Globus Medical - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 net sales fell slightly to $598.1M (-1.4% YoY; -0.8% constant currency) and non-GAAP diluted EPS rose to $0.68 (+8.5% YoY), but the quarter missed Wall Street consensus on both revenue and EPS as enabling technology deals slipped and integration-related supply chain issues constrained shipments. Management cited improving April trends and a robust Q2 start.
• The company reaffirmed FY2025 revenue guidance at $2.80–$2.90B, but lowered non-GAAP EPS guidance to $3.00–$3.30 (from $3.10–$3.40), primarily to reflect carrying costs from closing the Nevro acquisition earlier than planned.
• Globus returned to debt-free status after repaying the remaining $450M of convertible notes, generated record Q1 free cash flow of $141.2M, and completed the Nevro acquisition for $250M in cash (April 3), expanding into neuromodulation. A $500M share repurchase authorization followed on May 15.
• Stock-relevant catalysts: EPS guide cut and enabling technology softness are near-term headwinds; debt repayment, improving Q2 momentum in U.S. spine and robots, plus the new buyback authorization support medium-term sentiment.

What Went Well and What Went Wrong

What Went Well

• U.S. Spine grew ~2% with product strength in expandables, MIS screws, lateral and ACDF; management emphasized high salesforce retention and increasing implant pull-through from robotic procedures. “U.S. Spine grew 2% in Q1… increased product cross-selling and implant pull-through from robotic procedures.” — CEO Dan Scavilla
• Profitability expanded meaningfully despite lower sales: GAAP gross margin rose to 63.6% (from 55.3% YoY), adjusted EBITDA margin reached 29.7% (vs. 25.4% YoY), driven by synergy capture and lower inventory step-up amortization.
• Cash generation and balance sheet: record Q1 free cash flow of $141.2M; operating cash flow $177.3M; “we returned to a debt-free status, as we paid off the remaining $450 million of debt…” — COO-CFO Keith Pfeil

What Went Wrong

• Enabling Technologies revenue dropped 31% YoY to $22.2M as capital deal closures elongated against tough comps; management said demand remains intact and deals are closing in Q2.
• Temporary integration-related supply chain disruptions (manufacturing validation and in-sourcing timing) and the timing of international distributor orders pressured Q1 shipments; mgmt pegged ~$20M musculoskeletal revenue impact in the quarter.
• Reimbursement headwinds: neuromonitoring revenue per case declined, and biologics (placental tissue for DFU wound care) faced reimbursement changes; company is realigning strategy.

Transcript

Operator (participant)

Welcome to the Globus Medical's First Quarter 2025 Earnings Call. At this time, all lines will be on mute, and a Q&A session will be held after the prepared remarks. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I will now turn the call over to Brian Kearns, Senior Vice President of Business Development and Investor Relations. Mr. Kearns, please go ahead.

Brian Kearns (SVP of Business Development and Investor Relations)

Thank you, Briana, 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 Officer and Chief Financial Officer. This review is being made available via webcast, accessible through the Investor Relations section of the Globus Medical website at 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. Our Form 10-K for the 2024 fiscal year and our subsequent filings with 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. 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. We believe these non-GAAP financial measures provide additional information pertinent to our business performance. These non-GAAP financial measures should not be considered replacements for and should be read together with the most directly comparable GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are available in the schedules accompanying the press release and on the Investor Relations section of the Globus Medical website. With that, I will now turn the call over to Dan Scavilla, our President and CEO.

Dan Scavilla (President and CEO)

Thanks, Brian, and good afternoon, everyone. Globus had a flat quarter in Q1, finishing slightly down in sales with negative 0.8% growth versus prior year on a constant currency basis. Drivers were softer enabling tech sales against difficult comp, temporary integration-related supply chain disruption, and timing of international distributor orders, partially offset by continued strengthening momentum of the U.S. spine business. Revenue for the quarter was $598 million. Non-GAAP EPS was $0.68, increasing 9% versus prior year against higher diluted shares and a $0.06 one-time 2024 EPS gain not repeated in 2025. Free cash flow was $141 million, increasing $117 million, or 493% versus prior year. We returned to debt-free status in Q1, paying off the remainder of the nearly $900 million debt inherited from the NuVasive merger and generating enough cash to pay for the Q2 Nevro acquisition while investing in the ongoing business without interruption.

In addition, we launched two new products in Q1 that will aid in driving market penetration. Since the NuVasive deal closed in September of 2023, we've cumulatively added over $1 billion in incremental sales, generated $650 million in free cash flow, and executed over $500 million of share repurchases, reducing deal dilution more than 20%. While Q1 sales were flat, we're already seeing stronger results in Q2 throughout the business as we remediate supply chain disruptions, fill open distributor orders, and close robot deals. We will continue to focus on the long game, investing in sustained profitable growth and using our financial strength and discipline to accelerate the top-line results while continuing to deliver strong EPS and free cash flow. Moving into the performance of our business areas, U.S. spine grew 2% in Q1 with gains across our product portfolio in expandables, MIS screws, lateral, and ACDF platforms.

The core spine 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. U.S. Q1 results were impacted by temporary integration-related supply chain disruption and a planned reduction in third-party biologics sales resulting from expected changes in the reimbursement landscape for wound care products, including some of our tissue products. The reduction in third-party biologics was included in our annual guidance, and the supply chain continues to strengthen in Q2. Exiting April, we delivered above-market growth in our U.S. spine business and feel positive about the quarters ahead. Competitive rep recruiting was strong in Q1, and the overall recruiting pipeline remains active as we enter Q2, positioning us for another meaningful recruiting year. As mentioned earlier, we launched two new products in Q1.

The Cohere ALIF spacer with integrated screw fixation builds on the clinical success of our Cohere line, now offering surgeons a porous PEEK solution for anterior lumbar interbody fusion procedures. Our Cohere proprietary porous architecture supports bone ingrowth and reduces fibrous encapsulation while maintaining the radiolucency needed for precise intraoperative placement and postoperative fusion visualization. The Cohere ALIF spacer meets surgeon demands for improved osseointegration without sacrificing imaging clarity or mechanical performance. This expansion further establishes our leadership in advanced material science. The RELINE eGPS fixation system delivers solutions for open, minimally invasive, and hybrid procedures with preassembled and modular implants paired with versatile instruments to address both degenerative conditions and complex deformities effortlessly and efficiently.

The integration of the RELINE fixation system with the Excelsius enabling technology suite creates a powerful synergy of trusted reliability and innovation, delivering a comprehensive solution for surgeons while advancing our mission to help improve patient lives. The following RELINE systems are now compatible with Excelsius technologies: RELINE Open, Modular, Mass, Mass Reduction, Small Stature, Mass Midline, and RELINE Cervical. The R&D pipeline remains rich, and I look forward to another year of meaningful launches improving outcomes as we strive to develop solutions to address unmet clinical needs. Moving to enabling technology, sales for the quarter were $22 million, a decrease of 31% against a record prior year comp. Capital sales tend to fluctuate among quarters, with Q1 historically being slower, but we did not close the deals we planned on in Q1 in the face of market uncertainty.

To our knowledge, we did not lose any pipeline deals to competition and expect to close active deals in the upcoming quarters. The deal pipeline is robust, and Q2 is off to a good start with several robot and imaging system deals closed in April and May. Robotic procedures performed since launch surpassed 100,000 procedures globally in Q1 and continue to accelerate, growing 6% versus prior year, continuing to create increased implant pull-through. Our international spine implant business grew 1% in Q1 on a constant currency basis, impacted by the timing of distributor orders and temporary supply chain disruptions. We are accelerating growth in Q2 as we reduce the back orders in several key markets. The combined trauma and NSO business declined 8% in Q1, driven by integration-related supply chain disruption related to facility validations.

This was partially offset by continued strength in the core trauma, which did deliver 34% growth for the quarter. The supply chain disruptions have been remedied, and product is being released for sale to the markets. We're seeing the overall trauma and NSO growth return to high levels in Q2. In April, we completed the purchase of all shares of Nevro Corporation for an all-cash transaction of $250 million. The acquisition of Nevro further expands our reach into the musculoskeletal market, adding an additional $3 billion market space for us to compete in and grow. We believe the paresthesia-free pain relief enabled by high-frequency technology offers a clinically superior solution that is altering the standard of care for patients suffering from chronic pain.

Nevro technology has potential beyond its current application to benefit our cranial, enabling technology, next-generation spinal implants, adaptive AI, painful diabetic neuropathy, and other areas of our business. The Nevro patent portfolio strengthens our already best-in-class musculoskeletal innovation suite, while Globus's scale and customer base will accelerate market penetration of the differentiated high-frequency technology. 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. 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.

I believe the potential for Globus 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. I want to thank the Globus team worldwide for your dedication and support, building the pathway to becoming the preeminent musculoskeletal technology company in the world. I will now turn the call over to Keith.

Keith Pfeil (COO and CFO)

Thanks, Dan, and good afternoon, everyone. Reflecting on Q1, our quarter delivered a mixed set of results. While revenue was down slightly to the prior year quarter, we saw a meaningful expansion in profitability and cash flow. We continue to make disciplined progress across our strategic and operational pillars, which will fuel our long-term growth. This afternoon, my comments will focus on Q1 performance, operational updates and impacts, discuss the Nevro acquisition, highlight tariffs and potential impacts, and comment on insights as to our performance for the remainder of 2025. We view many of the Q1 impacts as short-term and are encouraged by the good start we've seen across our business in Q2. Now, let's turn our discussion to the first quarter. First quarter revenue was $598.1 million, declining 1.4% as reported and down 8% on a constant currency basis over the prior year quarter.

As Dan mentioned earlier, the main driver was softer enabling technology sales, as well as temporary integration-related supply chain disruption and the timing of international distributor orders, which were partially offset by growth in U.S. spine. Our Q1 GAAP net income was $75.5 million, translating into fully diluted GAAP earnings of $0.54 per share, growing $0.59 versus the prior year quarter, due mainly to lower merger-related costs. Q1 non-GAAP net income was $94.8 million, resulting in $0.68 of fully diluted earnings per share, or an 8.5% as reported improvement versus the prior year quarter. In the prior year quarter, I highlighted a one-time 6-cent favorable non-cash adjustment related to the useful lives of assets acquired from the NuVasive merger. Excluding this one-time favorable adjustment in the prior year quarter, operationally, our Q1 2025 non-GAAP EPS improved 11 cents, or 19.5% versus Q1 2024.

The earnings improvement is driven by synergy capture, partially offset by lower revenue. Q1 free cash flow was a record $141.2 million. Musculoskeletal sales in the first quarter of 2025 were $575.9 million, essentially flat to the prior year quarter. Though U.S. spine grew 2.2%, it was offset by declines in other areas of musculoskeletal, including neuromonitoring, wound care, and the timing of international distributor orders. In addition, temporary supply chain issues related to manufacturing integration impacted core spine and trauma. The neuromonitoring impact was driven by a change in reimbursement approach by a large insurance provider. Though case volumes are growing, the decline in reimbursements is negatively impacting revenue. Our biologics business was impacted by expected changes in the reimbursement landscape for wound care products, specifically the placental tissue used in diabetic foot ulcers. In response to this shift in market dynamics, we are proactively realigning our biologics strategy.

We are positioning our tissue manufacturing capabilities to support direct business opportunities that provide more stable reimbursement and greater long-term business opportunities. Moving into supply chain impacts, we experienced temporary issues driven by the timing of in-house manufacturing scale-up. This disruption mainly impacted legacy NuVasive products and was driven by finalizing validation activities associated with production. These issues resolved themselves late in our first quarter, and production has since come online for the impacted products. Our Q1 international distributor revenue was impacted by the timing of stocking orders, as well as integration impacts driven by supply chain disruption mentioned above or earlier, as well as some limited distributor consolidation. As we move through 2025, this disruption will subside as integration supply chain challenges ease and restocking orders are placed to replenish orders filled at the end of 2024.

Overall, we estimate the impact of these business issues to total approximately $20 million to our musculoskeletal revenue in the quarter. Q1 enabling technologies revenue was $22.2 million, declining 30.6% as compared to the prior year quarter. We do note a tough Q1 comp as we did not see the usual sequential drop-off between Q4 2023 and Q1 2024, where revenue only declined 2.3% sequentially. Despite the tough comp, Q1 enabling tech revenue was clearly soft, mainly in robotics driven by extended timelines to close deals. This further underscores the lumpy patterns we see in revenue from time to time. We do not see softness as a sign of demand destruction. We remain bullish on this business and are encouraged by our good start to the second quarter. First quarter U.S. revenue was $483.9 million, essentially flat to the prior year quarter, driven by my earlier comments across musculoskeletal and enabling technologies.

Q1 international revenue was $114.3 million, lower by 7.7% as reported and lower by 4.6% on a constant currency basis. The driver of lower international revenue ties back to my earlier comments, mainly distributor orders, supply chain disruptions, and lower robotics sales. GAAP gross profit in the quarter was 63.6% compared to 55.3% in the prior year quarter, with the resulting improvement driven primarily by lower inventory step-up amortization and synergy capture, partially offset by sales mix. Adjusted gross profit was 67.3% compared to 69% in the prior year quarter. The prior year quarter gross profit includes the one-time favorable non-cash adjustment that I mentioned in my earlier comments. This non-operational adjustment was worth $9.5 million and 1.5%, thus normalized Q1 2024 gross profit was 67.5%.

Adjusting for this, this quarter-over-quarter 20 basis point decline was driven by the mixed impact of lower enabling technology sales and lower neuromonitoring reimbursements, primarily offset by synergy actions. Research and development expenses in Q1 2025 were $33.1 million, or 5.5% of sales, compared to $57.3 million, or 9.4% of sales in the prior year quarter. Included in the prior year quarter was a $12.6 million charge related to the acquisition of in-process research and development, which did not occur in the current quarter. Adjusting for that, Q1 2024 R&D would have been $44.7 million, or 7.4% of sales. The resulting decline, both in dollars and as a percentage of sales, is attributable to synergy capture, resulting in lower headcount and third-party spending. SG&A expenses in the first quarter of 2025 were $242.8 million, or 40.6% of sales, compared to $248.7 million, or 41% of sales in the prior year quarter.

The decline in spend is attributable to synergy capture, mainly from lower back-office spending, partially offset by higher sales and marketing costs, driven by the mixed impact of lower international revenue, which carries a higher fixed component to compensation costs. Q1 net interest income was $1.7 million, compared to $1.9 million of interest expense in the prior year quarter. The $3.6 million favorable change is being driven by lower interest expense on convertible debt. The GAAP tax rate for Q1 2025 was 27.2%, compared to 16.8% in the prior year quarter. The Q1 2024 rate was abnormally low, driven by the discrete nature of the IP R&D acquisition in the prior year quarter, higher GAAP pre-tax profits in the current year quarter, and lower valuation allowances on foreign-derived income. Our non-GAAP tax rate for the quarter was 24.1%, in line with the prior year non-GAAP rate of 24.5%.

Cash, cash equivalents, and marketable securities were $461.3 million at March 31, 2025, compared to $956.2 million at December 31, 2024. The decline in cash is driven by two main factors. One, in March, we fully repaid in cash the remaining $450 million outstanding convertible debt assumed from the NuVasive merger. With the repayment of this debt instrument, Globus has now returned to being debt-free. In addition, during the quarter, we spent $190.3 million to repurchase approximately 2.4 million shares. With this action, we've completed our current share repurchase program. Since closing the merger in September 2023, we have paid off the remainder of the $871 million of debt inherited from the merger and invested $500.8 million to repurchase 8.4 million shares at an average price of $59.62 per share.

These actions over the past 16 months call attention to our focus on operational cash flow discipline to maintain a strong balance sheet while exhibiting conviction in the merger as our share repurchase activities resulted in us buying back over 20% of the dilution created in the stock-for-stock merger with NuVasive. Q1 net cash provided by operating activities was $177.3 million, and free cash flow was $141.2 million, both of which are records for our first quarter. The increase is attributable to higher cash profits from the business driven by synergy capture and working capital improvements within accounts receivable, partially offset by higher capital spending, predominantly machinery and set investments to insource production and drive sales growth. Operationally, we remain focused on insourcing key products across our manufacturing facilities.

Machinery ordered in 2024 has been landing in our facilities and is coming online throughout the year while we continue to assess and reduce third-party spending. Despite the softness in our top line, our Q1 results showed a meaningful expansion in profitability, with Q1 adjusted EBITDA finishing at 29.7% versus 25.4% in the prior year quarter as a result of synergy actions achieved. The expansion of profitability occurred despite the neuromonitoring reimbursement challenges mentioned earlier, which is negatively impacting consolidated adjusted EBITDA by a full 2 percentage points in the first quarter. Thus, excluding neuromonitoring, adjusted EBITDA would have been 31.7% in Q1 2025. Looking ahead, we remain confident in our approach to grow profitably while addressing specific areas of investment and business improvement. We remain on track to delivering synergy savings, which will be reflected in the P&L as we move ahead.

Subsequent to the quarter, on April 3rd, 2025, we close our acquisition of Nevro Incorporated after Nevro shareholder and regulatory approval. We pay $250 million using existing cash reserves to fund the acquisition. We are actively rolling out action plans to get this business right-sized to drive profitable sales growth while reducing excess spending to quickly adopt a Globus mindset as we seek to improve cash generated from this business. We've been actively reviewing and assessing tariff impacts for the legacy Globus business, as well as the newly acquired Nevro business. Overall, we do not see tariffs as materially impacting our business through supply chain disruptions or from a cost increase perspective. Much of the Globus business is vertically integrated and predominantly U.S.-based, thus minimizing tariff exposure.

Where we do see tariff impacts, we have launched a series of cost action offsets, including but not limited to targeted price increases, vendor resourcing, and vendor cost renegotiations. We have actively and aggressively engaged on this initiative to ensure minimal impact to our business. Now, I'd like to turn our attention to the financial guidance. Upon announcing the Nevro acquisition on February 6, we communicated 2025 net sales guidance in the range of $2.8 billion-$2.9 billion and fully diluted non-GAAP earnings per share between $3.10-$3.40. At the present time, we are reaffirming the guidance for net sales in the range of $2.8 billion-$2.9 billion, but we're decreasing our guidance for fully diluted non-GAAP earnings per share to a range between $3.00-$3.30.

This $0.10 decrease on the top and low ends in EPS guidance is to account for the additional carrying costs of expenses related to closing the Nevro deal earlier than planned. To summarize, although Q1 top line results were softer than anticipated, we delivered meaningful gains in profitability, deleveraging, and free cash flow, key priorities in our value creation strategy. Q2 is off to a good start, highlighted by U.S. spine and enabling technologies. We are well-positioned to build on this momentum and remain focused on executing a seamless integration of the Nevro acquisition to drive future growth. In closing, I'd like to thank the entire Globus team, including our newly integrated Nevro colleagues, for their focus and execution.

As we continue to strengthen our core portfolio and unlock new market opportunities, our priorities remain clear: disciplined, profitable growth, operational excellence, and sustained shareholder value as we build the leading musculoskeletal company of the future. We will now open the call for questions.

Operator (participant)

Thank you.At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Matt Miksic of Barclays. Your line is now open.

Matt Miksic (Equity Research Analyst)

Hey. Good evening. It goes without saying, I think this is not the quarter anyone was expecting. Maybe if you could talk a little bit about your confidence here coming into April.

I think you mentioned operating on at or above your metrics, but how much of what happened in Q1 maybe spilled into Q2? What amount of what happened in Q1 do you think could recover somewhat in Q2 in rapid fashion? What's going to take a little more heavy lifting? I have one follow-up, if I could.

Dan Scavilla (President and CEO)

Yeah. Matt, I'll go first. At the end of the day, there's a couple of things. As we transition facilities into new ones and validate them, or as we continue to scale up our in-house manufacturing, there are some things that took longer than planned that created some back orders. I think that coupled with timely distributor orders, again, heavy in Q4, light in Q1, probably coming back.

Ultimately, the real thing here is the elongated selling process that we experienced in Q1 with all of the market uncertainty. That really is the impact there. What I think is, without getting deep into Q2, we have seen positive effects in our U.S. spine business that really is solid. We are remedying and supplying the products from the back orders. I see that as a temporary issue that will recover in the second quarter, and that will have an impact throughout international and trauma as well as U.S. We are seeing deals occur at a decent pace within the robot. It is going well in all of those aspects. If you ask me, I have confidence that this feels like a blip, and we are moving back to who we need to be. Look, we own a bad quarter.

We're going to go fix it and drive it forward and come out with the right results here.

Matt Miksic (Equity Research Analyst)

Okay.That's helpful color. And then maybe on the synergy side for Nevro, maybe talk a little bit about, now that the deal is closed, any additional color or confidence you can express about the pace and the areas of opportunity for driving efficiencies or aligning the organization in a way that gets to you at or above your dilution expectations for this year. Thanks.

Keith Pfeil (COO and CFO)

Hey, Matt. This is Keith. Thanks for the question. The great question is, as you think about bringing Nevro online, the place we're really going to focus on coming out of the gate is really operational expenses. If you walk down the P&L, Nevro's gross margins in the high 60%. We think that over time we can work to expand that.

I would say in the near term, near and medium term, the key focus is going to be figuring out their operational expenses and working to reduce those. Because as we look at the P&L, the SG&A expenses candidly are too high for that business to operate profitably long-term. Those are the things that we're going to focus on right out of the gate.

Matt Miksic (Equity Research Analyst)

All right. Appreciate the color.

Keith Pfeil (COO and CFO)

Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Vik Chopra of WF. Your line is now open.

Vik Chopra (Equity Research Analyst)

Hey. Good afternoon, and thanks for taking the questions. Two for me.

Appreciate your comments on the elongated selling cycle for robots, but I'm just curious if you've seen any impact from recently launched spine robots from your larger competitors and whether people are asking for more alternative forms of financing or an increase in your rental program. And then a quick follow-up, please.

Keith Pfeil (COO and CFO)

This is Keith. Thanks for the question. In terms of the elongated selling cycle, I haven't seen situations where other competitors are slowing down the process. In terms of looking at the mix of how we're selling robots, rentals, leases, I would say still our mix this quarter is still heavily focused on outright sales. The options of what we're quoting, I would say, are increasing, whether it be third-party financing or rentals. I would say that that may have slowed some things down. It really contributes to some of the elongated selling cycles.

But I don't see competitor robots thus far as driving a delay in us closing deals.

Vik Chopra (Equity Research Analyst)

Okay. Thank you. That's super helpful. My follow-up question is, I know you don't guide the EBITDA margins, but just maybe directionally help us think about EBITDA margins in 2025 as you fold in the Nevro deal. Thank you.

Keith Pfeil (COO and CFO)

Yeah. We don't guide the EBITDA margins, but as I think about kind of where we're going, I would say that our goal is to achieve the 30s. But adding on Nevro and the timing of bringing it on earlier will have a slight impact. So I would say that we should be in the high 20s this year.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Matthew O'Brien of Piper Sandler. Your line is now open.

Phil Soran (Director)

Hey. This is Phil on for Matt. Thanks for taking our questions.

Understood that there are a lot of moving parts between some of these headwinds, enabling tech purchases, supply chain, but wanted to hear maybe more specifically how your rep count has been holding up. Maybe just confirm that you aren't seeing any uptick in legacy NuVasive sales rep leaving at this point. Thank you for the color on the pipeline looking good, but just any further color on that. Thank you.

Dan Scavilla (President and CEO)

Yeah, Phil. I'll answer that. We're not seeing any unusual or high-volume departures occur from any of our sales reps, regardless of where they used to work. We're actually seeing them dig in and do well. The U.S. has real strength outside of the back orders, and they're doing well. The momentum is increasing there.

Not only are the teams staying together, but they have sequentially over four to five months significantly moved the average daily sales up. They're digging in, doing well. They're staying together as a team. We've not seen any interruption that would cause concern. Certainly, there are no departures that would have impacted our results in the first quarter.

Phil Soran (Director)

That's helpful. Shifting gears on the positive, wanted to focus on the cash flow that you consistently deliver. Thinking past the Nevro deal, what are your expectations for cash use? Might we see more M&A or maybe some more share purchases, that sort of thing? Thank you.

Keith Pfeil (COO and CFO)

That's a great question. As I think about cap structure moving forward, obviously, we want to continue to generate strong cash flow. We still view ourselves as a growth company.

The first priority is going to be internal investment. We've done several deals here over the last couple of years. M&A is still part of our cap structure. As I think about that moving forward, I would say that anything we do in the near term would be more of a tuck-in nature. Thirdly, share repurchases. They have been part of our cap structure. We see them continuing as part of our cap structure, but it's not the primary driver.

Dan Scavilla (President and CEO)

Yeah. I would just add, if we were to experience any overreactions in the market, we would take advantage of that and probably go back and buy stock opportunistically to apply it towards future acquisitions. We know the strength of this business long-term, and so we're going to stay focused on delivering that.

Phil Soran (Director)

Thanks so much.

Operator (participant)

Thank you.

Our next question comes from Richard Newitter of Truist Securities. Your line is now open.

Richard Newitter (Managing Director and Senior Equity Research Analyst)

All right. Thanks for taking the questions. I think I know the answer, and I think it's yes. But can you just confirm that all of Nevro is in the guidance dilution and revenue? And if it is, what's your organic growth guidance?

Keith Pfeil (COO and CFO)

So, Rich, this is Keith. I will tell you that yes, it is included in our business. We haven't broken out the parts and pieces of it, though as we move forward, when we report, we are going to show base business Globus versus prior year versus acquisitions.

Richard Newitter (Managing Director and Senior Equity Research Analyst)

Okay. Got it. So can you maybe just tell us then because we had all been thinking of you standalone, and we built for those that covered Nevro.

We had Nevro forecasts where you could use the consensus, but are the components of your organic guide dramatically different on a standalone basis?

Keith Pfeil (COO and CFO)

No. No. The components of our organic guide are not materially different on a standalone basis.

Richard Newitter (Managing Director and Senior Equity Research Analyst)

Okay. Maybe just for my follow-up, on the capital outlook, it sounds like you've seen something get better in April, maybe even into early May. Just trying to get an understanding of what the elongating selling cycle looks like. If that's occurring, what gives you the confidence that that narrows again in short order? I guess it sounds like you expect somewhat of a snapback or through some sort of uncertainty period on some level. Could you give us a sense as to kind of reconcile that dynamic with your comments that things are getting better?

Dan Scavilla (President and CEO)

Yeah. Rich, I want to make sure we clarify.

We're happy with the progress in Q2, and we're seeing deals close. I don't know if an elongation will snap back. You have market uncertainty, whether it be with tariffs or other things along the line with capital market disruption and different things that are going around. At the end of the day, our job is to make sure we've got a potential portfolio, and we actively work with them when we close that. If that winds up shifting a month or two over the long term, that's fine. We'll neutralize and go. The market is really not penetrated, and the potential is great. As I rattled off, more and more of our former NuVasive products are now available on a robot.

We're positioned to really go back to the initial reason of that acquisition, which is double our TAM and place our robots with our customers and provide them those products. All of that remains on course, and that's okay if it takes a month or two. We're playing this game for the next 5 to 10 years with each one of them, not for the quarter.

Operator (participant)

Thank you. Our next question comes from Matthew Blackman of Stifel. Your line is now open.

Matthew Blackman (Supplies Equity Research Analyst)

Good afternoon, everybody. Thanks for taking my question. I have a couple. My first one is, I think, along the similar lines as Rich's and maybe come at it from a different way. Wanted to just push a little bit on that reaffirmed top-line guide and the assumptions backing it. This was a pretty substantial miss in the first quarter.

With the reaffirmed guide, again, so much of what Rich was asking, does that mean you expect to claw back this lost Q1 business throughout the year? I just want to make sure, did you change something in how you were layering in contribution or even dissynergies from Nevro or NuVasive? One follow-up.

Keith Pfeil (COO and CFO)

I would say that there is not a material change in the guide. Dan made a comment that when he talked about the biologics impact, that was contemplated in our guide going into the year. I would also call out that the neuromonitoring impact was also contemplated in our guide coming into the year. I talked about a $20 million impact on musculoskeletal.

It is fair to say that roughly $7 million - $10 million of that is the two things that I mentioned earlier related to the wound care as well as the neuromonitoring. When you look at Q1, the thing that we remain positive and optimistic about is clawing back the enabling tech sales and seeing an uptick in our spine business as we move forward. We commented on the impacts of supply chain issues. We see those as behind us. As we move forward, we see people ordering again. We do not view that as a lost sale. We see us getting that back as we move forward.

Matthew Blackman (Supplies Equity Research Analyst)

Okay. Appreciate that.

Obviously, there are a lot of moving parts, and I do not know that you do this traditionally, but could you maybe give us a little bit of help, at least on the second quarter in terms of the cadence here with the down step or the step down here on the first quarter, but then layering in Nevro, just any sort of sense of where we should be landing on the top or the bottom line relative to where consensus may be today or just some sort of help might be? Would be appreciated. Thank you.

Dan Scavilla (President and CEO)

No, I appreciate the question. We do not get down to that kind of granularity or even on the quarters. If there is an after-hour call and you have a few questions, we will be glad to entertain that.

We're not in a position to break out the quarters or get into granularity within the sub-businesses.

Matthew Blackman (Supplies Equity Research Analyst)

All right. Fair enough. Thank you.

Operator (participant)

Thank you. Our next question comes from Shagun Singh of RBC. Your line is now open.

Shagun Singh (Medical Technology Analyst)

Thank you so much for taking the question. I guess I just wanted to take a step back and just hoping you can address one of the questions I've been receiving from investors, that is Nevro the right acquisition, just given that the NuVasive acquisition integration is still ongoing and it could open you up to potential execution misses. We've seen a little bit of a choppy quarter in Q1.

Can you maybe talk to us about Nevro, why it makes sense, and then NuVasive, where exactly are you in that integration, and how confident are you that all this is behind us and we will not hit a snag down the road in 2025?

Dan Scavilla (President and CEO)

Thank you. Thanks, Shavan. I will try and address some of that. You can help me if I missed a few of the points you put out. Let's start with your investors, and let's keep it fact-based. Nevro was not part of anything that we did in the first quarter. That question is more of a head-scratcher there. Timing is never great with some of the acquisitions. It was an opportunistic buy that I did go through in my prepared script.

For $250 million, we enter into the NeuroMod business, and we're able to get a clinically superior solution out there that we feel we can scale up to expand our continuum of care and really help treat patients. In addition, the patent portfolio strength is where we want to get to with future things we're working on, and their technology is applicable through multiple areas of our business that I laid out. This is a buy that has great long-term potential, and we focus on the long term. While we have people working on it there, they are separate from anyone else doing robotics and anyone else doing U.S. spine. They're not interfering with it, and there's nothing related to supply chain manufacturing from Nevro that would come into our robots or our spine. They're very different that way.

If you want, you can pick some of your other parts of the question, but I think that's the major message out to the investors.

Keith Pfeil (COO and CFO)

Yeah. I think, Shagun, this is Keith. Just to add on, you had a follow-up in there that talked about how do you know that these are behind you for what you experienced in the first quarter? When I think about Q1, the two big things that jump out to me are the soft enabling tech sales and really some of the insourcing supply chain disruptions that we saw. I commented that coming out of the quarter, production is coming online, and we're back to shipping. We've insourced a good bit of product, primarily on the NuVasive side. I view that really as a one-time change bringing it in.

I feel confident as we move forward that we have the worst of those issues behind us. Machinery is coming online. We have product flowing both from our manufacturing facilities as well as our third-party facilities, and we're getting product in the hands of our sales reps. The enabling tech, I really fall back on the earlier comments. We see the lumpiness. We had lumpiness like this, I think, three years ago coming into Q1. In that time, we said that the pipeline wasn't developing. The situation here is a little bit different. We have a robust pipeline. We're just seeing a bit of an elongated selling cycle.

Shagun Singh (Medical Technology Analyst)

Got it. And just, I guess, a quick follow-up, and sorry, I got disconnected earlier. But any update on the FDA warning letter? And then should we expect you to continue to focus on M&A like you had mentioned?

Thank you for taking the question.

Keith Pfeil (COO and CFO)

We don't really have anything as far as the FDA warning letter. We've made a lot of progress with that. We're really waiting for them to come back and inspect the facility and move this. We're actually excited for them to come back and inspect this facility and remove this. We're more than ready. We were more than ready 30 days after that. It's not a concern of ours. It's not an impact of ours. We just want to go get this cleaned up and put it behind us. As it relates to your question on M&A, I would say that given we're finalizing NuVasive and working to bring that in along with Nevro, I would say that we'd probably slow down a little bit in the near term on M&A and focus on finalizing those integration activities before stepping forward.

Operator (participant)

Thank you. Our next question comes from Caitlin Cronin of Canaccord Genuity. Your line is now open.

Caitlin Cronin (Medtech Equity Research Analyst)

Hi. Thanks for taking the question. So just with the U.S. performance of 2%, I mean, what did you see in terms of the market growth and just anything from an overall procedural health and market perspective to point out?

Dan Scavilla (President and CEO)

Yeah. Caitlin, I don't really have a lot of good data for the market growth to answer for you, so it'll be a guess on my side. Having talked to surgeons, one of the things that they had told us is they saw some slowdown occurring. They also felt like some of the approvals were taking longer from insurance companies as they were going through it. That was more conversational.

I don't really have a lot of data to say, "I think it's X." I think there were some things going on that may have impacted it. I think ours is more about just creating the cadence and feeding the product and clearing out back orders and launching new products and going. To me, I think it's just something we push through and get back on track to who we need to be.

Caitlin Cronin (Medtech Equity Research Analyst)

Got it. Just on the enabling tech fund, I mean, RELINE now approved. Has Modulus been approved for Excelsius? How much of an uptick are you already starting to see with kind of the cross-selling with Nuva surgeons?

Dan Scavilla (President and CEO)

Yeah. It's a great question. Modulus is not yet approved, but it's in the works. We'll get it there. You're right with RELINE. We're seeing it.

We are placing robots into Nuva accounts, so we're seeing that continue. As thought with our plan, we're doing that. Of course, we'd like it faster and going through. All of instrumentation is done on RELINE, as you said. All the products are there. Modulus next, and then we'll look to really make sure that we have everyone trained. We've been working on that, and we'll continue down the path, which is already, to me, decent impact into Nuva accounts.

Caitlin Cronin (Medtech Equity Research Analyst)

Great. Thanks so much.

Operator (participant)

Thank you. Our next question comes from David Saxon of Needham & Company. Your line is now open.

David Saxon (Senior Analyst)

Great. Good afternoon. Thanks for taking my questions. I had a couple here this afternoon, one on Nevro and then one on Excelsior Flex.

On Nevro, just can you talk about kind of the pace of the integration you're trying to kind of meet there and key milestones we should be aware of? In a previous answer, you talked about their SG&A being too high. I guess the real question is, how quickly can you get that down to where you want it to be, and where do you want it to be?

Keith Pfeil (COO and CFO)

This is Keith. I'll take that. In terms of Nevro, I mean, OpEx, like I said, is going to be a carry of focus. We are in the early stages of integration and focused on working on that. I'm not going to give a point number as to kind of what I say the future state is. The key takeaway is when you look at OpEx, it's not sustainable for that level of sales.

It's really unpacking where is the spending at? We've identified there's areas of third-party spending we got to control. There's areas of internal spending we have to control. We're going to aggressively go after that as we move through 2025. The key is to make sure that the business is driving profitable sales.

David Saxon (Senior Analyst)

Okay. Great. On eFlax, I guess just level of interest in the system, number of placements, how's that order book building today, and what are you seeing in terms of steel cast implant pull-through? Thanks so much.

Dan Scavilla (President and CEO)

Yeah. We're still building out the book of capital placements, and it's actually going well. It's getting heavier, meaning it's getting fuller with where we're going. We have not placed any yet out into the market. What I would tell you is no pull-through as of yet.

If you ask me, my thought would be we're probably going to enter the market within the second quarter based on what we're looking at now and push through. To your point, we'll start seeing that ramp up as we get into the future quarters from there. Great.

David Saxon (Senior Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from Steve Lichtman of OpCo. Your line is now open.

Steve Lichtman (Managing Director and Senior Research Analyst)

Hi, guys. This is Amiron for Steve. Thanks for taking the question. I just had a question regarding tariffs. Can you guys talk about what impact that denounced tariffs may have on your margins?Thank you.

Keith Pfeil (COO and CFO)

Yeah. Great question. We don't see any real material impact here on margins. Like I said, we are predominantly vertically integrated.

When I think about the countries where we do source from, the impacts to us are minimal because there's lots of other actions we've taken, whether it's vendor cost renegotiation or offsets such as targeted price increases. To be clear, I do not see that having an impact on our earnings or margins this year or going into next year.

Dan Scavilla (President and CEO)

Yeah. I would say, when Keith says vertically integrated, about 95% of our production is U.S.-based, and our sourcing of materials to produce is actually U.S.-based. We've been on that. That actually plays to our favor in this case. With what we've calculated, we don't see any need to pivot or change our strategy as we work through these tariff challenges. Great.

Steve Lichtman (Managing Director and Senior Research Analyst)

Thank you, guys.

Dan Scavilla (President and CEO)

Thank you. Our next question comes from Craig Bajal of BOV Securities. Your line is now open. Good afternoon, guys.

Thanks for taking the questions. Dan, wanted to ask on U.S. spine growth, the 2%. You guys have been talking about how the U.S. core spine has kind of held in there, and that was a strength. Was there an impact from any of these supply disruptions on that number? If so, what was the growth X, the one-time? Yeah. It's a good question, Craig. The answer is yes.

We're not going to split it out. Some of that is kind of estimates. Did you get the surgery? Did you not? Where did it go? I'm not really feeling comfortable enough to put something out there. The answer is yes with that. There was an impact that occurred within the back orders that we know are behind us, and we're improving on a daily basis here with that type of move.

Also, listen, robotic sales and prolonged sales, they also tend to have an impact in your pull-through and different things that will play into those numbers as well. Both of those are a factor that would impact U.S. spine. Got it. I'm going to try another quantification question. I'm not sure if you're going to give me an answer or not. On the enabling tech, maybe, I guess, would you be willing to quantify what the impact was in Q1 and then maybe just what those deals were, what those deals were that closed in early Q2? I apologize. My term fully falling, right? Because I said it was down 31%. It was a $22 million sale. Are you asking what carried forward in Q2 as deals? Is that what you're saying? Yeah. Yeah.

I guess if you would quantify what the impact was from the delayed sales that may have been pushed into Q2.

Again, I'm not being funny with this, but why don't we talk that in August when we get into Q2 just because it's in play now and you're in the beginning of May? While we're seeing some lifts occurring, you're right. The things that we're talking about, some of those rollover, but some of them are new. I'd have to sort through it. One out of the three months is tough for me to make a call right now and just tell you that the sales are really related to both carryovers and new ones that we had in our portfolio. Got it.

Okay. Thanks, Dan.

Operator (participant)

Thank you. Our final question comes from the line of Matt Taylor of Jefferies. Your line is now open.

Matt Taylor (Managing Director)

Hi. Thank you for taking the question, guys. Apologies. This is really just a clarification. I am a little confused on the top line, guys, still, because previously it was with the close of Nevro at the end of Q2. Now we got the same number, but you closed it kind of a quarter early. It implies something changed. I was just wondering if you could, at a high level, talk about whether it's a different Nevro expectation or a different base expectation or FX. What's different about those two scenarios?

Keith Pfeil (COO and CFO)

Hey, Matt. That's a great question. This is Keith. I really would fall back on what I said earlier is that we're focused on driving profitable growth as it relates to Nevro.

Even though the deal closed earlier, we're being conservative on the revenue view as we move the business forward because we want to get the spending right.

Matt Taylor (Managing Director)

Okay. Okay. Maybe just one follow-up. In terms of your enabling tech, the delays that you saw in Q1 of the closing, is there some factor in terms of the type of customer or the type of deal or the environment that you would attribute that to? I just wanted to get more texture as to why you thought that that was happening.

Dan Scavilla (President and CEO)

I'll take that. No, it wasn't any particular thing or a particular customer or anything like that. I think it was really just a lot of interest.

Most of it was red lines back and forth, just seeming to take longer than normal as I think hospitals or other caregivers work through some of the more macro challenges. Again, it was really kind of across the board, not specific to one group or one customer.

Matt Taylor (Managing Director)

Okay. Great. Thank you so much.

Operator (participant)

Thank you. Thank you. With no further questions, that concludes Globus Medical's Earnings Call. Thank you for participating. You may now disconnect.