Globus Medical, Inc. Class A

Ladies and gentlemen, thank you for standing by, and welcome to the Globus Medical's fourth quarter and four-year 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker for today, Brian Kearns, Senior Vice President of Business Development and Investor Relations. Mr. Kearns, please go ahead.

Thank you, Tawanda, and thank you, everyone, for being with us today. Joining today's call from Globus Medical will be Dave Dembski, 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 2020 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 on 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 Dembski, our President and CEO.

Thank you, Brian, and good afternoon, everyone. We had a remarkable finish to a very challenging year. I'm really proud of the way our entire team performed in the face of unprecedented uncertainty and adversity in 2020. Revenue for the quarter was $233 million, an increase of 10% over 4Q19. This is our second consecutive record quarter, resulting in nearly $450 million in revenue in the second half of 2020. Revenue for the year was also a record $789 million, While the growth for the full year was a modest $4 million, it was a significant accomplishment considering the deep hole we were in at the end of May and the full year declines that most of our competitors experienced. Our fourth quarter performance was led by INR and U.S. Spine. Enabling Technologies continued to make a strong comeback from the Q2 low with $18 million in revenue for the quarter, up 30% over 4Q19 and double our 3Q20 results. U.S. Spine continued to take significant market share, growing by nearly 12% in Q4, even as COVID-related shutdowns became more pronounced as the quarter progressed. We estimate that COVID restrictions negatively impacted the U.S. Spine business by approximately $7 to $9 million in Q4, or roughly 5 percentage points of growth, which is consistent with the 17% growth we achieved in the third quarter. We also delivered record non-GAAP EPS of 58 cents in Q4, up 20% over 4Q19, as well as 36% in adjusted EBITDA. Similar to Q3, our profitability was somewhat inflated due to the issues unique to the pandemic, such as limited travel, the elimination of most cadaveric educational activities, and the conversion of industry conferences to virtual events. However, the results also reflect continued investments in iron-iron trauma, which resulted in a drag of 3 cents on non-GAAP EPS and nearly 5 percentage points on adjusted EBITDA. In other words, aside from INR and trauma, the rest of the business produced 61 cents in non-GAAP EPS and 41% in adjusted EBITDA in Q4. The U.S. spinal implant business grew by 12% for the quarter. New product launches, competitive recruiting, and implant pull-through from robotics continue to fuel market share gains in this segment. Table, Hedron, and Resonate all continue to see significant growth, as well as the resurgence in biologics, which grew by 30% in Q4. We are also seeing strong adoption of single-position lateral and prone lateral procedures, which are enhanced by the capabilities of Excelsius GPS. As I mentioned, COVID restrictions impacted Q4 growth of the U.S. spine business by about 5%. The impact got progressively worse as the quarter progressed and became even more pronounced in January, increasing to an approximately 15% to 18% drag. The impact is much less severe than it was last spring, and all signs point to some easing in February and significant improvement in March. Unless there is another uptake in hospitalizations, we expect the Q2 impact to be modest. Our international spinal implant business was down by 4% for the quarter. While most markets grew in the quarter, the overall results were dampened by countries experiencing upticks in COVID cases, namely India and the UK. Japan also experienced negative growth in Q4, partly due to COVID and partly due to issues specific to that market. Our business in Japan is primarily served by a direct sales force, with some regions covered by agents and distributors. We have decided that moving forward, we will be nearly 100% direct. During the fourth quarter, we completed the process of terminating the majority of these third-party contracts. We expect to face growth headwinds in Japan for the next year as we transition away from these entities. As discussed on previous calls, the legacy management team in Japan was replaced in 2019 with a team recruited and led by Steve Laniv, the former country manager for all of Medtronic Japan, as well as the former worldwide president of Medtronic Spine. I'm confident that Steve and his team will navigate this phase and put us in a much stronger position to ensure sustainable growth going forward. Trauma continues its strong performance, growing by over 130% in both Q4 and for the full year. We continue 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 $18 million in the quarter, eclipsing our all-time best quarter by over 25%. We not only delivered a great quarter, we exited the year with a very strong pipeline coming into Q1, traditionally a slow period in capital. While access to surgeons and executives continues to be a challenge, our team is constantly overcoming these challenges to drive interest and revenue. Our focus continues to be on enabling our customers to derive clinical and economic value from the capital equipment they purchase. We are not simply selling capital, nor are we using capital to drive implant sales. We are changing the way surgery is done. To that end, we are seeing steady improvements in the internal metrics we use to track the number of surgeons trained, robotic adoption, and self-sufficient sites. We believe these clinical achievements are beginning to build market acceptance and grow the overall market for robotics. We are in the final stages of testing our imaging system and anticipate filing with the FDA in the coming weeks. Excellent progress has been made in ramping up manufacturing and operations, and we anticipate a Q3 launch. There is very strong interest among surgeons in acquiring this technology. Globus is in the early stages of a technology transformation that will combine the capabilities of our enabling technology solutions with our innovative implant portfolio. We have reorganized our product development efforts around procedural solutions, teaming up engineers from the implant side with those from enabling technologies. We expect that this collaboration from the ground up will result in more impactful, seamlessly integrated solutions, accelerating the advancement of patient care. We believe Globus is in a unique position to capitalize on this convergence, given our nimble organization structure and strong track record of internal innovation in both implants and enabling technology. We finished the year strong with a lot of momentum going into 2021. Revenue in the second half of the year grew by 10%, led by U.S. Spine, which grew at a stellar 14%. In the second half of 2020, Globus produced nearly $450 million in revenue, $1.07 in non-GAAP EPS, 35.5% in adjusted EBITDA, and $102 million in free cash flow. I am extremely happy with the way our team executed during this difficult time to produce markedly better results than any of our peers. It's a testament to their grit, perseverance, and unrelenting focus on our customers and their patients. I will now turn the call over to Keith.