Globus Medical, Inc.GMEDNYSE
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Operator: Welcome to Globus Medical's Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. 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, Stephanie, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Keith Pfeil, President and CEO; and Kyle Kline, 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 will now turn the call over to Keith Pfeil, our President and CEO.
Keith Pfeil: Thank you, Brian, and good afternoon, everyone. We are extremely pleased with our overall Q3 performance, delivering sales of $769 million and non-GAAP diluted earnings per share of $1.18, growing 22.9% and 42.6%, respectively, over the prior year quarter. In addition, free cash flow was a record for the third quarter, delivering $213.9 million. Digging in a bit further, our base business delivered revenue of $669.8 million, growing 7% as reported and 7.1% day adjusted versus the prior year quarter with the same number of selling days in the U.S. and 1 fewer selling day in Japan. The recently acquired Nevro business delivered $99.3 million of revenue during the quarter. Overall, the Globus business saw a meaningful expansion in profitability, driven by improvements to adjusted gross margins, operating leverage and the continued realization of synergies from cost actions taken, resulting in the base Globus business delivering adjusted EBITDA margins of 35.3%, growing 435 basis points over the prior year quarter. The Nevro business also delivered a positive adjusted EBITDA margin, finishing at 16.2%. We remained active with share repurchases, spending $40 million during the quarter, bringing our year-to-date repurchases to $256 million, which Kyle will expand on later with his remarks. Our overall results reflect continued market penetration and earnings expansion that is sustainable and enduring. In short, the business delivered on nearly all of its objectives during the quarter, driving results and establishing confidence as evidenced in our ability to revise upward our full year financial guidance, which Kyle again will discuss later in his prepared remarks. Before I turn it over to him, let me first go a little deeper into the business. Consistent with our U.S. -- consistent with last quarter, our U.S. Spine business led the way, growing 9.6% as reported. We continue to see growth in U.S. Spine during every week in Q3, which has carried forward into Q4 as we now sit at 32 weeks of consecutive growth. Competitive recruiting remains a bright spot for U.S. Spine as we continue our relentless focus on hiring top talent. Whether we look at competitive rep visits, new reps onboarded or business converted, all signs point to strength within this core objective. The expansive product portfolio, team approach and financial strength creates stickiness within our business. We remain laser-focused on attracting and retaining the best long-term sales talent who will help us drive sustainable growth. 2025 is setting up to be a record competitive recruiting year. Overall, our team has doubled down its collective cross-functional efforts to ensure we are beating internal goals set for U.S. spine revenue, product development projects, sets and inventory deliveries, recruiting as well as enabling tech placements. Q3 Enabling Technologies revenue was $28 million, declining 27% to the prior year quarter, driven primarily by lower sales of EGPS systems. While our view of the pipeline and its strength remains positive, we have not closed sales at the same pace and cadence as we have in years past. While a significant portion of this relates to fewer full revenue cash deals, we have increased our flexibility of capital deal structures as our overarching goal remains focused on achieving increased spinal implant growth. Our installed base continues to drive strong recurring revenue growth with implant pull-through service contracts and disposable revenue with robotic procedures now surpassing 115,000 cases. The Globus Robot remains the pinnacle of robotic technology in spine based on customer feedback. We launched ExcelsiusXR during the quarter, which is a wearable extended reality navigation headset designed to seamlessly blend visualization and control for the surgeon, increasing their focus on patient -- on the patient through enhanced ergonomics and uninterrupted workflows. Earlier in Q4, we received FDA 510(k) clearance for additional ExcelsiusGPS instruments for use with additional interbody fusion devices, including Modulus XLIF, Modulus TLIF-O, Cohere XLIF, Cohere TLIF-O, HEDRON L and HEDRON P. The new ExcelsiusGPS instruments consist of verification adapters and various surgical instruments, including interbody inserters and trials for use with ExcelsiusGPS or ExcelsiusHub. Thinking back to the NuVasive merger and revenue synergies, we can now offer to use pedicle screws and interbody solutions to those customers who are using NuVasive products. The Excelsius platform, which delivers a single vendor spine ecosystem across capital, implants and software provides for consistent workflow, data continuity and training across the OR. When stepping back and looking at the broadening competitive INR landscape, Globus continues to be a stand-alone when it comes to pairing imaging, navigation and robotics together. If a surgeon desires robotic navigation and imaging, they can pair an EGPS with an E3D, bringing together best-in-class robotic functionality and state-of-the-art intra-op imaging capabilities working seamlessly together. If the surgeon desires freehand navigation, they can combine the ExcelsiusHub and the XR augmented reality headset with the E3D imaging system. The features and benefits of these products working seamlessly together is second to none. Looking ahead, we will continue to expand on our ways to sell capital as well as driving greater attention to operationalizing how capital is acquired versus the traditional CapEx model of procurement by hospitals. Q4 is typically our strongest quarter for capital, and we continue to act with urgency in converting pipeline deals. Over time, the mix of revenue may change. However, the overarching goal remains focused on driving capital placement and launching successful durable capital programs that enable implant sales growth. Our International Spine business grew 5.6% as reported and 6% on a day-adjusted basis, driven by 1 fewer selling day in Japan, which I had mentioned earlier. The EMEA geography continues to be led by our largest markets, including the U.K., Italy, Germany and Spain as we go deeper. However, smaller countries within these geographies are beginning to contribute meaningfully as we continue to emphasize the broadness of our portfolio, innovation and service quality. The Asia Pacific region saw an uptick in revenue growth led by Australia and Japan. Australia delivered its strongest Q3 performance with a growing share of fixation sales, while Japan realized growth within cervical, expandables and bio. Our LatAm region saw growth primarily within Brazil and Colombia, while we refocus our commercial efforts in targeting higher volume categories where we maintain a low share position, which ties back to our larger strategy of driving further penetration in the countries in which we operate. Our cadence of inventory and set deliveries has continued to improve across our international locations and will continue to do so as we move through Q4. Longer term, we still see our international markets as having the ability to grow revenue in the 10% to 15% range. The Trauma business delivered a strong third quarter, growing 17.2% with the highest quarterly revenue figure since its inception. Challenges experienced with precise manufacturing are now behind us, which will drive continued growth looking ahead, both in the U.S. as well as our international markets. Our continued investment in the manufacturing of the full line of NSO products will further accelerate growth moving ahead as we bring these online over the next several quarters. Reviewing our legacy trauma portfolio, we added to our ANTHEM plating line with the Q3 launch of our comprehensive elbow plating system. With this launch, we have now reached the milestone of 80% plus of matching our competitors' portfolios. The significance of this is that we are now able to bid on primary or preferred vendor contracts when surgeons request our products in their health system. Shifting to joints. We've been working closely with several large institutions to secure our first EFlex deal. We have shown and demoed the robot to numerous surgeons and many have commented on the ease and use -- ease of use and its ability to accurately perform TKA procedures in both imageless and image-guided workflows. Surgeons have come away impressed with the ease of auto registration between EFlex and E3D. We've made great strides with product development and are seeking to complete the modernization of the primary procedure portfolio by early 2026 and then use 2026 to complete our revision portfolio while adding procedural applications to EFlex, namely hip. As noted earlier, Nevro revenue totaled $99.3 million, growing 4.9% sequentially, representing the strongest quarter of 2025 for this business on a pro forma basis. We are seeing the uncertainty subside from the pre-acquisition Nevro financial condition as well as post-acquisition changes that have been implemented since we closed the deal on April 3 earlier this year. While integration activities still continue, we've seen positive progress since making significant organizational and procedural changes as this business has rolled into the larger Globus organization. We believe the positive results seen thus far sets us up well as we look ahead. Operationally, the team is focused on fully digging into the supply chain and production activities while we work to centralize shipping, driving additional scale and efficiencies. Commercially, we see an ability to drive growth within Nevro as we focus on surgeon conversions and competitive rep recruiting to expand our footprint. Shifting our attention to strategy. We remain focused on partnering with surgeons and helping to solve unmet clinical needs with a focus from our product development engine to improve outcomes. Our sales force will penetrate markets through surgeon conversions and continued sales force expansions. We remain laser-focused on driving operational excellence while maintaining prudent financial discipline. Our investment thesis shows a business with an ability to grow in the mid- to high single digits with revenue stickiness. Our capital structure and lack of debt maintains maximum flexibility to organically invest in R&D and disciplined CapEx to self-fund growth. We've demonstrated belief in our business while providing a return to shareholders through our share repurchase program, and we've deployed capital for complementary M&A without creating balance sheet stress. The earnings profile and free cash flow profile suggest strong conversion and high-quality cash generation. Simply stated, we are a compelling business focused on innovation, operational excellence and execution. Thank you to our people for another successful quarter. We look forward to closing 2025 strong and moving into 2026. I will now turn the call over to Kyle.
Kyle Kline: Thanks, Keith, and good afternoon, everyone. The third quarter of 2025 for Globus was exceptional. We posted record results this quarter in revenue, earnings and cash flow generation. The stellar results were driven by revenue growth in our domestic Spine business, growing 10% over the third quarter of 2024 and accelerating from the 7% day adjusted growth we saw in the second quarter of this year. As we move into the final quarter of the year, Globus is in a great position to close out a record-setting 2025 and capitalize on the acceleration we've seen in the middle 2 quarters of the year. Today's prepared commentary will focus on providing insights into our quarterly business performance, including the impacts of Nevro, reiterate our capital allocation priorities and update our guidance for the remainder of the year. Consistent with last quarter, I will first comment on our as-reported results, providing insights into the legacy Globus business as well as high-level comments on the contributions from Nevro on an as-reported basis. Moving into the quarter, our third quarter revenue was $769 million, growing 22.9% on an as-reported basis and 22.3% on a constant currency basis as compared to the third quarter of 2024. GAAP net income in the third quarter of 2025 was $119 million and GAAP fully diluted earnings per share was $0.88. Non-GAAP net income was $159.4 million compared to $114 million in the prior year quarter, growing 39.8%. Our fully diluted non-GAAP earnings per share were $1.18, growing 42.6% over the prior year quarter. Consolidated adjusted EBITDA was 32.8%, and we generated $249.7 million of operating cash flow and $213.9 million of free cash flow during the quarter. The growth in both earnings and cash flow generation was primarily driven by: one, the overarching sales growth in the quarter across the majority of our businesses, led by U.S. Spine, international Spine, Trauma and neuromonitoring; two, execution of our operational goals to drive synergies across the businesses; and three, the impact of the recently acquired Nevro business, which achieved sequential sales growth and will now be accretive to non-GAAP earnings per share in fiscal year 2025. Our legacy Globus adjusted EBITDA margin was 35.3%, while legacy Globus operating cash flow was $238.3 million and free cash flow was $205.4 million. Stand-alone Nevro adjusted EBITDA margin was 16.2% for the quarter, growing from negative 1.4% in the second quarter of this year and generating operating cash flow of $11.4 million and $8.5 million of free cash flow. By comparison, in the second quarter of this year, stand-alone Nevro represented an operating and free cash burn of $26.3 million and $29 million, respectively. Our third quarter net sales of $769 million reflect legacy Globus sales totaling $669.8 million, growing 7% as reported and 7.1% on a day adjusted basis, with the same number of selling days in the U.S. and international and 1 fewer day in Japan compared to the prior year. The growth in our legacy Globus sales was primarily driven by U.S. Spine, which achieved 9.6% as reported growth; International Spine, which achieved 5.6% as reported and 2.9% constant currency growth; Trauma, which achieved 17.2% as reported growth; and neuromonitoring, which achieved 15.8% as-reported growth, partially offset by lower enabling technology sales of $10.3 million. Nevro contributed $99.3 million of revenue during the quarter, growing sequentially over the second quarter of this year by 4.9%, inclusive of $83.3 million of domestic revenue and $15.9 million of international revenue. Musculoskeletal revenue was $741 million, growing 26.2% over Q3 of 2024. Legacy Globus musculoskeletal revenue was $641.8 million, growing 9.3% as reported. Enabling Technologies revenue was $28 million, declining 26.8% as reported. We continue to remain optimistic on the overall Enabling Tech business as our pipeline remains strong, and we believe we have the best capital portfolio in the industry. U.S. revenue during the third quarter of 2025 was $617.6 million, growing 24.6% as reported. Legacy Globus U.S. revenue during the third quarter of 2025 was $534.3 million, growing 7.8% versus the prior year quarter. Our legacy Globus U.S. growth was primarily driven by our U.S. Spine, Trauma and Neuromonitoring businesses, partially offset by declines in Enabling Technologies. Our U.S. Spine business took another step forward this quarter, growing 9.6% as reported after posting 5.7% as reported and 7.4% day adjusted growth in the second quarter of this year. We continue to see the strong momentum in October and early November as we seek to stabilize as a high single-digit above-market grower. Trauma saw an acceleration in domestic growth with both our core trauma and NSO portfolios achieving 27.6% growth. Our Neuromonitoring business grew 15.8% as we [ anniversaried ] the reimbursement headwinds that occurred in mid-2024. Q3 2025 international revenue was $151.4 million, growing 16.5% as reported and 13.5% on a constant currency basis. International revenue for the legacy Globus business was $135.5 million, growing 4.3% as reported and 1.6% on a constant currency basis compared to the prior year quarter, and we saw growth across EMEA, Latin America and Asia Pacific markets. As mentioned previously, our supply chain strategy ensures that the U.S. is prioritized for inventory, which had an impact on the international supply in the quarter. Despite strong U.S. demand, we saw incremental improvement in international supply as we move through the quarter, and we continue to experience momentum in the legacy Globus International Spine business as we have seen sequential growth each quarter throughout 2025. GAAP gross profit in the quarter was 64.2% compared to 53% in the prior year quarter, with the resulting improvement driven primarily by lower inventory step-up amortization. Consolidated and legacy Globus adjusted gross profit was 68.1% compared to 66.5% in the prior year quarter, primarily driven by favorable sales mix and the impacts of synergy execution. Nevro adjusted gross profit was 67.6%. Manufacturing initiatives remain a key focus for us as we close the back half of the year. We continue to see the benefits of our efforts in adjusted gross profit percentage with 4 straight quarters of sequential improvement and a 70 basis point boost between Q2 and Q3. This endeavor continues to pay dividends in cash spending on inventory and will ultimately drive a return to mid-70s adjusted gross profit. For 2025, we expect total adjusted gross profit to be in the range of 67% to 68% of consolidated revenue. Research and development expenses in Q3 2025 were $38.1 million or 4.9% of sales compared to $35.4 million or 5% of sales in the prior year quarter. Legacy Globus R&D expenses totaled $33.9 million or 5.1% of sales. The resulting decline in legacy Globus R&D, both in dollars and as a percentage of sales is attributable to synergy capture, resulting in lower headcount and leverage from higher sales volume. Nevro R&D was $4.2 million or 4.2% of Nevro sales. For 2025, we now expect total research and development expenses to be in the range of 5% to 5.5% of consolidated revenue. SG&A expenses in the third quarter of 2025 were $313.6 million or 40.8% of sales compared to $240.1 million or 38.4% of sales in the prior year quarter. Legacy Globus SG&A expenses were $264.5 million or 39.5% of sales. Current period SG&A expenses included onetime net charges for estimated litigation of $28.3 million. Excluding these onetime charges, which we adjust out of our results for non-GAAP reporting, our consolidated SG&A expenses were $285.3 million or 37.1% of sales, and our legacy Globus SG&A expenses were $236.2 million or 35.3% of sales. The decrease in spend after removing the onetime estimated litigation charges is attributable to decreased employee-related costs from synergy actions, lower employee benefit costs and lower bad debt expenses, partially offset by increased sales compensation costs from higher volume. Nevro contributed $49.1 million of SG&A expenses in the quarter or 49.5% of Nevro sales. Q3 2025 net interest income was $1.5 million compared to $0.8 million of net interest expense in the prior year quarter. The $2.2 million favorable change is driven by a decline in interest expense from the paydown of the remaining $450 million outstanding convertible debt in Q1 2025 that was assumed from the NuVasive merger. The GAAP tax rate for Q3 2025 was 17.4% compared to 9.1% in the prior year quarter. The prior year rate was impacted by a reserve reversal, which favorably impacted the rate by approximately 11%. The current year rate includes favorable impacts from legal entity restructurings of both NuVasive and Nevro. Our non-GAAP tax rate for the quarter was 20.8%, lower than our projected rate of approximately 25%, resulting from a discrete benefit in the quarter related to certain NuVasive restructuring activities. The favorability in tax resulted in $0.07 of nonrecurring non-GAAP fully diluted earnings per share favorability in the quarter. We expect our full year non-GAAP tax rate to be approximately 24% to 25%. Cash, cash equivalents and marketable securities were $407.2 million at September 30, 2025, compared to $956.2 million at December 31, 2024. The decline in cash is driven primarily by three main factors: one, as mentioned previously, in March, we fully repaid in cash the remaining $450 million outstanding convertible debt assumed from the NuVasive merger. Two, in April, we acquired Nevro for a purchase price of $252.5 million; and three, during the past 3 quarters, we spent $255.5 million to repurchase approximately 3.5 million shares. In Q2 2025, we announced that our share repurchase program was expanded by an additional $500 million. During the third quarter, we repurchased $40 million or 0.7 million shares and have $435 million of authorization remaining under this program at September 30, 2025. Since 2020, share repurchases have been an important part of the Globus capital allocation strategy as we strive to balance internal and external investment for future growth with creating value for our shareholders. From 2020 through the third quarter of 2025, we've spent $815 million to repurchase 14.5 million shares at an average price of $56. And on average, we've spent $136 million per year to repurchase 2.4 million shares. Upon closure of the NuVasive merger, we sought to drive an increased use of our share repurchase program. And since Q3 2023, we repurchased $566 million or 9.5 million shares, representing approximately 1/4 of the deal dilution. Share repurchases remain an integral part of our capital allocation strategy as we seek to first prioritize internal investment in innovative product development efforts, build sets for our sales personnel across the globe and increase our manufacturing footprint through CapEx. Secondarily, we seek to opportunistically repurchase shares as we demonstrate our confidence in the business and our commitment to creating long-term value for our shareholders. Finally, we will continue to evaluate complementary M&A while focusing the use of our capital on driving investment for long-term profitable growth. Q3 net cash provided by operating activities was $249.7 million, and free cash flow was $213.9 million. This quarter's free cash flow generation represents over 50% of all free cash generation in the record-setting fiscal year 2024. On a trailing 12-month basis, we've generated $715.2 million of operating cash flow and $579.6 million of free cash flow. This strong cash flow generation is driven by continued sales growth, execution of synergy actions and working capital improvements, specifically in accounts receivable. Turning our attention to integration. Our goal with Nevro is to aggressively target steady state as soon as possible, and the team has performed tremendously in making decisive and meaningful impact to the cost structure within the legacy Nevro business. Given the synergy actions taken in operating expenses and the sequential sales growth seen in the business in Q3, we are updating our initial comments in relation to Nevro as we now expect the business to be accretive to earnings in fiscal year 2025 versus our previous expectation of being accretive to earnings in the second year of operations. Pivoting to financial guidance, we are adjusting our 2025 net sales guide to be in the range of $2.86 billion to $2.9 billion compared to our previous range of $2.8 billion to $2.9 billion. The revised revenue guidance implies growth over 2024, ranging from 13.5% to 15.1%. We are also adjusting our 2025 fully diluted non-GAAP earnings per share guide to between $3.75 and $3.85, an increase to our previous range of $3 to $3.30. The revised fully diluted non-GAAP earnings per share guidance implies growth over 2024, ranging from 23.2% to 26.5%. We feel confident that our guidance represents our best estimate of anticipated results for 2025. We also want to reiterate that the Q3 2025 results included $0.07 of tax favorability that we do not expect to recur in the remainder of 2025. The Globus team has done an exceptional job of executing our vision and strategy this quarter, and our results reflect our collective effort. We posted record-breaking results in top line revenue, non-GAAP fully diluted earnings per share and free cash flow. We look ahead well positioned to further drive long-term profitable growth and value for our shareholders in the remainder of 2025 and into the future as we strive to build the leading musculoskeletal technology company in the industry. We will now open the call for questions.
Operator: [Operator Instructions] Our first question comes from Richard Newitter from Truist Securities.
Richard Newitter: So I just was hoping to get a little bit more color on the strength and the acceleration in U.S. Core Spine in particular. Anything specific going on there? It tends to be a seasonally weaker quarter. Would love to just get a feel for what's driving that? How sustainable it is? Is that pull-through from robotics kind of showing up in NuVasive accounts? Any color there? And then I have a follow-up.
Keith Pfeil: Sure. Thanks, Rich. This is Keith. Like I said earlier in my prepared remarks, we're running at about 32 weeks of consecutive sales growth. And the one thing that I see is that our strength is broad, meaning that in -- in basically all of our categories that we track, we're seeing growth in spine. So it's not just kind of expandables. It's not just pedicle screws. We see it broadly across the entire portfolio. Within that, we're also seeing good uptake on our DuraPro drills. But still, when I think about where the growth is coming from, it's coming from the core implant business. I think it points to a healthy market, but I think that as you look at our business and the steps we've taken, where it's coming from or the how? Yes, you have the robotic pull-through. We launched a bunch of new products last year, but also competitive reps. When I think about the last several quarters, we've been really leaning into that aggressively, and we've been starting to see the results of that come through. Since assuming the role a couple of months ago, that's something that I personally want to make sure that we're focused on both myself as well as the rest of the leadership team because I really think that we have an opportunity to continue to drive growth and differentiate ourselves in spine.
Richard Newitter: Got it. And then maybe just on the enabling tech, I was jumping around calls, but I think you mentioned that was a little weak, but obviously, you more than made up for that elsewhere in the business. But I'm just curious, you mentioned operating leases. What does that mean as we think about our models into the future period? Should we be dialing down near-term revenue, but obviously, the longer-term cash flow is there, we just kind of smooth it out and increase it into the out years? Or is it too early for that? And then what is the strategy change there that you referenced on the call?
Keith Pfeil: Yes. So it's a great question. So as I think about Globus historically, most times we're selling robots, they're straight cash sales. What we've seen more recently is our pipeline is strong, it's still strong. We're not seeing that we're losing material deals to competition. But what I see is an increase in the ask of how a hospital may acquire the capital. There are some hospitals where we've seen a propensity to not spend capital, and they've come back and asked for other ways to acquire that capital. In those situations where your model changes to maybe more pay-per-click models or fair market value leases, in those situations, you're not going to get that full revenue recognition upfront, and it will go over a period of 3 years, 5 years, whatever term you enter into. So as you think about modeling, I don't want to get ahead of myself and call out kind of how you should guide. But note that over time, we see the model changing a little bit more aggressively away from outright purchases upfront.
Operator: Our next question is coming from the line of Vik Chopra of Wells Fargo.
Vikramjeet Chopra: Congrats on a nice quarter. Two for me. Maybe just starting off on the Nevro business. I think you said 16.2% EBITDA margin this quarter. I'm just curious if you can talk about your expectations for margin progression over the next 12 to 18 months, perhaps and how you're driving future profitability? And then I had a quick follow-up.
Keith Pfeil: Yes. So Vik, this is Keith. You are correct. The 16.2% was the EBITDA margin for Nevro in Q3. As you think about kind of the -- what we've done so far, we want to drive basically getting this business integrated into the Globus umbrella. So Kyle commented on moving aggressively. As you think about some of the near-term impacts that have occurred already, [ really ] was around redundant spending, trying to find ways to reduce spending. We've done that, but we haven't touched sales and manufacturing operations because we want to make sure the continuity of that business continues forward. As you look to move into next year, it's really getting a better hold on driving new product development, but more importantly, making sure that the sales force is set to grow. We want to make sure that they move from the standpoint of maybe more of their traditional model they had prior to the merger, but getting more aggressive with things like surgeon rep conversions -- I'm sorry, rep conversions and really driving more and more outreach to the surgeon partners. As we brought them in under the Globus umbrella, we really want to seek ways to drive growth, to drive top line growth, which should hopefully expand margin as we move further out. But secondly, we're going to continue to work to find ways to make the business more efficient. As you look up and down the P&L, Nevro had about a 67%, 68% gross margin. Our goal is to continue to try to find ways to advance that to make it more profitable. And then Kyle commented that our SG&A OpEx was still running at about 49% of sales. That's something that we still want to continue to look at as time passes.
Vikramjeet Chopra: Great. Appreciate the color. And then on the follow-up question that I had was with Q4 typically being strong for capital, just curious how you're thinking about Q4 growth in your enabling tech business, especially as you talked about evolving your capital sales strategy around flexible deal structures.
Keith Pfeil: Yes. Great question. I don't want to get into kind of calling out the parts and pieces of our Q4 numbers. We're confident in the overall guide that Kyle presented. There's puts and takes everywhere. But as we look into the fourth quarter specifically, like I said earlier to Rich's earlier question, I feel really good about the pipeline. The year so far, we haven't sold quite as many as we have in years past. But as I look about the -- as I look at the revenue that we've generated and the deals that we've placed, there's still strong ability for us to close more deals. But again, the overarching goal is to drive the long-term ability to get the implant growth, the service revenue and disposable revenue.
Operator: Our next question comes from Matt Miksic of Barclays.
Matthew Miksic: Congrats on a really impressive quarter. So I had one on Nevro and then a follow-up on robots. So on Nevro and the sort of -- Interventional Spine business is sort of the platform that you've established there and are starting to sort of build and reinforce. Can you talk a little bit about the other types of things that -- because Nevro reps and other reps in neuromod and pain have more than one thing in their bag. I'm just wondering what types of things and when we might start hearing about products getting dropped into that bag. And as I mentioned, one follow-up on the robot side.
Keith Pfeil: So thanks, Matt, this is Keith. So as you think about Nevro, first and foremost, Nevro is a spinal cord stimulation business. That's the majority of the market, as we -- the majority of the business. As you think about adding to the portfolio as time advances, I think peripheral nerve would be an area that we continue to -- or start to look at, but also step back and look at other areas of the business, like when we looked at acquiring Nevro, it just wasn't for the business that it was today. There was great interest in the patent portfolio and the freedom to operate. So as we think about other areas, looking at diabetic neuropathy, ways to potentially treat Parkinson's tremors, those are the areas that you would think we're going to work to develop as time passes. But that's not going to happen overnight. That's going to take some development, but that's -- those are some of the areas that we're focused on.
Matthew Miksic: Got it. And then on the robot side and enabling technology, I appreciate the comments around like the shifting preference for more flexible payment models. Can you talk about -- and that's consistent with obviously what most of the other robot manufacturers and competitors have done over time is just increasing mix of leases and things like that. Can you -- have you seen a step-up in leases in Q3? Can you quantify that? And any color that you have on sort of maybe does that follow some of the same -- more than 50% of leases over time, which is kind of where some of your other competitors, both in musculoskeletal and elsewhere have gotten to? Any color there would be great.
Keith Pfeil: Yes, I would say that -- I'll keep my comments brief here. I would say that we're definitely not approaching over 50%. But I will say that when I look at 2025, the mix of rentals and leases is significantly higher than it was in previous years. As we look to move the business forward, we look to get more flexible in how those deals happen. But I would say that as you think about some of the customer asks and offerings that we've presented throughout the quarter, I think the -- having additional ways for them to acquire the capital may have slowed some deals down here and there. But by and large, the key takeaway, though, is that our pipeline still remains very strong.
Kyle Kline: Yes. And Matt, the only thing -- this is Kyle. The only thing I would add is the fact that while the deals that we have closed are primarily cash deals, we continue to really make all those offers out there in terms of leasing, rentals per click, et cetera. So the options that we put out there to the customer base are all across the board.
Operator: Our next question is from Matt Taylor of Jefferies.
Matthew Taylor: So I wanted to dig in a little bit more on the progress you made with the Nevro margins. It was really impressive sequentially. Could you talk about where you've been able to get the cost outs and drive synergies so far and what's yet to come just qualitatively?
Kyle Kline: Yes. Yes, Matt, this is Kyle. So I think one of the first places we started was really in R&D. And we took a look at the Nevro approach to R&D and our approach to R&D. And a lot of it was really just kind of focusing the team on specific projects, how do we run a project, et cetera, pretty much bring it under our specific approach to R&D. So from that, there was ancillary and redundant costs that we were able to take out of the R&D line. And then separately, SG&A is the other large one. And that one is really as you think about back-office staffing, right? Where do we need headcount in terms of finance, HR, legal, et cetera. There's opportunity there as well as thinking about some of those ancillary spends in terms of software, consultants, et cetera. Those are some of the big focus areas right out of the gate. As we look to try to move through the rest of 2025 and into 2026, as Keith mentioned, we want to start focusing on the cost of goods sold, how do we bring that gross profit up from the mid-60s up into the 70s as well as taking further looks at SG&A to say, where do we have further redundancies. I would say we've kind of started here in the back half of 2025, but we still have opportunity there when you think about that 50% SG&A margin.
Matthew Taylor: Can I ask one follow-up on gross margin? I mean you've talked about getting back into the 70s for a while here and making good progress. Is it still right to think you're going to have kind of gradual progress with maybe a bigger step up towards the end of '26 when you start to see some of the manufacturing improvements come in?
Kyle Kline: Yes. Ultimately, we won't guide to a 2026 number, Matt, but I think that's the right way to think about it in terms of the smaller sequential improvement. In my prepared remarks, I commented that for 4 sequential quarters, you've seen kind of that uptick in margin. I think the same thing continues as we move through 2025 and into 2026, ultimately with that goal of getting back to mid-70s gross profit.
Operator: Our next question is from Shagun Singh of RBC.
Shagun Singh Chadha: Congratulations on all the business momentum here. I'm hoping you can give us some directional color on '26. Maybe just walk us through the puts and takes. As I look at core Spine, really solid quarter this year, a very solid performance this quarter. And how does that translate into the upcoming quarters into '26? Nevro looks like it's improving. How do you think about growth for that business? Trauma, recon, is there opportunities into next year? And then EBITDA margin, you guys are already close to that mid-30s EBITDA margin that you guys have guided to longer term. So how does that translate into next year? So any puts and takes would be helpful.
Keith Pfeil: Thank you, Shagun. This is Keith. I'm not going to give you too much color going into 2026. I think the comments and feedback I would provide to you is right now, the spine market looks strong in the U.S. Our business is performing well, and we feel very positive about our Spine business. Our International business, we've talked earlier in the year having some challenges, which we feel that the worst of that is behind us. So we think -- I had said in my prepared remarks that I could see that business growing back to the 10% to 15% as we move forward. And when I say move forward, that's looking into the -- outside of '25 and into '26 and beyond. Our trauma business, we commented earlier in the year that we had some challenges with our precise manufacturing. I commented today that I see a lot of that behind us, and we're really getting back to fully supplying the U.S. as well as international. That, coupled with our legacy trauma portfolio, really getting to that point of having 80-plus percent of our competition's portfolio, that positions us well to grow. Our model still is going to be a density model. We focused on Level 1 and Level 2 centers. I had some previous comments on joints. So as I think about the structure of the business, we feel positive going into next year. And that's even more why we want to focus on closing down all the integration activities because we think that we have a lot of organic growth opportunities to drive this business forward. As it relates to Nevro, I don't want to get too far ahead of myself because the reality is that we're only a couple of quarters into owning the business. We still have a lot of work to do, but early signs are positive.
Shagun Singh Chadha: Great. Anything on the EBITDA margin, the mid-30s looks like you're already tracking there and there's more improvement ahead.
Keith Pfeil: I would say that I'm encouraged where we landed because if you remember when we announced the [ NuVa deal ] and the reasons back in February 2023, we talked about scaling the business, driving commercial outreach, having -- and I think that we've done that. Innovation in spine and ortho between both of the legacy portfolios as well as both in spine and ortho with their growing rods, I think we've done that. There's still been an enduring commitment to product development, and we want to be known as innovators. We've expanded our operational capabilities. We're continuing to in-source. Kyle touched on the 4 sequential quarters of adjusted [ gross ] profit growth and really getting back to the value creation. Synergies, we talked about $170 million. We have no reason to move off of that. And mid-30s EBITDA, we said over 3 years, we've gotten the Base business, the base Globus business ex Nevro to 35% here in the third quarter. Some of the parts and pieces are different. But from a profitability standpoint, we feel that where we're at as a business points us to a solid future because there's still more work to do. But our goal long term is to be in that mid-30s range. I'm not going to guide to that, though, for 2026.
Operator: Our next question is from Caitlin Roberts of Canaccord Genuity.
Caitlin Roberts: Congrats on a great quarter. So touching again on enabling technologies, I mean, what have hospitals really given as the reason for slower decision-making? And then as you launch more nimble solutions, you noted the navigation capability with the new XR headset. Could customers be receptive to these lower cost options to purchase instead of higher cost full robotic solution?
Keith Pfeil: This is Keith. So the first part of your question was focused on -- can you repeat the first part again?
Caitlin Roberts: It was really just what have hospitals given as the reason...
Keith Pfeil: Yes. A couple of things I would say is, one, we're at a place now where our robot solution has been out for several years. There's more competition that's hit the market. One of the things that we see is that hospitals are requiring surgeons to go through the review of all the offerings that are out there. I commented earlier that we still view our technology as best-in-class. But I think that has kind of elongated some of the deals, number one. Number two, as we think about how the year has progressed with some -- with things like the Big Beautiful Bill and how Medicare, Medicaid funding may change, that also, to me earlier in the year caused maybe a slowdown in how hospital spend. But as I think about what I've seen from hospitals, what I've seen publicly disclosed and just what I've heard anecdotally, hospitals are spending money on things like growing out ASCs or building new facilities that might not always be focused on surgical robotics. So if a hospital is devoting their money to other things, we want to be able to make sure that we're able to address the goal of getting our capital out there, getting it placed. So that's where we see things like operational leases taking a bigger portion of our business as we move ahead. Your second question related to XR. XR is just -- it's a goggles or a headset that XR needs to be coupled with our ExcelsiusHub. I said in my previous remarks, if a surgeon is looking for freehand navigation, a great offering is our ExcelsiusHub with XR as well as our E3D.
Caitlin Roberts: Great. And then just a quick one. As you move into further improvements for Nevro, I mean, how much of a risk do you think these changes could bring to the top line moving forward?
Keith Pfeil: Like I said earlier to the previous question that was asked, I don't want to get too far ahead of myself with projecting out Nevro into 2026 and beyond. We're still in early innings of the acquisition and working on integration. We're obviously mindful of the changes that we make to the business and how it may impact the business. But as we move forward into next year, we've taken a lot of the uncertainty out of the business, just simply alone on the financial condition of the consolidated Globus, and we want to get the business more focused on adding competitive reps. Those signs point to positives. But as we think about the changes that have occurred and the changes that still may occur, we want to be cautious with our comments.
Operator: Our next question is from Matthew O'Brien of Piper Sandler.
Samantha Munoz: This is Samantha on for Matt. If we also wanted to touch on the profitability this quarter was really impressive, both, I guess, in the Base business and Nevro. I guess can you speak to the, I guess, the sustainability of that? And Nevro specifically had a nice step-up this quarter. And I guess, what's the outlook or runway look like for that improvement going forward?
Kyle Kline: Yes. Thanks for the question, Samantha. This is Kyle. When you think about the profitability this quarter, right, it's really driven by a handful of things. One is U.S. Spine growth. So us growing 10% this quarter. That is a -- our most profitable business. So as that business grows and becomes a bigger part of the entire company, right, that ultimately will drive a higher level of profitability that we saw that helped lead to that 32% EBITDA and ultimately the $1.18 of EPS. The other was the synergy execution, both in Base business as well as Nevro as we brought them online. Ultimately, right, we're trying to set up the business in a way where we operate efficiently under our Globus practice and are able to drive and continue with the sales growth on top of that. So I think this is a good jumping off point for us as we move throughout the rest of the year.
Keith Pfeil: And just one thing I would add to that, going back to your question on Nevro, the EBITDA margin is impressive, but I think the thing that I focus on, and it goes back to some of Kyle's earlier prepared remarks is the free cash. When you think about where we were in Q2, we commented that the free cash burn was $29 million in Q2. To get to Q3 and having free cash flow of $8.5 million, that quarter-over-quarter change to me is more telling than necessarily an EBITDA margin because we're driving the business to generate cash because at the end of the day, you take dollars to the bank, not rate.
Operator: Our next question is from David Saxon of Needham & Company.
David Saxon: Congrats on the quarter. Maybe I'll start with trauma, at least the legacy trauma. So I think in one of the responses to a question earlier, you talked about that portfolio being around 80% of kind of the competitions, I guess, portfolio breadth. So do you think that's critical mass? Or do you need to be at parity and get to the full 100%? And kind of if so, like when should we expect you to get to 100%?
Keith Pfeil: I would say that we're at critical mass at this point. I think that at this point, when you think about our sales force and the products that we have, we can go effectively "pretty much anywhere." So we feel good about that in the legacy portfolio and our ability to drive the business forward. As we grow, we want to be focused on where we're growing because as you think about trauma and the set deployments, that's different than spine. So when you think about where your invested capital sits, you want to get yourself into the density model, like I had mentioned earlier, focused on Level 1 and Level 2 trauma centers that's going to turn your assets.
David Saxon: Okay. Yes, that's helpful. And then just on Simplify. So I think one of your competitors got a 2-level approval over the last couple of months. So just thoughts on that approval, what is a competitive 2-level approval to do Simplify? And then generally for the Simplify growth that you're seeing, I mean, is that disc share? Or is that expanding the market and maybe getting into ACDF.
Keith Pfeil: Well, I would say that as I think about Simplify and kind of share gains, I'd say that the share gains are -- there's definitely some share gain in there. But as I think about 2-level, we -- I believe we do have 2-level approval. Yes, we do have 2-level approval, but I don't really have any further comments on that at this point.
Operator: Our next question is from Tom Stephan of Stifel.
Thomas Stephan: Apologies if any of this has been asked, just jumping between calls tonight. But just on Nevro, already returned to on the top line positive year-over-year growth in 3Q on a pro forma basis. So I guess as we're updating our models, I mean, is it fair to think about positive year-over-year growth is durable moving forward?
Keith Pfeil: I would say that it's early to comment on that. Kyle commented on sequential growth, sequential positive growth between the second and third quarters. I think it would be early to comment on full year-over-year growth on a pro forma basis.
Operator: At this time, we're showing no further questions. [Operator Instructions] With no further questions, that concludes the Globus Medical earnings call. Thank you for participating. You may now disconnect.