remaining resilient through the pending merger. Thank you to our teams for a job well done. To Within CoreSpine, we continue to address the significant opportunities in key procedural segments with our 360 portfolios, to turn the call over to our operator. Our innovation gives our commercial teams a strong competitive position to take share across each spine segment. In anterior, we continue to celebrate 20 years of our flagship X Lift procedure to turn the call over to our Q3 of 2019. In 5 years of our X360 procedure, across the globe, XLIF continues to demonstrate superior and more predictable outcomes to introduce our next question and answer session. Thank you, sir. Thank you, sir.

Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir.

Our next question comes from the line of Alex Kornberg. Please go ahead. Thank you, to turn the call over to Mr.

X360 SPS, a 2023 study published in the Spine Journal shows that lateral SPS to turn the call over to our Chief Financial Officer. Our traditional fusions have similar outcomes 2 years postoperatively, while reducing perioperative complications and improving efficiency. To Our know how and experience in creating procedural solutions have only benefited our strategy in segments like cervical, posterior and complex. To In posterior, U. S. Interbody sales delivered double digit growth, driven by our P360 portfolio. To turn the call over to Steve. Key products, including the commercial launch of the NuVasive Tube System and the introduction of our next generation posterior expandable cage, Mod XPL, to have supported our renewed momentum in our TLIF business. Turning to U. S. Cervical, our entire C360 portfolio to continue to deliver above market growth, led by increased surgeon adoption of the Simplify cervical disc and RELINE Cervical. As anticipated, the to Simplify cervical disc is a door opener for our commercial teams, pulling through additional procedural opportunities to and driving greater density in cervical accounts. In complex, we're making progress in the pediatric to introduce the deformation sub segment with Reliance 3D, which delivered double digit growth. Our posterior fixation to to.

In enabling technology, Pulse continues to make its impact across the globe. With commercial sales in several new European geographies and our first case completed in Singapore, to We're seeing increased global surgeon interest in Pulse. Following the platform's 2023 summer software release, surgeons have shared positive feedback to turn the call over to Steve on the enhancements to their operating rooms. New hardware enhancements were also released to further optimize our differentiated navigation patient array, to provide a brief update on our to continue innovation of the platform. In our NuVasive Specialized Orthopedics business, to Recent achievements include the reentry of the Precise system in the UK and the CE Mark reinstatement of Precise Bone Transport. To turn the call over to Eric. This all internal solution extends our precise technology, treating segmental bone defects caused by tumors and trauma. To turn the call over to Mr. President. The NSO business continues to be well positioned for long term growth. Turning to our planned combination of Clovis Medical, to turn the call over to Mr. President. We remain excited and committed to creating an innovative global musculoskeletal company together. As demonstrated by the overwhelming support to take a look at the merger by both company shareholders, the pending combination will accelerate our near and long term strategy.

To Our commitment to the deal is steadfast and our belief that this merger will benefit all stakeholders remains unchanged. To As previously communicated on May 3, we received a second request from the Federal Trade Commission in connection with the FTC's review of the merger with Globus. To Over the past 3 months, we and Globus have gone to great lengths to prepare our respective responses to the second request, and I'm very proud of what our teams have accomplished in to During the Q1 earnings call, we indicated that we expected to close the transaction in the 3rd quarter. To turn the call over to Mr. President. Based on our progress with the response to the SEC request, we are not backing off that timing and we are doing everything we can to make that happen. To Given the recent M and A headlines, I've heard a lot of commentary about the FTC's approach to deals generally, as well as speculation about what action the FTC to take in the NuVasive Globus merger. While there's a range of potential outcomes when the FTC is reviewing our transaction, we remain optimistic to turn the call over to Matt.

Thank you, Chris, and good afternoon. To provide commentary on our Q2 results and full year 2023 net sales guidance, which remains unchanged from what we provided discuss our financial results have been provided in today's press release and supplemental information. To discuss both GAAP and non GAAP measures. Please see our press release for GAAP to non GAAP reconciliations. To turn the call over to the Q2 2023 worldwide net sales to review the financial results for the Q4 of 2018 were $317,800,000 which was a 2.4% increase as reported to turn the call over to Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Good morning, everyone. To turn the quarter. International net sales for the 2nd quarter were $78,600,000 an increase of 6.8% to take a look at the outlook for the Q1 of 2019. We expect to be in the range of $1,000,000,000 over the prior year period on an as reported basis and 9.8% on a constant currency basis. To turn the call over to Chris. To turn the call over to the operator. Asia Pacific growth primarily in Australia was offset by reimbursement pricing headwinds in Japan as discussed previously. To Overall procedure volumes in Japan grew above market and our market position continues to be strong.

To turn the call over to our operator. Turning to U. S. Net sales, let me provide key highlights by product line. U. S. Final Hardware net sales for the Q2 of 2023 were to turn the call over to our operator for the Q4 $174,100,000 representing a 5.5% increase year over year. To turn the call over to our operator.

U. S. Cervical continued its proven and ongoing track record of achieving greater than 20% growth led by the Simplify cervical disc and ReLine cervical. To turn the call over to Steve. U. S. Surgical Support net sales were $65,100,000 a decrease of 9.3%, primarily driven by lower biologics to discuss the balance of the year's tax rate as well as payer mix in NuVasive Clinical Services or NCS. Moving to operating results, to turn the call over to our operator. 2nd quarter non GAAP gross profit was $228,300,000 compared to $224,700,000 in the prior year period. To turn the call over to Steve. Non GAAP gross margin as a percentage of net sales for the Q2 of 2023 was 71.8%, to review our financial results and provide a strong financial performance with our financial results. To turn the call over to Steve. The to begin with historical levels in the low single digits. 2nd quarter 2023 non GAAP operating expenses increased 1% to $286,100,000 compared to $184,200,000 in the prior year period. Non GAAP to turn the call over to Bob.

Operating margin during the Q2 of 2023 was 13.3%, an increase of 30 basis points compared to 13% in the prior year to to provide more than offset the gross margin pressure. Non GAAP other income and expense for the Q2 was $2,500,000 of expense to compare to $8,400,000 in the prior year period. The year over year decrease was primarily driven by less impact to take a look at the financial results from unrealized foreign currency gains in the current year period. Non GAAP tax expense for the Q2 of 2023 was $9,900,000 to compare to $7,200,000 in the prior year period. Our Q2 2023 effective tax rate was 25% to compare to 22.5% in the prior year period. The year over year increase was driven by higher tax reserves and valuation allowances. To turn the call over to Mr. President. Currently, we expect our annual effective tax rate to be in the mid-twenty percent range. For the Q2 of 2023, to We reported GAAP net income of $7,400,000 or diluted earnings per share of $0.14 to compare to GAAP net loss of slightly less than $1,000,000 or diluted loss per share of $0.02 in the prior year period.

To As a reminder, the prior year period included unfavorable impacts of foreign currency exchange fluctuations to of approximately $25,000,000 associated with the weakening of the Australian dollar against the U. S. Dollar. To This was principally related to our 2021 acquisition of Simplify Medical. The impact was approximately $2,000,000 in the current year period, to turn the call over to our financial results, resulting largely in the overall improvement in GAAP net income. On a non GAAP basis, we reported net income of to or diluted earnings per share of $0.47 in the prior year period. The year over year increase was driven by operating profit growth to turn the call over to Steve. As well as the favorable impact of unrealized foreign currency gains. Turning now to the balance sheet. To turn the call over to Mr. President. We had cash and cash equivalents of $80,700,000 as of June 30, 2023. To turn the call over to Mr. Earnings. During the Q2, we repaid in full the $450,000,000 convertible notes due in early June to use the $350,000,000 from borrowings under our credit facility combined with cash on hand. To Free cash flow during the Q2 was $3,000,000 compared to $26,000,000 in the prior year period.

To The decrease was primarily due to lower operating cash flow offset by capital expenditures as compared to the prior year period. To We continued our investments in capital expenditures to support our net sales growth as well as current and future product launches.

To turn the call over to Steve.

As I mentioned at the beginning of my prepared remarks, our full year 2023 financial guidance remains unchanged from February 22, to turn the call over to the operator, which was worldwide net sales growth of between 6% to 8% on both a reported and constant currency basis compared to the prior year. To turn the call over to Steve. This is based on foreign currency exchange rates being neutral for the full year based on rates as of July 31, 2023. To Lastly, I'd like to wrap up by reiterating what Chris said about our excitement with our continued progress towards finalizing the merger with Globus Medical. To It's great to see the teams from both companies working closely together towards integration planning for a successful combined company to turn the call over to the operator to close in the Q3. And now, I'll ask the operator to please open the call for questions.

To one moment please while we poll for questions. To take our first question comes from Matt Miksic with Barclays. Please go ahead. To Hey, good evening. Thanks so much for taking the questions. So maybe Chris, I wanted to ask about to Some of the business trends that you talked a little bit about in your prepared remarks. But to If you could maybe speak to anything in the results or in the operations or in the organization to That you would say either indicates that the thing that folks might be fearful of here ahead of to pending transaction might be happening, in other words, reps peeling away and taking another opportunity Or that that's not happening. So any color on how you felt about performance and whether or not it was affected by anything like that? And then I have one follow-up.

To Yes. Thanks, Matt. I will happy to answer that question. The simple answer is, we are feeling very good. If you kind of dig below the surface Of the 3%, you look and see the U. S. Hardware grew roughly 6%, a continued growth in cervical. To We're starting to see a growth in our posterior strategy with P360. Some of that's offset by the U. S. Support business. Partial to Is the NCS business, which had some contractual headwinds, we have seen some pulse slowdown As likely as a result of some of the time to close or merger related anxiety from our customers, There is also likely some capital slowdown generally in the market. I'm anxious to hear what others say there because we're still somewhat nascent in the capital sales process. But We saw slower than expected sales there, but the underlying strength of the U. S. Business is still solid. So we're excited about that, Which actually speaks to the fact that we're retaining that top talent and the sales organization seems to be very excited about the future combination and what that holds for them individually. International still on double digit growth that's with our 2nd largest market in Japan really being offset from a Good solid volume growth as Matt talked about in his prepared remarks, dealing with the transitory pricing headwind that should come and go over the course of this year.

So if you really look at the underlying strength of the business, 6% growth in the U. S. Spinal hardware business and still double digit growth in the international segment with Japan to Coming under some pressure this year from a pricing perspective. So those things indicate to me that the business is holding its own. We're minimizing distraction. To People are excited about them combination, but we're taking it one step at a time.

That's helpful. And just to follow-up, To sort of make sure we're thinking about expectations for Q3 here, you mentioned And other folks have mentioned the possibility of a maybe more of a August low and more seasonally Yes, softer Q3, higher more vacations, that sort of thing. If we would normally model sort of flat to down to In the Q3, is that down mid single digits? Is that down more than that because of what you're starting to see? Or to Just any color in the back half cadence would be super helpful.

Yes. I mean, unfortunately, it's probably I'm probably the worst person to talk to in this particular subject. I I did mention in Q1, we saw less seasonality December to January. That was really interesting.

I would say Q2 to show signs of return to pre COVID seasonality, meaning you had the June summer and July summer vacation. To You saw some of that sorting to take shape. The problem is I've gone 3 years of either a COVID related now a merger Related disruption to our business. So it's a little hard for me to sort of see through some of this and really identify market Trends, but I would just say in general, my perspective is the market is moving back to normal seasonality. So for that, to I would expect some softness, generally compared to market from a normal seasonality perspective that you saw likely previous to the But we'll see as it unfolds. I would say the Q2 seasonality look more to than Q1 from previous years that were affected by COVID, if that helps.

Yes, Matt. The only other thing I would add is Typically, our Q4 is our biggest quarter followed by the Q2. And then our Q1 tends to be the lightest. So yes, we do expect some to to use your word in August. With regard to your first question, the one thing I did want to highlight that was in Chris' prepared remarks is and I know you guys don't see our internal plan, but from what did we expect when we set the budget to Back in the January timeframe versus where we landed, it doesn't get much closer than where we landed in the 1st 6 So we're tracking right in line with where we thought we were going to be.

To take your next question.

Next question comes from Shagun Singh with RBC Capital to get please go ahead.

Great. Can you hear me okay?

Yes.

Okay, perfect. I was just wondering if you can shed some light on any conversations, updated conversations that you're having with the FTC. Are they still requesting documentation? To Is it more specific or more broad? You did sound more confident in the commitment to the deal closing in Q3. And I'm just trying to get a sense of what's driving that. Thank you for taking the questions.

Thanks, Shagun. I mean, I've said Before, we walked into this eyes wide open. We're very confident in the combination of these two businesses. To Our team has done a great job preparing our responses to the second request. The second request is something that is clearly not out of the ordinary for the FTC. To So we are working feverishly to make sure that we're doing everything we can to fulfill the comment that I made earlier, which is our confidence And doing everything we can to make sure that we do deliver and close the deal in Q3. There's a range of potential outcomes. Obviously, the FTC is in a dynamic situation, But we remain very optimistic in the Q3 close. The team has done a lot of work. We'll continue to meet the request as they come. It's a dynamic situation, but one that we feel to confident and are working very hard to make sure we're resolved. In the meantime, like I said, we continue to make progress on the integration planning to the extent we can With Globus and both teams are working closely together.

Great. And then just one on guidance. I believe it implies a step up in the back to If I'm correct, can you just talk to the confidence in the back half, what's driving that? Thank you.

Yes, Shagun, it's Matt. As I mentioned earlier when we were talking with Matt, our 4th quarter tends to be in a normalized world. It tends to be our strongest quarter, to Particularly in the November December timeframe. So yes, it will pick up particularly in that Q4.

To Thank you.

You bet.

Next question comes from Ellen Kold with JPMorgan. Please go ahead. Hi, this is actually Lily on for Alan. Thanks so much for taking the question. Maybe just to dig a little deeper into surgical support. In your prepared remarks, you called out headwinds from biologics and to And yes, so maybe if you could just dig a little bit deeper into what happened there and what drove the weakness? And how should we be thinking about that bouncing back in the back half of the year.

Yes. It was a bit pronounced in the second quarter. So I would expect it to soften as we get in the back half of the year. Part of it is, as we had a pretty strong second quarter last year, to And we have had some pricing pressure in NCS, but I would say we would expect in future quarters for that to more normalize to lower single digits on the negative side. Thanks, Lily.

To Great. That's helpful.

And then maybe just as a quick follow-up. Spinal hardware, I think, was good, but to Maybe not as strong as one might expect just given the tailwinds of procedures that we've been hearing about. So is there anything specific to the spine market or to NuVasive that you'd call out that drove that. Thanks so much.

Just continued growth. We're happy with the growth we've to continue to see in cervical, we're obviously standing up our P360 strategy and saw some good results there. To So you're coming off of a bit of a rebound year, but generally speaking this U. S. Bundle hardware business is on track and where we thought it would be. To As we talked about and Matt kind of spoke of earlier, the one area that we are managing is the Pulse system. The customer base that's using the system is very happy. But obviously, the signed close period in the merger created Some level of pause probably coupled with some level of capital pullback in the market we're still looking at. But generally speaking, the U. S. Business is on track where we thought it would be.

To. Great. Thank you.

To take the next question comes from Josh Jennings with Cowen. Please go ahead. Hi, this is Eric on for Josh. Thanks for taking the question. I was Hoping to hear a little bit more on Simplify's adoption and commercial success in recent quarters. And then more broadly, what would you say about the durability to take a look at your U. S. Cervical spine business continuing to deliver 20% plus growth going forward. And then if I could squeeze one last question there. Are you able to share the to run rate for Simplify. Thank you. Thanks, Eric. I'll answer as many of those as I can. To Listen, we're very happy. We continue to see the ramp up with SIMPLIFY. We believe that the CTDR portion of the cervical market is the to strongest sub segment area of growth in that very large market. We think we've got the leading technology with SIMPLIFY and we continue to see growth. I think we've seen consistent growth over the last several quarters. That's really led to 20 plus percent growth in the overall cervical business. As far as the durability, I would just continue to point back at the overall cervical segment still a $2,600,000,000 segment.

To If I had to characterize the CTR market and I think I did this at our to Analyst Day, our strategy session we did back in October, I think it was upwards of a $400,000,000 segment of to $2,600,000,000 market segment with a lot of capability to cannibalize the ACDF procedure. For those reasons and our relatively low position and market share position, I do think it's a durable growth engine for us for some period to I'm not going to put a date on it, but I'm happy to continue to see the growth. We continue to reach And use it as a door opener for new customers. And so it's a force multiplier for us as a company. Obviously, following C360 with P360 to It is also the next phase of our growth to really reinvigorate our TLIF business. So, the strategy that we laid out over the last several years is The team is executing on, so we feel good about it. As far as the run rate for Simplify, I don't think we've given that in the past. I would just say we're well above and well ahead of our deal model That we put together some years back.

Okay, understood. Thank you.

Thanks, Eric.

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

To Hi, guys. Thanks for taking the question. I guess, you talked about confidence in the Q3 close. Is there anything that you can give us kind of Inside the response that you did that gives you the confidence or back and forth with the FTC and what are some of the range of outcomes that you see It's potentially happening if you do not close in Q3. Why would that happen?

I mean, I'm not going to go into any Specific commentary, clearly, it's like I said, it's a dynamic situation. The team is working very hard to make sure that we're getting everything that's asked of us. To And I think we've done so effectively up to this point. As far as the range of outcomes, clearly, The FTC review the information that we provided and ultimately come back to us at some point. I'm not to I'm confident in the Q3 timeframe because I feel like everything I've said before, I don't believe this is anti competitive. I think there's lots of competitors. I I think there's a low bar of entry for competitors coming into this space. And for all those reasons, the combination of us and Globus, I think, actually It's much better for patients. It actually opens up the opportunity to further innovate, and ultimately change patient outcomes, which is our focus as a company. To For some reason, if it doesn't, which I'm not going to speculate it won't, but I've said all along, our strategy is what we're executing on, core growth, enabling tech, to Pursuing market opportunities and strengthening our bottom line, all of which we're executing on as we speak.

The merger accelerates our strategy, but It doesn't negate it or in any way change it. So the execution you're seeing in core growth, our focus on enabling tech, The opportunities that we see in the market strengthened obviously by the merger with Globus and building strength in our bottom line and discipline to expense manager, some of the things to I talked about those things stay intact. So whatever happens going forward, we feel very, very confident in where we are and where we're going.

To All right. Thank you very much.

Yes.

Next question comes from Vik Chopra with Wells Fargo. Please to go ahead.

Hey, good afternoon. Thanks for taking the questions. 2 for me here. I'm just wondering how much benefit you had from backlog to capture in Q2 and what your expectations are for the rest of the year. And then Matt, I heard you talk about pricing to earlier in the call, but I'm just wondering how you think about pricing for the rest of the year? And are you able to take price in this inflationary environment? Thank you.

To speak.

Thanks for the questions, Vic. I'll cover the first and then hand over to Matt. I've been looking at backlogs for 3 years now to And I don't know that I can see any difference between normal volume and backlog volume anymore. It's all a blur. To And you can always go back over the last years and go, we've obviously foregone a certain amount of volume, But it's ebbed and flowed. And as I've always said, the demand supply relationship dictates the throughput. To And I don't think there's a significant strong demand or I don't think there's significant amount of supply. Either way, The volume is about the volume right now. So I wish I could tell you more and sort of discern what is normal volume, what is backlog volume. To I don't know that it's worth really looking at. I think obviously all MedTech is benefiting from some level of rebound over the last, let's say, 3, 4, 5 quarters. To How long it will take to normalize and actually go through any sort of a backlog scenario? I think it will be an even Cadence to that and not a bolus type of event. So hard for me to answer that question, but something that we've looked at.

But I don't know if it's worth looking at too much.

Yes. Vic, with regard to your question around pricing, I'll just echo what I said in the prepared remarks. We're in the low single digits. To And having been with the company now for a number of years, generally, it's kind of been for us in the U. S. Market kind of in that minus 1% to minus 2 to present in any given quarter. As far as your question as it relates to the back half of the year, to It may be I think it will be in the same ballpark. It may have some more volatility around it, but Having seen so many quarters in a row where the pricing has been relatively consistent, I'm hopeful and believe that that is likely how it will to take your questions. At this time, I would like to to turn the floor back over to Chris Berry, NuVasive's CEO for closing comments.

Thanks, Victoria, and thanks everyone for joining us today on the Q3 earnings call. To As mentioned earlier, I believe we're making great progress on the planned combination of Clovis Medical. As I've said many times, we believe the new organization will create a leading to global musculoskeletal company that is well positioned to change even more patients' lives. So with that, thank you for all for joining and have a great day.

To turn the call over to