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.

Thanks, Dave, and good afternoon, everyone. Though we continue to navigate through uncertain times, Globus delivered an exceptional third quarter performance, demonstrating strong market share growth while seeing a return of elective procedures. As we've progressed through the pandemic, we've remained focused on competitive recruiting and onboarding, a continued investment in R&D to drive new and exciting product launches, the contributions from those new products, and a focused approach to selling our Excelsis robot. These objectives, coupled with our focus on execution, have proven successful and are evident in our Q3 results. We remain well positioned to continue driving above market share gains as we look to the future. Overall, our Q3 revenue was $216.1 million, an increase of 10.1% as reported with the same number of selling days in the U.S. and international, but one less selling day in Japan. Third quarter net income was $44.2 million, up 15.4% over the prior year third quarter. Non-GAAP net income was $49.1 million, driving 49 cents of fully diluted earnings per share, representing 14.9% growth over the prior year. Adjusted EBITDA was 34.8%, and our free cash flow was $35.9 million. Turning our attention to sales, our third quarter U.S. revenue was $182.1 million, or 11.9% higher than the third quarter of 2019, driven by the strong bounce back of U.S. spine, partially offset by lower INR sales due to the lingering impacts of COVID-19. Our U.S. spinal implant business showed great momentum in the quarter and continues to drive above-market growth as we drive further penetration. International revenue for the third quarter was $34 million, higher by 1.4% over the prior year quarter. The performance of our spinal implant business varied by region, showing strong growth within Spain, Australia, Germany, and Italy. However, we continue to see ongoing COVID impacts in Japan, the UK, and India. Our third quarter gross profit was 73.6% compared to 76.9% in Q3 of 2019. The decline in gross profit was due to higher inventory reserves. Adjusting for that impact, gross profit would have been 75%, and consistent with my comments last quarter, noting that we expected a mid-70s gross margin as revenues returned to pre-COVID levels. Research and development expenses for the third quarter were $14.4 million and 6.7% of sales, compared to $14.5 million and 7.4% of sales in Q3 of the prior year. During the year, we've continued to maintain our high level of investment. We expect our R&D expense to run approximately 7% of sales looking ahead, which is inclusive of continued significant investments in our INR and trauma businesses. SG&A expenses for the third quarter were $89.2 million for 41.3% of sales, compared to $88.5 million and 45.1% of sales in the third quarter of the prior year. The increase in spending is reflective of higher sales compensation due to the increased sales volume, but is offset by expenses, lower expenses, related to travel and training. While travel and training expenses increase sequentially from Q2 to Q3, they are still lower than the prior year, driven by the continued impacts of COVID-19. The impact of lower travel and training is worth approximately 150 basis points in SG&A. We expect these expenses to rise in the fourth quarter, but not return to pre-COVID levels until sometime in the first half of 2021. Our effective tax rate for the quarter was 16.8% compared to 18.1% in the third quarter of 2019. This slight decrease year-over-year reflects the favorable tax impact of stock option exercises in the current year period. Looking ahead, we expect our 2020 full-year tax rate to be approximately 21%. Adjusted EBITDA margin for Q3 was 34.8%, well above our Q2 margin of 14.7%, and 137 basis points ahead of our Q3 2019 adjusted EBITDA margin of 33.4%. It is worth noting that included in our Q3 adjusted EBITDA, our total INR and trauma investments were at 610 basis points. Our results demonstrate the lean, efficient operating philosophy contained within our business culture, while also highlighting our strategic approach to investing in worthwhile initiatives. Looking ahead to 2021, we expect to deliver an overall mid-30s adjusted EBITDA range, assuming no major recurrence of COVID-19. We ended the quarter with $685.2 million of cash, cash equivalents, and marketable securities. Net cash provided by operating activities was $53.2 million, and free cash flow was $35.9 million. Our free cash flow is $7.9 million lower than Q3 of 2019, driven by the deferral of our federal income tax payment from Q2 to Q3 as a result of the CARES Act, which we commented on last quarter. On a year-to-date basis, our free cash flow is $69 million, or 10% higher than our year-to-date free cash flow in Q3 of 2019. I highlight this given the fact that we've been able to grow our free cash flow year-over-year despite the impacts of COVID-19 and and our commitment to continue investing in inventory. In Q3, we did not repurchase any of our Class A common shares in connection with the previously authorized and announced share repurchase program. Consistent with last quarter, we currently have $95.3 million remaining on the original $200 million authorization. The company will fund the share repurchase with its operating cash flows. As I conclude my comments, I'd like to take a moment to recognize our Globus team members for the strong third quarter. Our results continue to reflect the spirit and can-do attitude of our employees. As Dave mentioned, we look forward to closing the year on a strong note and hope to be able to drive overall year-over-year sales growth, assuming no major resurgence of COVID. We will now open the call for questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Our first question comes from Matt. Your line is open.

Hey, good afternoon. Can you hear me okay?

Yes, Matt.

So thanks so much for taking the questions. Congrats on a really strong quarter given the environment for lots of reasons. If you could maybe just give us a sense of what the – You know, what the tone of it sounds like robot purchases are accelerating here a little bit. Sort of what's the tone and the type of interest that you're getting in that channel? Anything you can tell us is how that's evolved, say, since the summertime and into here in October when it seems like things are picking up. And then I had one follow-up.

Yeah, thanks, Matt. I think – I would characterize it as strong, certainly strong interest. If you go back to our history with this technology, when we first bought it, it was a huge amount of skepticism. Most surgeons thought, I'll never use something like that. It started to grow where there was interest in sort of tire kickers and then the early adopters. And I feel like we're switching over. We're about on the verge where it's becoming, the question is, when am I going to adopt this in my practice? It's becoming much more mainstream and common. Not that people have done that yet, but the attitude of surgeons is well beyond the skepticism we saw early, and they're interested in understanding how it can benefit them and coming at it with that perspective. Pipeline is really strong right now, a lot of interest, and We really haven't experienced a ton of impact due to COVID in terms of closing them. So it's really encouraging.

That's great. And I guess the other is, and, you know, probably spent a fair amount of time talking about this, maybe this today, tonight, and the next week or so at least, is just what, if anything, in terms of, you know, the tone of procedures looks like, you know, things were encouraging from June to July and encouraging it to maybe August and September and then now we see what we see all over the news and folks are a little bit more concerned about the prospect of getting cases done or whatever might happen the next couple of months. Anything that you can call out as to what you're seeing or what maybe your surgeons are expecting over the next several months, maybe maybe even as it pertains to what we learned back in August, July and August, in some of the areas that were under some heightened pressure would be helpful.

Yeah, good question. I mean, our results in the third quarter really are reflective of the fact that we've seen rolling shutdowns of electives in various pockets throughout the country, even in Q3. San Antonio was down for a little bit. We do a lot of business in Charleston, South Carolina. Parts of that were shut down. They've come back on hearing reports like Flagstaff was down a couple weeks ago. So there are pockets. We're not seeing that massive across-the-board shutdown of electives, and they're coming back much quicker as well. So our business has actually grown in October. We had the best week in our history last week as a company in the U.S. So even in spite of these rolling shutdowns, the volumes out there are very strong, and I think – That coupled with the fact that we're growing as a company is produced through the results we continue to see even into last week and this week.

Well, congrats. This is pretty impressive. I'll stop there and get back in queue. Thanks.

Thanks, Matt.

Our next question comes from Shailen.

Thank you so much for taking the question. I'm wondering if you guys can give us a little more color on the on the growth rate you may be seeing in October. I know you mentioned that, you know, you're up with, you know, any incremental color there. And then, you know, I'm just curious if you can talk a little bit about the imaging platform. You were to make the submission in Q4, you know, with expected launch in Q121. I'm just wondering, you know, are you guys on track and should we expect a limited or a full launch once you commercialize?

Thanks, Stephen. No specifics on October. We're having a great month, to put it that way. As I talked to Matt about, we're seeing strong surgical volumes in the U.S. from an implant side, and clearly we had a good month when it comes to robots. In terms of the imaging system, yeah, we're on track. We're actually very happy with the final touches of the verification, validation activities, and the various tests that it has to pass. We're in the final throes of that where we expect to file with FDA in November, and then it's up to them, but we expect that we'd be able to launch this in Q1. I don't think you'll see much revenue impact in Q1, and as we ramp our production, even the first half of the year will be a little bit muted, but we think this could have a significant impact in the second half of next year.

That's helpful. And then if I could just squeeze in one additional question. Could you just discuss your initial thoughts on the corporate tax reform under a likely Biden administration? And, you know, what should we expect and how do you expect to offset the impact? Thank you.

Thanks, Jagan. I mean, at this point, I really have no comment on that. You know, our view is that if there is a change in corporate tax due to an administration change, it's going to affect the market as a whole. And we'll deal with that at the appropriate time.

Thank you.

Our next question comes from David Lewis with Morgan Stanley. Your line is open.

Good afternoon. Thanks for taking the question. Just a couple for me here. I guess the first maybe for Dave, for you, I mean, the U.S. traction the last quarter and this, again, this quarter is pretty substantial. I just wonder if you could give us some more granularity on what you think is driving that. I know we have COVID recovery, but it's pretty clear the momentum you built last year has sort of returned this year, and it does appear that you're taking shares. I sort of wondered if you could kind of flesh out new products, new rep acquisition, lower attrition, what has sort of accelerated what looks like a kind of a share capture situation these last six months for you? And then I had a couple of falls for Keith.

Sure, David. Well, you hit it, a couple of major factors. First of all, we've got some great product introductions this year. We're getting a lot of traction from our keys online, our 3D printed spacers. Sable is our I think it's our fourth generation of expandable T-lift device. That's been going extremely well. We saw Resonate, which is our new cervical plate, take off this quarter. Combine that with the growing base of robots out there. I mean, each one produces some pull-through, but as we've got this large installed base, you know, there's some momentum behind that. And then our recruiting and onboarding, and I separate that into two buckets, right? Recruiting is just getting the folks hired. Onboarding is the process that our folks go about, like, trying to convert that business. While the rep is on his non-compete, our folks around him have to do that. And then as they come off their non-competes, either at 12 months or 18 months, that's when we'll see a significant growth as well. So you're seeing the combination of all those things occurring here. and really being executed quite well by our U.S. sales team. So it's all of the above.

Okay. Very helpful. And then, Keith, I appreciate the margin commentary you gave us for next year. I wonder if you could just help us kind of underpin your confidence and sort of get into those margin numbers, which are materially up over 2019. Maybe you could help us. I mean, street consensus numbers clearly have you growing double digits to 21 over 19. Any granularity you can provide as to how we should be thinking about U.S. trends? Obviously, ex-U.S. probably going to be a little more sluggish. Any focus you can give us on top or bottom line for next year other than margins would be very, very helpful.

Thanks so much. Yeah, thanks for the question. I'll talk a little bit about margins. You know, we've talked before about Globus being in the 33 to 37 range for EBITDA. You know, this quarter we landed at 34.8%. I did call out that we had a little bit of a tailwind because of some travel and training in SG&A, but we did have a little bit of a headwind in COGS because of that higher inventory reserve. Assuming that we go into next year and have normal sales, or what I would say, sales not impacted by COVID, I'm pretty comfortable that we're going to be in that 33 to 37 range, but I would still caution that I don't want to give a specific number at this point. But as we land at this quarter, to me, points to a, you know, bright future as we move ahead. As I look, you know, up into gross margin, as we move ahead and continue to drive, you know, penetration in the U.S. market, the profitability on those U.S. sales will help drive, you know, incremental dollars dropping to the bottom line, which helps the overall story because you're going to get leverage on your fixed costs. But at the same time, you're going to see continued investment in depreciation or continued investment in debts, which is going to drive, additional depreciation expense. So as I look ahead, I still feel good about a mid-70s gross profit in a non-COVID environment or in sales that aren't impacted by COVID.

Our next question comes from Ryan Zimmerman with BTIG. Your line is open.

Hi. Thanks for taking our question. This is actually Max on to Ryan. Just wanted to go back to the pull-through aspect of robotic deployments. And In the past and today, you've talked about how, as the installed base grows, we should see pull-through grow kind of exponentially. Just wondering if you can provide some more detail around the efficiencies in pull-through you saw in the third quarter as a result of already having robotic systems in place. And then just kind of thinking, you know, moving ahead, you know, if you think about an exponential pull-through graph, say, is there a certain number of placements where you think pull-through takes off and If so, do you kind of have a good sense of when you could possibly hit that milestone?

Yeah, thanks, Matt. I'm probably not going to be able to help you out much on the analytics there. Just conceptually, as we sell a robot, they work much more efficiently. The cases go much better with our screws. So that right there creates some pull-through. We also have done deals where, you know, there's – an implant purchase component to the deal. So that is a built-in structural factor. And then long-term, as we see surgeons adopt the technology, the hope there and our strategic goal is to get their partners and the other folks operating in that hospital to utilize the robot as well and potentially pull their implant business over along with the surgeon champion who usually – there's usually one or two surgeons who champion the purchase of the robot, but there's oftentimes several surgeons operating in the hospital. So that's been our focus of late is to drive that adoption, make sure it's a good launch in terms of the folks that bought it, and that gives us the basis then to go after other surgeons. Don't really have any analytical or – numbers to share with you from that impact, but I can tell you that it's there and it's part of the reason for our growth.

Got it. Thank you. And then switching topics a little bit, I'm going to go back to Hedren and Sable again and just trying to get a sense of how much demand you weren't able to fill in the third quarter and whether or not you can provide any detail around what that potential impact would have been to the top line. And then You know, you have your increased manufacturing capacity come online in the fourth quarter. Will you be able to backfill any of these orders? I'm just trying to get a sense of whether or not we could see a bolus of revenue from these products in the fourth quarter and or early 2021.

Yeah, you're probably not going to see it in the fourth quarter. The capacity is coming online. in November and we really can't get products actually made and through the whole process and sterilized until late in the quarter. So I don't think you're going to see a big incremental impact from Q3 to Q4, but that should be in place next year. There really is no opportunity to backfill the orders. Those cases are done. Those surgeries have been performed and the patients are hopefully home and doing well. So we just have to focus on the future. give you some quantitative metrics. We're doubling our capacity, so we expect to double what we can sell as we go forward. And clearly, if we have more traction than that, we'll continue to add capacity as we see it. Got it. Thank you.

Our next question comes from Matthew O'Brien with Piper Stanley and Marnie Goldman.

Good afternoon, everyone. This is Patrick on from that. We really appreciate you taking the time and answering our questions. I wanted to look at robotics to start. You know, I found it really interesting. Last quarter, you kind of talked about the spectrum for capital. And it seems like a lot of the work, you know, you have a ton of surge in interest, which is really great. But you mentioned there's certain hospitals who they just don't have the time to speak with you because they're impacted by coronavirus. At the same time, you have hospitals who really want to differentiate themselves, get that excelsis in and take advantage of the situation. I'm just curious if you could kind of expand on the dynamics you're seeing in that marketplace right now. Are things shifting more towards hospitals wanting to differentiate themselves or some of those Customers, you know willing to talk to you any color there would be appreciated that I have a quick follow-up Sure Patrick.

We're gaining more access. I mean that that's really the message is in Q3 we were shut down from face-to-face interactions, which we We attempted to stay in front of folks as best we could virtually but that just wasn't that effective and in terms of really cementing their interest and getting them to go forward with executives to purchase the equipment. I think now that we're able to be in front of folks, as I mentioned to one of the earlier callers, the tone has changed a little bit towards how is this going to help my practice versus I don't need it. That skepticism that we saw in the early days, I think It's not only us, it's the fact that we have competition out there that are also extolling the benefits of robotic surgery. We have Stryker with Mako really driving the use of robotics in orthopedics. So I think that that general tone has really changed, and I think will continue to change as we get more and more systems out there. It's just going to become the way surgery is done, and at that point it's – The battle is who's got the best system and who can offer the most advantages. And I feel good about where we stand competitively.

Our next question comes from Richard . Your line is open.

Hi. Thanks for taking the questions and congrats on the quarter in a challenging environment. I'm not sure I heard correctly. I think you said that you're on track to grow on a total consolidated revenue basis for 2020. And if that's to say, especially since you said that you expect growth in enabling technologies in 4Q relative to last year, I'm just curious, would that imply the double-digit trend sustaining for total revenue growth in 4Q of this year? Is that The underlying assumption there that the U.S. continues at this mid to high team level or is there a pickup in international to kind of get there? I'm just curious what the embedded expectation is if you're going to continue to grow double digits and, in fact, potentially accelerate on a total revenue basis.

Hey, Rich, thanks. Just to clarify, we're on track in the U.S. to achieve year-to-date growth. The U.S. implants, actually, by the end of this week, the end of October, it's a goal to grow consolidated for the year. So I would not say that we're on track for that, but I think we have a really good shot at it. We really haven't sliced and diced where those components are coming from, but on an overall basis – we believe that that's achievable and we're certainly working hard to get there.

Okay. But based on the trend that you're saying is strengthening seemingly in October, there's nothing, you know, all else equal to suggest that, you know, you wouldn't at least be stable in that U.S. course buying business, if not better, on the implant side, you know, all else equal for the rest of the quarter, correct?

Our U.S. spine business is really strong right now. We have a great October. I haven't gone back and said what we did last October. So I don't have the growth numbers in my mind. But I can tell you sequentially and qualitatively we're having a really good month. So I'm expecting enabling to grow for the quarter given the strong start and the pipeline that we have. How it all shakes out into each piece, I'm not sure what those growth rates are.

Okay, that's helpful. And then just, you know, I think someone got at this in an earlier question. I just want to take your pulse a little bit, kind of the market improvement in the U.S. versus, you know, what you're doing better than others and share gains. You know, could you assess what you think the normalized kind of spine market growth rate is right now relative to your kind of 17% you're clearly taking shares? But what's, you know, how much did the market potentially just pick up from some of the backlog work down and maybe V-shaped recovery versus just purely global specific issues that are benefiting you?

Yeah, I really don't know where to draw that line. Both are occurring. We certainly saw a nice bounce back in procedures overall. So it will be interesting to see how the other folks report on that. But we're all – I know that we're taking market share. We just don't have the granularity in our systems to differentiate those two. So sorry that I can't be more helpful.

Okay. And actually, maybe one last one. Biologics, I think you called out Low Team's growth for that business. I know that had been a business that was pressured due to some, you know, product disruption issues in the past. What was the growth rate last quarter? And, you know, is that a good trajectory for that business going forward?

I don't know the growth rate last quarter. We didn't comment on it. We saw some things resolve this quarter. That's why we called it out. And, frankly, we have some more opportunities in front of us. So I'm hopeful 2021 will be even better as we resolve some of the outstanding issues.

Thank you.

Our next question comes from Matt Taylor with DBS. Your line is open.

Hi. Thank you for taking the question. So I guess I just wanted to focus again on the robotics pickup here. It's a little surprising, frankly, given the environment. Do you think any of the enhancements that you're working on are helping to separate you Competitors or do you think this is more of a demand for overall robotics?

I'd love to hear about how those enhancements could be playing into the Yeah, I do think the enhancements are helping us sell robots Not only enhancements, but just the longer we get out there I think it's established that our our programs are operating at a really high level. There's a lot of adoption surgeons are really seeing value in the technology and I'm not sure that's always true for our competition, so that's also a factor. I can't really speak to what the overall market's doing, but I know that as we get into head-to-head evaluations from a technology, usability, functionality standpoint, we consistently grade out as much better than the other alternatives.

Thanks. And I was hoping you could offer some thoughts on the outlook for your trauma business. I imagine it's harder to break into some hospitals when the environment's like, but you do have some momentum going now. Do you think that could continue up, and what are the gating factors for trauma to become a bigger part of your business?

Thanks. I appreciate the question. We did have record sales in Q3, and what's promising with that is over half of that growth came from new surgeons. While COVID is certainly taxing the VAT committees and allowing new products, and so long as found somewhat We're getting the right traction, the right approach. I think we all remain bullish on the investment and see growth coming out of trauma through the rest of this year and certainly into 2021. Again, certainly hindered by some of the COVID activity, but offset again by strong recruiting that still continues with us.

Great. Thank you, guys.

Our next question comes from Kyle Rose with Canaccord. Your line is open.

Great. Thank you for taking the questions. So I kind of want to stick on the robot theme here and maybe less what you've seen, I guess, year to date, but talk more about the future. So you've just recently launched the inner body module. You're going to submit the imaging platform at year end and launch that next year. I guess just help us understand what the addition of the imaging platform does from your enabling strategy. and then how we should think about the next steps of innovation across robotics.

Sure, Kyle. The imaging component really, if you think about computer-assisted spine surgery, you have two components. One would be just navigation, so freehand navigation, where you're using 3D images combined with navigation to track where you are in the case. And then robotics is the next evolution where you're using the robot to guide the instruments to do the procedure. We've been competing in the robotics space, clearly, but there's a strong installed base of pure navigators. You experience a lot of benefit from going from freehand to navigated. So we're really expanding our portfolio to be able to address that. the navigators, if you will, who are not ready to make the move into robotics. And that's a pretty substantial segment. So it just gives us one more tool to address that overall computer-assisted group. And I think as you look forward, I don't think we really unveiled it, much of what we're working on beyond imaging navigation. I think we've talked about the fact that we're working on a robot to help do total knee and then ultimately total hips. That will be probably the next thing on the horizon. And we do have a couple other projects, but we're not ready to unveil those just yet. We're focused more on the next steps, which will be the imaging system, the navigation that goes along with that, and then the cranial rollout.

Great. I appreciate that additional color there. And you talked, you know, the last couple quarters just about some of the encouraging metrics you're seeing from a utilization side and pull through on the robots. You also talked about, you know, focused more on utilization with the implant sales teams. Can you maybe talk about how that focus with the implant sales teams has evolved? over the course of the past several years, is just the fact that you've got enough systems in place that, you know, now you can have the implant guys call on it? Or is there something different about the sales process that you're seeing evolve?

So it's not the sales process so much. We still have a capital team that works together with our implant teams to follow through on the capital sale. It's really once that robot gets installed, we want the implant team to own the day-to-day operation of it. As they become experts in how that technology benefits surgeons and their patients, they become more effective in converting the surgeon, you know, It uses the robotic technology and the advantages that that brings to convert that surgeon over to using that robot, which means they're going to use our implants as well.

Great. That's very helpful. Thank you for taking the questions.

Our next question comes from Kayla Crum with Securities Securities. Your line is open.

Hi, guys. Thanks for taking our questions, and congrats on the quarter. So we're getting asked, I think, quite a bit about 2021, and just any guidelines or commentary you guys can provide going forward would be helpful. I mean, a lot of companies, I think, are looking at 2019 as sort of a baseline or normal year, and right now the street is modeling mid-teens growth off of that 2019 level for you guys in 2021. Is that sort of a reasonable place to be, or is there anything else we should be considering as we look into next year?

Thanks for the question. This is Keith. You know, as we think about 2021, I think it's really premature to be discussing where we think we're going to land. You know, we really want to get through this quarter. You know, some of the news that came out today regarding cases rising across Europe and concerns that it's going to come over to the U.S., I think given that, I would like to get through this next quarter thinking And as we get to 2021, if we're in a position to give guidance, give guidance at that point.

Great. Thanks. And then just a couple on the enabling tech business. I mean, it sounds to me like you guys are on track right now to deliver a record quarter in the robotics segment. So I guess I just want to understand sort of the durability of the momentum you're seeing in October. I mean, you know, could this be a $15 million to $20 million quarter for the enabling tech business? And then just a follow-up on the imaging system. I mean, it sounds like you guys are expecting to launch in the first quarter. Just would love to understand how you're thinking about the launch strategy and just compare, contrast it with what you saw when you launched Excelsius. Because I think, Dave, you made a good point that, you know, docs were super skeptical, I think, when you first launched the robot. So I think, you know, would love a little bit more clarity on both those items. Thank you.

Sure, Kayla. Well, we did $14 million in the fourth quarter last year, and we expect to be more than that. That's probably all I can share with you on where we expect to land this quarter. In terms of the imaging system, yeah, that's a much different launch than, you know, it was really evangelical sale when we got out there with Excelsior's GPS, but The imaging system is really targeted at an installed base of navigators. The robotics is really expanding the pie, if you will, for computer-assisted, where we're going after that installed base with the imaging system. So we'll be focused on big installations there and walking through with the surgeons the advantages that our technology has over what they're using today, which As we've been able to preview it a little bit and get some feedback from our design teams and some of the showings we've had at NASP, those advantages seem to be very compelling. There's a lot of excitement and a lot of anticipation of the launch.

Thank you.

Our next question comes from Jason Nitz with Northline Securities. The line is open.

Hi, thanks for taking the questions. First off, I don't know if it's possible to quantitate the COVID impact in the quarter. I mean, first off, was there any at all in the U.S.? And you did point out some in OUS, but I'd love to see how you guys quantitate that.

I'm not sure I understand when you say the COVID impact.

I'm just curious, if you look at procedure volumes and if you look at your accounts, Is there a way of kind of understanding what the range of potential COVID impact was this quarter?

Analytically, no. We don't have the ability to sort of differentiate between whether that was a patient that was supposed to be operated on in May or one that came in last week. But I can tell you anecdotally, we certainly got a bounce back. As we alluded to last quarter, you know, we started seeing a real uptick in COVID really June, and then that continued through the entire third quarter, which is kind of unusual from a seasonality standpoint. So clearly a lot of that activity was because of the bounce back from the second quarter. But I can say at the same time, I know from our recruiting and our new products, the information we gather on that, that we're getting new surgeons and new customers. So it's both. we don't have the ability to tell you which piece is growth and which is the market. So I think as the other folks report, as the bigger companies report, you guys will get a sense for that overall growth and how market shares have shifted.

Okay. That's helpful. And then, you know, on the recruiting side, I mean, that is a big driver or one of the pieces on your driving success here. Obviously, you continue at a record pace. I think you hinted in the last couple of quarters that it seems like where you pull from, which is the larger companies in general, there's a lot of excitement to come with Globus for a variety of reasons. I wonder, though, it sounds like the pace is continuing. Do you sense that your larger competitors are pulling back at all? And as I look across the landscape as well, do you have a sense of whether other companies are trying to step up recruiting efforts or actually pulling back, given the uncertainty?

No, I think everybody's recruiting. I think the advantage we have is the technology that we have, the inside technology, which we've been a leader in for 17 or 18 years, and now you couple that with our enabling platform, the success we've had in robotics, the imaging system coming. I think reps are just excited about selling new technology. It gives them the ability to grow, to grow their business, business and their income and their influence. So they want to come to a company that has great technology. So I don't think it's the fact that we recruit. I think it's just the tools we have to recruit with.

Okay, and then this last quick question. NAS was kind of online and not, you know, getting a lot of attention. Is there anything, any new product launches that you had during NAS that you think are worth highlighting that are, you know, likely to drive 2021?

No, I don't think we rolled anything out at NASS. So we're focused on those 3D printed cages that we alluded to earlier. The new cervical plate is doing really well, stable. We've got a couple more things we're trying to get out by the end of this year. But we're always, at any time, we have 20 or 30 projects in development in spine alone. So we've, over the years, established just a continuous pipeline of innovations.

Okay, great. Thank you very much.

Sure.

Our next question comes from Stephen with Oppenheimer. Your line is open.

Hey, guys. Thanks for taking our questions. We were just wondering if you could provide maybe some more color on what you're seeing in terms of patient flow today versus pre-COVID. Last quarter, I think you called out an average of about 85% of pre-COVID levels. Has that returned 100% at all during 3Q? And looking ahead, do you see the increasing shift of procedures to ASCs offsetting any downturns? Thanks.

Yeah, thanks, Steve. We gathered that information last quarter because we knew that was a significant question on folks' minds, and it's not part of our normal analytics, so we did not update it, so I really can't provide information. more color on it. I know our volumes continue to be strong, so I assume that means the clinic flow is adequate and potentially strong. And in terms, I think your second question was about ASCs. I didn't quite hear it all, so maybe you could repeat it.

Yeah, just wondering if the increasing shift of procedures to ASCs, could that potentially offset any future downturns if the virus continues have more of a resurgence in the fall-winter timeline?

Certainly, and we saw that the first time around. There was some shift into ASCs for the easier cases, but they can't really do the complex stuff in the ASCs. So if we have a big countrywide kind of shutdown that we saw in the past, we'll be impacted. As I spoke about earlier, what we're seeing now are these sporadic changes smaller, less duration kind of shutdowns, which have not impacted us to the extent that we saw, you know, back in the second quarter.

Okay, great. That's helpful. Just one quick follow-up on the progress in trauma. Any colors you can provide on how many reps you have in the field currently and any products in 2021 that we should be focused on?

This is Keith. I actually don't have any comment on that in terms of the number of reps. We're going to continue to recruit and add to our business as we move forward and, you know, continue to watch it grow sequentially and year over year.

Okay, great.

Thanks. Again, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from Matthew Bachman. Your line is open.

Good afternoon, everyone. Thanks for taking my questions. I just wanted to actually start on international, where it looks like you're back to roughly pre-COVID revenue levels. Can you help us think through how that business tracked back towards pre-COVID-like growth rates? And I appreciate that the resurgence of cases is a confounder, but beyond COVID, are there specific items you need to execute on to get you back to sustainable double-digit growth? Yeah.

Beyond COVID, we have to do the things that we've always done to be successful, which starts with technology, getting our best technology in front of surgeons, hiring reps, making sure we have a strong sales force and good representation. And then, as we've added in the last several years, is driving the enabling technology, which is, Frankly, been surprisingly strong. When we first got into this, I was concerned that the price tag would be prohibitive for some of the international markets, but we haven't really seen that. We've seen strong demand really around the world, and the placements have been really encouraging. We have approval in Japan now, which is our largest international market, and we're hopeful that we can get a system or two installed in the fourth quarter. Certainly a lot of interest there, and that will be a big opportunity for us moving forward.

I appreciate that. And then my last question, you were sort of asked this. I'm trying to ask it again. a little bit differently, just thinking through sort of the biggest gating factors left to tackle. And when I think about it, obviously, there are multiple elements here. It's portfolio, it's hiring, training, and set deployment. I'm sure there are others. But are there any one or two that, you know, as you look out of the next 12 months out of that list or others that you would have us think about as being sort of the most important and how we should think about them evolving, again, over the next, I mean, pick the timeframe, 12 months, 24 months?

Well, I think you picked most of the points, but we'll go with 12 months for now. Right now it's going to be about expanding the footprint through Feet on the Street. So recruiting and taking the existing pipeline that we have will be key. At the same time, gaining access and additional access into the accounts where we're in and getting more procedures with the sets we have. That will become the majority of growth and drivers for us in the first 12 months. The second 12 months, we're getting up to your 24-month question. It's going to be a continued expansion of the portfolio to where we can meaningfully displace existing competition with our full portfolio. That's where the second wave will come in while we can continue to expand feed on the street and gain access.

All right. Thanks so much. Appreciate it. And congratulations on the quarter.

Thank you.

With no further questions, I will now conclude the Globus Medical third quarter. 2020 earnings release conference call. Thank you all for joining us. You may now disconnect.