Globus Medical, Inc. (NYSE:GMED) Q4 2024 Earnings Conference Call February 20, 2025 4:30 PM ET

Company Participants

Brian Kearns - SVP, Business Development and IR
Daniel Scavilla - President and CEO
Keith Pfeil - COO and CFO

Conference Call Participants

Vik Chopra - Wells Fargo
Matt Miksic - Barclays
David Saxon - Needham & Company
Jason Wittes - ROTH
Shagun Singh - RBC
Caitlin Cronin - Canaccord Genuity
Craig Bijou - Bank of America Securities
Matthew O'Brien - Piper Sandler
Steve Lichtman - Oppenheimer
Ryan Zimmerman - BTIG
Matthew Blackman - Stifel

Operator

Welcome to the Globus Medical's Fourth Quarter and Full Year 2024 Earnings Call. This time, all lines will be on mute and a Q&A session will be held after the prepared remarks. 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

Thank you, DD, 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. 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.

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'll now turn the call over to Dan Scavilla, our President and CEO.

Daniel 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. Revenue for the full year was a record $2.519% billion, delivering $951 million of revenue growth or 61% versus the prior year.

We achieved record sales while maintaining industry-leading profitability. Non-GAAP EPS was a record $3.04%, increasing 31%, even with the 20% increase in diluted shares versus prior year. And free cash flow was an all-time high of $405 million, increasing $240 million or 145% versus prior year.

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 debt inherited from the NuVasive 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. These results reflect continued market penetration, synergy acceleration and sustained profitable growth through financial discipline.

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. 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. In Q4, we delivered our highest sales yet with $657 million, increasing 7% versus prior year. 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. In Q4, we achieved our highest quarterly enabling tech sales and unit placements to date. We also launched 5 new products this quarter, flexing our innovation muscle and shaping spine surgeries with our best-in-class technologies.

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. 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.

2024 is one of our strongest competitive rep recruiting years over the past 5 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. As mentioned earlier, we launched 5 new products in Q4, and I want to share these innovative launches with you.

The QUARTEX MIS system introduces disposable towers that attach to any existing screw from our highly successful QUARTEX system, offering a percutaneous solution designed to minimize disruption in the posterior cervical and upper thoracic spine. QUARTEX MIS is integrated with our advanced Excelsius technology and designed for accurate screw placement using a minimally invasive robotic technique. The ALLEGIANCE Retractor System is a ringless interior exposure system designed for quick setup, precise tissue retraction and maximum rigidity.

Radiolucent handheld blades facilitate initial manual tissue retraction and quickly attached to rigidable mounted arms, ensuring a more stable exposure. 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.

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. Modulus ALIF anchoring blades feature low-profile instrumentation for maximum visualization of the anatomy and streamlined delivery of fixation without the need for secondary step. The addition of Modulus ALIF anchoring blade fixation further strengthens our market-leading ALIF portfolio.

In addition, we launched the ExcelsiusFlex robotic navigation platform and the ACTIFY™ Unicondylar Knee System in Q4. I'll expand further on Recon launches in future quarters. 2024 was 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. 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. 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. Robotic procedures continue to accelerate, growing 17% versus prior year and exceeding 94,000 robotic procedures performed since launch. The ExcelsiusHub 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.

The combination of the E3D imaging system with the EHUB navigation platform gives Globus the most comprehensive and sophisticated navigation offering available. We also plan to advance navigation in the near future with our XR augmented reality headset designed to work with the ExcelsiusHub. We expect to gain FDA clearance of the headset in Q1.

The DuraPro and Verzera power tool systems launched in Q1 '24 continue to differentiate our power tool offering and pair seamlessly with our enabling technology portfolio. The unique ability of DuraPro oscillating drill to add extra safety around soft tissue structures, including neurovascular anatomy while allowing for easy removal of bone, help surgeons work safely and effectively. Market interest remains high for our state-of-the-art Excelsius 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 ExcelsiusGPS or Hub.

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, and we enhance our ecosystem offerings and bring more about functionality in our imaging, navigation and robotic current and future portfolio. Our international spine implant business delivered record Q1 sales - of Q4 sales and 13% on a constant 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.

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. The combined 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 NuVasive specialty orthopedic growth now, partially offset by a temporary supply chain disruption that will be rectified in the first quarter. 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. We exceeded our 2024 synergy targets, and we're able to accelerate value creation and shareholder return as a result. For year 2 synergies, we're continuing to implement common systems in our international markets, expand our in-house production for NuVasive implants, 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. 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. The acquisition of Nevro further expands our reach into the musculoskeletal market, adding an additional $2 billion market space for us to compete in and grow.

We believe their high-frequency technology offers clinically superior solutions that can alter the standard of care for patients. 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. 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.

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' financial strength will accelerate investments in neuromodulation to expand existing product reach and future product development.

Combining Nevro into Globus' 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, 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 NuVasive. Operationally, we continue to execute on key integration objectives, while financially, we achieved 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.

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. Net income was $103 million, resulting in $0.75% of fully diluted earnings per share and includes $281.4% million of pretax merger and acquisition-related costs, as well as restructuring expenses. Non-GAAP net income was $419.6% million, which delivered $3.04% of fully diluted non-GAAP earnings per share, 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.

Full year adjusted EBITDA was 29.2%, and we generated a record $405.2% million of free cash flow. Included in the full year results is an approximate $0.10% headwind to non-GAAP EPS and a 0.72% unfavorable impact to adjusted EBITDA driven by foreign currency loss. 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.

Day adjusted sales growth was 5.2% with 1 more selling day in the fourth quarter of 2024 as compared to the prior year quarter. 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. Q4 '24 non-GAAP net income was $117.4% million, which resulted in $0.84% of fully diluted non-GAAP earnings per share, growing 40.1% over the prior year quarter.

Q4 adjusted EBITDA was 30%, and we generated a record $193.2% million of free cash flow. Included in our Q4 results is an approximate $0.06% headwind to non-GAAP EPS and an unfavorable 1.5% impact to adjusted EBITDA driven by FX loss. Musculoskeletal sales for the fourth quarter of 2024 were $610.3% million, growing 4.5% as reported compared to the prior year quarter.

Our U.S. and international Spine businesses were the primary drivers of growth, which was partially offset by lower neuromonitoring revenue driven by lower net revenue per case. Q4 2024 Enabling Technologies revenue was $47 million, growing 43.5% as compared to the prior year quarter, driven by an overall record of capital units sold during the quarter. 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. International revenue for the fourth quarter was $135.4% million, growing 7.7% as reported and 8.9% on a constant currency basis, with the primary driver being the spinal implant business.

As Dan noted earlier, the primary countries driving growth include Japan, United Kingdom, Italy and Ireland. GAAP 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. The fourth quarter of 2024 was the last quarter in which we incurred step-up amortization related to the NuVasive merger. Adjusted gross profit, which excludes the impact of step-up amortization, was 67.1% compared to 65.5% 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. Full year 2024 GAAP gross profit was 55.6% compared to 64.1% in the prior year. 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 NuVasive in the consolidated results versus 4 months in the prior year. Full year 2024 adjusted gross profit was 67.4% compared to 69.6%, driven again by the full year inclusion of NuVasive in the consolidated results compared to only 4 months in the prior year.

As a reminder, legacy NuVasive product costs are a higher cost than Globus, driven primarily by the higher mix of outsourced production. Looking ahead to 2025, we expect our full year adjusted gross margin to be in the range of 67.5% to 68.5% representing step improvement compared to 2024 as our in-sourcing efforts begin to take shape. It remains our long-term goal to be a mid-70s adjusted gross profit business, driven by manufacturing in-sourcing and operational excellence.

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. Full year 2024 research and development expenses were $163.8% million or 6.5% of sales compared to $124 million or 7.9% of sales in the prior year. Our 2024 R&D includes $12.6% million of spending related to an in-process research and development acquisition from our first quarter. Excluding that acquisition, 2024 R&D expense was $151.1% million or 6% of sales compared to $124 million or 7.9% of sales in the prior year.

The increased dollar spending is due to the inclusion of NuVasive for the full year, which primarily resulted in increased personnel-related expenses. The decrease as a percentage of sales is driven by cost synergies realized as a result of achieving integration objectives. Looking ahead to 2025, we expect R&D expense to be in the range of 6% to 7% of net sales. 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.

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. 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. The increased spending is driven by commission impacts from higher sales as well as the full year inclusion of NuVasive in consolidated figures, which primarily resulted in increased personnel-related expenses, third-party professional service fees and rent expense.

These increases were partially offset by cost synergies realized, which is reflected in the lower spending as a percentage of sales. Looking ahead to 2025, we expect our base GMED business SG&A expense to be in the range of 37.5% to 38.5%. The GAAP tax rate for the fourth quarter was negative 7.4% compared to 39.8% 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. Our Q4 '24 non-GAAP tax rate was 26.1% compared to 22% in the fourth quarter of the prior year. The increase in our non-GAAP tax rate was driven predominantly by higher state taxes. On a full year basis, our GAAP tax rate was 14.7%, while our non-GAAP tax rate was 25.9%. Looking ahead to 2025, we expect our non-GAAP tax rate to be approximately 25%.

Q4 '24 operating and free cash flow were both records at $210.3% million and $193.2% million, respectively. Full year 2024 operating and free cash flow was also a record at $520.6% million and $405.2% million. 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.

Shifting over to cash and liquidity. Our cash, cash equivalents and marketable securities were $956.2% million at December 31, 2024, increasing $363 million as compared to the prior year end. 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.

We had no short-term borrowings against our $400 million unsecured line of credit at December 31, 2024. Looking ahead, we plan to pay off our senior convertible notes in cash totaling $450 million, which is due in March of 2025. Separate of the near-term debt paydown, 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.

Organic and inorganic investments will remain the primary intent for capital deployment, though we will continue to utilize share repurchases within our capital structure. We expect capital expenditures to be in the range of 5% to 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. As we close out 2024 and enter 2025, synergies related to the NuVasive merger remain consistent with my comments in our third quarter earnings call. 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.

Subsequent to year-end, the company announced on February 6, 2025, that it entered into an agreement to acquire Nevro Corp. for $5.85% per share or approximately $250 million. This deal is still subject to shareholder and regulatory approval and other customary closing conditions. 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.

Shifting to guidance. On a stand-alone 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%. Following the consummation of the Nevro 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%. We expect Nevro to be accretive to earnings in the second year of operation.

Looking back on 2024, we were successful in leaning in and driving towards a fast and meaningful integration. We achieved sales growth in spine, as well as across the portfolio. We brought systems together, eliminated cost redundancies and launched significant new products.

All of this translated into sales and profitability growth, as well as strong cash flow generation. 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. 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. 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.

Operator, we will now open the call for questions.

Operator

Thank you. [Operator Instructions] Our first question comes from Vik Chopra of Wells Fargo. Your line is open.

Vik Chopra

Oh, hey. Good afternoon and thanks for taking the questions. Two 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 SCS market and why Nevro was the right target. And I have a follow-up.

Daniel Scavilla

Vic, it's Dan. I'll do that. So a couple of things.

Keep in mind that with our rapid integration that we did in 2024 with NuVasive, we actually have set up enough depth in where we're going with integration that we could actually take advantage of this opportunity. And so the fact that it was out there as an asset that we looked at not only for neuromodulation, but as I said, with applications that we believe will go into our development portfolio in a meaningful way. It really looks like it's a more well-rounded asset 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.

Vik Chopra

Thank you. And my follow-up question is one of your large competitors announced the sale of their U.S. spinal implants business, and they also plan to sell their international businesses. Do you expect to benefit from this at all in 2025 or beyond.

Thanks.

Daniel Scavilla

No, it's a great question. And look, there's a lot of activity in the market. I'd like to believe that the moves we made created market disruption, and there's still waves going through that.

At the end of the day, you know when we say this, we play the long game. We focus on the patient on the table, driving unmet clinical needs. 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.

And if there's opportunities out there, we can benefit from, great. But nonetheless, nothing has occurred that would take us off our plan and our execution approach.

Operator

Thank you. Our next question comes from Matt Miksic of Barclays. Your line is open.

Matt Miksic

Hey, thanks so much for taking the question. To follow-up to Vik's question on Nevro. And congrats, by the way, on the free cash flow generation last year and in the fourth quarter, which if my numbers are right, may have just funded the Nevro deal.

But on that transaction, if you could maybe put the investment - 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 - is this - is this a bigger swing for you. Is it a similar swing, not to compare your - which are your favorites or which you most likely to think are going to be successful.

But just in terms of what your investment level, that would be super helpful. And then I have one follow-up.

Daniel Scavilla

Yeah, 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 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% to 7% range of investment. And I think even with this in, you would still see that factored into where we're going.

So it really is not anything that we think will take us off track. There are 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. But again, none of that, that I think you would see us meaningfully move off of where we're going as far as who we are and how we spend.

Keith Pfeil

Yeah. And if I could add a couple of comments. I would say that from a CapEx perspective, looking ahead, I don't think that this materially changes our approach to our capital expenditures for the base Globus business when you bring Nevro in on top of that.

And when I step back and look at the business and the purchase price, if I compare the purchase price to tangible book value, we're really - you're paying basically tangible book. So from an investment perspective, that seemed to make sense for really what we are getting tying back to what Dan noted on the long-term growth potential we see with this business under our umbrella.

Matt Miksic

That's helpful. And then the follow-up was just on the last couple of quarters have been very strong in terms of robot placements. And I just wanted to get a sense, I think I asked the same question maybe last kind of the quarter before, so I'm sorry.

But just how deep into the like the ranks of your new base of colleagues, Globus colleagues that you are [ph] How deep are we into doing robot deals here. Are we 20%, 30% into the ranks or successfully executing. Or are we halfway there.

Just to get a sense of what kind of lift we could see going forward. Thanks so much.

Daniel Scavilla

Yeah. Thanks, Matt. I'll tell you in an interesting way, I would say it's actually better than that.

We really just have had Reline 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 I wouldn't assign a character of 20% or more to that. I really think that we're just starting. And as we've always said, 2025 was the year to go in and penetrate those.

I think we're on target for that. So I think the lift and the strength that we are going to see this year in those placements will be deeper in NuVasive than we have in the past, okay.

Keith Pfeil

And Matt, just one thing to add to that. Just stepping back from that, I don't see that changing the mix or cadence of our capital sales. Typically, Qs 2 and 4 are still the heaviest quarters.

I still see that being the case as we get into '25.

Matt Miksic

Sure. So step down in Q1 sequentially and then working your way back to Q4.

Keith Pfeil

Correct.

Matt Miksic

Thanks so much.

Daniel Scavilla

Thank you.

Operator

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

David Saxon

Great. Hi. 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 in-source some of the NuVasive manufacturing. And then the R&D guidance, it looks like it implies a step-up in dollars. So would love to hear what's driving that, where the incremental dollars going.

And then I'll have a follow-up.

Keith Pfeil

Yeah, sure. So my comments are going to be fairly limited. I mean from a gross margin cadence perspective, we said that 2025 would be - show some modest improvement in gross margin because remember, the in-sourcing is focused on getting the machines online and program this year.

You're going to build inventory, which will roll through the P&L in 2026. So I expect to see the most gross margin expansion next year. As I think - 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.

When you think about investment for R&D stepping forward into 2025, we're just continuing to invest across our business. As we, like from a base perspective, our dollar investment will increase a little bit. But when you think about kind of our plans, if you go back several years, our investment initially in I&R 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, we're always investing for the long term.

So if we see opportunities to drive growth, we're going to bring that investment to market. And right now, as we move forward into 2025, we want to keep that new product cadence going. So we're going to continue to drive investment across the portfolio.

David Saxon

Okay. Great. Thanks for that.

And then maybe just a follow-up on the Nevro deal. I think in the script, you talked about the potential to see benefit for a next-gen spinal implant. That sounds interesting.

Maybe can you just elaborate on that and kind of what does that actually look like. Thanks so much.

Daniel Scavilla

Yeah. Thanks. I'll make the answer short and say no.

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 thinks beyond neuromod 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.

David Saxon

Okay great. Thanks so much so much.

Operator

Thank you. Our next question comes from Jason Wittes of ROTH. Your line is open.

Jason Wittes

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.

I assume most of that is just simply scale and improving distribution. Or how should we think about that. And related to that, it would be helpful to understand on the SG&A line, how much of that is sales and how much of that is G&A.

Daniel Scavilla

I'm going to keep my comments somewhat limited because the deal hasn't closed yet. When I think about Nevro and moving the business forward, we want to get that business scaled to drive profitability. 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 the NuVasive merger. I think it's a fair way to look at Nevro once it closes, but I want to keep my comments fairly limited.

Jason Wittes

Okay. I appreciate that. Maybe if I could just push you on one more Nevro-related question.

I assume there's some dis-synergies just based on kind of the - 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 what the expectation is in terms of potential top line dis-synergies from the deal.

Daniel Scavilla

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 shareholder approvals and et cetera. 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.

Jason Wittes

Okay. Why don't I switch gears and just ask one more question unrelated to Nevro, if you don't mind. And that is if I think about your enabling tech business, how - what is the take rate for imaging.

And are you seeing just straight up imaging sales. I mean I'd love to get an understanding of sort of how that's developing now that you kind of have a full suite of products and sort of who's buying what. Are they buying a full suite, buying partial suite.

And or are they simply buying the imaging piece would be really helpful to understand.

Daniel Scavilla

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 stand-alone and often in a package. So it really just depends on what the customer wants.

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, really just depends on what the customer wants.

Jason Wittes

Okay, great. I'll jump back to you. Thank you very much.

Daniel Scavilla

Thank you.

Operator

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

Shagun Singh

Hi. Thank you so much for taking the question. I guess two for me.

The first is just on Nevro. 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 to the interventionalist. 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.

Keith Pfeil

So again, I would say when you think about Nevro and what we think we can do with it, I mean, the market is there. I would say that Nevro probably hasn't grown as fast as the market over the last couple of years. I think that 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.

Daniel Scavilla

Yeah, I'm going to agree with that. I think there's a couple of 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 hesitation on size and viability that may have had some impact with them. 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 over coming. To answer your second part of the question, 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 of size or meaningful scale right now. And I would tell you, we have nothing on the radar for that.

Keith Pfeil

Yes. And Shagun, the only thing I would add to Dan's comments is, as I think about the Globus business, there 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 there are - we see plenty of organic growth opportunities still.

Shagun Singh

Thank you.

Operator

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

Caitlin Cronin

Hi. Congrats on a great quarter. Just to touch on Nevro.

Daniel Scavilla

Thank you.

Caitlin Cronin

Yeah, thanks. Just to touch on Nevro, how important is their SI joint portfolio to your decision to acquire the company. And with that, the access to the interventionalist pain call point for your current SI joint portfolio.

Daniel Scavilla

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 joint. And I think the question is, 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.

Caitlin Cronin

Got it. And then just to touch on ExcelsiusFlex, which launched in Q4. How is the launch going.

And what's the commercial strategy in 2025 and beyond.

Keith Pfeil

Dan mentioned that he's keeping the comments fairly brief at this point. As we go into 2025, obviously, we will begin to work to market that and sell it. But we had said in earlier calls that we don't see that being a meaningful part of revenue in 2025.

This is still something that'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.

Daniel Scavilla

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 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 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 the 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.

Caitlin Cronin

Great. Thanks.

Operator

Thank you. Our next question comes from Craig Bijou of Bank of America Securities. Your line is open.

Craig Bijou

Good afternoon, guys. Thanks for taking the questions. So I want to start with Nevro, but maybe from a bigger picture perspective.

Obviously, as was noted in a couple of the other questions, you're going to have access to interventional pain docs, interventional spine specialists. And we just saw Stryker sell their implant business and retain the Interventional Spine business. So I guess, Dan, I wanted to get your thoughts on the - the convergence or how those two channels play out over time, the spine surgeon and the interventionalist.

And if there is some convergence that happens over the next 5, 10 years. Just want to get your thoughts there.

Daniel Scavilla

Thanks, Craig. I think what you're asking, there's always potential for that. And as more procedures come, there's always the interventionalists 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 pleased 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. It 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, capitalize on the reason for our purchase here and then from there, see could we expand in the future.

Craig Bijou

Got it. That's helpful. And then maybe just bigger picture on the spine market.

Your thoughts as you enter '25, are you still as bullish on the prospects for the market. The spine market ended the year pretty strong. So maybe just your thoughts on where you see it going next year and beyond.

Daniel Scavilla

Yeah. And as you know, it's always a guess, right. I think it was a strong year.

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 will trend somewhere around that over the long term.

But again, keep our eye on it. I think the point is, regardless of what is growth is, our goal is to outpace it through the innovation and through the investment in set expansions and those type of things. But as we look at it, 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 and the upcoming few.

Craig Bijou

Great. Thanks for taking the questions.

Operator

Thank you. Our next question comes from Matt Taylor of Jefferies. Your line is open.

Unidentified Analyst

Hey, guys. It's Young on for Matt. I guess first question, I was wondering with the AAOS coming, upcoming, should we expect to see more of your knee and hip implants and the ortho robot portfolio at the conference.

And if you can talk a little bit related to that, ASCs are kind of a hot topic at the conference. If you can comment a little bit about what's the ASC [ph] for spine and the value prop for robotics and ASCs for spine.

Daniel Scavilla

So with the AAOS, 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. Your ASC question, a little bit more on the spine side, so I know its hot topic, right.

Will they expand and continue to grow. The answer is yes. Will it ever be 100%.

Unlikely. I think we just have to understand where it's going to get to and in doing so, offer value to patients and not disrupt hospitals or create bankruptcy for hospitals 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.

And with that, work with surgeons to see what makes the best sense to go through that. Tough to call the number because it's all over the board with what people think. But 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.

Unidentified Analyst

Okay. Great. Very helpful.

I guess a quick follow-up on the navigation headset product. I was curious if you can talk about some of the key benefits of that product and also the economic model for it.

Daniel Scavilla

Sure. As far as economic model, it's going to work with the Hub. That's really the main thing, and we will eventually have robotic application as well.

So we go through that. The main thing beyond this lightweight ability, more data, the ability to flow through is just going to be the line of sight directly on to your patients as opposed to looking off on a screen. One of the things I really like is the fact that with those cameras as well, it doesn't - it creates less interruption with people who are around the operating table.

And it's also a great teaching tool because if you have someone you're teaching, you could actually see through their eyes what they're seeing directly is going to help them out that way. So 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. And then 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 tough to explain.

And 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 the Hub, that's going to be the main thing that we'll put out a quote for people to purchase.

Keith Pfeil

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 complementary purchase with existing capital.

Unidentified Analyst

Okay. Thank you very much.

Operator

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

Unidentified Analyst

This is Ben on for Rich. I see that the 2025 EPS range, including the acquisition is $3.10% to $3.40%. So I'm wondering if you can talk about some considerations that might drive that either to the top or the bottom of that range.

Keith Pfeil

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 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'll leave my comments there, as you think about our overall combined implied guidance.

Unidentified Analyst

Thank you. And just one more. So I know there's been some discussion throughout med tech of potential tariff exposure for companies that manufacture internationally or business there.

And I'm wondering whether you have any exposure and what your thoughts is on the matter.

Keith Pfeil

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%.

Daniel Scavilla

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.

Unidentified Analyst

Thank you.

Operator

Thank you. Our next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Matthew O'Brien

Good afternoon. Thanks for taking the questions. And sorry about the background noise.

I'm sorry to keep beating this Nevro horse. But just on the profitability side of things, Keith, you've talked about getting back to mid-30s EBITDA margins for the overall business. Is that still possible with all the investments 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.

Keith Pfeil

I would say it's a great question, Matt. My prepared comments, I focused on getting back to mid-70s gross profit. That's still our goal even with bringing Nevro into the fold.

I think their gross margin profile lines up pretty well with ours, and we think we can drive operational improvements to enhance margins. So 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 it would move off of our mid-30s goal.

But as we grow as a company, our focus really shifts a little bit more towards just overall EPS growth. I think that we can maintain a high EBITDA profile and still get to that Globus historical mid-30s. But in the near term, the focus is on, again, in-sourcing the NuVasive merger, driving that gross profit expansion next year, the majority of it next year, achieving the additional synergies and then bringing Nevro into the fold and really falling back on some of the comments I just made as it relates to their spend structure.

Matthew O'Brien

Understood. And then a question for Dan. I know there's still concerns out there that you could see more dislocation from the NuVasive sales force or just being combined sales force about a year after the close of that deal.

Is that something - I know you said you had some of the best 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 1-year mark.

Thanks.

Daniel Scavilla

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 over time, that was something that was an odd rumor that was put out there. These folks are out there doing their thing and retention has been great.

It 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. I've been out traveling the country extensively, and boy, it sure feels good to me with where they are.

I think putting 18 new products in the hands of reps can be great. I think 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 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 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.

Operator

Thank you. [Operator Instructions] And our next question comes from Steve Lichtman of Oppenheimer. Your line is open.

Unidentified Analyst

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. And then are you guys seeing any increased shift towards rental or volume deals as you enter 2025.

Keith Pfeil

That's great question. This is Keith. As I think about the appetite, I think the capital market remains strong.

Earlier, we got a question, I made a statement that I still see the cyclical nature of capital. It's a long selling cycle, 8 to 12 months to really secure a robot piece of capital with Qs 2 and 4 still being the high watermark quarters. In terms of how a customer acquires the capital, still the vast majority of our purchases are outright buys on terms where they pay 30 to 60 days.

As I think about other ways to offer capital, we can rent, we can 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.

Unidentified Analyst

And just one last one on my side. It's - can you give us a sense of the components of the sales guidance for this year by major segments.

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, base business Globus and even with considering the pending Nevro acquisition.

Unidentified Analyst

Makes sense. Thank you, all.

Keith Pfeil

Thank you.

Operator

Thank you. Our next question comes from Ryan Zimmerman of BTIG. Your line is open.

Ryan Zimmerman

Hey, guys. Thanks for taking our question. I appreciate you fitting me in here.

Just a couple of questions for me. I think about the spine business this year or through '24, Dan, I think on a pro forma basis, we're kind of hovering low single digits, mid-single digits 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.

And there's a number of drivers in that portfolio. I guess what I'm trying to understand and get to is where do you feel like you're under-indexed within particular areas of spine, be it cervical with the Simplify Disc, be it can you accelerate maybe some of the legacy surgical support business and biologics from NuVasive or the fact that you didn't have neuromonitoring and legacy Globus, now you do with NuVasive. 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.

Daniel Scavilla

Sure thing, Ryan. Long question is fun, too. You answered a lot of the stuff there in, but I'll just tell you.

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 would be probably one of the ones.

The other areas you called out, not so much, 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. 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 launching that, making that stronger out there.

I think those three things are great focuses that I really think are there. 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 Nuvo accounts, all of those things, I think, create strong lift for us as we kind of walk into this year.

Keith Pfeil

Yeah. The only thing I'd add to Dan's comments really goes back to the Enabling Tech is as we continue to put more capital out there, we have 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.

Ryan Zimmerman

Right. Okay. That's fair.

And then, Keith, last one for me. You talked about year 2 synergies, 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 3, just in broad strokes, where do you still have that opportunity as we move - think about maybe even '26.

Keith Pfeil

Yeah. The year 3 - it's a great question. Year 3 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 '25 that will accrete its way back to the P&L in '26.

Ryan Zimmerman

Okay. All right. Thank you, guys.

Keith Pfeil

Thank you.

Operator

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

Matthew Blackman

Good afternoon, everybody. Appreciate you taking my question. I'll just leave it to one.

Keith, was there anything onetime on the P&L in the fourth quarter. I asked because if you just do some dumb math and annualize that 4Q EPS of $0.84%, which I think you said included $0.06% of FX. We basically get to the bottom end of your stand-alone 2025 EPS range.

I appreciate there might be incremental FX headwinds, but is there something else going on. Am I missing something.

Keith Pfeil

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 of 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.

Matthew Blackman

Okay. But again, $0.85% roughly times 4 gets you to the bottom end, $3.40%. And I appreciate it's not linear, but it wouldn't - it doesn't seem to assume much incremental synergy capture or revenue growth.

Just help me understand what I'm missing about the bridge from where you exit.

Keith Pfeil

Yeah. No, I'm comfortable - we're comfortable where we're sitting here with year 2 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 into next year.

I feel good about top line and bottom line. And really, we want to continue to drive execution. The $170 million of synergies over 3 years, we feel good about them.

We achieved year 1. We feel confident in year 2. And like I said per the earlier question, in year 3, that's where we're going to see the gross profit expansion.

Matthew Blackman

Okay. I'll leave it at that. Thank you for taking my question.

Keith Pfeil

Thank you.

Operator

With no further questions, that concludes the Globus Medical earnings call. Thank you for participating. And you may now disconnect.