Globus Medical (NYSE:GMED) has been experiencing robust demand for its Musculoskeletal Solutions products, driving the stock’s performance.

The company delivered strong results in the first quarter of 2023, surpassing earnings and revenue expectations. Notably, organic revenues witnessed impressive growth in both the United States and international markets. The Excelsius3D, the latest addition to the Excelsius Ecosystem, has garnered significant market interest and customer demand, positioning it as a major growth driver for 2023.

The Spine segment recorded a remarkable 14% growth in the quarter, benefiting from gains across the company’s product portfolio, including expendables, biologics, MIS screws, 3D printed implants, and cervical offerings. This above-market growth can be attributed to competitive rep recruiting from prior quarters, robotic pull-through, and normalization of post-COVID procedures compared to the previous year’s performance. Additionally, Globus Medical introduced the MARS TLIF pedicle-based retractor in the first quarter, focusing on procedural efficiency and offering specialized options to meet surgeon preferences. The company also made significant progress in launching its prone lateral patient positioning system.

Enabling technology sales witnessed an impressive 91% improvement on a constant currency basis, primarily driven by robotic and imaging system sales, marking the company’s highest first-quarter robot sales. Moreover, significant international gains of ExcelsiusGPS in EMEA and Asia Pacific have led to future implant pull-through and strong market share gains. The company has seen accelerated growth in robotic procedures, with a 51% increase from the prior year, surpassing 49,000 robotic procedures performed by the first-quarter earnings call.

Regarding the acquisition deal with NuVasive, Globus Medical aims to capitalize on the complementary strengths of both companies. Combining the engineering expertise of Globus Medical with NuVasive’s relations, education, and training, GMED anticipates outpacing market growth, leading to accelerated EPS growth and increased cash flows for investors. The all-stock structure of the deal preserves cash to reduce the company’s leverage and accelerate investments in assets to fuel growth. This strategic combination leverages GMED’s complementary commercial organization and is expected to accelerate globalization strategies, enhancing customer reach and strengthening surgeon relationships.

A strong solvency position is an added positive for the company.

However, there have been delays in the planned merger with NuVasive due to an SEC request from the U.S. Federal Trade Commission regarding the Hart-Scott-Rodino (HSR) filing. As a result, the expected close of the merger has been pushed to the third quarter of 2023 from the initial mid-2023 timeline.

On the operational front, escalating expenses have put pressure on the operating margin, with SG&A expenses in the reported quarter rising by 21.5% from the year-ago period. This increase was primarily driven by higher personnel-related expenses, including sales compensation, and higher meetings, travel, and training expenses. Consequently, the adjusted operating margin contracted by 55 bps in the quarter to reach 22.5%. Additionally, the company faces stiff competition and pricing pressure, posing challenges to its profitability.

Moreover, the musculoskeletal devices industry faces intense competition and challenges related to third-party coverage and reimbursement practices. Management expects continued pricing pressure in the future, which could impact profit margins and hinder the company’s ability to invest in business growth.

Over the past year, shares of Globus Medical have underperformed its industry, with a 5.9% rally compared to the industry’s 6.6% rise.

Despite challenges, Globus Medical’s focus on innovation and strategic initiatives positions it for continued growth and success in the musculoskeletal devices market.

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