GMED - NYSE

Thank you for standing by. Welcome to the Globus Medical First Quarter 2024 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.

Thank you, Crystal, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Dan Scavilla, President and Chief Executive Officer; and Keith Pfeil, Chief Operating Officer and Chief Financial Officer. This review is being made available via webcast accessible through the Investor Relations section of the Globus Medical website at 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 2023 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.

Thanks, Brian, and good afternoon, everyone. Globus delivered a tremendous Q1 as we push into 2024, with sales of $607 million, growing 119% or $330 million. Non-GAAP EPS was $0.72, increasing 36% versus prior year, even with the 32% increase in outstanding shares driven by the merger. Adjusted EBITDA was 28% and free cash flow was $24 million for the quarter. Q1 is the first quarter where we integrated the Globus and NuVasive field organizations into 1 formidable team, rolling out new reporting structures globally, combining product portfolios to create best-in-class offerings to our surgeons, reorganizing support organizations, implementing common systems and begin to unlock synergies to drive future growth. Through all of this change, Globus launched 5 new products in Q1, and has set the stage for a record number of launches in the coming months. These results are a testament to our incredible team working tirelessly around the clock to drive integration, overcome challenges and create scalable solutions so that we can reach steady state quickly and shape the markets in which we compete. We will increase our focus on earnings per share and free cash flow over adjusted EBITDA in this and future earnings calls. While we remain committed to achieving a strong mid-30s adjusted EBITDA as we've been able to consistently accomplish for over 20 years, we feel that delivering sustained profitable growth, combined with strong and consistent free cash flow is the real measure of potential and shareholder value, especially for companies that have been in operation for several years. Moving into the performance of our business areas. U.S. Spine grew 100% in Q1 with notable gains across our product portfolio in expandables, biologics, MIS screws, 3D printed implants and cervical offerings. This above-market growth is driven by the strength of our combined product offering, competitive rep recruiting from prior quarters and increased implant usage through robotic pull-through. Competitive rep recruiting has significantly increased in Q1 '24. Now more than any point in our history, the most successful and tenured competitive professional reps are seeking to join our team. Competitive reps with over 10 years of tenure, once a rarity to recruit, are seeing the power and future we can offer them as a destination of choice for innovation and growth. 2024 has the potential to be a record recruiting year and is off to a great start. On the product development front, we continue to execute and introduce new products from our prolific R&D pipeline, launching 5 products this quarter. The combined GMED new product development team is beginning to hit its stride with meaningful collaboration in developing and launching new products, and we expect product launches to continue at an accelerated pace going forward due to improved internal development processes. I want to share these recent meaningful launches with you. The first products are DuraPro and VER

Thanks, Dan, and good afternoon, everyone. Our first quarter results point to a strong start in fiscal 2024, with sales and earnings growth, both exceeding expectations. Our team was and remains focused on executing against key integration objectives, namely sales retention and alignment, process standardization and synergy capture. I will focus my comments this afternoon on 1, Q1 2024 results; 2, provide updates on integration and synergy goals; and 3, comment on insights as to our performance for the remainder of 2024. Now turning our attention to Q1 results. Our first quarter revenue was $606.7 million, growing 119.3% on an as-reported basis and 119.8% on a constant currency basis over the prior year quarter. The Q1 GAAP net loss was $7.1 million, resulting in a GAAP loss of $0.05 per share. Our first quarter results were impacted by merger-related costs, restructuring charges as well as in-process research and development expense. Our Q1 2024 non-GAAP net income was $98.1 million, which drove $0.72 of non-GAAP diluted earnings per share. The non-GAAP EPS of $0.72 includes a onetime $0.06 favorable noncash adjustment, which I will comment on further when I provide my update on Q1 gross profit. Our first quarter non-GAAP net income grew 82.4%, while non-GAAP EPS grew by 36.4%. Excluding the onetime impact worth approximately $9.5 million, non-GAAP EPS grew by 25% compared to the prior year quarter. The primary drivers of growth are core sales volume increases, coupled with lower-than-planned sales dissynergies, the inclusion of NuVasive results and the realization of cost synergies, partially offset by a higher share count. To illustrate, our Q1 2024 share count was 135.4 million shares compared to 102.2 million shares in the prior year quarter. Our first quarter adjusted EBITDA was 27.5% and free cash flow totaled $23.8 million. Musculoskeletal sales in the first quarter of 2024 were $574.7 million or 128.4% higher versus the prior year quarter, driven primarily by the contributions from the NuVasive merger. On a pro forma basis, assuming NuVasive was in our prior period results, musculoskeletal sales grew 3.3% versus the prior year quarter -- of the prior year. Pro forma growth was driven primarily from our U.S. and international spine businesses as well as trauma products. Our first quarter enabling technology sales totaled $32 million, growing 27.5% versus the prior year quarter, driven primarily by increased sales of ExcelsiusGPS and our E3D system. The first quarter saw a return to more historical norms with the vast majority of transactions being outright purchases. The pipeline was strong coming into the quarter and remains so as we close Q1 and entered Q2. A focus of Q1 was driving further development of legacy NuVasive customers into the EGPS pipeline. We believe this cross-selling activity will set us up for future success as we push further into 2024 and beyond. First quarter U.S. sales totaled $482.9 million, growing 106.3% as reported. On a pro forma basis, U.S. sales grew 2.8%, led by growth in U.S. Spine, Trauma and enabling technologies. International sales were $123.7 million in the first quarter of 2024, growing 190.7% as reported. Looking at international revenue on a pro forma basis, sales grew 8.1%, led by spinal implant growth in key focus countries, including Spain, Italy, Belgium, Ireland, Germany, Saudi Arabia and Poland. GAAP gross profit in the first quarter was 60.2% compared to 74.4% in the prior year quarter. Consistent with the prior year, the decrease in gross profit is largely associated with the NuVasive merger, namely step-up amortization. Excluding the impacts of step-up amortization, adjusted gross profit was 69%. Included in adjusted gross profit is a onetime favorable noncash adjustment to depreciation expense worth approximately $9.5 million, impacting non-GAAP EPS by $0.06 and adjusted gross profit by 1.5%. This relates to a purchase accounting measurement period adjustment of the useful lives of assets acquired through the NuVasive merger. Excluding this onetime impact, adjusted gross profit would have been 67.5%. The decline in adjusted gross profit versus the prior year quarter is driven by the inclusion of NuVasive in our consolidated results, partially offset by cost synergy actions, which I will discuss later in my prepared remarks. Consistent with my comments during our Q4 earnings call, we still expect full year adjusted gross profit rate to be in the mid- to upper 60s for the full year 2024. Research and development expenses for the quarter were $57.3 million or 9.4% of sales, which includes a $12.6 million charge related to the acquisition of in-process research and development. Excluding the IP R&D charge, research and development expenses for the quarter would have been $44.7 million or 7.4% of sales compared to $21.1 million or 7.6% of sales in the prior year quarter. The increase in spending is again driven by the inclusion of NuVasive in our results, partially offset by cost synergy actions taken during the quarter. The acquisition of IP R&D during the quarter is a testament to our commitment in seeking out new technology and innovation, which aligns with our mission and go to market. We applaud our internal teams in driving this forward, while the business remains focused on achieving its merger integration objectives. For the full year, we still expect R&D expense to be in the range of 7.5% to 8%, consistent with prior comments. SG&A expenses in the first quarter of 2024 were $248.7 million or 41% of sales compared to $122.4 million or 44.2% of sales with the increase being driven by the impacts of the NuVasive merger, partially offset by cost actions taken. Our continued expectation for 2024 is that SG&A expenses will improve 1 to 2 percentage points over full year 2023 SG&A expense. GAAP restructuring costs incurred during the first quarter of 2024 totaled $19.1 million and non-GAAP restructuring charges totaled $6 million in the quarter compared to 0 in the prior year quarter. The costs incurred relate primarily to workforce reductions as well as facility and lease termination costs. Net interest expense during the first quarter was $1.9 million compared to interest income of $6.5 million in the prior year quarter. The decreased net interest income is a result of a lower cash balance, driven by the paydown of the former NuVasive line of credit at merger close as well as interest expense from the senior convertible note. FX loss during the quarter totaled $15.4 million compared to the prior year quarter. $11.2 million of this FX loss relates to a noncash acquisition-related impact associated with a former NuVasive deal prior to the merger. The GAAP tax rate for Q1 2024 was 16.8% versus 22.3% in the prior year quarter. The reduced tax rate for the quarter was driven by a combination of lower GAAP pretax profits as well as discrete items, predominantly the IP R&D acquisition during the quarter. As we look further into the year, we expect our non-GAAP tax rate to be approximately 23% for the full year 2024. Moving over to cash and liquidity. Our cash, cash equivalents and marketable securities were $485.7 million at March 31, 2024. We did not have any short-term borrowings against our line of credit and our only long-term debt consists of the 0.375% senior convertible notes due in 2025. Our intent remains for the used notes to be part of our capital structure until they are due to be settled in March 2025. Q1 net cash provided by operating activities was $52.4 million and free cash flow was $23.8 million. We expect a temporary impact to operating cash flow as a result of higher accounts receivable balances driven by our systems integration and the resulting U.S. go-live. We note this as a temporary delay, which will impact the first and second quarters and be reflected as a higher working capital investment in accounts receivable. We have no concerns regarding collectibility and view this as a temporary systems go-live impact. Capital expenditures during this quarter were $28.6 million or 4.7% of revenue. Our full year expectation remains that CapEx will be in the range of 5% to 6% of sales. During the first quarter, we spent $83.3 million to repurchase approximately 1.6 million shares of our Class A common stock. Since the merger with NuVasive closed on September 1, we have spent approximately $308.9 million to repurchase 5.9 million shares of stock. To put this into context, this share repurchase equates to approximately 15% of the dilution created as a result of the stock-for-stock merger. This demonstrates our continued belief in this deal and our conviction to drive a successful outcome in bringing these 2 great companies together further separating ourselves from the competition. We have $191.7 million remaining on our authorized share repurchase program. Turning our attention to integration and synergies. Significant progress was made during the quarter on driving cost synergies. We again reaffirm our commitment to achieving $170 million in cost synergies and have fully acted upon actions, which will result in our achievement of realizing 40% of that total figure or $68 million during 2024. Operationally, approximately $12 million will favorably impact gross margins in fiscal 2024 and are predominantly the result of supply chain efficiencies, namely contract renegotiations and facility consolidations. The remaining $56 million are expected within OpEx and will be primarily achieved through actions around headcount reductions, as well as discretionary spending through the rollout and implementation of revised spending policies, systems consolidation and a reduction in third-party consulting expenses when compared to pro forma legacy spending of the combined organizations. As we think about next steps, we are now turning our attention to driving manufacturing and material cost reductions. This will be achieved through an examination of processes, manufacturing insourcing, material cost renegotiations and cross-training of our manufacturing facilities to expand production of both legacy Globus and legacy NuVasive products at all locations. This will drive enhanced efficiencies while also creating a stronger supply chain to prevent potential future manufacturing disruptions due to this cross-training. We expect actions to be taken in 2024 and 2025, which will drive P&L savings later in 2025 and 2026. Lastly, I'd like to make some brief comments on our performance for the remainder of the year. As a result of our strong first quarter and continued growing confidence, we are updating our previously provided guidance. We now expect 2024 net sales to be in the range of $2.46 billion to $2.485 billion, and our fully diluted non-GAAP EPS to be in the range of $2.75 to $2.85 per share. Our revised net sales guidance implies 2.7% to 3.7% growth over pro forma 2023 revenues, totaling $2.396 billion. As commented on last quarter, our revenue guidance includes the impact of a potential $150 million revenue dissynergy as a result of the merger. Though our confidence level increases the further we move into 2024, we remain appropriately conservative in our projections as we see the year further develop. The revised non-GAAP EPS guidance implies 18.5% to 22.8% EPS growth over the prior year non-GAAP EPS of $2.32. Our revised guidance includes an estimate of approximately 137 million shares for the full year. My closing comments will be brief. We are thrilled with our strong first quarter performance and are extremely confident in delivering against our commitments for the year. Dan and I both touched on our Q1 achievements and our commentary should leave you with our steadfast commitment to driving execution, not only on the merger integration, but also on driving new product launches, expanding our sales force, and achieving further penetration of Excelsius products, while continually driving expansion further into the musculoskeletal market to achieve our mission. All of this will be done in a financially responsible manner, consistent with the Globus history of driving strong profits and free cash flow while maintaining a strong balance sheet. Thank you to the entire Globus team for their tireless efforts in driving this tremendous Q1 progress as we continue to achieve our mission of becoming the preeminent musculoskeletal company. Operator, we'll now open the call for questions.

[Operator Instructions] Our first question comes from the line of Matt Blackman of Stifel.

Keith, I heard you say qualitatively that you saw, I think, lower dissynergies in the first quarter and then you sort of talked to the original dissynergy number. I'm just curious, you didn't lower that number, that $150 million number. But should we take the fact that you bumped guidance by about $10 million as a reflection of maybe dissynergies in that magnitude being lower than you expected? Just any way to help us think through the dissynergy number and then a follow-up.

So it's a great question. And I would say we called out the $150 million because we wanted to level set, that's what we commented on last quarter. But coming out of this first quarter, we were really pleased with the performance. And to your point, we did pick up full year revenue guidance. So it really goes back to what I said earlier. The further we get into the year, the more confident we're feeling, but we are still applying some appropriate locus conservatism.

And Matt, what I would build on to that is we're raising it because of the performance throughout the business. While we called that $150 million out, that was primarily U.S. Spine and a little bit of international, but the raise reflects the strength throughout all of our business here.

And the other important thing that I would raise is that as you think about the last time we got together to talk and give you an update on Q4, we haven't seen any material, what I would say, rep reductions or anything like that, that would cause us to believe that the situation was going the other way. We remain positive and confident as we finish Q1.

That's really helpful. I appreciate all that color. And I guess the follow-up, you did mention maybe getting after the evasive Excelsius cross-selling opportunities in the second half of the year. I guess, so the first part is, is that still contingent or not on getting approvals for the implants on the robot? And then I guess the other question is, how do we think about that opportunity set? I mean we've done some work. It seems like a really big number of potential NuVasive accounts that don't have a robot. But it also seems like a very distinctly unique opportunity set from perhaps some of your competitors that may be coming later this year or into next? Just any way you could think -- you could frame the opportunity for us on the cross-selling side of selling the robot into NUVA accounts.

Matt, it's Dan. So listen, one of the premise that we talked about when we did the whole merger was the fact that we would rapidly grow our sales force and our customer base. In fact, significantly accelerating what we've done through our usual competitive recruiting. So this was a leap forward with the intent for us to not only build the best bag of existing products, but to actually open up these new accounts for us as Globus for enabling technology. We've made moves already to bring Reline with guided instruments and those appropriate implants onto the robot. We're working through that and should have that ready for the second half of the year. And we're making sure that, as I mentioned in my comments, our reps are trained with hands-on and know and are very familiar with this technology to further help accelerate that in, in the second half of the year.

Our next question comes from the line of Shagun Singh of RBC.

This is Kendall on for Shagun. Congrats on a nice quarter. I have 1 quick question on upcoming spine robots coming to the market. I know there's potentially 2 new competitive spine robots coming into the market from larger market players, and 1 of them has been a major share done over the last several years. How do you expect the new system to compete in the market and especially against your client robot? And what do you think of implant share dynamics as these companies have a better ability to defend their position in the market?

Ken, it's a tough 1 to answer through. I would tell you that we're focused more on the fact that we do have the best enabling technology. And we have a pathway to do this through the merger that we've set up. We're going to stay focused on that and drive into a relatively new market that has very low penetration in total. But we feel like we're best poised to continue with the cadence we have and actually increase the velocity. We've always recognized the competition would someday come and may someday come. That's not a deterrent for us to stay or change anything. We're going to remain on course with our heavy investments, our focus and belief in our sales team and the ability to get in and get the best technology in the surgeon's hands.

And the only thing I would add to that is, I think we're extremely well positioned to compete here because we still feel we have a best-in-class robot. But more importantly, the thing to think about here is that we're still investing in our product line from an implant perspective. So as we think about coming to market, we're coming to the market with some robots, we're continuing to invest in implants and R&D. And that really gets back to some of the core reasons we wanted to bring these companies together because we still believe that we're working to drive innovation and moving the business forward with our product portfolio innovation.

I'm just going to add 1 thing to that, too, as you heard me announce DuraPro and the VER

And then I just have 1 quick follow-up. What are you seeing from the capital spending environment in Q1? And what have you seen in the early parts of Q2, especially I have a couple of questions also about have you seen more upfront sales? Or are you seeing more leases on that side?

So thanks for the question. So the capital environment remains robust. Our pipeline coming out of Q4 into Q1 was strong, and we felt the same way coming out of Q1 into Q2. I commented on the fact that really during the quarter, not only did we close the deals that we did, we're really starting to bring together that pipeline of the former invasive customer. And I also commented on during the quarter, we saw more of a return to normalcy where the vast majority of our sales in the first quarter were outright purchases.

Our next question comes from the line of Matt Taylor of Jefferies.

I just wanted to ask about the guidance raise on the top line. And I guess, why you didn't raise by as much as the strong beat that you had in Q1, is that conservatism? Or is there anything else that you're considering there?

Thanks for the question. This is Keith. Yes, I would say that it's conservatism. I mean, we came out of the quarter extremely thrilled with where we landed. But as we look into the year, it's still early. We're still -- we just closed the first quarter. But like I said earlier, there's nothing right now, it leads me to believe that my enthusiasm shouldn't change as I look ahead.

And Matt, I would tell you, if you look at us historically, we do not usually raise on the first quarter no matter what our results are, but we're sending a signal as to our belief here by putting this out.

And just a follow-up. You mentioned this could be a record year for hiring, which may surprise some people. Maybe just talk about how that's evolving and when we would start to see that matriculate.

I don't know if it would be any different than the norm with that is we have a lot of interest coming at us proactively. And again, you've got a great team who goes out as well and seeks out those type of things. And so I would tell you the portfolio of active recruits is stronger than I remember seeing in recent history. The folks that we've onboarded in the first quarter would be a record. I'm not going to reveal that amount. And like anything, you make sure that they get onboarded properly, you adhere to all contractual obligations. And what you usually see from these is a lift in the current year and then a stronger 1 in the second year and you kind of level out in the third year. I would think we would follow that course. The signaling of this is the fact that we're saying that it's a precursor to what we believe can be a strong year in the second half and into next year.

Our next question comes from the line of Ryan

Congrats. Nice to see. That's proven some doubters. I want to start with gross margins, actually, Keith. It looks like you guys are sequentially really improving gross margins. I know there was a onetime benefit in there. But just talk to me about kind of behind the scenes, you talked a little bit about consolidating vendors, enhancing manufacturing. How long does this kind of take you to work through? When do we really see those benefits. And to your guidance language, Keith, I think last quarter, you said about 65% to 70% for guidance for gross margins. And now you kind of said around high 60s, if I'm not mistaken. So just want to understand kind of your thinking specifically around the gross margin cadence for this year and as we move into '25.

Thanks, Ryan. It was a great question. So my messaging on mid- to high 60s gross margins for the quarter is -- for the year is consistent with what I communicated last quarter. But as you think about kind of where we're at, the things that we look to knock off quickly was getting the U.S. system done, driving standardization from a warehousing perspective, and going out and renegotiating contracts for things that impact supply chain around freight, things of that nature. The in-sourcing and contract renegotiation to expand manufacturing takes a little bit longer. So one of the things that you have to drive is you have to drive first bringing -- or buying additional machinery and equipment. We've taken actions to do that. Those machines have to get delivered, get put online, that puts you into the second half of the year. You're going to start producing as you get into Q3 and Q4, as well as Q1 and Q2 next year. So that basically is going to show first in terms of where you're in-sourcing, you're going to see inventory step up. But you're not going to see that roll through the P&L until it pushes through the P&L. That's why I had the comments of you're not going to see that until you get into 2025 and 2026. But the actions that you're taking are actions that we've been very aggressive with to date. I also commented in some of my earlier statements about just really focusing on spending. As we think about getting everyone commonized around 1 approach, One of the things that I would expect to see is more of what I call legacy Globus approach to spending and really kind of sweating a lot of the costs that are out there. Those are all things that are going to help us really improve the gross margin but the big savings to us doesn't occur until really in to get into next year.

And then, Dan, 1 for you. I was at AA&S, I got to the Excelsius Hub, some of the power tools, it was nice to see. This feels a little bit like an extension on the margin away from spine maybe into some more of the core neurosurgery. You guys have kind of had outward pushes in the past and imaging and trauma and just curious -- kind of understand your view of where you want to go with the business and not to downplay the combined spine business, but it does feel almost if you're pushing our way away from core spine. And I would appreciate your thoughts on kind of the longer-term vision.

Thanks, Ryan. Look, 1 thing we've always said and we'll continue to say is while we look to become a musculoskeletal technology company, meaning that we'll go out into all those areas. We recognize that we will always be predominantly spine, and we never going to lose focus of being spine with what we do. These things can all enhance spine, but they also have other applications. So even to the power tools you refer to the fact that they're applicable to orthopedics, trauma, cranial, those things help a lot. And even the hub itself, again, that can help in different areas. But again, also as applications to ASCs or in other things within the spine, and I think at the end of the day, if you keep in mind that the -- even the capital that we're doing is all about driving the core spine and creating those and standardizing procedural solutions that we do. So I would tell you, we're not trying to move away from this or signal anything with spine other than we're all in. But we have opportunities to take great technology beyond those borders and that's what we're doing.

Our next question comes from the line of Steve Lichtman of Oppenheimer & Company.

I guess the first question, as we look at the U.S. Spine business, as you look at that sort of low single-digit pro forma number, how much in dissynergies would you sort of peg through in the first quarter itself?

Steve, I'll take that. We actually probably won't disclose that. I mean, there's always different areas where things are going good or not with the area overall. But I would tell you it's kind of tough to tease through what that would be to give you a whole number with it. I mean, so I don't really have something I could honestly give you and say, I know for certainty here's what it is. At the end of the day, we're just looking for growth everywhere, and we've put a lot on the U.S. team in particular. And so there's a level of distraction when you've created a new team with new products, with new folks, with new procedures with a new system. And I think that's really what we're looking to do with this. But I really don't have a number that I could say with certainty, here's what's driven from a dissynergy impact.

And then just a follow-up on your comment about shifting the dialogue from -- from adjusted EBITDA and more towards EPS and free cash flow. On the latter, can you level set us on what your expectations are for free cash flow this year and then over the medium term, whether talking about on a free cash flow conversion basis or on an absolute dollar basis? I appreciate, Keith your comments about AR in the first half.

Yes. So I think the way to look at this -- thanks for the question, first off. If I look at fiscal '23, I want to say we generated, give or take, $180 million of free cash. The way I think about that over the longer term is we also identified $170 million of synergies. So you kind of put those 2 numbers together, that's where you kind of see yourself going over the long term. Near term, the focus is on really driving cash savings that are going to contribute to EPS. So I would again look at last year and think about some of the things that I commented on related to the synergies that we realized this year.

Our next question comes from the line of Vik Chopra of Wells Fargo.

This is Simran on for Vik. Congrats on a great quarter. Maybe just starting off on the robotics side. I don't think I heard a latest update on the Recon robots. So what are the latest time lines there?

That's a great question. Thanks for asking. We actually filed the recon robotics with the FDA. And so we're at a stage now where we're waiting approval. What we're doing while we're waiting approvals, we're building inventory, getting ready to roll it out. So we're always waiting for the FDA. I don't have an exact date I could give you. My thought would be the second half of the year, probably towards the later part of the third quarter is really what we're looking for. But that remains, again, beyond the power tools. So one of the most exciting things I think we'll get out the door this year.

That's great. Very helpful color. And maybe just how should we think about growth in your Enabling Technologies business in 2024? And how are you thinking about seasonality across that business?

I think that the growth -- I mean, the growth is going to be consistent with bringing the NuVasive business into the fold. I mean, the seasonality of the pipeline doesn't really change. We still expect Q2 and Q4 to be the key drivers, but from a growth perspective, you would expect to convert some of the legacy NUVA customers into that EGPS portfolio, our Excelsius portfolio and drive the business going forward. I mean when you think about the robot, you have E3D, and then you have new products coming. So the cadence for that business in terms of long-term growth should be very positive. I know you'd expect it to grow at a higher rate than the overall business.

[Operator Instructions] Our next question comes from the line of Craig Bijou of Bank of America Securities.

So I wanted to start with your comments on the integration going better than expected. And maybe Keith or Dan, just trying to understand when you guys may feel more comfortable either taking down that [ $150 million ] number or that you're not going to see -- or essentially that you've kind of moved past some of the potential disruption areas with the integration of the sales force.

Craig, my first thought was December 31. But what I would tell you is, again, as we get through and get the cadence going, I think you'll see us get more comfortable. We're really happy with where we are for the first quarter. I would think we're going to feel the same way for the second quarter. But again, you just don't know. So we're trying to be responsible to the shareholders and make sure that we get through these phases. But personally, I would think that deep into the third quarter is when I personally will feel better.

And I would agree with Dan. As we get through the year, we remain positive with where we're at so far here entering the second quarter. I would feel probably most comfortable as we get through the third quarter.

Got it. That's helpful. And as a follow-up, on the enabling tech, obviously, the revenue is -- pretty good revenue, very good, one of the highest quarters you guys have ever had, and you typically don't see that in Q1. And I know you've talked a little bit about it, but -- what are some of the drivers? Are you seeing more adoption by surgeons using robotic technology and that's kind of driving the capital acquisitions by hospitals. I mean anything that you're seeing kind of on the ground that may be pushing robotics a little bit more -- a little bit deeper within Spine?

I would say the answer to that is yes. I mean as we think about the last couple of quarters, one of the things we consistently saw was even when we were just still stand-alone Globus, the pipeline was strong, and the pipeline has remained strong. There's a lot of interest. The capital sales force is very active in their accounts, not only on Excelsius, but also E3D. And as we look forward, you're bringing in those NuVasive customers. The deals haven't closed yet but the pipeline for the new -- the legacy NUVA customer is now adding to the legacy Globus pipeline. So as we look ahead, we see a lot of positivity in having that business grow in the next couple of quarters.

And Craig, I would just add that I think the market has moved through its curve, it's adoption curve. And you've gone past the early adopters at this point, these technologies are proven. And so there is more willingness for surgeons to actually use this as well as hospitals to bring it in as something that they feel is a benefit to the patients. So I think that we're moving along that maturity curve for people willing to use it.

Our next question comes from the line of Caitlin Cronin of Canaccord Genuity.

Congrats on a great quarter. Just to start off, have you begun to think about discontinuing any redundant product lines and in that vein and kind of towards the enabling [ tech team ] as well. What about PULSE? Any updated color and updated plans for this product as well.

Caitlin, thanks for the question. So we'll take it into 2 pieces. No, we've stated openly that we are not going to proactively drive SKU or product rationalization. We're going to offer everything out to customers. And I think over time, customers will migrate a certain direction that we will follow. I don't feel like I'm in a position to prescribe to surgeons what products they can use. I think we have to stay focused on what they need for their own goods. So that piece will continue on the path we are, which is no planned rationalizations. Enabling tech over time, always has different purposes that we can look at. So again, we don't have anything we would state today that we feel like we're going to obsolete or replace or pull out at this given time. I think PULSE has a great step forward. There's a lot of applications globally that we're looking for it now. We're fine-tuning some plans. We've made it clear that we're going to integrate it into our enabling technology offerings and use some of these capabilities going forward. And as we build further strategies, we have a feeling that there's a good place for this long term. I don't think it will be a major growth driver of us, but I think there are things in it that can help us further penetrate the market.

Awesome. And then just a quick one. Any updates on the timing for the augmented reality headsets.

I would say still back half of the year. That's one where we need to get that filed and approved through. We feel good about it. We're ready to do it, but it's in queue right now just to get through our processes.

Our next question comes from the line of Matthew O'Brien of Piper Sandler.

This is Phil on for Matt. Congrats on the great quarter. Just for starters on the EBITDA and EBITDA margin. One quick clarification point. Does the [ 1.665 ] number include the onetime adjustment of $9.5 million. And I guess just bigger picture. You said in the past that on year 3 post the closing, you'd be back in the kind of mid-30s as far as EBITDA margin goes. So a lot of leverage that you're expecting over the next, I guess, 3 years to get it to just even 33%. So just talk about the confidence in getting back to that mid-30s EBITDA margin.

I want to make sure I understand -- I understood the first part of your question. You said the $9.5 million, was that included or excluded?

Yes, in the EBITDA.

Yes. That was depreciation expense, so that would not be part of EBITDA. So that would not be in the results for EBITDA or adjusted EBITDA. As we think about longer term getting back to mid-30s, we believe that we can absolutely get back to mid-30s. You're going to see cost leverage occur with the business as you drive the synergies forward. And you're going to still expect to drive sales growth. I mean our intent here, this year is, as Dan stated earlier, a little bit of a transition from the standpoint of bringing the sales forces together and driving disruption. But as you look ahead, the goal is to get back to the high single-digit growth as a combined organization, that will help drive additional cost leverage on top of the cost savings to get you back into that mid-30s range.

Yes. And Phil, I'll just add into it. I feel pretty good with this. What we're saying through our script and through our answers, we're investing everywhere that we need to invest to bring these to reality. We have the capabilities of doing this, whether it's machines or in-house manufacturing or renegotiations of some of our services or even third-party activities for some of our instrumentation. Everything is in play that would take us on the path. And I think both Keith and I feel really confident that we have multiple path laser levers to get us up into the ranges where we want to be.

That's helpful. And I guess just my last question. As it pertains to stock purchases in the quarter, curious to get your take if that was more opportunistic given where the stock price is at or more ongoing? And then how that impacts your ability to do any tuck-in M&A, which you've called out as a priority in the past.

Yes, I'm going to answer that one, too. So the answer is a little bit of both. But we're absolutely taking advantage of what we feel is an undervalued stock, and we're going to take that back and remove some of the dilution we created, and even add more earnings per share power as we go forward in the future. I think that's one of the strongest things that we're doing here is using a strong cash flow to take advantage of something that we think has been overdone so that we can actually benefit from it over the long term.

And as it relates to tuck-in acquisitions, as I look at where we're at right now, the business is generating strong cash. We're sitting on still a large cash balance, the business is generating profits. And as we look ahead, we're really not limited by our balance sheet to go do tuck-ins. We have ample cash on hand plus we have an untapped line of credit should we want to do anything. So I don't see that limiting us as we look at tuck-ins moving ahead.

Our next question comes from the line of Richard Newitter of Truist Securities.

This is [ Ravi Misra ] in for Rich. So I guess I had questions on the robot, both the current and potential future robot that's coming to market. Could you maybe -- on kind of Excelsius, could you help paint a picture maybe around utilization in terms of what you're seeing with accounts that have now had this for a few years versus new accounts and where things can go for new placements? And then around the future robot, I believe I heard you say that you're kind of contemplating inventory build right now ahead of approval. How should we think about the impact to gross margin once sales begin post approval?

So Ravi, I'll answer that. So let's start with the latter part of that is the ortho robot coming out. Again, I think what that will be is in a different marketplace that will allow us to have more volume ramp-up of our implants of knees and hips. And so I think that there'll be a benefit there to the overall business that we look at that way coming forward. I don't see it as any type of significant degradation on where we're going pressure-wise along those lines. If you get back to your first part of the utilization for the Excelsius Spine robot, obviously, it's different in different accounts with different needs. But what we've seen is a growing strength and growing usage, there are sites that have multiple robots at this point and not just 1 or 2 sites, but several where they build this in and really integrate it and get enough usage that they need more than 1 or 2 or even 3 in some cases. So we are really seeing a lot of activity of high usage and sites that are buying multiple robots at this point.