Globus Medical, Inc. Class A

Welcome to the Global Medical's third quarter fiscal 2020 earnings call. At this time, all lines will be on mute, and the Q&A portion will be held after the prepared remarks. I now turn the call over to Brian Kern, Senior Vice President of Business Development and Investor Relations. Mr. Kern, please go ahead.

Thank you, Chanel, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Dave Demski, President and CEO, Dan Scavella, Executive Vice President, Chief Commercial Officer, and Keith Fowle, Senior Vice President 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 2019 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 Dave Denske, our president and CEO.

Thank you, Brian, and good afternoon, everyone. I'm very excited to report record revenue, record non-GAF EPS, and outstanding adjusted EBITDA for Q3. Not only are we seeing a healthy bounce back in surgical procedures, we are taking market share and growing. Revenue for the quarter was $216 million, up 10% from Q3 2019. Musculoskeletal Solutions increased by 14%, led by our U.S. spinal implant business, which grew at a stellar 17% in Q3. Revenue from enabling technologies was $9 million, up 66% sequentially compared to Q2, but down by $5 million compared to Q3 2019. To give some perspective on the enabling technology results, the third quarter is traditionally the slowest quarter for capital sales. However, last year we grew by 125% in the third quarter and posted $14 million in revenue, tying our highest quarter for the year. Given these challenging comps, the sequential improvement is more indicative of the health of this part of our business. As the economy opened back up in Q3, our capital teams were able to begin rebuilding their pipelines and moving deals along. Many of these deals closed in October, and we have actually sold more robots in October than we did for all of Q3. Non-GAAP EPS was 49 cents per share, up 15% from Q3 2019, matching the best quarter in our history. Adjusted EBITDA was also a healthy 35% for the quarter. These results highlight the lean, efficient operating philosophy built into our business. Our profitability was somewhat inflated in Q3 due to issues unique to the pandemic, such as limited travel, the elimination of most peer-to-peer cadaveric educational activities, and the change in industry conference participation to virtual events. On the flip side, the results also reflect continued investments in iron-iron trauma, which resulted in a drag of 9 cents on non-GAAP EPS and 6 percentage points on adjusted EBITDA. In other words, aside from iron-iron trauma, the rest of our business produced 41% in adjusted EBITDA on Q3. Our U.S. final implant business grew by 17% in the quarter. This team is firing on all cylinders. We've launched five new products in 2020 with continued strong uptake in the heat run line of 3D printed interbody spacers and Sable, our fourth generation expandable MIS Tilo spacer. As we alluded to last quarter, we have had to limit access to these products until we expand our 3D manufacturing capacity, which should be online this quarter. We also saw significant growth from Resonate, our new low-profile extreme angle anterior cervical plate that features automatic locking. In addition, we have resolved many of our supply issues in biologics, which grew by 16% in the U.S. during the quarter. Implant pull-through from robotics continues to be a source of growth. In addition to the ever-growing installed base, we have put a major emphasis on adoption and usage of X-Celsius GPS, driven largely by our implant sales team. Finally, we launched the X-Celsius GPS interbody module late in Q3, and are beginning to see increased interbody usage as a result. Competitive recruiting and onboarding continue to be a significant factor in taking market share. Onboarding revenue for Q3 was an all-time high, and recruiting is comparable to the record performances achieved in the last two years. Our international spine business was down by 1% for the quarter. While most markets showed very strong growth in the quarter, the overall results were dampened by countries experiencing upticks in COVID cases, namely India, the U.K., and Japan. Trauma continued its strong performance in Q3, growing 16% sequentially and 96% over Q3 2019. We continued to invest in this business with an aggressive sales rep expansion plan and several new products expected to launch in 2021. Revenue from enabling technologies was $9 million in the quarter. This part of our business was most impacted by the lockdowns earlier this year. Even when surgical volumes were low, our implant teams had a reason to be in the hospital, which gave them opportunities to call on surgeons. Territories for the capital team had much larger geographies, which require air travel, and they typically needed to set appointments to call on surgeons and executives. These aspects of the business were effectively shut down for the entire second quarter. While we attempted to maintain visibility and momentum via virtual events, it simply was not as effective in building pipelines. As the economy opened up, we have been able to resume the activities that lead to sales and are now seeing a robust pipeline emerge. As I mentioned in my opening, we have actually sold more robots in October than we did for all of Q3 and expect to produce year-over-year growth in enabling technologies for Q4. Surging interest and demand for robotic technology is strong and growing. On the product development front, we launched the Excelsis GPS Interbody Module in September and upgraded several systems. Early feedback on the technology has been very favorable. We also made great progress on the final development and validation activities for our imaging system and expect to file with the FDA in November. We are beginning to build units for an expected Q1 launch. Finally, as we reported last quarter, we received FDA clearance on the cranial module for Excelsior's GPS. We anticipate doing our first procedures in January. Overall, we had an outstanding third quarter in what has been a remarkable year for our company. I'm proud of the resiliency, determination, and grit the team has shown in the face of challenging circumstances. The U.S. spinal implant business is on track to achieve positive growth on a year-to-date basis by the end of this week. That in itself is an amazing accomplishment for a company our size, and it is our goal to achieve positive growth on a consolidated basis by the end of the year. Of course, that assumes no major COVID resurgence and continued excellent execution by our team, but it is certainly within our grasp. I will now turn the call over to Keith.